Legislature(2017 - 2018)CAPITOL 17
01/30/2018 10:15 AM House ENERGY
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| Presentation: Interior Energy 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
January 30, 2018
10:16 a.m.
MEMBERS PRESENT
Representative Adam Wool, Chair
Representative Ivy Spohnholz, Vice Chair
Representative Matt Claman
Representative DeLena Johnson
Representative Jennifer Johnston
Representative George Rauscher
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION: INTERIOR ENERGY PROJECT
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
JOMO STEWART, General Manager
Interior Gas Utility
Fairbanks, Alaska
POSITION STATEMENT: Presented a PowerPoint titled "Interior
Energy Project."
GENE THERRIAULT
Alaska Industrial Development and Export Authority (AIDEA)
Fairbanks, Alaska
POSITION STATEMENT: Presented a PowerPoint titled "Interior
Energy Project."
DAN BRITTON
Pentex Alaska
Fairbanks, Alaska
POSITION STATEMENT: Answered questions during the presentation.
ACTION NARRATIVE
10:16:33 AM
CHAIR ADAM WOOL called the House Special Committee on Energy
meeting to order at 10:16 a.m. Representatives Wool, Rauscher,
Spohnholz, Claman, Johnston, and Johnson were present at the
call to order.
^Presentation: Interior Energy Project
Presentation: Interior Energy Project
10:17:15 AM
CHAIR WOOL announced that the only order of business would be a
PowerPoint presentation on the Interior Energy Project.
10:17:55 AM
JOMO STEWART, General Manager, Interior Gas Utility, introduced
a PowerPoint titled, "Interior Energy Project." [Included in
members' packets] He walked through slide 4, "Interior Energy
Project PURPOSE AND GOALS," and explained that this was a
community-initiated project with a goal "to bring low-cost
energy to as many residents and businesses of Interior Alaska as
possible, as quickly as possible ..." He relayed that this
project had been conceived during a time when oil prices had
escalated, which brought the need to stabilize the economy, help
improve air quality, and offer an alternative energy source that
was cleaner burning than wood stoves.
10:20:50 AM
CHAIR WOOL asked if there had been any air quality studies done
prior to this.
GENE THERRIAULT, Alaska Industrial Development and Export
Authority, offered his belief that because of the seasonal air
inversion, the Fairbanks North Star Borough had always had "a
bit of an air quality issue. However, over time the limits that
were allowed under the Clean Air Act became more restrictive as
scientific information about the impacts or the harm from
particulate matter." He added that a shift to wood stoves
exacerbated that problem.
MR. STEWART said that this was the local impetus for the
Interior Energy Project, although there was also a statewide
component. He moved on to slide 5, "Interior Energy Project
PURPOSE AND GOALS, Statewide," and explained that the fiscal
position of the state was changing and that the allocation of
large grants to fund major development projects was coming to an
end. Consequently, there was work for a funding strategy that
was more sustainable moving into the future. He stated that the
committee had requested a blended finance package, modeled after
the "Bradley Lake" model, which blended a small grant component
with bonds and loans with favorable terms. He allowed that this
could conceivably be more sustainable and within the means of
the state.
MR. STEWART directed attention to slide 6, "IEP - Original
Project Definition." He explained that this entailed an
increase of the LNG [liquid natural gas] production, storage,
and delivery capacity. He added that it was also necessary to
increase delivery and support conversion for natural gas.
