Legislature(2011 - 2012)BARNES 124
03/29/2011 03:00 PM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB197 | |
| Overview: Update on the Alaska Stand Alone Gas Pipeline | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 197 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 29, 2011
3:04 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative Lance Pruitt, Co-Chair
Representative Bob Lynn
Representative Dan Saddler
Representative Pete Petersen
Representative Chris Tuck
MEMBERS ABSENT
Representative Kurt Olson
COMMITTEE CALENDAR
HOUSE BILL NO. 197
"An Act recognizing the Alaska Housing Finance Corporation as
the authorizing agency to approve home energy rating systems for
the state; and providing for an effective date."
- MOVED HB 197 OUT OF COMMITTEE
OVERVIEW: UPDATE ON THE ALASKA STAND ALONE GAS PIPELINE
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 197
SHORT TITLE: HOME ENERGY RATING SYSTEM
SPONSOR(s): REPRESENTATIVE(s) PRUITT
03/16/11 (H) READ THE FIRST TIME - REFERRALS
03/16/11 (H) ENE, FIN
03/29/11 (H) ENE AT 3:00 PM BARNES 124
WITNESS REGISTER
JEREMIAH CAMPBELL, Staff
Representative Lance Pruitt
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 197 on behalf of
Representative Pruitt, sponsor.
JOHN ANDERSON, Weatherization Officer
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
197.
DAN FAUSKE, CEO/Executive Director
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR); President
Alaska Gasline Development Corporation (AGDC)
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
197; provided a PowerPoint presentation titled, "Alaska Stand
Alone Gas Pipeline/ASAP," and dated 3/29/11.
MARY ELLEN BEARDSLEY, Assistant Attorney General
Commercial/Fair Business Section
Civil Division (Anchorage)
Department of Law (DOL)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing on HB
197.
PAT LUBY, Advocacy Director
AARP in Alaska
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 197.
JOE DUBLER, Vice President/Chief Financial Officer
Alaska Gasline Development Corporation (AGDC)
Alaska Housing Finance Corporation (AHFC)
Department of Revenue (DOR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the PowerPoint
presentation titled, "Alaska Stand Alone Gas Pipeline/ASAP," and
dated 3/29/11.
ACTION NARRATIVE
3:04:38 PM
CO-CHAIR LANCE PRUITT called the House Special Committee on
Energy meeting to order at 3:04 p.m. Representatives Pruitt,
Foster, Tuck, Petersen, and Saddler were present at the call to
order. Representative Lynn arrived as the meeting was in
progress.
HB 197-HOME ENERGY RATING SYSTEM
3:04:50 PM
CO-CHAIR PRUITT announced that the first order of business would
be HOUSE BILL NO. 197, "An Act recognizing the Alaska Housing
Finance Corporation as the authorizing agency to approve home
energy rating systems for the state; and providing for an
effective date."
3:05:31 PM
JEREMIAH CAMPBELL, Staff, Representative Lance Pruitt, Alaska
State Legislature, introduced HB 197 on behalf of Representative
Pruitt, sponsor. Mr. Campbell stated HB 197 recognizes the
Alaska Housing Finance Corporation (AHFC) as the state's Home
Energy Rating System (HERS) authorizing agency for the purpose
of approving home energy rating systems for use in the state.
This legislation is needed because non-governmental, for-profit,
third-parties are attempting to be identified in federal
legislation as the HERS agency in the state, in order to control
state policy on the issue, and to compete for funds that are
available to the state. Alaska has made an investment in AHFC
through its rating system software called AkWarm, and he opined
it is appropriate for Alaska to run the program, and not a
third-party. The AkWarm software has been used continuously
since 1996, and is designed specifically for Alaska. In
addition, AkWarm is directly tied to AHFC programs such as the
home energy rebate and weatherization programs, interest rate
reduction for home loans, and Alaska Building Energy Efficiency
Standards (BEES). This bill would enable AHFC to ensure that
any HERS utilized in Alaska would be appropriate for Alaska
climates.
REPRESENTATIVE SADDLER asked what organizations are attempting
to get certification and compete with AHFC.
