02/17/2009 03:00 PM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Barley Fuel Project | |
| HB44 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 44 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
February 17, 2009
3:03 p.m.
MEMBERS PRESENT
Representative Bryce Edgmon, Co-Chair
Representative Charisse Millett, Co-Chair
Representative Nancy Dahlstrom
Representative Kyle Johansen
Representative Jay Ramras
Representative Pete Petersen
Representative Chris Tuck
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
BARLEY FUEL PROJECT
- HEARD
HOUSE BILL NO. 44
"An Act relating to investments applicable to energy;
authorizing the Alaska Permanent Fund Corporation to make in-
state energy project investments; and authorizing certain public
corporations to issue bonds for energy projects."
- MOVED CSHB 44(ENE) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 44
SHORT TITLE: ENERGY BONDS/INVESTMENTS
SPONSOR(s): REPRESENTATIVE(s) CHENAULT, WILSON
01/20/09 (H) PREFILE RELEASED 1/9/09
01/20/09 (H) READ THE FIRST TIME - REFERRALS
01/20/09 (H) ENE, FIN
02/17/09 (H) ENE AT 3:00 PM BARNES 124
WITNESS REGISTER
BRYCE WRIGLEY, President
Delta Chapter
Alaska Farm Bureau
Delta Junction, Alaska
POSITION STATEMENT: Gave a presentation on the Barley Fuel
Project.
REPRESENTATIVE CHENAULT
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Spoke as the sponsor of HB 44.
HAROLD HEINZE
Chief Executive Officer
Alaska Natural Gas Development Authority (ANGDA)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 44.
LAURA ACHEE, Director of Communications
Alaska Permanent Fund Corporation (APFC)
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
44.
JERRY BURNETT, Deputy Commissioner
Treasury Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
44.
PAUL FUHS
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 44.
ACTION NARRATIVE
3:03:45 PM
CO-CHAIR CHARISSE MILLETT called the House Special Committee on
Energy meeting to order at 3:03 p.m. Present at the call to
order were Representatives Johansen, Tuck, Dahlstrom, Edgmon,
and Millett. Representatives Petersen and Ramras arrived as the
meeting was in progress.
^Barley Fuel Project
3:03:56 PM
CO-CHAIR MILLETT announced that the first order of business
would be a presentation on the Barley Fuel Project.
3:04:09 PM
BRYCE WRIGLEY, President, Delta Chapter, Alaska Farm Bureau, and
a barley farmer in Delta, informed the committee that the U.S.,
with its abundant natural resources, is not as receptive as
Europe to alternative energy sources such as barley. He noted
that barley and other grains have been used as a source of heat
in Europe for many years and expressed the need to review
information and lessons learned from other countries. Barley is
a resource that can be easily grown in Alaska; one bushel of
barley has the equivalent Btus as 2.8 gallons of fuel oil. For
the purpose of this report, he estimated the cost of barley at
$5.52 per bushel, compared with $8.29 for 2.8 gallons of fuel
oil. He further compared 393,000 Btus per bushel of barley to
142,000 Btus per gallon of oil at an 85 percent efficiency rate
for both fuels; the monthly fuel consumption to heat a 1,500
square foot home with 100 gallons of fuel oil cost $296 and with
the equivalent 0.6 ton of barley cost $138. Further benefits of
heating with barley fuel include: it is the most renewable
resource that can be grown in Alaska; it has a one year carbon
cycle versus one hundred years for wood and forty million years
for oil; it has much lower particulate levels than wood; it is
not a hazardous substance and can be shipped as a commodity to
villages and is safer to store; when agricultural products are
sold agricultural receipts turn over up to seven times in a
community, as opposed to oil purchases that turn over twice
before leaving the state; and the reduction of fuel oil
consumption reduces import needs. Mr. Wrigley said production
capabilities are the limiting factor to grain production; in
fact, last year 4,000 acres were planted to supply the current
market, but within two years 18,000 acres could be planted to
meet a larger market. Further growth is possible due to the
available acreage coming out of the Conservation Reserve Program
(CRP) for a total of 50,000 acres by 2015. Two million acres of
farmland is lost each year in the U.S. to urban encroachment;
nowhere else in the country is there the opportunity to bring
land back into production. He estimated that between 8.9
million and 18.5 million acres have been identified with
potential for agricultural production in Alaska. Mr. Wrigley
recalled that the original state agricultural plan called for
500,000 acres to be in production by the early 1990s; however,
that goal was not reached because markets did not develop as
quickly as production. The potential for grain for fuel
production is that each acre will produce about 1 ton or 40
bushels; therefore, 25,000 acres will grow enough barley to heat
about 5,000 homes and 500,000 acres will grow enough for 100,000
homes.