MR. STEWART addressed slides 7 - 11, "Project History." He
reported that this project had been under discussion for more
than 10 years and had started in Fairbanks with the Fairbanks
Economic Development Corporation Cost-of-Energy task force. He
relayed that this was a broad cross section of the community,
more than 100 people, and included representatives from
government, the university, the utility sector, and private
citizens trying to find ways to address the challenge for the
cost of energy. He added that most of the recommendations were
adopted and included energy efficiency programs such as the home
energy retro fit program, the renewable energy grant program,
and a bio mass to liquids project. He explained that the
community then approached the legislature and requested a grant
to advance a natural gas project. He pointed out that, although
the community did run primarily on oil, Fairbanks was in a
position to utilize gas from the North Slope. This project,
funded by a state grant in 2011, was called the Gas Distribution
System Analysis and included engineering, financial modeling,
and environmental study. He explained that they worked through
this process in 2012 and attempted to create a municipal utility
to serve the entirety of the Fairbanks North Star Borough. He
relayed that the cities could cede the utility power to the
borough to help create an area wide utility. He noted that, as
the cost for the distribution infrastructure was estimated to be
more than $500 million, it was necessary to find a funding
package, and this was when the blended finance package was
proposed to the administration. It was necessary to keep moving
forward by establishing the municipal utility, creating the
service area with the RCA [Regulatory Commission of Alaska], and
setting up the administration. In 2013, the project was titled
the Interior Energy Project and the funding package was proposed
and approved for a $57.5 million grant, a $125 million SETS
[Sustainable Energy Transmission and Supply] loan with very
flexible lending terms, and $150 million of bonding authority.
This project had a mandate for a North Slope focus. In 2014,
the private sector took a SETS loan to build infrastructure and
an RFP process was initiated, a partner was selected, and
development work commenced on the North Slope configuration. He
reported that customer conversion studies were conducted to
determine the receptiveness for natural gas.
10:30:58 AM
REPRESENTATIVE JOHNSTON asked if natural gas expansion was
supported by these funds or by private funds.
MR. STEWART replied that it had been done with Interior Energy
Project funding.
CHAIR WOOL asked about the price for delivered gas.
MR. STEWART said that the cost of the raw commodity from the
North Slope was about $3.00 per mcf [million cubic feet], which
was about half the price of gas from the Cook Inlet. He noted
that the cost for the infrastructure was about double that of
the Cook Inlet. He reported that initial cost estimates for the
LNG facility infrastructure of about $170 - $190 million had
risen to almost $250 million, while the estimated cost for
delivered LNG had climbed to more than $18 and was still
increasing. He said that, in 2015, the infrastructure price had
remained very high, which left little money to add delivery
infrastructure within Fairbanks. The project then requested the
latitude to review other areas to develop and site the project,
which included Cook Inlet. He reported that House Bill 105 had
approved this in 2015, and that core Fairbanks was now almost
entirely plumbed and ready for LNG. He added that the Interior
Gas Utility had its first build-out phase in the core North Pole
area, laying 70 miles of pipe in 100 days.
REPRESENTATIVE JOHNSTON asked if the construction was loan
based.
MR. STEWART said that the taxes would come later for the
repayment of the SETS loan.
MR. STEWART returned attention to slide 9 and reported that the
legislature had allowed for the project to do a review of energy
proposals in 2015. Instead of building an LNG facility on the
North Slope, it was decided to base the project in Cook Inlet in
the Matanuska-Susitna Valley on the way to Point Mackenzie. He
reminded the committee that, in 2015, as the oil price dropped
precipitously, a new conversion analysis and market sensitivity
analysis was conducted because a project goal was to halve the
cost of energy. This new analysis found that there was still
support for a 50 percent conversion rate, noting that support
for the investment to convert was dependent on the economic
driver. He pointed out that analysis reported that the
conversion rate for commercial businesses was 100 percent.
10:37:53 AM
MR. STEWART returned attention to slide 10 and reported that
Salix had been chosen as the partner for the Cook Inlet area
project. He explained that, as the cost structure and the cost
components were driving up the cost of the gas, it was then
decided to move forward with the project without Salix. He
reported that, in 2016, negotiations began for the state to
purchase Pentex through Alaska Industrial Development and Export
Authority (AIDEA), with a hope to assist the community with its
possible purchase of the operation. In December, this
culminated with a Memorandum of Understanding for further
negotiations toward the purchase.
MR. STEWART turned attention to slide 11 and reported on the
activity in 2017, which began with negotiations to transform the
Memorandum of Understanding into contractual agreements to move
forward. He noted that the legislative agreement for the
project to look for other sources of gas had also included some
restrictions on AIDEA regarding funding. He reported that grant
funds had been expended in pursuit of the North Slope
configuration, although these funds would not be used for the
Cook Inlet project. He added that in 2017 there was a
continuance of conversion analyses, and pursuit of alternatives
for sources of gas, project components and configurations, and
resources.