3:08:13 PM
JOHN ANDERSON, Weatherization Officer, Alaska Housing Finance
Corporation (AHFC), Department of Revenue, informed the
committee that currently the organization recognized by the
Internal Revenue Service (IRS) and the U.S. Department of Energy
(DOE) is the Residential Energy Services Network (RESNET).
REPRESENTATIVE PETERSEN noted DOE uses the Smart Home Scale, and
the Environmental Protection Agency (EPA) uses Energy Star
ratings, both of which are administered by RESNET. He asked
whether the standards in Alaska would be equivalent, so that
these programs would be recognized by AHFC.
3:09:44 PM
MR. ANDERSON confirmed that AkWarm is also recognized by DOE for
AHFC's weatherization purposes in Alaska. He opined AkWarm is
far more sophisticated than the other programs, and AHFC wants
it to be the standard; in fact, AHFC has invested $1 million in
the software and upgrades since 1992. In addition, AHFC is
developing a commercial model for its public facility building
revolving loan fund.
REPRESENTATIVE PETERSEN surmised that the bill creates a new
regulatory function for AHFC.
3:10:42 PM
MR. ANDERSON explained that AHFC has administered the program
and authorized energy raters since 1992. Although independent
software may be adequate, AHFC's stance is to require other
programs to be equivalent to AkWarm.
REPRESENTATIVE PETERSEN asked whether the intent of the bill is
to ensure that all federal funding available for energy rating
programs goes to AHFC.
MR. ANDERSON clarified that the main focus is to protect the
state's investment in the AHFC program. The federal government
has named a for-profit private entity, but AHFC is experienced,
and is leading the nation on residential energy efficiency.
3:12:26 PM
REPRESENTATIVE PETERSEN asked whether any municipal building
codes will be affected by the bill.
MR. ANDERSON opined no, except for IRS tax credits, because
AkWarm is not recognized by the IRS. He pointed out that IRS
guidelines defer to the RESNET organization; however, this
legislation will help AHFC achieve IRS status. Once IRS status
is achieved, Alaska homebuilders will be able to use AHFC AkWarm
ratings to qualify for tax credits for building energy efficient
homes.
REPRESENTATIVE SADDLER asked whether there are different energy
rating systems, and for the purpose of authorizing agencies.
3:14:08 PM
MR. ANDERSON stated that an authorizing agency sets certain
criteria for software to meet before it can be utilized. The
RESNET organization provides information that is applicable to
Alaska, but AkWarm is a superior product. In further response
to Representative Saddler, Mr. Anderson said the software
provides an energy analysis of a home by measuring the
resistance to heat flow (R) value of walls, roofs, doors,
windows, and heating systems, and accounting for all of the
energy use in a home, followed by a report for improvement
options to raise a home to the building energy efficiency
standard (BEES).
REPRESENTATIVE SADDLER asked whether the bill sets the agency or
the standard.
MR. ANDERSON said the bill gives AHFC the authority to set
standards in its regulations.
3:16:38 PM
DAN FAUSKE, CEO/Executive Director, Alaska Housing Finance
Corporation (AHFC), Department of Revenue (DOR), called
attention to the fact that AHFC is nationally renowned in this
issue, and must ensure Alaska's right to regulate what comes
into the state. He predicted that as the economy improves,
other mortgage companies will return to Alaska and use different
software with lower standards of weatherization; the intent of
the legislation is to prevent the federal government from
mandated changes to a program in which the state has invested
$360 million. Alaska Housing Finance Corporation wants to see
a benchmark for regulations on rating systems.
3:18:31 PM
CO-CHAIR PRUITT asked how this situation would impact a
contractor.
MR. ANDERSON said a contractor does not need to do anything new
right now. However, proposed federal legislation - known as
Home Choice - names RESNET as the governing body of home system
software. As a matter of fact, the Home Choice program mimics
AHFC's home energy rebate program, and the only problem is that
for Alaska, it creates the threat of competing HERS software
that does not meet AkWarm standards. He pointed out that the
AkWarm software database is free to contractors, but others are
not.
3:20:19 PM
CO-CHAIR PRUITT surmised the bill should streamline mortgage
applications and energy programs.
