Legislature(2015 - 2016)SENATE FINANCE 532
02/12/2015 03:00 PM House LEGISLATIVE BUDGET & AUDIT
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Mwh Infrastructure Development, Inc. | |
| Presentation: Alaska Industrial Development and Export Authority | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
LEGISLATIVE BUDGET AND AUDIT COMMITTEE
February 12, 2015
3:04 p.m.
MEMBERS PRESENT
Representative Mike Hawker, Chair
Representative Kurt Olson
Representative Lance Pruitt
Representative Steve Thompson
Representative Sam Kito
Senator Anna MacKinnon, Vice Chair
Senator Cathy Giessel
Senator Bert Stedman
Senator Click Bishop
MEMBERS ABSENT
Representative Mark Neuman (alternate)
Senator Lyman Hoffman
Senator Pete Kelly (alternate)
OTHER LEGISLATORS PRESENT
Representative Mike Chenault
Representative Craig Johnson
COMMITTEE CALENDAR
PRESENTATION: MWH INFRASTRUCTURE DEVELOPMENT, INC.
PRESENTATION: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
RICK ADCOCK, Managing Director
MWH Infrastructure Development, Inc.
MWH Global
Broomfield, Colorado
POSITION STATEMENT: Testified during discussion of the Interior
Energy Project.
TED LEONARD, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint titled "Overview of
Interior Energy Project and Potential Purchase of Pentex Alaska
Natural Gas Company, LLC," during discussion of the Interior
Energy Project.
BOB SHEFCHIK, Development Officer
Interior Energy Project (IEP)
Alaska Industrial Development and Export Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the AIDEA
PowerPoint presentation on the Interior Energy Project.
NICK SZYMONIAK, Development Officer
Energy Infrastructure
Alaska Industrial Development and Export Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the overview
presentation by AIDEA.
ACTION NARRATIVE
3:04:04 PM
CHAIR MIKE HAWKER called the Legislative Budget and Audit
Committee meeting to order at 3:04 p.m. Representatives Hawker,
Pruitt, Thompson, Olson, and Kito and Senators MacKinnon,
Giessel, Bishop, and Stedman were present at the call to order.
Also in attendance were Representatives Chenault and Johnson.
^PRESENTATION: MWH Infrastructure Development, Inc.
PRESENTATION: MWH Infrastructure Development, Inc.
3:05:18 PM
CHAIR HAWKER announced that the first order of business would be
a presentation by MWH Infrastructure Development, Inc. He
relayed that the hearing was being conducted under the statutory
authority granted the Legislative Budget and Audit Committee to
review the expenditure of state funds, and the relationship
between state agency program accomplishments and the legislative
intent. He spoke about the challenges to reduce the costs of
energy to Interior Alaska, specifically through the Interior
Energy Project. He reported that, in December, 2014, a
legislatively approved project had been discontinued and was no
longer being pursued. He explained that this hearing was to
review the facts and circumstances surrounding this decision,
and to discuss future direction with legislative desire and
intent to facilitate interior energy cost relief. He reiterated
that the committee would honor the commitment to Interior Alaska
to focus a major legislative effort on energy cost relief. He
referenced Senate Bill 23, which had included the merger of
components of legislation and provided authority to the Alaska
Industrial Development and Export Authority (AIDEA) to commence
work on a gas trucking operation relying on North Slope natural
gas for distribution in Fairbanks. He reported that this
legislation had provided authority for $275 million in support,
comprised of bonding for $150 million and potential cash
assistance for another $125 million. He noted that Senate Bill
18, the capital budget, had also appropriated $57.5 million to
AIDEA to facilitate progress on these investments. He stated
that this committee meeting would discuss "what happened to the
old plan" and would then discuss the origins and direction for a
new plan.
3:10:07 PM
RICK ADCOCK, Managing Director, MWH Infrastructure Development,
Inc., MWH Global, read from a prepared statement [Included in
members' packets]:
Mr. Chairman, Members of the Committee, thank you for
the invitation to speak to you today.
My name is Rick Adcock, and I am Managing Director of
MWH Infrastructure Development, Inc. MWH Global, our
parent company, is a global engineering and
construction firm. We have served Alaska for over 35
years, and our Anchorage office has 30 employees
working on infrastructure and other projects
throughout the State. Just over one year ago, AIDEA
selected MWH as the Concessionaire to the Interior
Energy Project (IEP), to develop and bring private
financing to the Northern Gas Supply Plant (NGSP)
project.
The State's investment in the IEP, through AIDEA, was
intended to attract private-sector partners to finance
and develop the supply and delivery of liquefied
natural gas (LNG) from the North Slope to Interior
Alaska. The expectation was that the State funds
would be supplemented by private capital, and that the
private sector would execute and operate the NGSP
project on the North Slope.
Over the course of last year, we made significant
progress toward the goal of delivering gas to the
Interior in 2016. I will summarize our
accomplishments in the next 15 minutes, but what you
will hear is that: There is a large gas supply under
contract and available to the project through GVEA,
which can meet all expected long-term demand from the
Fairbanks utilities, and which has significant
additional capacity to meet new demand from other
Interior communities, mines, the military, and other
future Interior economic development activities.
3:12:01 PM
MR. ADCOCK continued with his presentation:
A highly-qualified, private-sector team was assembled
to develop, finance, build, and operate the NGSP, in
order to utilize that gas supply to produce LNG for
delivery to Fairbanks.
Other elements of the supply chain were under
development in parallel, and most of the commercial
contracts required for the overall project were either
executed, or in advanced stages of development.
The project is real and viable. MWH remains committed
to this project and we are ready to pick up where we
left off.
As of mid-December, we had assembled the pieces to
meet the goal of delivering gas to Fairbanks in 2016.
In addition to a signed Concession Agreement with
AIDEA, we had achieved a joint venture to utilize
GVEA's long-term gas supply agreement; an EPC
contract; an operating and maintenance agreement;
initial commitments, pending final due diligence, for
over $100 million of capital from institutional
infrastructure fund managers; and nearly final terms
for off-take agreements with GVEA and FNG.
3:13:13 PM
CHAIR HAWKER asked for a description of the EPC contract.
MR. ADCOCK explained that this was an engineering, procurement,
and construction contract, which included design and
construction of the plant.
3:13:38 PM
MR. ADCOCK stated:
Despite the progress on the project, it became clear
that we would need an extension of the December 30,
2014 deadline for financial closing, in order to
complete documentation on these arrangements and to
allow our funding partners to complete their due
diligence. An extension to March 31, 2015 would have
been adequate for these purposes, and the extension
would not have delayed first gas to Fairbanks in 2016.
On December 22, 2014, AIDEA informed us by letter that
they were not prepared to extend the financial closing
deadline under the Concession Agreement unless MWH
agreed to certain new terms under that agreement. MWH
and AIDEA did not reach agreement on these changes and
the CA was terminated in January 5, 2015.