10:41:43 AM
CHAIR WOOL asked about the investments of money on the North
Slope.
MR. THERRIAULT explained that, although $12 million had been
spent, part of this was an asset, the building of a pad for a
plant to be sited, and this asset remained an asset of the
enterprise. He reported that additional money was spent on
engineering and that even if the plant was not built on the
North Slope, there was the knowledge of the plans, designs, and
technology which could be used elsewhere. He explained that the
legislature had determined in House Bill 105 that it was
necessary for specific components to be included in a plan prior
to spending large amounts of money, and that AIDEA was in charge
of this plan.
CHAIR WOOL asked about the current status of the North Slope
assets.
MR. STEWART responded that these assets were AIDEA controlled,
although they were part of the package in the transfer of the
ownership of Pentex. He pointed out that the building pad was
well sited for the proximity of the infrastructure for natural
gas on the North Slope. He said that the project had filed with
the RCA and with the Department of Natural Resources for change
of control for that pad, and that AIDEA was in negotiations with
a development partner for use of the pad, which would defray
some of its costs for the lease.
CHAIR WOOL asked why they were trying to keep the pad.
MR. STEWART replied that they were keeping the lease active for
the pad, and that AIDEA was in negotiations for a sublease which
would generate revenues.
REPRESENTATIVE JOHNSON asked about the current price for North
Slope gas.
MR. STEWART stated that currently the gas was coming from Cook
Inlet.
REPRESENTATIVE JOHNSON asked about the earlier negotiated
prices.
MR. STEWART said that contracts had been negotiated by others
with North Slope sellers, which were in the $2.50 - $3.50 range.
REPRESENTATIVE JOHNSON asked how this would tie in with the AGDC
[Alaska Gasline Development Corporation] and the outtakes for
the line.
MR. STEWART explained that the AGDC project was a large diameter
gas line from the North Slope to an LNG facility in the Cook
Inlet region for export. He acknowledged that the AGDC project
could have a lateral line into Fairbanks. He stated that the
Interior Energy Project would spur the development of
infrastructure which would allow the community to more
immediately tie into and utilize the larger AGDC infrastructure
once it was in place.
REPRESENTATIVE JOHNSON mused that the outtakes of the larger
line could connect to the Interior Energy Project.
10:46:30 AM
MR. STEWART turned attention to slide 13, "HB 105 Plan &
Resolution" and reported that the legislature had "posed some
more robust reporting requirements," listing these to include
quarterly reports to the legislature. He added that the project
plan should include the source of natural gas, the estimated
total project cost, and the estimated "pre-distribution" cost of
the supplied gas.
MR. STEWART moved on to slide 14, "HB 105 Resolution - Gas
Supply." He pointed out that during the Memorandum of
Understanding process, a lot of effort went into defining the
scope of the project for what was being developed and the
estimated costing for that development, so that requirement of
House Bill 105 had already been put in place. He acknowledged
that it was still not clear from where the gas would come or how
much it would cost, in order to determine a delivered price of
gas at meter. He said that negotiations in 2017 between Pentex
and a Cook Inlet seller were on-going and finally came to
fruition with a three-year contract with Hilcorp [Alaska, LLC]
for natural gas. He reported that the price was $7.72 per mcf,
that there was not a price escalator, and the price would remain
the same on a seasonal basis. He said that it included enough
gas for the existing 1100 customers and allowed capacity for
expansion.
MR. STEWART directed attention to slide 15, "HB 105 Resolution"
and reiterated that the questions had been answered for the
source of gas in Cook Inlet, the estimated total project cost
was $346 million, and the estimated "pre-distribution" cost of
supplied gas of $14.19 after completion of the LNG facility and
the storage.
10:49:51 AM
REPRESENTATIVE SPOHNHOLZ asked about the funding difference
between the principal financing supplied by AIDEA of $275
million and the estimated total cost of $346 million.
MR. THERRIAULT explained that a portion of the original package
had included grant funds of general fund dollars for the
project, as well as the SETS loans, and the ability to bond for
additional funds. He stated that once the utility was combined
and operating, it would have the ability to borrow its own
money.