MR. ANDERSON said correct.
MR. FAUSKE reminded the committee that BEES is state law, and
AHFC cannot purchase a mortgage unless an improvement meets
BEES; therefore, if new software is introduced in Alaska with a
lesser standard, AHFC's status in the housing industry is
weakened.
3:21:25 PM
REPRESENTATIVE PETERSEN asked whether federal legislation on
this issue would take precedence over Alaska's AkWarm program.
MR. ANDERSON indicated yes, and agreed with Representative
Petersen that AkWarm should be adopted as the federal standard.
3:22:05 PM
REPRESENTATIVE SADDLER affirmed that HB 197 would give AHFC the
sole authority to decide whether a particular energy rating
software can be used in Alaska.
MR. ANDERSON said correct. In further response to
Representative Saddler, he confirmed that AHFC will only use
AkWarm, unless a better program is developed. In response to
Representative Petersen, Mr. Anderson said AHFC has
unsuccessfully attempted to get an exclusion clause from the
IRS.
3:23:52 PM
REPRESENTATIVE TUCK questioned whether the bill applies only to
energy rating software and not to energy rating procedures,
"above and beyond software."
3:24:19 PM
MR. ANDERSON opined the bill refers to the system because there
is a training component and monitoring of the energy auditors
and raters.
MARY ELLEN BEARDSLEY, Assistant Attorney General,
Commercial/Fair Business Section, Civil Division (Anchorage),
Department of Law (DOL), agreed with Mr. Anderson that the
software is the AkWarm program that has been copyrighted by
AHFC, but the system is not just the program itself.
3:25:40 PM
REPRESENTATIVE TUCK compared this process to certificates of
fitness issued by the Department of Labor & Workforce
Development (DLWD) for electrical licenses. Because the program
establishes an authority, and is more "than just reviewing
software," he asked whether certificates will be issued to
workers after training, and how individual contractors will be
monitored and audited.
3:26:16 PM
MR. ANDERSON affirmed that AHFC authorizes energy raters and
requires certificates that are renewed every three years;
however, if a new entity enters the state, AHFC would review the
new entity's entire process and software.
MR. FAUSKE added that AHFC is trying to protect consumers; in
fact, 126 energy raters have been certified by the corporation.
Although the raters are not employees of AHFC, they visit homes
and offer advice; thus, a governing system is necessary, and
AHFC has filled that role for several years.
3:28:06 PM
REPRESENTATIVE TUCK suggested that another software company may
have a procedure that is more efficient. He asked whether a
conflict would arise if a contractor applied for an IRS tax
credit, but was not permitted to work in Alaska because AHFC's
program is not approved.
3:29:05 PM
MS. BEARDSLEY restated that AHFC has submitted its application
to the IRS to be an alternate agency. In fact, IRS regulations
indicate that RESNET is the authorization entity, "or [that] an
equivalent rating network" is acceptable. She said she was
unsure of the outcome if the matter was referred to the court
system.
MR. ANDERSON explained that at this time there are certified
RESNET auditors in the state "that do some types of tax credits
right now, on the residential ...." This would not change, but
the bill helps get AHFC's software to the same status.
REPRESENTATIVE TUCK asked how the AkWarm software is superior,
and for the difference between them.
3:31:22 PM
MR. ANDERSON reported that RESNET does not own software, but
approves the software systems, and the four systems approved
nationwide are mostly an "input point system" using blank fields
that are filled with information from the home. In contrast,
the AHFC program uses mathematic science to calculate the
insulating properties of walls and windows, ventilation, and
boilers. In further response to Representative Tuck, Mr.
Anderson said AHFC's application process began eight months ago;
in fact, AHFC received DOE's five-year approval to use AkWarm on
single-family homes and duplexes, even though the IRS has not
responded to its application for approval. He acknowledged that
the federal Home Choice bill died, but he expected similar
legislation to surface soon, and restated that AHFC would not
disallow another rating system, as long as it is equivalent.
REPRESENTATIVE PETERSEN asked if there are consequences for the
other rating companies; for example, whether the homes rated by
them are eligible for the state weatherization or energy rebate
programs.
