Legislature(2013 - 2014)BARNES 124
02/04/2013 08:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Overviews (s): Weatherization Programs Update 2013 Alaska Housing Finance Corporation | |
| Overview (s): Alaska Industrial Development and Export Authority Lng Trucking Project | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
February 4, 2013
8:06 a.m.
MEMBERS PRESENT
Representative Doug Isaacson, Co-Chair
Representative Charisse Millett, Co-Chair
Representative Neal Foster
Representative Pete Higgins
Representative Shelley Hughes
Representative Benjamin Nageak
MEMBERS ABSENT
Representative Andrew Josephson
COMMITTEE CALENDAR
OVERVIEW(S): WEATHERIZATION PROGRAMS UPDATE 2013 ALASKA HOUSING
FINANCE CORPORATION
- HEARD
OVERVIEW(S): ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY
LNG TRUCKING PROJECT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DAN FAUSKE, CEO/Executive Director
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Provided opening remarks prior to the
PowerPoint presentation entitled, "AHFC Energy Programs Update."
JOHN ANDERSON, Program Officer
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "AHFC Energy Programs Update."
STACY SHUBERT, Director
Governmental Affairs & Public Relations
Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the presentation
by Alaska Housing Finance Corporation entitled, "AHFC Energy
Programs Update."
TED LEONARD, Executive Director
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "Energy Project Overview," dated February 2013.
MARK DAVIS, Deputy Director
Investment Finance & Analysis
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Participated in the PowerPoint presentation
entitled, "Energy Project Overview," dated February 2013.
NICK SZYMONIAK, Project Economist
Alaska Energy Authority (AEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Answered a question during the presentation
by the Alaska Industrial Development & Export Authority (AIDEA).
ACTION NARRATIVE
8:06:02 AM
CO-CHAIR DOUG ISAACSON called the House Special Committee on
Energy meeting to order at 8:06 a.m. Representatives Hughes,
Nageak, Foster, Higgins, Millett, and Isaacson were present at
the call to order.
^OVERVIEWS (S): WEATHERIZATION PROGRAMS UPDATE 2013 ALASKA
HOUSING FINANCE CORPORATION
OVERVIEWS (S): WEATHERIZATION PROGRAMS UPDATE 2013 ALASKA
HOUSING FINANCE CORPORATION
8:06:54 AM
CO-CHAIR ISAACSON announced that the first order of business
would be an update by the Alaska Housing Finance Corporation
(AHFC) on weatherization programs.
8:08:19 AM
DAN FAUSKE, CEO/Executive Director, Alaska Housing Finance
Corporation (AHFC), advised that the successful energy and
weatherization program is a good example of a government fund
achieving its stated goals and bringing a benefit to the people
of the state from Barrow to Ketchikan.
8:09:27 AM
JOHN ANDERSON, Program Officer, AHFC, introduced the PowerPoint
presentation entitled, "AHFC Energy Programs Update." He
informed the committee that beginning in 2008, major funds for
the energy and weatherization program have come to AHFC through
a capital appropriation of $300 million, and with subsequent
appropriations the total funds received to date are $510 million
[slide 2]. Accomplishments to date are: home energy rebate
program - 17,908 homes completed; new home rebate program -
1,751 homes completed; and weatherization program - 8,513 homes
completed. This is a total of 28,000 homes made more energy
efficient, which is over 10 percent of the housing stock in
Alaska. In response to Co-Chair Isaacson, he clarified that
this number is over 10 percent of the occupied units in Alaska.
CO-CHAIR ISAACSON observed that if over $500 million has been
spent on the program and the average amount spent per home is
$18,888, it will cost $6 billion to weatherize every eligible
home.
MR. ANDERSON said correct.
8:12:00 AM
REPRESENTATIVE HUGHES asked how apartment units are counted.
MR. ANDERSON answered that rental units are included through the
weatherization program; condominiums (condos) and owner-occupied
units of multi-unit structures are eligible for the rebate
program. In further response to Representative Hughes, he said
the four units in a fourplex would count individually as four
[homes].
CO-CHAIR MILLETT noted that many houses built in the last 10
years do not need energy efficiency measures or weatherization,
but the program should target houses built pre-1990 and those in
dire need. She asked for a ratio of completed urban homes to
rural homes, so the committee can discuss how to make the rebate
program available to lower-income owners or those in rural
Alaska, perhaps by bonding contractors or establishing "cost-
equalization" for rural applicants.
MR. ANDERSON responded that expenditures along the urban-to-
rural split are about 70:30 when both programs are combined,
thus the rebate program has shown to be more beneficial to urban
Alaska. On the other hand, the weatherization program shows a
70 percent benefit to rural homeowners. Alaska Housing Finance
Corporation is seeking options to try to help those without the
cash needed to participate in the rebate program; one idea
proposes a 1 percent heating conversion loan. He pointed out
that of 40,000 home energy rebate program applicants 40 percent
have decided not to participate, usually because their houses
received an energy rating above Four Star Plus.
8:15:56 AM
CO-CHAIR MILLETT advised it was never the legislature's
intention to weatherize every house in Alaska, but to target
older homes.