Now, I will turn to summarizing our private-sector
approach over the last year to deliver the project on
a schedule and at a cost aligned with the goals of the
IEP.
3:14:31 PM
MR. ADCOCK reported:
The IEP was originally conceived of as a public-
private partnership, or P3. In the P3 model, a single
private entity is responsible for bringing together a
team to provide the services needed to design,
construct, finance, and operate a project. The public
sponsor may retain certain traditional government
functions like dealing with regulators, but the
general purpose of a P3 is to enable the public sector
to harness the expertise, resources, and efficiencies
that the private sector can bring to the financing and
delivery of projects like the IEP.
A key feature of any P3 project is the transfer of
much of the risk generally taken by the public sector,
over to the private entity. This is often
accomplished through a concession that grants the
private entity the right to perform what is typically
a government function for a specified period.
On September 19, 2014, after seven months of
negotiations, AIDEA and Northern Lights Energy, LLC
(NLE), a subsidiary of MWH, entered into a Concession
Agreement, which granted NLE the exclusive right to
develop the NGSP project. The Concession Agreement
did not, however, confer ownership of the project to
NLE. Rather, it allowed for the exclusive use of the
assets for 30 years, after which time the assets would
revert to AIDEA control. Under the Concession
Agreement, NLE agreed to contract for the design and
construction of the plant, the operation and
maintenance of the plant, and to source the private
financing for the project.
The Concession Agreement was very prescriptive in how
the private financing could be structured. Even
though the project required well over $100,000,000 in
private capital, the Concession Agreement capped the
amount of equity that could be invested at
$50,000,000, thereby creating the need for additional
private debt. Moreover, equity returns were capped at
12.5% and, in the event this cap was exceeded, some of
those additional returns would be used to lower the
price of gas to the utilities.
3:16:42 PM
MR. ADCOCK explained that any profits over 12.5 percent would be
used to rebate the utilities to lower the tariffs paid by
customers. He continued:
In addition to the capped upside on its equity
participation, NLE was required to bear considerable
risk under the Concession Agreement. If the cost to
construct the project exceeded the available overrun
reserves, NLE would be required to pay the additional
costs associated with completing the project. Also,
all technical and financial risks of operation were to
be borne by NLE.
Although the Concession Agreement granted NLE certain
exclusive rights, it was not a monopoly. Alternative
gas supplies, hydropower, and other competitive
pressures would have constantly put NLE returns at
risk. NLE also took financing risk because it would
bear any increase in interest rates or insurance
premiums. Finally, NLE assumed the credit risk of
off-takers -- AIDEA did not backstop off-taker default
risk, and the SETS subordination provided only limited
protection.
So, NLE was willing to take a significant amount of
risk that would normally be borne by AIDEA in a
traditional procurement, including completion risk,
financing risk, operations risk, competition risk, and
credit risk. However, the project was not without
some risk to AIDEA, including the risk of a State-
sponsored alternative gas supply, the risk of
repayment of the SETs funds by subordinating them to
the equity, permitting risks, and site risks.
In delivering the project, MWH assembled a committed
team of more than 40 professionals to execute the IEP,
including partners and consultants who are recognized
experts in the commercial, legal, financial, and
technical aspects of the project. In order to
facilitate decision making, throughout the project we
worked very closely with AIDEA management, staff, and
technical advisors by coordinating and collaborating
on project activities on a daily basis.
Developing a successful project required clarity
around, and confidence in, the cost of a safe,
efficient, and well-constructed North Slope plant.
The EPC contractor activities associated with
developing a cost estimate are typically a closed-door
process performed in support of competitive or lump-
sum bid proposals, but MWH and AIDEA requested an
open-book approach by our contractor.
3:19:14 PM
MR. ADCOCK relayed:
In a demonstration of commitment to the project, our
contractor accepted this higher level of scrutiny on
their estimating process, opening their doors to
AIDEA, MWH, and their corresponding technical teams.
During the period from June through December 2014, the
EPC contractor worked diligently with MWH and AIDEA
staff to define and refine the project. The
construction cost estimate and plant configuration
process included working sessions to evaluate scope,
demand, project assumptions, technical needs,
logistics, detailed equipment specifications, and
costs. From the onset of the project, the EPC
contractor hosted weekly coordination calls and
working sessions, which included participants from
AIDEA and their technical advisors, MWH and their
technical advisors, operations specialists, and third-
party estimate reviewers.
At the conclusion of this effort, MWH had confidence
in the configuration of the project and pad, and in
the cost estimate that was developed. The estimating
process was reviewed by a third-party entity with 30
years of experience estimating oil and gas projects on
the North Slope. Their summary report of findings
indicated that the estimate basis utilized by our EPC
contractor was sound.
The development of the project site on the North Slope
was included as a scope of work to be executed by the
EPC contractor under a cost-reimbursable contract to
AIDEA. The contractor completed pre-work on the North
Slope pad in September 2014. All permits necessary to
support the pad construction were obtained by AIDEA.
Engaging, informing, and securing commitment from the
key Fairbanks off-takers was another critical step in
developing the project. Throughout 2014, MWH met
regularly with the three Fairbanks utilities: FNG,
IGU, and GVEA. The Concession Agreement identified
those utilities as Preferred Customers, and granted
priority of supply in accordance with North Slope LNG
availability. Frequently, MWH scheduled meetings in
Fairbanks to apprise the utilities of our progress,
solicit input on the project, discuss off-take
contract structures, review demand curves, and
generally assess the developing IEP supply chain. The
project required ongoing participation and
contributions from the utilities.
3:21:38 PM
MR. ADCOCK explained that:
MWH established a collaborative environment where all
could engage constructively, even though the utilities
have very different business models.
MWH developed a real project. There was, and is, a
deep understanding of the site, the plant, the market,
and the costs. We have a project that can deliver
natural gas from the North Slope at a competitive
price, significantly reducing the cost of energy in
the Interior.
MWH and GVEA were partners in the development of the
North Slope LNG project. The terms of our joint
venture agreement provided for (1) making natural gas
for the NGSP available through GVEA's existing gas
supply agreement with a North Slope producer, and (2)
ongoing marketing of gas to the Interior utilities on
a preferred basis, as well as to other Interior users.
The existing gas supply agreement originally allowed
GVEA to serve as the aggregator of Interior natural
gas demand. The contract contains numerous attractive
terms for a utility gas supply, including the contract
length, an attractive raw gas price, the security that
comes from an abundant supply of natural gas,
proximity of gas infrastructure to the LNG plant, and
a large volume available for purchase to meet future
Interior energy demand. The contract is a logical and
compelling natural gas source for the Interior Energy
Project, because it is a secure and adequate gas
supply to cover the requirements of the initial
project, as well as several plant expansions, at an
attractive price. GVEA had stated its willingness to
provide gas to the utilities with no markup, other
than to cover general administrative costs, and the
cost of obtaining the original gas contract. These
costs would amount to a few pennies per Mcf in the
delivered price of gas.