MR. ANDERSON indicated there are no consequences; in fact, some
builders are paying for an additional rating with the software
approved by RESNET, in order to qualify for the IRS tax credit.
3:35:17 PM
PAT LUBY, Advocacy Director, AARP in Alaska, informed the
committee AARP has 93,000 members in Alaska, and wholeheartedly
supports AHFC. Mr. Luby said the weatherization and rebate
programs have proven to be historic in that thousands of
Alaskans have benefitted from the programs. He relayed a story
of how successful energy improvements to homes are, with the
resulting lower utility bills showing that energy is being
saved. Mr. Luby expressed AARP's support of HB 197, for the
benefit of consumers.
REPRESENTATIVE TUCK agreed that the energy programs are
beneficial; however, he questioned how the bill will expand or
provide better service to consumers.
MR. LUBY said AARP does not have the expertise to determine
that, but the testimony today indicated there is a problem with
the IRS.
CO-CHAIR PRUITT closed public testimony.
3:39:06 PM
CO-CHAIR FOSTER moved to report HB 197, 27-LS0628\A, out of
committee with individual recommendations and the accompanying
fiscal note. There being no objection, HB 197 was reported from
the House Special Committee on Energy.
3:39:23 PM
The committee took an at-ease from 3:39 p.m. to 3:43 p.m.
3:43:37 PM
^Overview: Update on the Alaska Stand Alone Gas Pipeline
Overview: Update on the Alaska Stand Alone Gas Pipeline
3:44:11 PM
CO-CHAIR PRUITT announced that the final order of business would
be an update on the Alaska Stand Alone Gas Pipeline by the
Alaska Gasline Development Corporation.
3:44:20 PM
DAN FAUSKE, President, Alaska Gasline Development Corporation
(AGDC), Alaska Housing Finance Corporation (AHFC), Department of
Revenue (DOR), advised that monthly reports on this project are
sent out to the legislative body and the final report is due on
7/1/11. He began a PowerPoint presentation titled, "Alaska
Stand Alone Gas Pipeline/ASAP," and dated 3/29/11. Slide 2 was
AGDC's organization graph of the Joint In-State Gasline
Development Team. Mr. Fauske said there have been recent
proposed legislative changes to the original bill that formed
the corporation, in order to address authority and possible
conflict of interest issues between AGDC and the Alaska Natural
Gas Development Authority (ANGDA). Slide 3 was AGDC's
organization graph of Project Staff. He relayed the background
experience of some of the staff, and that the mandated
stakeholder meetings have been held in several locations to
discuss the project. The project staff is small with no big
bureaucracy. Slide 4 listed Project Management/Engineering as
follows: Project Management, Hawk Consultants LLC; Engineering
Services, Michael Baker Jr., Inc.; Legal Services, Birch Horton
Bittner & Cherot; Project Pacing and Review, Independent Project
Analysis; Facilities Peer Review, WorleyParsons. Slide 5 listed
Environmental/Regulatory as follows: Environmental Services,
ASRC Energy Services (AES); Third Party EIS, Cardno ENTRIX;
Regulatory Advisor, Stoel Rives LLC. Slide 6 listed Financial
as follows: Financial Advisor, Citigroup/Ramirez; Tariff
Modeling, Black and Veatch. Economic/Market Studies: Gas to
Liquids, Hatch Associates Consultants, Inc.; Liquefied Natural
Gas, Science Applications International Corporation (SAIC);
Natural Gas Liquids, R. W. Beck Inc.