3:11:19 PM
MR. WRIGLEY turned to the subject of bio-diesel and pointed out
growing short season varieties of canola is gaining interest for
the production of bio-diesel and biodegradable hydraulic oil; in
fact, one farm in Delta used canola oil for its farm equipment.
Canola oil production, including food grade canola oil, requires
a small processing plant and currently a feasibility study is
being completed. Mr. Wrigley explained that Alaskan farmers
have been working for years to create a sustainable agriculture
industry. The original goals of the agriculture program remain
important and valid; moreover, in one generation, Alaskan
agriculture has accomplished what took one hundred and fifty
years Outside. He recommended that barley and other farm
products are included in the state energy plan and the Heating
Assistance Program (AKHAP). Furthermore, the state should
consider assisting residents to transition from polluting wood
stoves to more efficient furnaces burning barley and other bio-
fuels produced on Alaska farms. He assured the committee that
using barley for fuel is ethical because the in-state demand for
livestock feed is currently met from the production of barley on
about 3,000 acres. To encourage a new market and increase
production will actually stabilize the livestock industry and
encourage additional investment in livestock. There is
currently enough barley production to meet feeding and burning
needs; however, the goal is to increase both the market and
production together. Finally, Mr. Wrigley provided a
presentation regarding how barley becomes fuel and reviewed the
farming process.
3:18:33 PM
REPRESENTATIVE DAHLSTROM asked whether barley has to be totally
dry before burning.
MR. WRIGLEY answered that it has to be dry to store for feed or
fuel. In further response, he said that he burns barley in a
pellet stove designed to burn pellets or corn. In response to
Representative Dahlstrom, he said that canola is an oil seed and
its oil can be burned at warm temperatures.
3:20:34 PM
MR. WRIGLEY, in response to Representative Petersen, said that
there are currently only about seven to eight farmers growing
barley because of the small market. In further response, he
said that the CRP program was initially a 10-year program and
has been renewed since 1987.
3:22:17 PM
REPRESENTATIVE PETERSEN asked whether it is more efficient to
burn barley or convert it into ethanol.
MR. WRIGLEY acknowledged barley can be converted into ethanol;
however, the advantage is to use barley directly as a fuel,
whereas converting to ethanol requires further processing.
3:23:12 PM
REPRESENTATIVE PETERSEN asked whether barley production results
in byproducts such as straw.
MR. WRIGLEY answered that most of the straw is currently used
for pet bedding, but if production is increased there are other
possible uses and markets.
3:24:29 PM
REPRESENTATIVE PETERSEN further asked whether it would be
advantageous to have a licensed grain elevator in the Delta
region.
MR. WRIGLEY recalled the Delta farmers and producers have
discussed the aforementioned; in fact, last winter when there
was a surplus of barley that could have been sold in the Lower
48, the sale was prevented because there was no way to inspect
the barley before shipping. However, he said he was unsure if
the farmers want to explore an export market at this time. He
said, "Let's supply the in-state demand and let's create in-
state markets as a renewable resource before we look at shipping
it out."
3:26:30 PM
REPRESENTATIVE JOHANSEN asked whether the point of burning
barley is to supplant the use of fossil fuels.
MR. WRIGLEY said yes. His recommendation is to supplant the use
of fossil fuels and any other fuel that is more polluting or
expensive.