As part of our development efforts, MWH met with many
other potential off-takers, including industrial
entities, mining companies, institutions, and military
bases. Most expressed sincere interest in seeing the
project successfully completed, so that they would
have the fuel option of natural gas in Interior
Alaska. Preliminary findings suggest a longer-term
market for natural gas that far exceeds the supply
provided by the initial 6 Bcf plant production
capacity.
3:23:50 PM
MR. ADCOCK mentioned that Bcf was billion cubic feet, and
continued with his presentation:
The NGSP would not only provide energy to these
consumers, but the Concession Agreement required that
a percentage of the profits from these non-utility
sales be used to reduce the cost of LNG sold to the
preferred utilities: IGU, FNG, and GVEA.
By mid-December 2014, our team had a high degree of
LNG cost certainty. We had advanced the NGSP from a
study-level concept and cost estimate, well into the
design phase with site plans, process &
instrumentation diagrams, and bid quotations on major
pieces of equipment. These, in turn, led to a cost
estimate and firm construction schedule by the EPC
contractor. The team had achieved substantial
agreement on the terms and conditions of a guaranteed
maximum-price EPC contract.
NLE awarded an operations and maintenance contract for
the NGSP, and executed the joint development agreement
with our investor partner to provide over $100 million
of private investment capital for the NGSP.
After several months of discussions, our team
confirmed LNG demand estimates with the Fairbanks
utilities. We had agreement, in principle, subject to
board approval, for an off-take agreement with GVEA
and, with similar conditions, for an agreement with
FNG that met its forecast demand.
MWH worked in close collaboration with GVEA, FNG, and
IGU to analyze and assess storage and trucking costs
in an effort to reduce uncertainty around other supply
chain costs. AIDEA's proposal to provide $10M in
grant funding to a utility trucking consortium helped
to lower those costs further.
As a result of this effort by our team and partners,
NLE was able to offer agreements to the three
Fairbanks utilities to supply LNG, delivered to
Fairbanks, at a preliminary price in the range of $13
per Mcf. Though some areas of cost uncertainty
remained, NLE was confident in the numbers presented.
3:26:04 PM
MR. ADCOCK concluded by stating:
We continue to maintain our interest in moving forward
with our work on the IEP, and we have indicated this
to AIDEA on several occasions. We believe that the
work performed over the last year demonstrates that
LNG can be delivered from the North Slope at a price
that can address the Interior's economic challenges
resulting from the high cost of energy.
Natural gas resources on the North Slope can be
procured at prices that are well below the reported
prices available from other sources. The total amount
of gas available through the existing North Slope
contract that would supply the NGSP is more than
adequate to meet the Interior's energy needs for years
to come. Interior utility customers, as well as
industrial users, would have long-term access to
affordable LNG, in quantities sufficient to support
investments in the Interior's economic growth. And,
the region's air quality would benefit greatly from
substitution of natural gas for the fuels that are
currently used.
At this point, the North Slope option for supplying
LNG to the Interior has been thoroughly assessed.
Once the Administration and the Legislature
investigate the other alternatives just as thoroughly,
if the North Slope option is found to be the best
option for delivering affordable energy to the
Interior, then the private-sector team led by MWH
stands ready to revive the project.
3:27:24 PM
MR. ADCOCK added that MWH understood that energy cost and
availability was "really about Alaskans, their communities, and
their future." He declared support for working together with
the government, local communities and the private sector for the
best possible solution for energy costs. He noted that, with
the Interior Energy Project (IEP), MWH had taken on the
responsibility to address this problem, and, although no
solution was simple, there were several proposed viable
solutions advanced for North Slope gas. He emphasized that MWH
believed there were compelling reasons to consider the North
Slope LNG project, and that MWH recognized that the community
needed a solution which worked technically, financially,
economically, and politically. He expressed understanding for
the desire to consider alternatives. He offered that MWH would
like to continue to contribute private sector capabilities in a
constructive, collaborative, and professional manner.
3:28:36 PM
CHAIR HAWKER asked to clarify the benchmarks for discussion of
the cost for gas delivery, whether it was cost to the consumer,
"the burner tip," or cost to the utility, "the city gate." He
asked for clarification to the aforementioned preliminary price
delivery to Fairbanks of $13 per Mcf.
MR. ADCOCK explained that this price was city gate.
CHAIR HAWKER asked if Mr. Adcock could share how much MWH had
currently invested in the project.
MR. ADCOCK replied that the MWH investment was close to $3
million.
3:29:57 PM
MR. ADCOCK directed attention to slide 1, "Model View of NGSP,"
which depicted the plant model designed by its contractor. He
explained that it was designed as a 6 Bcf plant. He moved on to
slide 2, "Plant Siting with Future Expansion Considerations,"
and noted that the proposed plant could be expanded to 12 Bcf as
demand grew, while allowing the first 6 Bcf to continue
operation during expansion. Directing attention to slide 3,
"Constructed Gravel Pad," he noted that this was the North Slope
pad constructed during the previous summer, as well as a gas
supply plant where the tie-in for the gas arriving from the
North Slope would occur.
CHAIR HAWKER asked who owned the depicted pad.
MR. ADCOCK replied that the State of Alaska owned the pad.
CHAIR HAWKER asked how much the state had invested in the pad.
MR. ADCOCK offered his belief that it was several million
dollars.
3:31:09 PM
MR. ADCOCK concluded with slide 4, "Component Costs of the IEP
Supply Chain," noting that MWH had put together a very
sophisticated financial model which was refined daily to model
the entire supply chain. This slide showed the probabilities of
outcomes given the uncertainties in the supply chain, which
included the gas itself subject to energy market changes, the
liquefaction in the plant, property tax on the North Slope, and
the possible costs of the trucking component. He explained
that, as these variables were stacked together, the projected
cost during the past December, was $12.50 - $13.50 per Mcf.
3:32:13 PM
CHAIR HAWKER asked whether MWH felt that the project was
economically viable, if they would have been willing to continue
with the project, and the reason Mr. Adcock had been given for
the termination of the project.
3:32:52 PM
MR. ADCOCK offered his understanding that the project was
terminated because there was not community or political
alignment behind the project. He stated that, although MWH did
consider this an economically viable project, the politics were
not there to close it. He declared that MWH was willing to
continue to work on the project; however, the terms required by
AIDEA to extend the concession agreement would have made it
financially impractical for MWH to continue.
CHAIR HAWKER pointed out that these documents were available on
BASIS.