3:50:59 PM
MR. FAUSKE further advised that AGDC wanted access to a
financial team so that it could study the tax-exempt status of
the Alaska Railroad Corporation, bonds, and of financing
structures. In addition, the financial team will be led by Joe
Dubler, AGDC Vice President/Chief Financial Officer. He
reviewed the credentials of the economic market studies
contractors and said the economic studies on gas to liquids
(GTLs), liquefied natural gas, (LNG), and natural gas liquids
(NGLs) are nearing completion. Slide 7 listed State and Federal
Agency Contracts as follows: Federal BLM, Federal Lands Right-
of-Way; Alaska Department of Natural Resources, State Pipeline
Coordinator's Office - Right-of-Way Lease; Alaska Department of
Natural Resources, Cook Inlet Gas Report; Alaska Department of
Environmental Conservation, Air Quality Permitting; Alaska
Railroad Corporation, Right-of-Way, Crossing & Materials. A
report from the Department of Natural Resources (DNR) on the
economics of developing gas from Cook Inlet is expected to
answer the question of whether to run a pipeline from the North
Slope to Anchorage, or a pipeline from Cook Inlet to Anchorage
and on to the central corridor. Other possibilities to consider
are the importation of LNG and gas from the Alaska Gasline
Inducement Act (AGIA) pipeline. He assured the committee that
recommendations in the July report will include hard data, a
comparative analysis, and an analysis of Cook Inlet. He turned
to the high cost of air quality permitting and pointed out that
AGDC is in the process of negotiating agreements with other
firms to share data and economize; as a matter of fact, data
coming from other state agencies has been very good.
CO-CHAIR PRUITT asked how the proposed in-state right-of-way
legislation impacts the natural gas pipeline.
3:55:19 PM
JOE DUBLER, Vice President/Chief Financial Officer, Alaska
Gasline Development Corporation (AGDC), Alaska Housing Finance
Corporation (AHFC), Department of Revenue (DOR), said he would
review the abovementioned proposed legislation.
3:55:46 PM
MR. FAUSKE said he was pleased with AGDC's schedule, although
the environmental impact study was delayed. There are no
bottlenecks, and there is cooperation from the federal
government. Slide 8 was titled, "Cook Inlet Gas Production vs.
Alaska Stand Alone Gas Pipeline Capacity," and showed that the
project is designed for a capacity of 500 million standard cubic
feet of gas per day (MMscfd) based on the agreements placed in
HB 369. This capacity is within the limits set by AGIA,
although the project could expand with the addition of
compressors. Mr. Fauske recalled his statement last year that
the project as it stands - spending billions of dollars running
pipe over difficult terrain to supply gas to 400,000 residents -
will not "pencil." With a source of gas, however, there is a
possibility of attracting an anchor tenant. He cautioned that
the lights cannot go out in Anchorage because there will be
negative impacts throughout the state; moreover, building the
project is a 50-100 year decision, and over the long-term with
anchor tenants and development "the sky's the limit basically."
Mr. Fauske stressed his intent to concentrate on being fiscally
responsible and inventive in order to entice investors.
4:01:02 PM
CO-CHAIR PRUITT asked whether the project can be designed to
expand above 500 MMscfd, and how the cancellation of AGIA would
affect the project.
MR. FAUSKE observed that the success of AGIA is in the long-term
interest of the state, and the work done on this project could
be used to design a spur line to the AGIA gas pipeline. The
present design could be expanded to a maximum of one billion
standard cubic feet per day (Bscfd), which is far in excess of
current demand. He relayed that with a long-term predictable
supply of gas there is the potential to market gas to Japan, or
to supply gas during the period of time before the AGIA pipeline
is completed. Mr. Fauske said the final report will show all of
the potential cost, and that design changes are still possible
at that point.
4:06:02 PM
CO-CHAIR PRUITT asked for the origin of the gas supply to this
project.
MR. FAUSKE indicated that the final source has not been
determined, although the route shown in the presentation
reflects gas from Prudhoe Bay. Other possible sources include
imported LNG, gas from Cook Inlet, or gas from the AGIA
pipeline. Anadarko's Gubik gas field is a source of gas that is
mostly methane and needs less treatment than gas from Prudhoe
Bay. He opined Gubik is a very promising reserve, but is not a
dedicated source of gas. In further response to Co-Chair
Pruitt, he confirmed that a cleaner gas affects the rate of the
tariff.
4:08:25 PM
REPRESENTATIVE PETERSEN asked for the term of the bonds that
would finance the project.
MR. DUBLER explained the length of the bonds is typically
determined by the length of the gas contracts. At this time,
most of Asia is buying gas on the spot market, thus terms would
differ from the historical average of 10-20 years.