REPRESENTATIVE SPOHNHOLZ mused that some of the funding was
carry over from earlier allocated funding.
MR. THERRIAULT said that the entire package was a blend of
capital dollars, loan dollars, and the ability to access the
bond market.
REPRESENTATIVE CLAMAN asked how this estimated average price to
the customer of $17.31 compared to the average price to the
customer in Anchorage.
MR. THERRIAULT said that he was unsure of the current price.
REPRESENTATIVE CLAMAN asked for prices in both Anchorage and the
Matanuska-Susitna.
MR. STEWART directed attention to the memo in the House Bill 105
support package [Included in members' packets].
CHAIR WOOL said that the underlying conflict was that, as the
price of oil comes down and the cost to the consumer in
Fairbanks of natural gas was going up, there was not any
savings, and possibly a loss.
MR. STEWART, in response, explained that his presentation was
based on the 2018 - 2019 time frame, which was just prior to
full development and full utilization. He directed attention to
the memo about House Bill 105, which detailed the estimated
reductions when the infrastructure was in place.
MR. THERRIAULT directed attention to page 5 of the memo about
House Bill 105. He explained that, as the initial price for gas
in 2018 and 2019 was the existing price, it was currently
necessary to spread the fixed costs over a smaller customer
base. He reported that an increase to the size of storage would
allow the existing plant to run "full tilt and produce more LNG
because we've got a storage container to put it in." He added
that they would then be able to serve more residential
customers, and then, in 2020, as the fixed costs were spread,
the delivered price was predicted to come down to $17.31. He
pointed out that the price was projected to continue to come
down over the following years, as customers were incentivized
and the increased efficiency of gas was touted.
CHAIR WOOL asked if the 50 percent conversion included everyone
in the community.
MR. THERRIAULT explained that this percentage was for the people
who had access to conversion.
10:56:32 AM
MR. STEWART introduced slide 17, "Purchase & Sale and Financing
Agreements," which detailed the utility integration agreements
for the purchase of Pentex and the Interior Energy Project (IEP)
Financing. He then moved on to slides 19 - 22, "Definitions,"
which listed IGU, Interior Gas Utility; AIDEA, Alaska Industrial
Development and Export Authority; Pentex Alaska, LLC; and IEP,
Interior Energy Project. He explained that the reference to
Titan was for the liquefaction facility, near Point MacKenzie.
He noted that the current plant was Titan 1, with Titan 2
becoming the expansion, and Titan 3 being another further
expansion. He went on to explain that the phases all moved in
tandem, as the demand increased, there was a need for more LNG,
hence the need for more liquefaction capacity. He explained the
phases of the distribution system by IGU: Phase 1 was
accomplished in 2015 with installation in core North Pole; Phase
2 and Phase 3 would be built out at a later date. He moved on
to discuss the storage facilities at Fairbanks Natural Gas for
350,000 gallons which allowed service to about 1,000 customers
and reported on the plan to install a 5.25-million-gallon
storage facility which would allow for service to "thousands
upon thousands of customers" with the RCA requirement to
maintain a five-day supply of natural gas.
REPRESENTATIVE JOHNSTON asked for the cost to building out the
network. She referenced the build out districts in Southcentral
Alaska which were financed by the residents over a 10-year
period and asked if the costs were comparable.
11:01:20 AM
DAN BRITTON, Pentex Alaska, in response, said that the
distribution system would cost [indisc].
CHAIR WOOL recapped that the costs were comparable at $225,000 -
250,000 per mile.
MR. STEWART acknowledged that the cost for build out of
distribution for the Interior Gas Utility was a bit more than
for Fairbanks Natural Gas, stating that the wages were paid at a
higher rate. In response to Representative Johnston, he said
that they had a similar build out system for the road service
areas.
REPRESENTATIVE RAUSCHER asked for a better definition to payment
of a little bit more.
MR. STEWART explained that the IGU build out was more in the
$275,000 - $300,000 range per mile. He added that the current
build out had been very rapid and robust for one summer.
REPRESENTATIVE CLAMAN asked how the cost per mile would be
financed.