3:34:00 PM
SENATOR MACKINNON highlighted that, in a P3 environment, private
partners were sought for capitalization to some of the
investment. She directed attention to comments by Mr. Adcock
for a required investment range of $50 - $100 million with an
interest rate of return capped at 12.5 percent. She offered her
belief that this rate of return may have been reviewed
politically, and determined that there were better deals
elsewhere.
MR. ADCOCK, in response, explained that the capital structure of
the project brought the Alaska Industrial Development and Export
Authority (AIDEA) grant funding at a 0 - 3 percent interest
rate, as well as private equity and private debt. He stated
that, as AIDEA had allowed 12.5 percent return on the equity
component of the capital, this was the return that MWH
requested. As the debt component was in addition to this, he
offered an example for the need to raise $120 million of private
capital, which would have required $50 million in equity and $70
million in debt. He noted that the debt would "come in at a
lower rate" and that the lenders were the last financial entity
to enter the picture as it was necessary for them to review the
entire project and its contracts in order to perform due
diligence. He shared that, although MWH had spoken to many
lenders, they had not yet finalized terms, which would have been
at a much lower rate than the equity capital. He pointed out
that this equity was typically at a higher rate of return, as it
was "the first line of fire, if there's any losses, equity's
gone." He shared that, with a weighted average cost of capital,
the capital cost would be significantly lower for a project,
especially if the AIDEA capital was blended in. He emphasized
that the public policy goal by the state was to make the project
happen, with rates to consumers that were lower than if the
project had been totally financed by the private sector. He
pointed out that blending in the public sector component of the
capital allowed a lower weighted average cost of capital, which
directly translated to lower consumer rates.
3:36:56 PM
The committee took a brief at-ease.
^PRESENTATION: Alaska Industrial Development and Export
Authority
PRESENTATION: Alaska Industrial Development and Export Authority
3:38:12 PM
CHAIR HAWKER announced that the next order of business would be
a presentation by the Alaska Industrial Development and Export
Authority (AIDEA) regarding the Interior Energy Project (IEP).
CHAIR HAWKER, noting that there had been a transition in the
project during December for a new conceptual direction, asked if
the decision process at AIDEA could be segued into the
presentation.
3:41:03 PM
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), Department of Commerce, Community
& Economic Development, Presented a PowerPoint titled "Overview
of Interior Energy Project and Potential Purchase of Pentex
Alaska Natural Gas Company, LLC." [Included in members'
packets]. In response to Chair Hawker, he relayed that AIDEA
was still in contact with MWH Infrastructure Development, Inc.
and that AIDEA was still looking for a North Slope solution.
Based on cost, changing conditions, and associated risk, AIDEA
was still working to review all sources of gas and to provide
the lowest cost of energy to Fairbanks.
CHAIR HAWKER directed attention to the written answers submitted
by AIDEA [Included in members' packets.] He declared that his
desire was to have a clear record for the points of difference
between community expectations and the partnership between MWH
and AIDEA, and the specific data point which brought about the
change of direction.
MR. LEONARD moved on to slide 2, "IEP Goals," declaring that the
goal was to supply natural gas to as many customers as possible
in Interior Alaska, as soon as possible, and at the lowest cost
possible. He relayed that AIDEA understood that the North Slope
facility, and any other investments for LNG capacity, would be
complementary to the natural gas pipeline. He acknowledged that
the State of Alaska was looking at a project to replace this
current project. He pointed to another goal for lower PM2.5 in
nonattainment areas of the Interior, such as the North Pole. He
stated that the IEP goals and the targeted community expectation
was $15 per Mcf delivered to the burner tip.
CHAIR HAWKER relayed that the earlier testimony by MWH had been
for a price of $13 per Mcf delivered to the city gate. He asked
for a comparison of this to the burner tip price expectations.
MR. LEONARD replied that this was a moving target. He referred
to earlier presentations two years prior for the feasibility
cost, with a distribution cost of approximately $4 [per Mcf].
He stated that this estimate had changed.
CHAIR HAWKER summarized that the community was expecting no more
than $11 [to the city gate] and that this $2 differential was
what changed the direction of the program.
3:45:57 PM
BOB SHEFCHIK, Development Officer, Interior Energy Project
(IEP), Alaska Industrial Development and Export Authority,
Department of Commerce, Community & Economic Development, said
that, although he was newly the IEP team leader, he had worked
with interior gas utilities for the past 2.5 years and
consequently had some background for expectations and the
potential price for delivery to the city gate. He shared that
there had been similar presentations for the range of pricing
during the process, with a price ranging from $13.42 up into the
$14.00s. He expressed disagreement with that portion of the
presentation by Mr. Adcock for the cost and risk to the
utilities.
3:47:12 PM
CHAIR HAWKER suggested that a reason for the termination of the
project was that the meter price did not meet the community
goals, and he asked the goal expectations.
MR. SHEFCHIK replied "you bet I can. The expectation was
pricing in the range of $15 per thousand cubic feet [Mcf]
delivered to the home, to the meter, the burner."
CHAIR HAWKER asked if this translated to roughly $11 [to the
city gate].
MR. SHEFCHIK replied that this was not a direct linear question,
as the higher the cost of the North Slope plant and the more low
cost money used to fund that plant, it was then necessary to use
more high cost money for distribution and storage. He pointed
out that as the cost of the plant would grow, the cost of
distribution would increase. He offered an example that the use
of the low cost money approved by the legislature for building
the plant meant that the cost of money was higher for building
the distribution system. This would result in higher
distribution costs, which were in addition to the already higher
cost of gas. He noted that a review of the entire supply chain
had revealed an increase of distribution cost due to the higher
cost of that money, hence an increase to the storage cost,
resulting in cost to the burner tip of $20.50 - $22.00.
CHAIR HAWKER asked for clarification that the cost reflected a
division of the funding in the state subsidy for the project.
MR. SHEFCHIK expressed his agreement. He said that, in January,
2014, there had been a projected cost of $170 million for a 6
Bcf (billion cubic feet) plant; then, when the plant cost was
significantly higher, additional money was necessary, which
subsequently increased the cost of money for distribution.
3:50:02 PM
SENATOR MACKINNON asked about the changing criteria referenced
by MWH when there was a request for an extension of the
contract.
MR. LEONARD, in response, said that there were several
requirements necessary, in order to move forward with the
contract extension. The main requirement had been for MWH to
waive exclusivity of the contract, thereby allowing the state to
talk with other parties for alternative sources. He said that
the original concession agreement was based on a North Slope
facility which AIDEA and MWH would work on exclusively, while
AIDEA was not allowed to talk with others about the development
of other sources of gas for Fairbanks. This agreement would
have given MWH the exclusive market for gas delivery into
Fairbanks. He reported that exclusivity needed to be waived in
order for AIDEA to take the step to look at alternative sources.