4:09:26 PM
MR. FAUSKE continued to slide 9 which was a list of the Project
Features as follows: Design Capacity - 500 MMscfd (with NGLs);
Mainline Pipeline; Fairbanks Lateral; Gas Conditioning Facility;
Two Compressor Stations; NGL Extraction Plant; Gas Take-off
Facility/NGL Straddle Plant. The Fairbanks Lateral is currently
designed to be a 12-inch diameter line which would carry gas 38
miles to Fairbanks and supply about three to four times its
present demand. Although the gas supply to Fairbanks is
included in the original legislation, excess capacity causes
problems because of the cost of conversion and with the
requirements of the Regulatory Commission of Alaska (RCA). He
also explained his opposition to a route parallel to the
Richardson Highway to Valdez due to the additional cost, and
that the AGIA pipeline has the ability to export 3.5 billion
feet of gas per day. Finally, Mr. Fauske restated his promise
not to duplicate studies, and that the most economical route for
this project is along the Parks Highway to Port MacKenzie and
the existing pipeline system. The estimated cost for the gas
conditioning facility is $4 billion, and the analysis of the
project must determine whether to treat the gas at Prudhoe Bay,
or at a straddle plant near Fairbanks. Other project facilities
are two compressor stations, a NGL extraction plant, and another
straddle plant at the terminus of the pipeline.
4:15:32 PM
REPRESENTATIVE SADDLER asked whether the $4 billion estimate
assumes a more involved process for the treatment of gas from
Prudhoe Bay, rather than of cleaner gas from the Gubik field or
the foothills.
MR. FAUSKE indicated yes; in fact, the gas from Prudhoe Bay - in
addition to the more complex process for the extraction of
liquids - contains high volumes of CO2 and hydrogen sulfide.
Slide 10 was a chart that showed the proposed mainline is 737
miles long, with a 24-inch diameter pipe under 2,500 pounds per
square inch (psi) maximum operating pressure.
CO-CHAIR PRUITT asked whether the community of Fairbanks is
prepared to pay the high cost required to convert its
infrastructure to use natural gas.
4:17:16 PM
MR. FAUSKE acknowledged that the conversion to natural gas will
be expensive for Fairbanks and the nearby military bases. He
opined this is money well-spent, if the new pipeline is sized
for the present market. The market for gas that is currently
trucked into the Fairbanks area serves 1,000 customers.
REPRESENTATIVE PETERSEN assumed the Flint Hills Resources North
Pole Refinery would be interested in converting to gas.
MR. FAUSKE agreed that is under consideration by Flint Hills
Resources.
4:18:34 PM
MR. DUBLER, referring to the conversion of infrastructure in
Fairbanks, added that in the mid '80s, the Matanuska-Susitna
Borough met initial resistance when that area converted to gas;
however, residents are now happy with their long-term savings.
4:19:24 PM
CO-CHAIR PRUITT pointed out that Fairbanks is a mature
community.
MR. DUBLER opined Fairbanks has the advantage of denser
neighborhoods which will be less expensive to pipe. Outlying
areas will be more expensive, and similar to the situation in
the Mat-Su Borough.
MR. FAUSKE continued to slide 11, which indicated other project
facilities: gas conditioning plant at Prudhoe Bay to remove
carbon dioxide, hydrogen sulfide, and other impurities; two
compressor stations including gas-turbine-driven centrifugal
compressors and gas-turbine-driven electric power generators.
Slide 12 listed other permanent facilities: Gas take-off
facility/NGL straddle plant that will provide gas for Fairbanks
by removing NGLs to provide dry gas for Fairbanks and
reinjecting NGLs into the mainline; NGL extraction plant to
remove NGLs for sale.
4:20:36 PM
MR. DUBLER stressed that this presentation was based on
preliminary studies, and economic studies that have not been
completed. Slide 13 indicated that the preliminary capital cost
estimate for a pipeline and facilities with a flow rate of 250
million square cubic feet per day (MMscfd), spiked with NGL, is
$6.9 billion, or for a pipeline and facilities with a flow rate
of 500 MMscfd, spiked with NGL, is $8.4 billion.
4:21:11 PM
MR. FAUSKE cautioned that the numbers for the tariff rate are
"just numbers that we developed off the map that we know."