CO-CHAIR ISAACSON asked how many Five Star and Five Star Plus
energy rated homes are in Alaska.
MR. ANDERSON was unsure of the total, but said over 1,751 Five
Star Plus new construction homes have been rebated. In further
response to Co-Chair Isaacson, he offered to provide statistics
on Four Star and above rated homes as well.
REPRESENTATIVE HIGGINS understood that the program will rebate
up to $10,000, but an applicant doesn't need $10,000 to apply
for an energy audit.
MR. ANDERSON confirmed that if an applicant spent $1,000 that is
the rebate they would receive. The "set" rebate levels begin at
$4,000 and increase up to a maximum of $10,000.
CO-CHAIR MILLETT stressed that an applicant must pay for the
weatherization up-front, and some residents do not have the cash
in the bank to pay the contractor. This is the flaw in the
legislation that she wants to address for those who most need
the weatherization and savings.
8:18:48 AM
REPRESENTATIVE HIGGINS indicated that the weatherization program
is the "free" program that does the same thing.
MR. ANDERSON stated the rebate and weatherization programs are
creating safer, better quality, and more affordable heating
sources in Alaska's homes. In addition, 4,000 jobs have been
created or retained since 2008. A study by the Institute of
Social and Economic Research (ISER), University of Alaska
Anchorage, reported 1,780 indirect jobs and 407 jobs gained from
spent energy savings [slide 5].
8:20:46 AM
CO-CHAIR ISAACSON ascertained the quality of the jobs gained is
not reported.
MR. ANDERSON said correct.
8:21:06 AM
REPRESENTATIVE NAGEAK asked whether the 407 jobs gained from
spent energy savings would be for vendors.
MR. ANDERSON said according to the ISER study, impacts were on
jobs ranging from clerical staff to stocking shelves, and he
offered to provide copies of the report to the committee. Mr.
Anderson then explained that AHFC now has a database sufficient
to extrapolate the estimated benefits accumulated from the
rebate and weatherization programs since 2008 as follows:
Almost 6 trillion Btu have been saved, which are equivalent to
over 400,000 barrels of oil, [23,567,420] one hundred cubic feet
(CCF) of gas, [17,077,840] gallons of fuel oil, or [690,721]
megawatt [hours] of electricity saved annually [slide 6]. These
estimates, which are derived from AkWarm energy rating software,
put the savings at around $37 million per year from 28,000 homes
made more energy efficient by the rebate and weatherization
programs. Mr. Anderson observed that the savings are spent
locally and are recirculating through the economy [slide 7]. An
additional estimate was that 8,275 Anchorage homes that were
weatherized through the rebate program saved enough energy to
power 3,437 homes in the Anchorage area for one year, or the
Performing Arts Center, Egan Convention Center, Sullivan Arena,
Robert Atwood Building, and Dena'ina Center for almost nine
years [slide 8].
CO-CHAIR ISAACSON asked how the aforementioned estimates were
computed.
MR. ANDERSON explained that AkWarm modeling software computes
the cost of energy, and the entire energy use of a structure, at
the time of the rating. Currently, an average home in Alaska
uses 281 million Btu per year. The cost savings estimated in
the presentation were based on the time of each individual
rating, thus the savings are an average since 2008.
8:25:14 AM
REPRESENTATIVE HUGHES asked Mr. Anderson to project when the
state will recoup its investment of $510 million.
MR. ANDERSON said that information will follow later in the
presentation. He turned attention to AHFC's specific programs,
saying the weatherization program is designed for low-income
residents; in 2008 changes were made so that an applicant's
income can go up to 100 percent of the median income of the U.S.
Department of Housing and Urban Development (HUD) poverty income
guidelines. Clients are ranked in seven priorities in favor of
the elderly, homes with children, and families with disabilities
[slide 9]. The weatherization program is focused on health and
safety, energy efficiency, homeowner education, comfort, and
building durability [slide 12]. Additional benefits are the
resulting local employment and training, and a community-type
approach [slide 13].
REPRESENTATIVE FOSTER asked how AHFC decides which village will
be weatherized in a given year.
MR. ANDERSON answered that in 2008 AHFC requested a five-year
work plan from local agencies, although because of current
funding levels the planning is now done year-to-year. The
regional housing authorities are most familiar with each area
and provide information on their region's biggest needs; AHFC
then selects over 100 communities each year. As of 12/31/12,
the weatherization program has expended almost $200 million and
is expected to expend to grantees $230 million for 10,500 units
completed by the end of the grant cycle on 3/31/13. Fiscal Year
2013/2014 (FY 14) grants are being prepared for the upcoming
work season [slide 14]. Mr. Anderson acknowledged that the
weatherization program does not reap as much in savings as the
rebate program for many reasons, one of which is that AHFC is
the contractor for the work, and health and safety matters
surrounding the residences are taken care of before a job can be
completed. Still, the average cost savings per year per
resident is $1,336 from the weatherization program [slide 15].
When looking at savings by region, the NANA Regional
Corporation, Inc. (NANA) region is receiving the highest energy
savings per home, and Anchorage receives the lowest. He added
that in urban Alaska AHFC spends $11,000 per unit; in rural or
remote Alaska the average is $30,000 per unit due to the cost of
materials, and logistics [slide 16].