He added that other requirements were desired by the attorneys
to ensure there would not be any other pitfalls in the
concession agreement. He relayed that the AIDEA attorneys and
financial advisors believed that a review of the other
alternatives and discussion of financing could not be done under
the existing concession agreement.
3:52:42 PM
SENATOR MACKINNON directed attention to page 4 of the prepared
remarks by Mr. Adcock, and read: "Although the Concession
Agreement granted NLE certain exclusive rights, it was not a
monopoly. Alternative gas supplies, hydropower, and other
competitive pressures would have constantly put NLE returns at
risk." She asked if he was referring to this.
MR. LEONARD replied that, in actuality, the alternative gas
written into the concession agreement was the natural gas
pipeline. In the contract, it was specifically stated that
AIDEA would only work with MWH to bring gas to Fairbanks.
CHAIR HAWKER, asking about the aforementioned $280 million
facility cost on the North Slope, offered his belief that it was
$220 - $230 million.
MR. SHEFCHIK replied that the facility had a $228 million target
price, with a $20 million do not exceed. Along with this total
of $248 million, there was capitalized interest, operations
during construction, and confidential fees to MWH and other
parties, which had resulted in the aforementioned $280 million
total capitalized costs for the plant. He pointed out that this
had "choked the community reaction on a plant that had come in
in pre-FEED estimates of $170 million."
CHAIR HAWKER offered his belief that a very excessive number was
used, as opposed to the EPC (engineering, procurement, and
construction) estimate of $228 million that had been validated
by knowledgeable North Slope construction experts. He
acknowledged that "there is no knowable answer here. It is some
place between $228 and $280, depending where the thing lands."
MR. SHEFCHIK expressed his disagreement, stating that the price
could be about $20 million less than $280 million, but he
emphasized that the price would not be between $228 million and
$280 million. He declared that the only unknown was "the not to
exceed price."
CHAIR HAWKER offered his belief that Mr. Shefchik was mis-
interpreting his comment. He opined that this had been a viable
project, but asked if there had not been enough subsidy from the
state to reach the community's economic goals. He suggested
that AIDEA could have come back to the legislature and asked for
more support, instead of cancelling the project.
MR. LEONARD opined that, although asking for more funding from
the legislature was an alternative, AIDEA wanted to first look
at other alternative sources.
3:57:45 PM
MR. LEONARD returned attention to the PowerPoint, slide 3,
"Focus on Full Supply Chain." He stated that the IEP project
was not solely concentrating on plant construction and
distribution, but was instead focusing on the full supply chain,
from gas supply, to plant, to transportation, to storage, to
distribution, and to conversion to utilize the increased
distribution for the LNG. He declared that AIDEA needed to
"take a pause" and review ways to reduce the cost of
distribution and lower the price to city gate. He reiterated
that there was an AIDEA team looking at all sources, in order to
quickly move the project forward to meet the goals of the IEP.
CHAIR HAWKER, acknowledging that the project focus had changed
to the full supply chain, reported that testimony indicated that
the state had not put forward enough financial subsidy to reduce
the prices to meet the community expectations. He asked if the
current list indicated that AIDEA and the state were now looking
at direct involvement for subsidizing each and all of the supply
chain elements.
MR. LEONARD explained that the discussion for financing to the
original IEP had always included research for ways to invest in
all the aspects of the supply chain. He noted that review of
the supply chain during the project had identified ways to
better optimize through investment. He offered his belief that
the presentation would clarify the elements necessary to make
the project move forward. He stated that it was necessary to
focus on some identified areas to bring down the costs.
4:02:07 PM
CHAIR HAWKER asked how AIDEA intended to achieve that. He
questioned whether it was necessary for the state to be in
competition with the private sector, in order to use the lower
costs from state capital, or whether the state should encourage
private sector development.
MR. LEONARD, in response to Chair Hawker, said that he would
discuss this, as he moved on to slide 4, "Work Performed Under
the Concession Agreement." He relayed that, under the
concession agreement, MWH was the project developer. As the
parties worked toward financial closure, there were still
several items necessary for completion. He listed that it was
necessary for AIDEA to agree to the project costs and the
commercial terms, that MWH would provide the construction and
operating agreements, that MWH would negotiate and secure LNG
supply agreements with the utilities, and that a financial
model, with an agreed upon LNG price, would be developed to meet
the financial needs of the community. He offered his belief
that, as AIDEA was performing its due diligence, the capital
costs were much higher than the projected costs, slide 5
"Termination of the Concession Agreement." He reiterated that
the project would have required more capital from the private
sector and from the state. He shared that, as there were many
moving targets, the cost rose to $13 - $14 to city gate, and
with additional distribution costs based on the utilization of
the capital, this brought the cost to $19 - $20 [to the burner
tip].
CHAIR HAWKER asked whether or not the utilities would commit to
purchase gas based on the model prices, and if not, at what
price would the utilities have committed to purchase gas.
MR. SHEFCHIK, in response, explained that during negotiations
with Golden Valley Electric Association, Inc. (GVEA), Fairbanks
Natural Gas, LLC (FNG), Interior Gas Utility (IGU), and Northern
Lights Energy (NLE), specific issues for each of the utilities
had been discussed. He reported that throughout the
discussions, the price would change based on assumptions, with a
range of $13.42 to more than $14.00 at city gate. He offered
his belief that GVEA would have accepted a higher dollar, as
distribution was not necessary. He relayed that IGU and FNG had
concerns, and he opined that it would have been necessary for
the price to be $10 - $11 for IGU, or for distribution financing
to be available to drop that cost from $5.50 to $3.50. He
stated that the utilities would have signed up for a price of
$11 - $12 to the city gate. He offered his belief that there
was willingness for $11 and under, uncertainty between $11 -
$12, and much more difficulty for agreement above $12.
CHAIR HAWKER asked for the current actual cost of gas to the
city gate, to use as a benchmark in comparison with the target
numbers.
MR. SHEFCHIK replied that it was unclear, as FNG was a combined
supply chain which separated out its utilities; as the supply
plant was owned by Titan Energy LNG, LLC and the distribution
was owned by FNG, FNG charged themselves $15.02 to the city
gate.
CHAIR HAWKER acknowledged that there were transfer pricing
issues, and he asked for current retail burner tip prices.
REPRESENTATIVE THOMPSON relayed that he was currently paying
$23.35 per mcf (thousand cubic feet).
MR. LEONARD said that the facility charges ranged from $23.44 to
$24.00.
CHAIR HAWKER commended the persuasive arguments presented
earlier by Representative Thompson for the need to lower utility
prices.
4:10:03 PM
SENATOR STEDMAN asked for a conversion from Mcf to kilowatt
hours (kWh) for electricity.