Slide 14 showed the proposed case with a rate of $11.49 per
thousand and a comparison date of July, 2010.
MR. DUBLER assured the committee that the projections available
after July 2011 will be more refined.
4:22:30 PM
MR. FAUSKE presented slide 15 titled, "Transportation Tariff
Comparison (July 2010)." The assumptions shown were:
Debt/Equity, 70%/30%; Return on Equity, 11.31%; Cost of Debt,
6.76%; Capital and O&M Escalation, 3%; Contract & Depreciation
Life, 20 years; Levelized Tariffs, Based on deterministic
capital cost estimate. He warned that these are also subject to
change, although the debt to equity ratio is established
nationwide. Slide 16 indicated estimated the optimized tariff
and cost of debt, based on November, 2010.
CO-CHAIR PRUITT asked whether the tariff to Fairbanks would be
lower because of the shorter distance.
MR. FAUSKE said yes.
4:23:56 PM
MR. DUBLER said commercial financing options include the cost of
debt, which depends on variables such as whether the Alaska
Railroad tax exemption will apply. In response to Co-Chair
Pruitt, he confirmed that the optimal structure for financing
the pipeline will be part of the July, 2011 report. He then
explained that the project timeline is set by engineers and is
an important factor in preventing cost inflation. Throughput is
an option that depends on the upstream gas that is available,
and on the downstream customers, such as anchor clients. The
final study on the marketing of liquids will also be part of the
report due in July, 2011. An equity contribution by the state
is under consideration, especially for the project to pencil.
4:26:29 PM
REPRESENTATIVE SADDLER asked for Mr. Dubler's definition of
"pencil out."
MR. DUBLER responded that it would be a tariff amount that would
supply gas at a reasonable rate that an average consumer could
afford.
MR. FAUSKE relayed that there is an assumption that legislators
will fund the project to keep prices about equal to current
levels.
REPRESENTATIVE SADDLER surmised there is elasticity in the
market.
CO-CHAIR PRUITT observed the project expects to be competitive
with the cost of imported or Cook Inlet gas in the future.
4:29:02 PM
MR. FAUSKE affirmed the state has the resources to deal with
this situation; in fact, this problem must be solved for the
economics of - not just Anchorage - but the state. The
challenge at this time is to find the best economic solution.
4:30:14 PM
MR. DUBLER returned to the commercial financing option of line-
fill contributed by state royalty, and explained that there is a
question of whether this option can be used for the initial
line-fill.
MR. FAUSKE noted that the key commercial activities are:
evaluate needs of anchor industrial users; find interested
builder/owner/operators; optimize commercial interests and
develop financing options. Because this is a megaproject, he
envisioned the progression of the project will begin with an
estimate of costs - for example, $6 billion - but before bids
from builder/owner/operators are requested, the state must spend
2-5 percent of the total project cost to validate the estimate
with "hard numbers." Slide 19 indicated potential industrial
users: natural gas liquids for export; gas to liquids for
export; liquefied natural gas (LNG) for export; fertilizer
production. Slide 20 was titled, "Natural Gas Liquids (NGL)
Export," and included: Extraction/fractionation/storage
facility at Port MacKenzie or Nikiski; additional pipelines to
berths and loading facility; new commercial studies to determine
full-value chain value and market viability by R. W. Beck.
Slide 21 was a definition of NGLs. Slide 22 was titled, "Gas To
Liquids (GTL) Export," and Mr. Fauske warned that the GTL market
involves converting natural gas into diesel and jet fuel, using
facilities that are very expensive and create a troublesome
amount of carbon dioxide byproduct. Slide 23 was a definition
of GTLs. Slide 24 depicted the liquefied natural gas facility
at Nikiski. Slide 25 was a definition of LNG.
4:37:23 PM
REPRESENTATIVE SADDLER asked whether the LNG facility at Nikiski
would require a large reinvestment in order to make its product
competitive internationally.
MR. FAUSKE assumed that opening the facility would require a
long-term, well-priced, steady supply of gas.
REPRESENTATIVE PETERSEN recalled a tour of the facility and said
it is in good condition.