MR. STEWART, in response, directed attention to slide 28,
"Project Financing - Funds & Sources." He reported that these
were financed with SETS loans, although the exact terms were
slightly different, about 1 percent loans with a maturity date
in December 2017. He stated that the loans had been granted
with the recognition that IGU was moving forward with a utility
integration and that the loans would be subsumed by another
loan. He said there was "a bit of a grace period for
repayment." He returned attention to slides 24 - 26, "Utility
Integration Agreements." He outlined that the agreement and the
SCOPE of work, as currently defined by the purchase and sale and
financing agreements, was for successive LNG development to
increase natural gas capacity and storage capacity in Fairbanks
and North Pole, to increase the build-out for Phases 1 - 3, to
expand the Fairbanks Natural Gas service area, and to increase
the customer conversion program. He pointed out that slide 25
presented a more detailed breakdown of the capital requirements
and the estimated pricing. He shared slide 26, visual
depictions of an LNG facility, a heat map, and greater
development within the community.
REPRESENTATIVE JOHNSTON asked about refinancing for the SETS
funds.
MR. STEWART, in response, stated that SETS was Sustainable
Energy Transmission.
MR. THERRIAULT explained that this wording was established by
the legislature in 2012, and this was a funding source for AIDEA
loans for energy transmission and distribution assistance.
11:07:28 AM
MR. STEWART moved back to slide 28, "Project Financing - Funds &
Sources," which listed the major funding components as
appropriated by the legislature. He addressed slide 29,
"Utility Integration Agreements," and spoke about the key
business and financial terms, which included a commitment of up
to $330 million of total development investment, structure of
the SETS loans for $125 million, and the standards and process
for issuance of $150 million in AIDEA bonds. He addressed the
purchase of Pentex, and the process and timing for
infrastructure development and system integration. Moving on to
slide 30, "IEP SETS Financing," he explained that this was a
loan for $125 million with a 50-year payback, and an interest
rate of zero percent for the first 15 years, and then a rate of
0.25 percent interest for the remaining time. He added that
there was a grace period dependent on demand growth, as it was
still unclear for how the market would react.
MR. STEWART directed attention to slide 31, "IEP Bond
Financing," and explained that the authorizing statute, when the
legislature originally appropriated the funds, said that AIDEA
could waive any and all regulations that normally applied to
lending, as well as accommodation for certain statutes. He
spoke about various other revolving loan programs he had
witnessed, noting that the state did not want to compete with
private sector banks. He stated that with this loan, there was
a maximum interest of 3 percent, as there was the potential for
very large commercial investments. He allowed that this may
have required "a high degree of flexibility to make it work."
The desired result was for a maximum of benefit for the
citizenry.
REPRESENTATIVE SPOHNHOLZ referenced slide 30 and asked about the
a) and b) options.
MR. STEWART explained that, although there was a 50-year
deferral and a 35-year payback, within the loan document there
was a "demand-based deferral," which would allow, if the demand
was not as estimated, that the utility make interest only
payments for five years and re-amortize the remainder of the
loan over a shortened time period. He declared that this acted
as a five-year cushion to allow the demand to accrue, if
necessary.
MR. STEWART returned attention to slide 31 and stated that this
was a standard bond package for a 30-year payback and a 4
percent interest rate with the standard debt service coverage
ratios. He moved forward to slide 33, "IEP Financial Model,"
and stated that a robust financial and economic model was
produced for this project. He added that this model was updated
regularly with the latest information, which included: cost of
feed-gas, cost of construction and operations, and estimated
customer conversion rates. He addressed the AIDEA purchase of
Pentex, pointing out that the project and its funding package
had to accommodate the purchase payback with interest. He
described the three modelling scenarios: the base case, the
low-gas case, and the no growth case.
11:16:12 AM
MR. STEWART introduced slide 34, "Modeled SETS Financing Terms"
and slide 35, "Modeled Bond Financing Terms," which listed the
standard bonding assumptions for a 30-year term: 4 percent
interest rate, a 3-year deferral on the front end, and
capitalized on the back end with standard debt service coverage
ratios. Pointing to slide 36, "Modeled Cost and Rate
Scenarios," he listed the assumptions to include the price of
the feed gas, the infrastructure, the build out, and the
customer conversions under each of the modelling scenarios.