4:10:38 PM
NICK SZYMONIAK, Development Officer, Energy Infrastructure,
Alaska Industrial Development and Export Authority, Department
of Commerce, Community & Economic Development, replied that a
conversion chart had been provided earlier to the Senate Special
Committee on Energy. He said that this price would be
equivalent to a little more than $.08 kWh, if heated by $25 per
million Btu natural gas.
SENATOR STEDMAN asked if this was also comparable to a heating
fuel cost of $3.00 per gallon.
MR. SZYMONIAK expressed his agreement.
4:12:51 PM
CHAIR HAWKER asked where AIDEA was going with regard to the
value chain it was reviewing for investment. He asked what
AIDEA was doing in lieu of this project it had set aside.
MR. LEONARD said that although the project had not been set
aside as an alternative, the one LNG facility project had been
put on pause in order to ensure that all the alternatives were
reviewed. He offered his belief that the utilities would not
commit to the price presented through the North Slope Project.
He declared a necessity for review of the alternative sources in
conjunction with a review of the other aspects in the supply
chain, in order to bring the total cost to a workable price.
CHAIR HAWKER asked about the alternatives under review, and if
there was assurance that any of these alternatives would meet
the desired prices.
4:15:31 PM
MR. SHEFCHIK offered an overview for his vision to the next
three months and the expected actions for the project. He
relayed that the cost of heating oil was currently benchmarked
at $25 - $30 per million Btu. He declared that the goal for
every action was to bring down that cost. He pointed out that
the first step would be to convert from heating oil to trucked
gas and then possibly to train-supplied gas, and finally to a
big pipeline for gas supply. He stated that the goal was to
build an infrastructure to lower the price of energy in the
Interior, and maintain the opportunity for service to the road
system. He referenced the aforementioned slide 3, "Focus on
Full Supply Chain," and noted natural gas supply, liquefaction,
transportation, storage, distribution, and conversions as the
areas of investigation for the most effective gas supply. He
added that teams from Department of Natural Resources (DNR),
Department of Revenue (DOR), and AIDEA would look for solutions
to lower gas cost for all the utilities, as well as a specific
contract for gas that would fill a liquefaction train from
Southcentral Alaska. He declared that there were a number of
liquefaction opportunities. He assured the committee that the
project would look at propane and, as due diligence for the
Pentex Alaska Natural Gas Company, LLC (Pentex) acquisition was
performed, would winnow this down to a specific narrow range of
options for comparison to the North Slope benchmark. He pointed
out that although the community was indifferent to its source of
gas, it was highly sensitive to the price and the timeframe for
delivery. He opined that by summer there would be a project
"back on the rails that is consistent with Senate Bill 23" and
would optimize all the components of the supply chain. He added
that, if after this review AIDEA could not make the project
work, they would come back to the legislature.
CHAIR HAWKER summarized that the plan for the project was to
review everything for the next six months.
MR. SHEFCHIK replied that there would be an assessment of
progress to the legislature every three weeks, as there would be
concurrent actions on multiple paths. He declared that he had a
singular goal with a singular focus and if there were not
sufficient tools to attain the goal, they would return to the
committee for further support.
CHAIR HAWKER reiterated that the objective was for an identified
project which met the expectations of the utilities, within six
months. He reviewed the direction of the project, either south
to north, or north to south. He acknowledged that there was a
market for gas in Southcentral, although that demand had been
somewhat alleviated for the short term. He asked how much
expansion was necessary from the Cook Inlet for the project.
4:22:50 PM
MR. SHEFCHIK, in response, said that he had agreed to lead the
supply chain starting at LNG, and that he would facilitate the
gas supply, although there would be DOR and DNR representatives
on the team who were expert on the Cook Inlet energy market to
look at gas acquisition. He stated that the governor had made
this a priority of his administration and was putting resources
toward the project. He suggested that there could be a large
combined buyers' club in anticipation of the 2018 time frame.
He stated that the success of the IEP should not be dependent on
solutions for the energy issues in the rest of Alaska. He noted
that a smaller project team would be reviewing the producers
without large shares of the market who could meet their needs.
He acknowledged that this was the extent of his knowledge on
Cook Inlet gas.
4:24:38 PM
CHAIR HAWKER asked if the state was considering the purchase of
a smaller producer as a source of gas for the project.
MR. SHEFCHIK replied that they were looking for a gas supply
contract to fill the 3 to 6 billion expected known demand for
the upcoming five years, noting that this was a small demand
relative to that from Southcentral Alaska and Cook Inlet.
CHAIR HAWKER relayed that an announcement by the governor that
the state was going to acquire Pentex had prompted this
dialogue. He asked where the Pentex acquisition would fit into
the project, and about earlier comments regarding rail cars and
competition for the acquisition of the Pentex LNG plant.
4:25:58 PM
MR. LEONARD, in response, relayed that the acquisition of Pentex
was to reduce cost and to assist on the distribution side, slide
7, "Decision to Begin Negotiations to Purchase Pentex." He
offered his belief that the ability of AIDEA to look long term
could be of assistance for reducing the cost of current
distribution by 8 - 14 percent, and by 15 - 20 percent in 2019.
He based this projection on the costs of capital and the
willingness by AIDEA to concentrate on an integrated system.
This type of investment would require that AIDEA live up to all
the Pentex obligations in regard to selling the LNG facility at
Cook Inlet. He offered his belief that it was possible to work
with Hilcorp for that commitment demand of 3.5 - 4 Bcf from the
Fairbanks area. He stated that this would move forward the
ability to bring gas to Fairbanks by promoting LNG capacity
either on the North Slope on in the south. He declared that it
was important to have the demand in Fairbanks in order to move
forward to incentivize the private sector for the LNG capacity
section of the chain.
CHAIR HAWKER opined that the purchase of a private sector
entity, Pentex, by the state was not necessarily incentivizing.
He asked for the proposed dates and times, directing attention
to the letter of intent to purchase Pentex, which stated that
the transaction would be closed no later than February 28, 2015.
He asked how this acquisition could be reconciled, as it was
before the proposed assessment to the economic viability of the
various projects.
4:29:47 PM
MR. LEONARD replied that the letter of intent clarified that
this was a non-binding agreement in order to move forward with
due diligence. He noted that the February date reflected
completion of the initial due diligence, with approval by the
board estimated to be at the end of April, and closing to be in
June or July. He estimated that the due diligence process would
take three to four months. As there was a concentration on the
distribution side, this was an important component for forward
movement from either the north or the south, and that optimizing
this part of the chain was critical for the Interior Energy
Project.
4:31:10 PM
CHAIR HAWKER asked if it was the AIDEA intent to hold and
operate the Pentex assets, or to dispose of Pentex to another
entity.