8:31:25 AM
CO-CHAIR ISAACSON observed the Interior does not benefit as much
compared to outlying areas, and asked whether that is because of
the quality of housing.
MR. ANDERSON indicated yes. There is a lot of old housing in
Fairbanks and Anchorage with life-safety issues and/or heating
conversions. These improvements are substantial but do not
result in energy savings as great as those from air sealing and
insulation.
CO-CHAIR ISAACSON asked for a description of the differences
between the energy rebate and weatherization programs.
MR. ANDERSON explained that AHFC's goal for both programs is
energy efficiency. In fact, the greatest return on investment
for either program is from air sealing and insulation; however,
in some cases after safety investments to the heating systems
are made "there's not much left else to do on the house." In
response to Representative Higgins, he confirmed that 807 was
the number of houses in the sample for Fairbanks [slide 16].
REPRESENTATIVE HIGGINS asked whether the weatherization program
has a maximum expenditure level per house.
MR. ANDERSON stated that in urban, or road-system Alaska,
$11,000 per unit is the maximum spent by the weatherization
program. In remote areas not connected by roads, the average is
$30,000 per unit. However, the agencies are allowed flexibility
to determine how much is spent on each site.
8:35:08 AM
REPRESENTATIVE HUGHES requested clarification on the state's
role in the weatherization program, and on income requirements.
MR. ANDERSON referred to the weatherization program, and
explained the state is the contractor and applicants apply to
one of seventeen agencies to see if they qualify, based on
income. The rebate is open to everyone, but a homeowner cannot
participate in both. In further response to Representative
Hughes, he said applicants to both programs apply to the
agencies. For the rebate program, AHFC directs applicants to a
call center from where they are dispatched to an energy rater in
their area to begin the process.
MR. FAUSKE added that individuals performing the work are not
state employees. The corporation has contracted out the call
center and the contractors that it uses are independent
agencies. Although AHFC has oversight over the program and the
work, its staff is at a bare minimum.
MR. ANDERSON agreed, and said that AHFC writes the policies and
procedures that the grantees are required to follow, although
they are independent entities.
REPRESENTATIVE HIGGINS asked how many applications are received
from each region.
MR. ANDERSON did not know, but he said most agencies have a
waitlist and the weatherization program averages over 3,000
units per year. The difficulty for AHFC is to ensure that
applicants are not approved and waiting for programs that may
not be funded.
8:39:29 AM
STACY SHUBERT, Director, Governmental Affairs & Public
Relations, AHFC, interjected that the waitlist through Rural
Alaska Community Action Program, Inc. (RurAL CAP) - the agency
in Anchorage - is 170 units as of 12/12/12. In further response
to Representative Higgins, she said the waitlist was for the
weatherization program.
REPRESENTATIVE HUGHES asked for the income guidelines for a
family of four to be eligible for the weatherization program.
MR. ANDERSON said income limits for a family of four are: in
the Municipality of Anchorage, $85,200; in the Fairbanks North
Star Borough, $84,600; in the Kodiak Island Borough, $71,100.
Prior to 2008, AHFC was following the 2012 U.S. Department of
Energy (U.S. DOE) poverty income levels, and still must do so
regarding any federal funds it receives.
CO-CHAIR ISAACSON requested a copy of the income guidelines.
REPRESENTATIVE FOSTER compared income limits in Anchorage and
Dillingham, noting that a person in Dillingham making $50,000
per year would be over the limit, but the same income in
Anchorage would qualify for the weatherization program.
8:43:03 AM
MR. ANDERSON advised that AHFC has encouraged all affected
entities and the Native regional corporations to study these
guidelines; in fact, NANA has begun a review. The state does
not set the levels and what considerations regarding the cost of
fuel, for example, are unknown. A review is forthcoming from
U.S. Senator Lisa Murkowski. He then directed attention to the
home energy rebate program, explaining that it is open to all
Alaskans, has no income requirements, and is limited to owner-
occupied residents. The homeowners pay up front for the cost of
the improvements and are then rebated after the required as-is
and post-AkWarm rating [slide 17]. The rebate is based on the
improvements that were made and how the home benefitted from the
work. Since 2008, 1,751 Five Star Plus new homes qualified for
a total of $13.1 million paid in rebates [slide 18]. One
change to the program is that a resident can re-apply for a
different home. The rebate program has meant that $209.1
million has been spent on energy efficiency improvements by a
combination of state and individual investments [slide 19].
Individually, of 17,000 rebates, the average consumer has spent
at least $11,000 between the average state contribution of
$6,389 and the average homeowner contribution of $4,792 [slide
20]. Mr. Anderson stated that the program is meeting the
original intention of the 2008 legislation. Based on the
average energy savings per home, the homeowner's investment is
paid back in 3.3 years [slide 21]. Regionally, the pay-back in
Fairbanks is 2 years [slide 22].
8:47:39 AM
MR. FAUSKE recalled the total investments by the homeowners put
approximately $25 million back in the economy.