3:27:37 PM
REPRESENTATIVE JOHANSEN inquired as to how much fossil fuel is
burned during the production of barley.
MR. WRIGLEY explained during the processing of ethanol there is
a tremendous amount of energy used for the generation of heat
which is not part of barley production; the barley being burned
requires no additional effort and can be used either for feed or
fuel. The [fossil] fuel used in the production of barley is a
ratio of 6:1.
3:29:02 PM
REPRESENTATIVE JOHANSEN surmised that barley is mainly being
used for livestock feed and asked whether marketing barley for
fuel will impact the price of feed.
MR. WRIGLEY observed that Alaska a closed market due to the
price of transportation. It is not feasible to ship out barley,
thus the factors to consider are what can be produced and
consumed in the state. Three thousand acres are in use to
produce sufficient feed for livestock and any additional
production becomes surplus; the idea is to increase the market
and production at the same time. Furthermore, an increase [in
the production of barley] would encourage the livestock market
as a 15 percent surplus is needed to increase the production of
livestock.
3:31:11 PM
MR. WRIGLEY, in response to Representative Tuck, said there are
a number of options for furnaces. In addition to radiant heat
stoves there are barley boilers that range up to 250,000 Btus
for home and commercial use. Burners can also fit into existing
heat transfer systems and substitute for fuel oil or wood.
3:32:32 PM
REPRESENTATIVE TUCK asked about the generation of electricity
from barley fuel.
MR. WRIGLEY stated that barley can be used to generate
electricity with a solid bio-mass boiler; in addition, barley
can be safely shipped to villages, avoiding the environmental
risks associated with the transportation of toxic material.
3:34:20 PM
REPRESENTATIVE PETERSEN inquired as to the number of jobs that
may be created with an increase in barley production.
MR. WRIGLEY offered there would be new jobs tied directly to
agriculture, and jobs created outside of agriculture in the
retail process of packaging and shipping.
3:35:50 PM
REPRESENTATIVE TUCK asked for the weight of a bushel of barley.
MR. WRIGLEY said 48 to 50 pounds.
3:36:10 PM
HB 44-ENERGY BONDS/INVESTMENTS
3:36:22 PM
CO-CHAIR MILLETT announced that the final order of business
would be HOUSE BILL NO. 44, "An Act relating to investments
applicable to energy; authorizing the Alaska Permanent Fund
Corporation to make in-state energy project investments; and
authorizing certain public corporations to issue bonds for
energy projects."
3:36:41 PM
REPRESENTATIVE CHENAULT, Alaska State Legislature, remarked:
House Bill 44 was introduced as an effort to address
the state's energy needs; especially for
weatherization and energy efficiency programs and also
to provide an impetus for in-state gas line. House
Bill 44 preauthorizes the Alaska Housing Finance
Corporation and the Alaska Natural Gas Development
Authority to issue bonds for energy related programs
and projects. The bill also gives the legislature's
approval for the Permanent Fund Corporation to invest
up to $1 billion for in-state gas projects. Although
the legislature has authorized a number of these
projects either through the Alaska Housing Finance
Corporation and has made appropriation to the Alaska
Natural Gas Development Authority, I believe now is
the time to progress these needs to a higher level.
In particular, the state's gas needs can't wait.
REPRESENTATIVE Chenault opined all Alaskans would like to see
gas produced from the North Slope by the proposed [construction
of a gas pipeline by the Alaska Gasline Inducement Act (AGIA)
plan or by Denali-The Alaska Gas Pipeline] projects; however,
the completion dates are around 2020 and there is still no
guarantee that those projects will move forward. He pointed out
that Fairbanks, Mat-Su, and Cook Inlet will require new supplies
of gas or alternate energy in the near future. Also, processing
liquids will take care of some of the needs in rural Alaska.
Representative Chenault stated his preference for a private
corporation to step up and build a gas line and said this
legislation simply allows the state to get involved in a project
that brings energy to Alaskans for in-state use.
3:39:42 PM
REPRESENTATIVE DAHLSTROM moved to adopt CSHB 44, Version 26-
LS0231\R, Kane, 2/16/09, as the working document. There being
no objection, Version R was adopted.