4:39:21 PM
MR. FAUSKE presented slide 26 which listed Tier 1 Project
Permits such as those required from the Bureau of Land
Management (BLM), the Alaska Department of Natural Resources
(DNR), and the U.S. Army Corps of Engineers (USACE). Slide 27
listed Tier 2 Project Permits. Slide 28 was a timeline that
indicated the Project Schedule from 7/1/10-12/31/15, and a
completion date of 2018. Slide 29 was an Environmental Impact
Statement Project Schedule. Slide 30 provided the website
address for the most recent Plan of Development published by
USACE. Mr. Fauske closed by saying that the in-state gas
pipeline project will also explore issues in rural areas in
order to develop an overall strategic plan to benefit all
Alaskans.
CO-CHAIR PRUITT relayed that the military in Hawaii obtains jet
fuel from foreign countries, although federal law requires that
military sources are within the U.S., if possible. He asked
whether the bill tasked the project to explore the interests of
potential anchor tenants.
4:43:58 PM
MR. FAUSKE assured the committee the project is actively
pursuing anchor tenants from the mining industry, airports, and
the military, although the military is limited to paying a West
Coast equivalent price for jet fuel. As a matter of fact, a
facility in Alaska serving all the military in the Pacific Rim
is enticing. However, he pointed out that the airlines are very
competitive, and must be offered products at competitive prices.
Mr. Fauske explained the benefit of a one-time equity infusion
to drive down capital costs and reduce the tariff, but
discouraged the prospect of an on-going subsidy.
4:48:41 PM
REPRESENTATIVE LYNN asked for the relationship of energy from
the proposed in-state gas pipeline and energy from the proposed
Susitna dam.
4:49:10 PM
MR. FAUSKE responded that the dam will eventually provide
electricity, but it will not supplant gas due to the problem of
the cost of converting infrastructure from the use of gas to
electricity. The hydroelectric project is 15 years away, and
gas is more accessible, however, both are needed.
4:50:54 PM
CO-CHAIR PRUITT agreed there is a need for both.
REPRESENTATIVE SADDLER stated his impression that this project
is in competition with the AGIA pipeline.
4:51:51 PM
MR. FAUSKE opined the success of AGIA is the best solution - if
that happens, this project becomes a spur line and the work
already completed will be a part of the AGIA process. On the
other hand, the projects have two different goals in that AGIA
is a strictly competitive project to transport massive amounts
of gas for sale on a worldwide market. The goal of the in-state
pipeline project is to supply gas to Alaskan residents, with or
without anchor tenants. In further response to Representative
Lynn, he said the same concept applies to Denali-The Alaska Gas
Pipeline.
4:54:17 PM
REPRESENTATIVE PETERSEN concluded that if the small diameter
pipeline proceeds, AGIA will not.
MR. FAUSKE said no. He clarified that if AGIA is successful,
there is no need for the in-state pipeline; however, until the
fate of AGIA is known, progress toward solving the immediate
problem of providing gas to Alaskans must continue.
4:55:06 PM
CO-CHAIR PRUITT opined difficult decisions are ahead for
legislators who need to develop key infrastructure for the
state.
4:56:14 PM
MR. FAUSKE closed by saying that this is a solvable problem; in
fact, the state has many assets and strengths, and he advised
against inaction.
4:58:39 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 4:48 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 197 - 01 Version A, the Original Bill.pdf |
HENE 3/29/2011 3:00:00 PM |
HB 197 |
| HB 197 - 02 Sponsor Statement.pdf |
HENE 3/29/2011 3:00:00 PM |
HB 197 |
| HB 197 - 03 Sectional Summary.pdf |
HENE 3/29/2011 3:00:00 PM |
HB 197 |
| HB 197 - 04 Fiscal Note HB197-DOR-AHFC-03-24-11.pdf |
HENE 3/29/2011 3:00:00 PM |
HB 197 |
| Presentation on Alaska Stand Alone Gas Pipeline for 29 March 2011.pdf |
HENE 3/29/2011 3:00:00 PM |
Alaska Gasline Development Corporation Presentation |
| HB 197 - 05 AARP Letter of Support, 28 March 2011.pdf |
HENE 3/29/2011 3:00:00 PM |
HB 197 |