MR. LEONARD replied that the goal was to hold the asset for a
short transition period, work with the community for creation of
an integrated operations system, and then sell it, with a return
of the investment, to another entity. He stated that it was not
a goal of AIDEA to own the project long term.
MR. SHEFCHIK relayed that his directions from the AIDEA board
chair had been to focus on the integration of the system and the
development of options for the transition from AIDEA to another
ownership structure, a joint venture partnership, or management
from outside. He acknowledged that this was near the top of his
task list while performing the due diligence. He was to develop
a physical plan, as well as an organizational and ownership
plan, to transition AIDEA out of ownership after recovery of its
investments.
CHAIR HAWKER asked why the state needed to be in the middle of
this even for a short period, instead of a free market
transaction that did not require the state to hold the asset.
4:33:24 PM
MR. LEONARD directed attention to slide 8, "Benefits of Utility
Coordination & Integrated Distribution System," and offered his
belief that moving forward with the project required AIDEA
ownership for a portion of the time. He said that no private
entity had come forward to purchase FNG, noting that it had been
for sale in past years. He opined that this investment would
serve a public purpose, and, based on the preliminary due
diligence, this was a safe investment. Directing attention to
the two independent utilities depicted on slide 8, he offered
his belief that AIDEA involvement in this investment would
reduce operating costs, allow for efficient capital investment,
restart needs for the storage necessary for demand capacity, and
bring a unified demand to the market to purchase gas.
4:35:05 PM
CHAIR HAWKER reiterated that the state supported the project and
intended to maintain its commitment to lowering costs in
Interior Alaska. He pointed out that this was clarification for
"what we're doing, where we're putting our investments." He
offered his belief that the intent, as there was only one
obvious purchaser, was to facilitate the acquisition of FNG by
IGU.
MR. LEONARD replied that this would be one of the main options.
He reiterated that this investment would be short term and that
it was critical for meeting the mission of the Interior Energy
Project.
CHAIR HAWKER asked again why AIDEA did not directly support IGU
in acquiring the Pentex assets.
MR. LEONARD replied that, after due diligence, the exit strategy
would include all these options in its finance plan before the
board would move forward with a presentation to the legislature.
CHAIR HAWKER pointed out that the purchase of Pentex would
include its existing contract to sell the Point Mackenzie LNG
plant to a subsidiary of Hilcorp, as well as a long term LNG
sales agreement with FNG to sell 100 percent of the plant output
for a period of five years at $15 per Mcf to the city gate. He
noted that this was substantially higher than the figure
expressed as acceptable to the utilities. He acknowledged that
after this five year period the price could be adjusted to match
any comparable sales of LNG by another seller into the Fairbanks
area; however, if there was not another seller, the city would
not have any other option but to pay $15 at the city gate.
4:38:18 PM
MR. LEONARD expressed agreement that this issue was being
addressed during the due diligence process. He said that, as
this current FNG contract was about 15 - 20 percent of the total
supply, it would be blended with additional contracts.
CHAIR HAWKER asked for clarification of the commitment, that the
FNG contract was for 100 percent of the need of active gas
customers in Fairbanks. He stated that this was 20 percent of
the anticipated build out when the Interior Gas Utility (IGU),
currently without any customers, gets the system built out for
delivery to the rest of Fairbanks.
MR. LEONARD expressed his agreement that the current contract,
about 0.95 Bcf between Hilcorp Energy Company (Hilcorp) and FNG,
was for the existing customers. He reported that the IEP had
funded about 33 miles of new pipe for FNG, with an additional 26
miles to be built. This would make another 1.5 Bcf available
based on conversions. He stated that, based on total demand
need in the future, this was the aforementioned 20 percent. He
shared that with the proposed build out of North Pole by IGU, as
well as the proposed build out by FNG in 2016, the actual pipes
across structures would be 7200 instead of the current 1100.
CHAIR HAWKER asked for clarification that this was 100 percent
of current demand and 20 percent of anticipated FNG full build
out demand.
MR. SHEFCHIK clarified that this was 100 percent of the plant
capacity and that, as FNG had two interruptible customers, the
hospital and the university which had LNG service turned off
when it was cold, 100 percent of demand would allow these
customers to maintain service.
CHAIR HAWKER stated that it was agreed "to meet all FNG current
requirements by delivering to FNG the entire maximum output of
the existing facility." He relayed that the state was looking
at acquiring FNG, currently a privately held entity. He asked,
"Who is IGU?"
MR. SHEFCHIK replied that the Interior Gas Utility (IGU) was a
public entity wholly owned by the Fairbanks North Star Borough.
CHAIR HAWKER asked if it currently had business operations.
MR. SHEFCHIK replied that it was a development company and did
not have any business operations.
4:42:42 PM
SENATOR MACKINNON expressed her concern that there was
dependence on "a reliable supply from the Cook Inlet region from
a small explorer that may or may not have proven production."
She asked if Mr. Shefchik had more information on this
availability and new discoveries.
MR. SHEFCHIK reiterated that, as he had shared all of his
knowledge of the Cook Inlet energy supply, there was a team lead
by DOR and DNR for the Cook Inlet contract acquisition. He
shared that a focus of the current administration was to develop
a gas supply contract for this project.
SENATOR MACKINNON expressed her understanding that the current
utility contracts in Anchorage were short term, and that the
city had just stopped its brownout drills to reduce usage. She
acknowledged that, although there was a lot of activity in the
Cook Inlet, there were proven reserves on the North Slope. She
questioned whether this was a chase under the auspice of "build
it and they will come." She directed attention to the ferry [MV
Susitna] as just such an example.
MR. SHEFCHIK replied that there was not any desire to build a
supply chain with no gas, and that the direction of the supply
chain would be determined by the availability of gas.
4:45:02 PM
SENATOR MACKINNON expressed her concern for the criteria of a
supplier to this project, if this was for finding a smaller
supplier. She stated a desire to provide a lower cost for
reliable, cleaner energy to Interior Alaska. She expressed her
interest for the formula of the purchase price to the various
facilities. She pointed out that a declaration of price allowed
little option for negotiations. She offered her belief that
there had been overpayment for the product, and that the state
would be required to pay the difference in a subsidy.
MR. LEONARD replied that the purchase price stated in the letter
of interest was a negotiated proposed price based on preliminary
information, and was not a set price. He reminded that it was
necessary to perform due diligence, and that financial advisors
and a utility evaluation company would be consulted. He
explained that if, after valuation, the price was too high then
AIDEA would attempt to negotiate a fair value price or the deal
would be terminated. He stated that AIDEA would only pay a fair
price based on asset value.
SENATOR MACKINNON expressed her interest in the determination of
cost value, remarking that, as it had been on the market for
multiple years at that price, everyone else thought that price
was too high.