8:48:09 AM
MR. ANDERSON restated that total energy savings are about $37
million per year. He continued, saying the average savings from
the rebate program is 103 million Btu per year or an average
home energy use reduction of 34 percent [slide 23]. At this
time, 32,294 as-is ratings have been completed, and the number
of completed rebates is near 18,000. The statewide waitlist
numbered 511 as of 1/25/13 [slide 25]. In September 2012, the
waitlist dropped, so there was an advertising campaign primarily
in Southcentral to encourage participation.
MR. FAUSKE cautioned that aggressive advertising could bring in
more applications than available funding. Initially, AHFC made
a commitment to the legislature not to get ahead of funding so
that Alaskans know the money is there once they have applied.
Prior to another advertising campaign the AHFC administration
must look at the funding levels.
REPRESENTATIVE HUGHES asked whether advertising has targeted
residents in Fairbanks.
MS. SHUBERT informed the committee that AHFC had not advertised
either program since inception in 2008, leading to concerns that
people in rural communities were not aware of the programs.
Recently, targeted mailers were sent to 100 rural communities
and there was a six-week radio campaign in Fairbanks that led to
an increase in applications. The corporation is reluctant to
advertise again due to the status of funding.
8:52:50 AM
CO-CHAIR ISAACSON expressed his belief that residents in the
Interior right now are strapped for cash and credit-poor. The
possibility of a long waiting period for the rebate is
frustrating, and people are moving away instead of upgrading
their houses - which is tragic for the economics of Fairbanks
and for the state. He asked how long the delay is for the
rebate payment.
MR. ANDERSON said AHFC issues the rebate payment within 40 days
to 60 days.
REPRESENTATIVE NAGEAK observed that those above the low income
level can take this opportunity to review the literature on
energy savings and examine their personal needs. He shared the
benefits of replacing the heating system in his home and his
plans for future upgrades.
MR. ANDERSON reviewed the Second Mortgage for Energy
Conservation program. To date, 147 loans have been made, and
the average interest rate for this program is 3.5 percent [slide
30]. He was unsure as to why the program is not more popular.
REPRESENTATIVE FOSTER asked if a fourplex would qualify for the
second mortgage program.
MR. ANDERSON indicated yes, if the unit is owner-occupied.
CO-CHAIR ISAACSON asked for clarification on whether
condominiums (condos) and townhomes are included.
8:56:50 AM
MR. ANDERSON opined condos would not be eligible for the second
mortgage loan because the condo association must be involved.
However, condos are eligible for the rebate program and his
staff works closely with condo associations and owners to
facilitate the rebate program. He directed attention to other
programs, beginning with the Alaska Energy Efficiency Revolving
Loan Program (AEERLP) which is a $250 million public facilities
loan program started with federal funds received from the
American Recovery and Reinvestment Act of 2009 (ARRA). The AHFC
staff saw the potential benefit of saving energy in Alaska's
public and commercial facilities, leveraged the ARRA funds, and
created an available loan capacity of $250 million [slide 33].
Over 1,200 public buildings were benchmarked and investment
grade audits were conducted in 327 buildings. Investment grade
audits are an in-depth energy look at each facility using AkWarm
ratings [slide 34]. After two years, AHFC developed a white
paper and some of the major findings are: adopt and enforce
energy codes; require publically-owned buildings track their
energy use; and establish accountability [slide 35]. Mr.
Anderson said the process revealed that "no one was tracking
their energy use." Additional white paper findings are: over
5,000 public buildings exist in Alaska; there are around 20,000
total commercial facilities; the estimated energy cost of the
public buildings equates to approximately $641 million each
year; and with an average savings of $25,000 per public
building, the potential statewide annual savings would be $125
million [slide 36].
CO-CHAIR ISAACSON asked whether Siemens is in charge of this
program.
MR. ANDERSON advised that Siemens Government Technologies (SGT)
is one of the Energy Service Companies (ESCO) that is involved.
9:00:25 AM
CO-CHAIR ISAACSON recalled the experience in North Pole was that
the rater took approximately two years to come. However, "it
seems to provide promise to municipalities."
9:00:48 AM
MR. ANDERSON surmised the City of North Pole (North Pole) did
not apply for a loan through AHFC.
CO-CHAIR ISAACSON said North Pole qualified for a grant through
the state.
MR. ANDERSON said the aforementioned loan was from the
Department of Transportation & Public Facilities (DOTPF), which
follows the same model, but its loan program was from $10
million of ARRA money appropriated to DOTPF. In further
response to Co-Chair Isaacson, he noted there was no redundancy
between programs; in fact, DOTPF is in charge of its own
buildings and had prior experience with ESCO contractors.
Similarly, AHFC gave the University of Alaska a direct
appropriation to pay for an investment grade audit.
MR. FAUSKE added that the program is self-sustaining because the
energy savings guaranteed by the contractor will be sufficient
to service the indebtedness necessary to pay for the
improvements being made. The program can continue indefinitely
as municipal governments and others are enticed to save energy
and the program will pay for itself. Hospitals in the state are
interested in participating, but the program is restricted to
municipally- or government-owned facilities. Including
hospitals could have a huge impact on local communities and the
cost of delivering services.