3:40:02 PM
REPRESENTATIVE RAMRAS recalled the Alaska Natural Gas
Development Authority (ANGDA) has a plan to build [ a pipeline]
to Glennallen that will eventually connect with a "large pipe."
Further, ANGDA plans to take plastic pipe to the turbines in
Glennallen, Delta, and North Pole, and change the feedstock for
Golden Valley Electric Association (GVEA) from diesel to natural
gas. He remarked:
Frankly, ANGDA is very cavalier in suggesting that if
some other private sector entity ... doesn't come
forward then they'll just keep on building north. But
they're pretty casual, throwing around three or four
billion dollars ...
3:41:24 PM
REPRESENTATIVE CHENAULT observed it is unclear what any of the
proposals will look like in a year or so, after the logistics
are worked out. He stressed that the proposed legislation
allows some of the issues to be placed on the table for
discussion; for example, the governor's proposal. Legislators
are well aware of the gas needs in the communities they
represent; in fact, this winter the Cook Inlet region reached
its maximum limits for [the supply of energy] and this situation
could impact the surrounding areas and Anchorage.
Representative Chenault acknowledged that the bill may not be
the answer to the problem, but will begin movement to spur a
pipeline; moreover, the intent is for all the options to be
available so that if no private entity comes forward there is a
backup plan.
3:44:07 PM
REPRESENTATIVE RAMRAS asked whether Representative Chenault
believes that a quasi-state entity, competing against a private
sector entity, would scare off the private sector entity.
REPRESENTATIVE CHENAULT replied no. He expressed his belief
that if a private corporation deems a profitable project, then
it will be moved forward and the state should assist.
3:45:01 PM
REPRESENTATIVE PETERSEN asked whether the bill's sponsor
consulted the Alaska Permanent Fund Corporation (APFC) Board of
Directors and if the bill meets the corporation's requirement to
return the maximum amount from investments.
REPRESENTATIVE CHENAULT stressed that the proposed legislation
is suggestive to the APFC, which has prudent investment rules in
statute that it must follow.
3:46:13 PM
REPRESENTATIVE CHENAULT, in response to Representative Tuck,
deferred questions about the required rate of return on
investments to the APFC board.
REPRESENTATIVE TUCK then asked for the expected rate of return
for the projects referred to in the proposed legislation.
REPRESENTATIVE CHENAULT said that information is unknown until
the bond package or other [financing] instrument is available.
3:47:43 PM
HAROLD HEINZE, Chief Executive Officer, Alaska Natural Gas
Development Authority (ANGDA), informed the committee ANGDA
supports HB 44. Firstly, he said the general idea of the bill
and the use of public corporations of the state to help advance
energy projects is a wise advocacy by the legislature as it
builds on the strength of Alaska, while focusing the individual
project and financial decisions at the level of public boards
that have a strong fiduciary responsibility. This is the time
for the state to maximize the leverage of cash through bonding
to advance the infrastructure in the state. He pointed out the
state's strong credit position even in a downturned economy; in
fact, two important past successes in financing Alaska energy
projects are the state's involvement in financing the Bradley
Lake Hydroelectric Project and the Anchorage Municipal Light &
Power's purchase of a one-third interest in the Beluga gas
field. Furthermore, as North Slope gas reaches the market,
additional opportunities will arise. Mr. Heinze provided a
summary of ANGDA's statutory bonding provisions and the broad
purposes of the authority. He then addressed ANGDA bonding
opportunities such as: lowering the tariff to consumers by
providing lower cost financing from the public side of a public
private partnership; reducing risk by providing a bridge between
pre-construction/construction phase financing and the operating
phase financial picture; and the opportunity for low-interest
bonds to purchase gas or to commit to shipping commitments that
will result in long-term, stable, and discounted prices to
consumers.