4:47:52 PM
REPRESENTATIVE THOMPSON stated that he had copies of the formal
request from 1954 entreating the federal government to build a
gas line from the National Petroleum Reserve to Fairbanks to
help relieve the cost of energy, and "it's 61 years later and
we're still waiting."
CHAIR HAWKER reflected on the historical records he had in his
possession.
4:49:09 PM
SENATOR STEDMAN offered his understanding that, as it was
necessary to make a good business decision, a lack of purchasers
indicated something wrong with the price or the market. He
expressed his concern for the state making a purchase of good
value. He pointed out that there had been situations where "the
state ends up holding the bag," while other investors behind the
corporation "end up sitting fairly well." He declared a need
for due diligence, regardless of the time frame, and the need
for a prudent decision.
4:50:21 PM
SENATOR BISHOP expressed his gratitude to AIDEA for its
diligence, attention, and commitment for bringing gas to the
interior. He asked if there had been full due diligence for the
purchase of FNG. He declared that there had been reverse
engineering for this project from the beginning, and that front
end engineering would have resulted in completion of this
project.
CHAIR HAWKER reflected on the Pentex purchase, noting that,
while it currently provided 100 percent of the current need,
this would only be 20 percent of future need. He pointed out a
need to add four times the current capacity in the foreseeable
future. He stated that often a used and in-place asset offered
a more cost effective price than building new. He suggested
that it was necessary to compare this with the cost of building
a new facility with four times the capacity.
MR. LEONARD asked for clarification that the reference was for a
distribution system and not an LNG facility.
CHAIR HAWKER replied that he was referencing the value chain
model, with the need to add an additional 80 percent by building
new capacity: finding the gas, building the LNG plant, and
building the delivery and distribution systems. He noted that
it was also necessary to pay for the LNG conversion in the
homes. He asked if it was possible, after the Pentex purchase
and building for the new capacity, to still meet the $10 - $11
city gate cost objective.
MR. SHEFCHIK replied that this was an accurate description of
the situation and would be a part of the due diligence decision
process.
CHAIR HAWKER referenced Senate Bill 23, which empowered Alaska
Industrial Development and Export Authority to provide the
financial support to a North Slope sourced gas project. He
questioned whether this gave carte blanche to the build out in
Fairbanks. He asked what AIDEA currently required from the
Alaska State Legislature during this session in order to have
the free rein to move forward and execute this value chain grand
plan.
MR. LEONARD said that, in order to utilize the full strength of
Senate Bill 23, removal of the wording "North Slope" would be
necessary to allow the funding to be used for assistance in
lowering the cost of gas in Southcentral Alaska, if that route
became available. He said that it was necessary to review all
sources of gas in order to bring the lowest possible cost to
Fairbanks.
CHAIR HAWKER asked for clarification that the funding
appropriation mentioned by Mr. Leonard was the $57.5 million
authorized in Senate Bill 18.
MR. LEONARD expressed his agreement, noting that approximately
$45 million was still available, and this would allow the
flexibility for an alternative source, other than a North Slope
plant, that could utilize those monies to bring down the cost,
reduce the risk, and meet the goals of the Interior Energy
Project. He stated that the investment by the state for the
North Slope plant had brought the cost to $13 - $14, and without
those state funds, the price would have been much higher. He
declared that utilization of the tools granted by the
legislature for analyzing alternatives down south would be
beneficial.
4:57:28 PM
CHAIR HAWKER offered his belief that AIDEA had not received
adequate financial support from the legislature for the original
North to South project to allow the build out by IGU, as well as
the necessary support at the LNG plant level to achieve a low
enough cost of gas throughout the entire system. He questioned
whether a South to North route would change the analysis. He
asked if the legislature should increase funding or debt
capacity, or replace the funds already spent.
MR. LEONARD opined that an analysis would show the impact for
more funding and more bonding authority, although bonding
authority on the North Slope may not be beneficial to the
project. He said that bonding for distribution was easier than
bonding for a plant.
CHAIR HAWKER suggested that AIDEA not "cut yourself short," and
that AIDEA should ask for more funding so the legislature could
make that decision to provide the additional support that was
necessary to make the project move forward, while judging it
against the other competing interests in the state.
5:00:05 PM
SENATOR STEDMAN said that the target range for getting energy
delivered to Fairbanks was reasonable. He offered his belief
that it was not possible to bring the cost to Fairbanks to the
same range as the cost to Anchorage. He suggested that the
Fairbanks target numbers should be reasonable numbers to bring
other area energy costs into alignment, noting that this would
also include Southeast Alaska.
5:00:58 PM
REPRESENTATIVE THOMPSON expressed his pleasure for the pursuit
of other alternatives. He declared a desire for reasonably
priced energy, and he acknowledged that Fairbanks consumers
recognized the costs and did not "have our hands out." He
pointed out that this could create economic development which
could enhance the entire state.
5:02:08 PM
ADJOURNMENT
There being no further business before the committee, the
Legislative Budget and Audit Committee meeting was adjourned at
5:02 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 1.16.15 Administrative Order NO. 272 SIGNED.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| 6EMemoResolutionFundIEPproject.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| 2014_12-22_AIDEALtr2ChrisBrownMWH.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| 2015_01-05 AIDEALtr2ChrisBrownMWH.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| AIDEA Board Approves Interior Energy Project Loan 02.06.15.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| AIDEA Fact Sheet on Pentex Purchase 02 03 15.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| AIDEA press release - FNG purchase.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| G15-03MemoTermSheetResolutionIGULoan.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| HAK Harvest Titan Release FINAL 11.20.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| Hilcorp Harvest LNG Plant 1.29.15.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| MWH response to AIDEA Letter of 22 Dec 2014 - Signature Copy.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| Pentex - AIDEA LOI, 2015_01_26, executed.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects Background Docs |
| SB23 of 2013.pdf |
JBUD 2/12/2015 3:00:00 PM |
SB 23 |
| WesPac Letter to LB&A - Hawker 021115.pdf |
JBUD 2/12/2015 3:00:00 PM |
|
| 2015_01-05_CA-TerminationLetter.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| 2015_02-10_AIDEALtr2JimKuikenMWH.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| AIDEA Presentation to LBA 2-12-15.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| AIDEA responses to LBA questions 2-12-15.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| AIDEA-Sources and Uses of Funds for IEP project.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| AIDEA-Sources and Uses of SETS Appropriations.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| Harvest Letter to LBA.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| LBA AIDEA Presentation final.pptx |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| MWH Correspondence 2-2-15.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| MWH Prepared Remarks 12 February 2015.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| MWH-Slides to accompany remarks.pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| Pentex - AIDEA LOI 2015_01_26 executed (2).pdf |
JBUD 2/12/2015 3:00:00 PM |
AIDEA Interior Energy Projects |
| IEP Conversion Slide from 2013.pdf |
JBUD 2/12/2015 3:00:00 PM |