MR. ANDERSON turned attention to the Alaska Retrofit Information
System (ARIS) and explained that it is a comprehensive database
with the capability to provide statistics and outcome reports on
the rebate and weatherization programs, and the AHFC white paper
[slides 37 and 38]. The database is evolving and AHFC is
optimistic about its future use by DOTPF, the Alaska Energy
Authority (AEA), and all other state agencies to track energy
use. Mr. Anderson then concluded his presentation by saying
that the team and programs at AHFC create jobs, save energy, and
affect lives in a positive manner.
9:06:26 AM
REPRESENTATIVE FOSTER agreed and observed that large projects
get a lot of attention, but programs like this provide a quick
pay-back on investment, and help the people living in the most
energy inefficient homes.
REPRESENTATIVE HIGGINS agreed.
REPRESENTATIVE NAGEAK agreed.
REPRESENTATIVE HUGHES agreed.
CO-CHAIR ISAACSON said, "The best savings in energy is the
dollar not spent." He then cautioned that regional stability
still needs to be attained for the long-term.
^OVERVIEW (S): ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY LNG TRUCKING PROJECT
OVERVIEW (S): ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY
LNG TRUCKING PROJECT
9:09:34 AM
CO-CHAIR ISAACSON announced that the final order of business
would be a presentation by the Alaska Industrial Development and
Export Authority (AIDEA).
9:11:06 AM
The committee took an at-ease from 9:11 a.m. to 9:15 a.m.
9:15:47 AM
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), Department of Commerce, Community
& Economic Development (DCCED), informed the committee AIDEA's
mission is to promote, develop, and advance economic growth and
diversification in Alaska through financing and investment.
This is accomplished by providing access to long-term commercial
and development financing - at a reasonable cost - by using
AIDEA's strong balance sheet: an AA+ credit rating and
approximately $1.1 billion in net assets [slide 2]. In AIDEA's
energy finance tool box are the following: can own all or part
of an energy project; can co-invest with a corporation or a
limited liability company (LLC) that owns a project; can
purchase up to 90 percent of a loan from a qualified financial
institution up to $20 million for an energy project or for
energy conservation; can provide direct financing or guarantees
for up to one-third of the capital cost of a qualified project;
and can issue revenue bonds for a qualified project [slide 3].
Currently, AIDEA owns two large energy projects, the [Snettisham
Hydroelectric Project] which is leased to Alaska Electric Light
and Power (AEL&P) in Juneau, and the Endeavour-Spirit of
Independence jack-up rig (Endeavour) now located in Homer and en
route to oil and gas leases.
9:18:54 AM
MR. LEONARD recalled last year the legislature directed AIDEA to
invest in "qualified" energy projects which are limited to those
involved with transmission, generation, conservation, and
storage or distribution of heat or electricity; liquefaction,
regasification, distribution, and storage or uses of natural
gas; and distribution or storage of refined petroleum products.
He advised that the aforementioned definition is vital to
AIDEA's loan participation and the Alaska Sustainable Strategy
for Energy Transmission and Supply (ASSETS) programs [slide 4].
Other definitions revolve around AIDEA's development finance
program which serves to promote natural resource development;
for example, Endeavour was financed through the development
finance program. Mr. Leonard called attention to slide 5, which
was a chart illustrating phases of AIDEA's development project
analyses used to decide which projects to finance and how the
projects are financed. There are four phases to advance a
project: the first phase is to see if the project matches
AIDEA's statute; the second phase is the feasibility analysis;
the third phase is the due diligence analysis of the business
plan and recommendations to AIDEA's board of directors; and the
fourth phase is the final structuring and moving forward with
the project [slide 5]. As an aside, he reported on the status
of the Endeavour, which was a strategic investment to support
oil and gas exploration in Cook Inlet. The authority's
investment is approximately $23.6 million out of a total cost of
$120 million thereby leveraging about $96 million. Currently,
the Endeavour is completing refurbishment in Homer, and the
general manager, Buccaneer Energy, announced the goal is to have
the Endeavour drilling in late March and April. The Endeavour
is projected to drill three exploratory wells this year [slide
6].
9:23:41 AM
MARK DAVIS, Deputy Director, Investment Finance & Analysis,
AIDEA, DCCED, stated that one of AIDEA's projects this year is
to work on legislation for the governor's energy plan. Part of
the plan is to explore the possibility of building a liquefied
natural gas (LNG) plant on the North Slope and trucking the gas
to Fairbanks. After reaching Fairbanks, the gas would be
distributed for heating purposes and would be available to
utilities for electrical generation. The goal is to provide
lowest-cost energy to the Interior as soon as possible. The
plan includes a cost benefit analysis and is designed to advance
quickly so that the project is operational within 30 months to
36 months. Involvement by the private sector is encouraged and
forthcoming legislation provides for $355 million to garner
additional private investment [slides 7 and 8].
9:25:10 AM
REPRESENTATIVE HIGGINS asked for the current development
analysis phase of this project.