3:54:24 PM
MR. HEINZE listed the following specific ANGDA bonding
opportunities in 2009 and 2010: debt portion of any in-state gas
pipeline project in support of a private sector pipeline company
partner; utility shipping commitments during an "open season"
developed through the "gas supply co-op;" and the purchase of
in-ground gas that could be available on the North Slope, in the
Copper River Valley basin, the Interior basins, or in Cook
Inlet. He then presented other bonding opportunities for state
public corporations: Alaska Industrial Development & Export
Authority (AIDEA) financing for in-state propane facility and
delivery systems; Fairbanks Natural Gas proposed liquefied
natural gas (LNG) facility at Prudhoe Bay; pipe and logistical
systems and storage financed with Alaska Railroad bonds; and
purchasing bonds or debt support by the Alaska Permanent Fund
Corporation. Mr. Heinze re-stated ANGDA's support for the
passage of HB 44.
3:57:23 PM
MR. HEINZE, in response to Representative Ramras, stated that
ANGDA has no plans for discussions with ENSTAR Natural Gas
Company, except for his presence at the upcoming Senate
Resources Standing Committee hearing to explore in-state gas
issues.
3:58:25 PM
REPRESENTATIVE RAMRAS inquired as to what the bonds would be for
if issued "right now."
MR. HEINZE explained ANGDA has not yet developed a specific
bonding proposal. However, one of three possibilities would be
a $250 million bond to cover a portion of an in-state spur line
and a smaller portion of a line to the North Slope. Either of
these possibilities would demonstrate state support to a private
sector pipeline company. In addition, it would provide an
opportunity for a state public corporation to be part of the
development of benefits for Alaskan consumers and utilities. He
opined the utility shipper's commitment during open season may
be billions of dollars, and a $250 million bond signals the
state's active participation in those commitments. Finally, Mr.
Heinze noted the bond opportunity may buy "a fair hunk of gas in
the ground and allow somebody to proceed with development of it
under very favorable terms."
4:00:38 PM
REPRESENTATIVE RAMRAS called attention to the bill on page 3,
lines 15-17, and read:
The Alaska Natural Gas Development Authority shall
negotiate with interested parties and shall enter into
agreements with interested parties to provide revenue
sufficient to accomplish the purposes described in
this subsection.
REPRESENTATIVE RAMRAS asked Mr. Heinze to explain how ANGDA will
service debt in the amount of the $250 million bond.
MR. HEINZE explained the agreement with interested parties - for
instance, to purchase gas in the ground - would be in an
aggregated and collective sense, such as a gas supply co-op.
Furthermore, the agreement would be against electric utilities
that need gas to generate electrical power. This commitment
would be to take the gas and [for] those shippers who wish to
make shipping commitments to lower longer-term costs. Others
may be that, in terms of the total tariff structure of an in-
state pipeline, the public debt portion would have pledged
against the shipping commitments made to move gas through the
pipeline.
4:02:48 PM
REPRESENTATIVE RAMRAS inquired as to the cash necessary to
service debt on $250 million. He remarked:
What part of this would be a 'closed loop' so to
speak, so that you're using the $250 million to
acquire an asset that generates revenue so that you
can service the debt? ... Acquiring a gas supply, but
without delineating that gas and actually monetizing
it, I don't quite understand how you are going to
generate the revenue. ... I just want to know exactly
what your plans would be for this 250 million bucks.
MR. HEINZE stated the authorization simply delegates to the
board the arrangement of the terms of the financing and bonding
package for what is available at that time. He gave the example
of the development of a new resource discovery in the Glennallen
region.
4:04:59 PM
REPRESENTATIVE RAMRAS directed the committee's attention to page
3, line 6, of the bill that read, "The Alaska Natural Gas
Development Authority is authorized to issue bonds." On page 3,
line 12, the bill read, "Authority may issue the bonds in a
single issuance or in several issuances." On page 3, line 15,
the bill read, "shall negotiate with interested parties and
shall enter into agreements with interested parties to provide
revenue sufficient to accomplish the purposes described in this
subsection." Representative Ramras asked how long it would take
before ANGDA would generate the revenue [needed] to benefit
consumers. The testimony suggests ANGDA has the ability to act
on a project; however, it does not address the requirement to
service the debt as specified in the proposed legislation.