CHAIR WOOL mused about the no-growth scenario.
MR. STEWART replied that this was not a realistic scenario, and
was not meant to be a realistic scenario, but was, instead, a
worst case scenario. He pointed out that the commercial
consumers had a different "calculus" than the residential
consumers, as there were still commercial consumers signing up
during a time of price parity for oil and gas. He declared that
there were reasons not connected directly to price, which
included conversion for efficient appliances or elimination of
environmental hazards.
MR. STEWART presented slide 37, "Modeled Capital Program - Major
Items," and slide 38, "Cardno Studies:" which depicted the
utilization of the cardno data and the estimated reaction to
natural gas. He explained that the delta between oil and gas
was compared and then used to plot market reactions.
MR. STEWART discussed slide 40, "Financial Modeling - Results,"
and explained that under the "No Growth" scenario the utility
would be "in a very challenged position" even as it would be
able to continue to operate and provide service for at least 20
years because of the structure of the financial package. He
discussed the "Base Case" scenario of a 35 percent conversion
rate, and stated that the utility would be healthy, although it
would not be able to meet its rapidness of development targets.
He moved on to the "Lower-Cost-Gas" scenario and stated that he
utility could substantially meet its price targets and its
development goals. He reported that, based on these models, the
board chose to enter into an agreement with AIDEA for the
purchase of Pentex.
11:23:13 AM
MR. STEWART stated that there had been a "robust" process to
reach the decision, which included quarterly reporting, public
comment periods, and public presentations, slide 41, "Utility
Integration Agreements - Public Process and Decisions." He
reported that the IBU board meeting approval was granted at the
Fairbanks North Star Borough Assembly Chambers on December 5,
2017 and the AIDEA board approval was granted at the Anchorage
offices on December 7, 2017.
REPRESENTATIVE RAUSCHER asked if the Matanuska-Susitna process
for a local improvement district was similar to the process in
Fairbanks.
REPRESENTATIVE JOHNSTON explained that the Matanuska-Susitna
process was for a service district.
MR. THERRIAULT explained that although it was available, they
were not counting on this; however, limitations were built into
the agreement for the combined utilities ability to go to the
bond market. He suggested that although this was a means for
the development of a new area with a need for service which
would have to contribute by voting on a local improvement
district, it was not currently required.
11:27:04 AM
MR. STEWART continued with slide 43, "PSA/FA Advancement," and
said that the applications for change of control had been filed,
the due diligence was being performed, and the other work needed
to satisfy the conditions was also being carried out.
CHAIR WOOL asked about the change of control letter for the
North Slope pad.
MR. THERRIAULT explained that AIDEA was the holder of the
existing lease for the North Slope pad and it was necessary to
request that the Department of Natural Resources work with IGU
to determine that IGU was fit, willing, and able to take over
the original lease. He added that there was work on approval
for part of the pad to be used under a sub-lease. He declared
that with approval both the original lease and the sub-lease
would be transferred to IGU control.
CHAIR WOOL asked about a future sale of the pad to recoup the
investment.
MR. THERRIAULT said that any positive cash or proceeds of sale
would have to be used to achieve the original goal for getting
gas to Fairbanks and North Pole.
MR. STEWART explained that once funds were released after
certification of the House Bill 105 plan, the project would move
forward on the infrastructure development, slides 44 - 45,
"Large LNG Storage Tank Construction - Commenced." He reported
that AIDEA approved deployment of grant funds to Pentex to begin
FEED work on the storage and the competitive bid process had
begun in August 2017. He reported that the construction had
already commenced with a hope to meet the 2020 deadline for
storage.
CHAIR WOOL asked where the storage credit came from.
MR. STEWART said that it came from the state. He reported that
the contractor was Preload Cryogenics, and he shared that the
subcontractors were both local and statewide.
MR. STEWART noted that the project was also moving forward on
bond authority extension, slide 46, "Bonding Authority
Extension: HB 216 & SB 125," as the original five-year
authorization would terminate on June 30, 2018.