MR. DAVIS recalled that in 2008 DCCED concluded that trucking
gas from the North Slope to Fairbanks would be competitive if
the price of oil stayed above about $65 per barrel, thus the
project has already met the suitability assessment and is moving
into phase 2. In further response to Representative Higgins,
he said if the project is approved in the spring, the stated
goal is to have gas flowing into Fairbanks in 30 months.
MR. LEONARD pointed out there is a schedule at the end of the
presentation.
MR. DAVIS said the plan is to liquefy the gas on the North Slope
and AIDEA received 16 responses to its request for information.
The proposed plant is to be movable and may be relocated should
Fairbanks develop another source of gas.
CO-CHAIR ISAACSON asked for a description of the responses.
MR. DAVIS explained AIDEA received four types of offers: two
turnkey offers including a plan, real estate, and engineering
work; three offers were for financing only; two were "pure
engineering" offers to work on the design; and others were from
firms that do not provide financing but will design, build,
maintain, and operate the plant for a given amount of money. He
continued, noting that for the trucking plan the gas would be
liquefied at a small, movable 9 billion cubic feet (Bcf) plant
that would process enough gas to supply the areas of primary
demand - Fairbanks and North Pole - and the byproduct of
propane. The LNG would be temporarily stored and regasified,
utilizing gas storage credits and AIDEA's bonding authority to
finance the construction of storage and the Fairbanks
distribution system.
9:30:17 AM
REPRESENTATIVE HIGGINS asked for the size of the system needed
to distribute gas to Fairbanks proper.
MR. DAVIS answered that the Alaska Energy Authority (AEA) has
estimated 7 Bcf to 9 Bcf is needed to distribute gas to the core
area, depending on the design of the system, and the entire area
would need 18 Bcf to 20 Bcf. The present goal is for 7 Bcf to 9
Bcf.
REPRESENTATIVE HUGHES asked whether the distribution system
would be constructed simultaneously and would also be ready in
30 months.
MR. DAVIS advised it is desirable for the distribution system to
be built at the same time, and financed by local improvement
district (LID) funds. In further response to Representative
Hughes, he said 30 months to 36 months is "an aggressive, but
doable timeframe."
CO-CHAIR ISAACSON said:
And just to clarify, that ... would be to start in an
area that is already non-certificated at the moment,
and so the certificated area currently owned by FNG -
Fairbanks Natural Gas - they would presumably become
more aggressive in their area, and then, starting it
in the non-certificated area to meet it. But, 80
percent penetration still is anticipated to be three
to five additional years.
MR. DAVIS agreed.
9:33:24 AM
REPRESENTATIVE NAGEAK surmised the liquefaction plant would be
located in Prudhoe Bay.
MR. DAVIS said it would be on the North Slope in one of the
production areas near a present source of gas. In further
response to Representative Nageak, a regasification plant and
gas storage would be built in Fairbanks.
REPRESENTATIVE NAGEAK asked whether transportation of the LNG is
part of the cost of the project, or will be done by private
firms.
MR. DAVIS expressed his belief that trucking is not part of the
project cost, but that a firm, or firms, would have to be hired
to provide transportation.
MR. LEONARD added that a private utility is presently trucking
LNG to Fairbanks and has a regasification facility there now.
In response to Representative Hughes, he said when AIDEA studied
the trucking project four years ago, there was sufficient demand
and the project made sense; however, the two large industrial
tenants, Golden Valley Electric Association (GVEA) and Flint
Hills Resources were not "willing to step up to the plate." In
response to Co-Chair Isaacson, he confirmed that the existing
regasification plant and storage are not adequate to handle the
projected additional volume.
CO-CHAIR ISAACSON asked for descriptions of two other aspects of
the project, the ability to supply natural gas to Cook Inlet and
the potential to supply propane to rural communities along
rivers.
MR. LEONARD stated that the 9 Bcf plant is designed mainly to
meet the needs of the Interior. The plant would be built with
the ability to add 4 Bcf modules up to a maximum of 20 Bcf. The
turnkey offers included gas contracts also up to 20 Bcf, thus
the challenge is whether Cook Inlet demand is enough to pay for
the expansion.
9:38:18 AM
MR. DAVIS informed the committee the governor's proposed
Interior energy plan legislation intends to use AIDEA financing
leveraged with the private sector to achieve the best debt
service for the project. The details of the finance plan are as
follows: $50 million in general fund (GF) appropriation to
AIDEA; $150 million authorization for AIDEA to issue bonds for
the distribution system at an interest rate of 3 percent; and
$125 million in recapitalization of the Sustainable Energy
Transmission and Supply Development Fund (SETS) would provide a
financing structure. Finally, $30 million in natural gas
storage credits is added in to equal $355 million.
REPRESENTATIVE HUGHES asked how much private investment the plan
leverages.
MR. DAVIS explained the request is for $175 million, in addition
to the $50 million in equity and $125 million in loans.
Construction of the plant will cost in the range of $220
million, and the working capital must be provided. This will be
a range of about $30 million to $40 million, maybe more, with
the private components. The bonds will provide a beginning, and
the entire project could be privatized after the state "get[s]
it going."
REPRESENTATIVE HUGHES further asked for a dollar amount.