MR. HEINZE referred to ANGDA's bonding provisions which, under
AS 41.41.010, specify certain functions. The powers of the
authority include the issuance of bonds, with the one limitation
that the bonds must be authorized by the legislature. His
understanding of the bill is that it is intended to pre-
authorize and delegate to the ANGDA board of directors, the
authority to bond for these purposes, up to $250 million.
Furthermore, the board is required to operate with the same
fiduciary responsibility as specified in statute. The further
intent of the bill is to encourage the public corporation to
move forward and help advance the in-state gas issue by placing
the onerous on the board of directors to judge projects that
"pass muster in a financial sense ... then proceed ahead."
4:08:31 PM
REPRESENTATIVE RAMRAS, speaking as a member of the private
sector, recalled the suggestion that "we'll spend a billion
dollars to go to Glennallen, and if nothing else works out,
we'll just keep building north." He questioned whether HB 44
requires ANGDA to prove a revenue source to service the debt
before spending $250 million.
MR. HEINZE expressed his understanding that to develop a bonding
package ANGDA would have to define how revenue requirements
would be developed to service the debt. History suggests that
public financing can play a key role in advancing a private
sector project and allowing electric utilities to secure better
and more secure financing. However, he indicated there is no
promise that qualified proposals will develop.
4:11:07 PM
REPRESENTATIVE RAMRAS re-stated for clarity the $250 million
would not be placed unless ANGDA has the ability to service the
debt.
MR. HEINZE remarked:
ANGDA has believed that all the debt needs to be
commercially term debt, in other words needs to be
financed through general funding banking type
institutions, and the last time I looked, all those
institutions require very clear debt coverage and
other things. There is nothing in this bill that I
believe relieves ANGDA and its board or any of the
other public corporations, from their fiduciary
responsibility ...
4:12:22 PM
REPRESENTATIVE RAMRAS referring to page 3 of the ANGDA
presentation under Opportunities in 2009 & 2010, read:
Purchase of gas supply "in-ground" on North Slope,
Copper River Valley, Interior, or Cook Inlet.
REPRESENTATIVE RAMRAS then asked how ANGDA can service a $250
million debt by purchasing in-ground gas supply and not
delineating and monetizing that gas supply.
MR. HEINZE explained the purchase of gas in the ground would be
the purchase of the long-term deliverability of gas to be
delivered over an extended period of time. Looking at the
difference of the finance interest rate of the bond, and the
earning rate of return, leaves the opportunity to provide a
long-term, stable, and discounted price. If this objective was
met during the course of negotiation of the bond package, then
the long-term pledge [benefits] consumers, as did the
transaction with Anchorage Municipal Light & Power.
4:14:27 PM
REPRESENTATIVE PETERSEN opined without a commitment from
suppliers with gas during open season, ANGDA would not be
building a pipeline.
MR. HEINZE relayed the intention is to recognize that [ANGDA]
has no control over timing of the open season of the big
pipeline; at that time suppliers with gas will have to come
forward with commitments to ship to the Lower 48. Shippers may
also be interested in shipping to Valdez, Fairbanks, or Cook
Inlet. Commitments will be "costed out" based on where the gas
is purchased, transportation, and the surety of it. If open
season for the "big pipeline" is successful and utilities in the
state have not participated, the state will be at a disadvantage
in terms of tariff structure and arrangements in the future. If
the open season is not successful, then the state will have to
look at other possibilities to meet the state's needs. At this
point, he said that he is not able to tell whether the pipeline
is a sure thing; however, if the state does not participate in
the commercial terms of the open season, by making major
financial commitments, then the state is at a significant
disadvantage.
4:18:29 PM
REPRESENTATIVE RAMRAS asked whether ANGDA was still planning to
spend $1.3 billion to build a pipe to Glennallen.