11:32:03 AM
MR. STEWART concluded with slide 48, "Next Steps: Immediate
Term," and shared that the contracts addressed a closure date of
May 31, 2018. He noted that the natural gas conversion program
had been moving forward throughout the entire process and there
was also focus on a potential on-bill repayment program. He
added that the utility integration plan was prepared, the
procurement manual was being finalized, and additional policies
were being prepared to ensure this was an investment grade
utility that operated under prudent utility principles. He
shared an update on the North Pole storage and engineering
design, as well as the LNG facility design.
REPRESENTATIVE JOHNSTON asked if there had been integration of
Eielson Air Force Base and defense spending into the ten-year
fiscal plan.
MR. STEWART explained that there had been discussions with the
military bases, including Fort Wainwright, about the possible
conversion to gas, although it had not been factored into any of
the plans. He said that inclusion could improve the economics.
He stated that there had been a very conservative approach to
the fiscal plan. He pointed out that, as the combined heat and
power systems for the military base was fed by coal, it would
have been overly optimistic to factor this in as coal was so
cheap. He added that any utilization of gas would improve the
economics for all the customers.
11:36:04 AM
CHAIR WOOL stated that the predictions for when and for how much
were both off. He expressed his concern that the data might
still be off and noted that the conversion rate was dependent on
the prices of gas and oil. He asked what safeguards would
ensure expansion and if there was confidence for the timeline
and price.
MR. THERRIAULT expressed his agreement for the uncertainties to
price and date. He stated that once the House Bill 105 plan was
in place, that allowed the large storage and construction time
period that had certainty for completion by the middle of 2019.
He expressed uncertainty for the number of conversions at that
time, although the storage had to be in operation to qualify for
a potential grant by January 1, 2020. He stated that the
certainty for the availability of gas was coming into clearer
focus, even though the price was dependent on the volume and
number of customers to drive down the per unit price. He
pointed out that, even at today's price, there was some "pent up
demand." He shared an anecdote about a commercial account. He
offered his belief that, as the majority of the pipe was in the
business district, there would be an increase for service which
would also bring down the per unit price. He stated that it was
possible to get more production out of the existing LNG plant if
they had more storage.
CHAIR WOOL opined that, as the current problem was storage, not
production, once this was resolved more customers could be
served with the resulting drop in price. He asked if there were
any other incentive programs.
MR. STEWART directed attention to slide 25 and reported that
there were some funding accommodations for a customer conversion
program. He added that the Fairbanks North Star Borough had
been soliciting funding.
CHAIR WOOL asked about the conversion cost for an individual.
MR. STEWART explained that a home within 100 feet of the service
line had an external conversion cost of $50. He said that the
internal conversion could be "a bit more substantial." He
shared that there were conversion kits for most major brand
furnaces younger than 10 years which made it much more
affordable, about $2,000. He reported that, although the IGU
community conversion steering committee had been put on hold in
2016, it was now being restarted. He suggested that an on-bill
repayment program could be in place within two years.
CHAIR WOOL, reflecting on the high prices for conversion, opined
that these conversions would be more likely with an on-bill
repayment program. He asked if the availability of natural gas
near Fairbanks would eliminate the need for storage and
liquefaction.
11:48:20 AM
MR. STEWART explained that the program was moving forward in a
way to avoid any stranded assets. He said that it would be
possible to relocate the LNG facility to put more gas in storage
as a hedge for any supply disruption. He pointed out that there
would be many communities beyond the economic reach of a
pipeline and that Fairbanks could become the hub.
CHAIR WOOL asked about inclusion of the military bases as
customers and whether the infrastructure build out would need to
be adjusted to accommodate such a large customer.
MR. THERRIAULT acknowledged that any large user would be an
attractive customer, although he was not sure that trucking LNG
could support such a large combined heat and power plant. He
offered a synopsis for the needs of each base as a customer. He
stated that the long-term vision for the interior energy project
was for the infrastructure to be in place to meet the core
demand in the Fairbanks North Star Borough, although ultimately
that infrastructure would serve the energy needs beyond the
borough.
11:53:51 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:53 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| IEP - House Energy Committee - January 30 2018 Final with changes.pdf |
HENE 1/30/2018 10:15:00 AM |
Overview - Interior Energy Project Update |