MR. DAVIS advised $220 million is needed to build the plant and
the proposed legislation directs $175 million. In further
response to Representative Hughes, he confirmed that this is an
immediate shortfall of $55 million, and more money is needed
"down the road."
MR. LEONARD said the total estimated cost for the distribution
and production facilities is about $800 million to $900 million
for the medium- and high-density areas of Fairbanks. This is a
typical financing package, with 50 percent in SETS loans,
mezzanine financing of 30 percent, and the equity from the
private sector of about 20 percent. The goal over the long-term
period is that the SETS loan would be repaid at the 3 percent
range. Mr. Leonard pointed out the value of moving forward now,
when the interest rate environment for long-term infrastructure
is at an historic low.
9:43:54 AM
REPRESENTATIVE NAGEAK asked how the GF $50 million appropriation
directly reduces the cost of energy.
MR. DAVIS explained that the $50 million would be put into the
potential cost of the LNG plant. The flow of gas from the plant
would be divided into two sectors, one sector for utility use
primarily for heating and the second sector for commercial use
to be sold to defray the cost; the $50 million would be applied
to utility use as an equity infusion and that would reduce the
rate to ratepayers. The expected utility price per thousand
cubic feet of natural gas (Mcf) is $10.33 for wholesale LNG and
$13.49 to $17.29 for natural gas to homes, and those prices are
dependent upon using the $50 million [slide 13].
CO-CHAIR ISAACSON asked whether the reduction to the consumer
due to lower percentage rates on debt service has been
calculated.
MR. DAVIS said the interest rates and the amortization are
modeled on slide 15. There is a relatively small change in the
cost per Mcf of gas from an interest rate of 0.0 percent to 3.0
percent. The difference in amortization between 15 years and 30
years is also small. The proposed legislation uses this kind of
leveraging from AIDEA, along with the "window of opportunity"
from low interest rates, which has a very favorable effect on
the delivered price to consumers in Fairbanks.
CO-CHAIR ISAACSON said he did not see any difference in the two
models shown on slide 15.
9:47:31 AM
NICK SZYMONIAK, Project Economist, AEA, DCCED, agreed there was
not much difference on the models shown on slide 15. He
explained that if the interest rate or amortization period were
changed there is a slight increase in the cost of plant debt
[shown as a blue bar on each of the models on slide 15]; on a
15- or 30-year amortization for example, a change in the
interest rate from 0.0 percent to 3.0 percent results in an
increase of about 25 cents per Mcf.
[Audio indistinguishable on recording from 9:49:03 a.m. to
9:49:25 a.m.]
9:49:37 AM
REPRESENTATIVE HIGGINS repeated his statement to Mr. Szymoniak,
saying he understood that the cost of the plant is not as great
as that of the trucking or the natural gas portions of the
project; therefore, even if the state pays down the plant
entirely, it will not make much difference.
{Audio indistinguishable on recording from 9:50:00 a.m. to
9:50:51 a.m.}
MR. LEONARD pointed out the finance impact on price for the
total capital expenditures (CAPEX) amortized over 15 years is
$1.51 per Mcf and amortized over 30 years is $0.95 per Mcf
[slide 14]. A 15-year loan is repaid "more up front [and]
that's going to be less in the long range." He agreed with
Representative Higgins that CAPEX is not the main driver of the
total cost of the gas from the plant.
REPRESENTATIVE HIGGINS surmised the "worst case" is $17.29 per
Mcf for the cost of gas to each home [slide 13].
9:51:34 AM
MR. LEONARD explained the range of cost is based on how many
houses are affected and whether low-density areas are included.
REPRESENTATIVE HIGGINS observed that the projected cost of gas
is a little more than half of the present cost of oil.
MR. DAVIS estimated a reduction of 40 percent to 50 percent from
the cost of oil, although the cost is affected by how many
customers pay for distribution [slide 13].
CO-CHAIR ISAACSON emphasized the importance of lowering the
price as far as possible in order to incentivize residents to
abandon heating with wood, heating oil, and coal to address
looming constraints caused by air quality issues in Fairbanks.
He advised keeping the cost of natural gas to $15 per Mcf is the
equivalent cost with wood.
MR. DAVIS assured the committee AIDEA is aware of this
situation; in fact, the goal is $10 for the wholesale price of
LNG, but the delivered price is determined by the degree of
distribution, which may be reduced by real property assessments
such as those used in other states.
CO-CHAIR ISAACSON asked whether there is proposed legislation
that allows an assessment to attach to the home rather than to
the homeowner.
9:54:36 AM
MR. DAVIS said no, and advised that would be a local matter to
be addressed by the Fairbanks North Star Borough (FNSB) and
local communities. In further response to Co-Chair Isaacson, he
opined there is no legal barrier "to having things run with
property as long as they're in your assessment."
REPRESENTATIVE HUGHES asked whether the $50 million in GF would
be transferred to AIDEA all at once and which entity collects
interest on those funds.