MR. HEINZE clarified that ANGDA's plan continues to be the
ability to work with any of several different projects; in
particular, to see whether commitments are made over the next
year on the big pipe. That project represents the best long-
term opportunity for the Alaskan consumer. Furthermore, there
is an advantage, in terms of economics and cost structure, to
the construction of a spur line from Delta Junction to Cook
Inlet "on the front side" of the big project. Thus, under
favorable conditions one year from now, ANGDA believes it would
be in a position to move forward in pre-build mode along with
the option to provide gas to Delta Junction, and perhaps the
Fairbanks area. Pipeline connecting Delta Junction and Palmer
is projected to cost $1 billion to $1.25 billion. Mr. Heinze
encouraged other public corporations to consider the financing
of shorter-term projects to meet energy needs.
4:21:21 PM
REPRESENTATIVE RAMRAS asked whether ANGDA was ready to commence
construction of a $1.3 billion spur line from Cook Inlet to the
Glennallen area, and then on to Fairbanks. Specifically, he
asked, "Is that pipe for the purpose of space heat or for
kilowatt generation?"
MR. HEINZE opined the Beluga (B2F) project to Fairbanks, if it
had existed last July, Golden Valley Electric Association (GVEA)
would have taken 17 million cubic feet of gas a day which would
have enabled [GVEA] to offer considerable savings on the
electric rate to its consumer-owners. Furthermore, that project,
on a pre-build basis, will still offer an opportunity in the
future. However, a source for gas for this project has not been
specifically obtained but, he observed, one of the proposed
contracts was for 60 billion cubic feet between Marathon Oil
Corporation and ENSTAR Natural Gas Company; that contract would
provide more than sufficient gas for GVEA's needs.
4:23:41 PM
REPRESENTATIVE RAMRAS asked:
So, your $1.3 billion pipeline, you're prepared ... to
do your right-of-way and pursue building it, and ...
that 17 million cubic feet a day, that would have
serviced the debt on a $1.3 billion pipeline?
MR. HEINZE expressed his belief that the economics of the uses
of that pipeline between Palmer and Delta Junction, and the
service of all the customers along the way, would provide
sufficient revenue stream to service the debt.
REPRESENTATIVE RAMRAS asked for the tariff generated by 17
million cubic feet per day.
MR. HEINZE recalled 17 million cubic feet per day works out to
about 6 or 7 billion cubic feet a year; thus last July, if the
tariff had been $10, there would have been a favorable
circumstance - $70 million. In further response to
Representative Ramras, Mr. Heinze clarified that he did not say
$10 was the tariff, but that [an entity] could afford a $10
tariff and still be "money ahead."
4:26:15 PM
REPRESENTATIVE TUCK asked whether the potential revenues to the
state directed by HB 44, will be coming through the negotiations
process with the bond issuers.
4:26:51 PM
LAURA ACHEE, Director of Communications, Alaska Permanent Fund
Corporation, deferred the question to the Department of Revenue
or state agencies with the authority to issue bonds.
4:27:18 PM
REPRESENTATIVE PETERSEN inquired as to the interest rate the
Alaska Permanent Fund Corporation (APFC) is currently receiving
for bonds. He also asked whether the APFC anticipates a billion
dollar loan to a project similar to the one being discussed,
would garner the same interest rate.
MS. ACHEE informed the committee APFC's total bond portfolio is
about $8 billion. This is a well diversified portfolio with a
variety of yields. In response to earlier questions, she
indicated APFC's investment staff's interest in a specific bond
depends upon its review of the bond on the day of issue.
4:29:12 PM
REPRESENTATIVE TUCK noted that HB 44 grants APFC authorization
to invest $1 billion in in-state energy projects without a
stated rate of return, but with negotiated rates of return.
4:29:50 PM
JERRY BURNETT, Deputy Commissioner, Treasury Division,
Department of Revenue, gave the example of a revenue proposal by
ANGDA based on an income stream. Based on the rating of the
project, the credit rating of ANGDA, and whether they are tax
exempt, AAA rated revenue bonds are currently at 5.25 to 5.5
percent. Last year, they were one percent less and next year's
rate is unknown. There is a tremendous variability of credit
rating spreads and this type of bond will be very project-
specific and specific to the entity issuing the debt. He opined
Mr. Heinze's point is that if tax exempt rates apply, and a
state corporation issued the debt, the interest rate may be
lower and savings will flow to the consumer.