MR. LEONARD assumed the $50 million would be a direct transfer
to AIDEA. He explained that each year AIDEA's board of
directors calculates its net income and must declare a dividend
between 30 percent and 50 percent of its income back to the
state. So far - including this year's declaration - AIDEA will
have paid $345 million to the state; therefore, even on the SETS
loan the state will earn 50 percent of the 3 percent interest
charged. Furthermore, the $50 million in GF will be used
quickly without accruing much interest, but any interest earned
will be applied to offset the cost of the plant.
CO-CHAIR ISAACSON encouraged the committee to consider that the
impact to the state treasury is secondary to stabilizing the
regional economy and directing benefits to residents.
REPRESENTATIVE NAGEAK questioned whether after 30 years the
price of natural gas would drop to $0.95 per Mcf.
MR. LEONARD clarified that the $0.95 per Mcf is the CAPEX cost
blended into the cost of the gas; theoretically, after a 15-year
amortization period, if the plant is still operating, the cost
of gas would be reduced by $0.95, and after a 30-year
amortization period, the cost of gas would be reduced by $1.51
[slide 14].
MR. DAVIS continued to schedules and milestones, saying AIDEA
has completed advertising for letters of interest, and has
almost completed its internal evaluation of responses. The next
steps are to issue preliminary analyses of solicitations and to
develop contracts for firms to assist AIDEA with the project
[slide 16].
9:59:56 AM
MR. LEONARD shared that AIDEA's philosophy is to utilize experts
in the private sector to support its small professional staff of
15; in fact, the private sector is key on any analysis and
development of a project.
MR. DAVIS gave the example of the Endeavour: AIDEA assigned one
staff person to the project and contractors did the rest of the
work. To complete the AIDEA overview, Mr. Davis called
attention to other potential energy projects, including a
propane distribution system for 17 small Alaskan communities
using LID financing and anchored by schools or municipal
buildings.
REPRESENTATIVE FOSTER asked how spread out a distribution system
can be before becoming uneconomic.
MR. DAVIS stated the small communities under consideration are
on tidewater, so the propane can be brought in by barge which is
economic. However, if there were a source of propane from a LNG
plant, transportation along the Yukon River could become
economic. Changing rural Alaska over to gas will solve the
problems associated with fuel oil such as particulate emissions,
cost, and pollution. In further response to Representative
Foster, he said the current project is only looking at villages
on tidewater because AIDEA has a certificate of public
convenience and necessity (CPCN) for those areas.
REPRESENTATIVE NAGEAK asked whether it is feasible to have a
plant on the river and closer to the villages.
10:04:22 AM
MR. DAVIS posed the possibility that another source of gas is
brought into Fairbanks. In that case, the LNG plant that has
been designed for the present project could be moved to a
different location and produce LNG from a future pipeline that
would then be transported to villages, or to mines in the Ambler
area and along the Kobuk River. The intent of the business plan
for this project is to address the situation in Fairbanks now,
move to a plan to help rural Alaska, and develop a power source
for the mines to create jobs.
REPRESENTATIVE NAGEAK asked Mr. Davis to keep the committee
apprised of these projects.
10:06:13 AM
MR. DAVIS acknowledged prior to the passage of Senate Bill 25
last year, AIDEA's statutes limited its actions to the
development of natural resources and its revolving fund is still
directed to that work; however, at this time AIDEA has the new
SETS fund that is now available for energy projects.
MR. LEONARD stressed that AIDEA is a development finance
authority and does not set or design economic development or
energy policy, but helps to promote the state's policies.
10:07:09 AM
MR. DAVIS clarified that the utilities approached AIDEA for help
with financing after they had a design for a propane system.
CO-CHAIR ISAACSON referred to the difficulties surrounding the
Healy Clean Coal Plant (HCCP) and asked what lessons AIDEA
learned.
MR. LEONARD said AIDEA has learned how to structure contracts so
that AIDEA is in partnership with the private sector and does
not completely own many projects. The private sector needs to
be involved with the analysis and design of a project, and work
and build together with AIDEA. As an aside, he said AIDEA is
now working in partnership with GVEA, and HCCP is expected to be
running within the next two years.
MR. DAVIS noted the structure of the Endeavour project, and
stated that every investment AIDEA is making includes an exit
strategy to respond to changing market conditions. Returning to
other potential energy projects, he pointed out AIDEA is
becoming involved with energy efficiency retrofits for
commercial buildings.
10:11:00 AM
CO-CHAIR ISAACSON stressed the lessons learned from HCCP.
10:11:13 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at [10:11]
a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Agenda (H) ENE 02042013.docx |
HENE 2/4/2013 8:00:00 AM |
(H) ENE Agenda 02042013 |
| AHFC Energy Programs Update (H) ENE 02042013.pdf |
HENE 2/4/2013 8:00:00 AM |
AHFC Energy Programs PowerPoint (H) ENE 02042013 |
| AIDEA LNG Trucking PowerPoint (H) ENE 02042013.pdf |
HENE 2/4/2013 8:00:00 AM |
AIDEA LNG Trucking PowerPoint (H) ENE 02042013 |
| AIDEA Endeavor Project Sheet (H) ENE 02042013.pdf |
HENE 2/4/2013 8:00:00 AM |
AIDEA Endevor Project (H) ENE 02042013 |