4:32:02 PM
REPRESENTATIVE RAMRAS asked whether the administration supports
HB 44.
MR. BURNETT said the administration has not taken a position at
this time.
4:32:29 PM
REPRESENTATIVE RAMRAS asked whether the administration plans to
get ENSTAR and ANGDA together to re-establish a dialog on a
public-private relationship
MR. BURNETT said he can not speak to that.
4:32:51 PM
REPRESENTATIVE PETERSEN expressed his understanding the U.S.
Congress has passed a guarantee of $18 billion to back the
building of a gas line from Alaska. He asked whether that would
have any effect on the bond rating for the project.
MR. BURNETT opined there would be no effect.
4:33:39 PM
PAUL FUHS informed the committee he was formerly chairman of the
board of the Alaska Industrial Development & Export Authority
(AIDEA) and the Alaska Energy Authority (AEA). He stated he
knew quite a bit about public financing and was one of the
authors of the initiative for ANGDA. Mr. Fuhs expressed his
support of HB 44 because it keeps [the state's] options open.
He spoke of the uncertainty of getting a gas supply to Alaskans,
and advised the proposed legislation is permissive language that
is not an appropriation or a mandate to sell bonds. In response
to Representative Ramras, he emphasized a bond issued by ANGDA
is the debt of the authority, not the state. Furthermore, if
ANGDA issues a bond without sufficient revenue to pay for it,
the bond would not sell. He noted a similar issue with the
Wyoming [Pipeline] Authority and encouraged the committee to
review its resolution. Mr. Fuhs opined public authorities are
tasked to consider the public good which is why ANGDA has looked
at a variety of projects, such as value-added processing, and
other projects for the benefit of the public. He advised the
passage of HB 44 is not an either/or decision regarding a public
or a private project, but rather a combination of the two, which
is the best result. Mr. Fuhs stated he was speaking as a
consumer in Southcentral Alaska.
4:37:47 PM
REPRESENTATIVE RAMRAS asked Mr. Fuhs to identify the market that
would finance $250 million in bonds for ANGDA.
MR. FUHS advised municipal or state agency debt is generally
bundled into larger bond offerings to get a better rate; the
bonds are then offered to the general commercial market based on
credit worthiness and the ability to repay.
4:39:46 PM
REPRESENTATIVE RAMRAS suggested if ANGDA bonds were bundled with
those of the Alaska Housing Finance Corporation (AHFC), it may
cause higher rates for AHFC.
MR. FUHS deferred the question to Dan Fauske, Chief Executive
Officer, AHFC.
4:40:46 PM
REPRESENTATIVE PETERSEN assumed the good faith and credit of the
state and the support of the APFC [investment] board would
strengthen the value of the bond offering.
MR. FUHS clarified there is no intermingling with the APFC. He
said he previously stated the bonds could be bundled with "like"
agencies.
4:41:54 PM
CO-CHAIR MILLETT closed public testimony.
4:42:05 PM
REPRESENTATIVE DAHLSTROM moved to report CSHB 44, Version 26-
LS0231\R, Kane, 2/16/09, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSHB 44(ENE) was reported from the House Special
Committee on Energy.
4:42:32 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 4:42 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Barley biomass Juneau trip.pdf |
HENE 2/17/2009 3:00:00 PM |
|
| ANGDA comments on HB44 for 021709.pdf |
HENE 2/17/2009 3:00:00 PM |
HB 44 |
| Sectional Analysis_HB 44CS-R.pdf |
HENE 2/17/2009 3:00:00 PM |
HB 44 |
| HB 44 Sponsor Statement_CS-R.pdf |
HENE 2/17/2009 3:00:00 PM |
HB 44 |
| HB 44 CS-1.pdf |
HENE 2/17/2009 3:00:00 PM |
HB 44 |