Legislature(2019 - 2020)CAPITOL 17
03/21/2019 11:00 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| HB87 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 87 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 21, 2019
11:02 a.m.
MEMBERS PRESENT
Representative Grier Hopkins, Chair
Representative Zack Fields, Vice Chair
Representative John Lincoln
Representative Ivy Spohnholz
Representative Tiffany Zulkosky
Representative Lance Pruitt
Representative George Rauscher
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 87
"An Act extending the liquefied natural gas storage facility tax
credit; and providing for an effective date."
- MOVED HB 87 OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 87
SHORT TITLE: LIQUEFIED NATURAL GAS STORAGE TAX CREDIT
SPONSOR(s): REPRESENTATIVE(s) THOMPSON
03/08/19 (H) READ THE FIRST TIME - REFERRALS
03/08/19 (H) ENE, FIN
03/21/19 (H) ENE AT 11:00 AM CAPITOL 17
WITNESS REGISTER
REPRESENTATIVE STEVE THOMPSON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 87 as the prime sponsor of the
bill.
DAN BRITTON, General Manager
Interior Gas Utility (IGU)
Fairbanks, Alaska
POSITION STATEMENT: Presented a PowerPoint by the Interior Gas
Utility.
MICHAEL MEEKS, Chief of Staff
Mayor Jim Matherly
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 87.
BRYCE WARD, Mayor
Fairbanks North Star Borough
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 87.
JOMO STEWART
Fairbanks Economic Development Corporation
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 87.
VIKKI JO KENNEDY
Grandma Brigade
Juneau, Alaska
POSITION STATEMENT: Testified during discussion of HB 87.
PATRICE LEE, Director
Interior Gas Utility
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 87.
ACTION NARRATIVE
11:02:45 AM
CHAIR GRIER HOPKINS called the House Special Committee on Energy
meeting to order at 11:02 a.m. Representatives Rauscher,
Lincoln, Spohnholz, Zulkosky, Fields, and Hopkins were present
at the call to order. Representative Pruitt arrived as the
meeting was in progress.
HB 87-LIQUEFIED NATURAL GAS STORAGE TAX CREDIT
11:03:11 AM
CHAIR HOPKINS announced that the only order of business would be
HOUSE BILL NO. 87 "An Act extending the liquefied natural gas
storage facility tax credit; and providing for an effective
date."
11:03:57 AM
REPRESENTATIVE STEVE THOMPSON, Alaska State Legislature,
paraphrased from a prepared statement, which read:
HB 87 came about through conversations with
stakeholders in the Interior about our progress on
efforts to mitigate high energy costs and improve our
air quality. A key theme in these conversations has
been the importance of ensuring that we're doing
everything we can to stay on track with the Interior
Energy Project. In 2015, the Legislature passed HB
105 to renew and advance the Interior Energy Project,
a project designed to bring low cost energy to as many
residents and businesses of Interior Alaska as quickly
as possible. It has resulted in the creation of the
Interior Gas Utility a not-for-profit public utility
serving the Interior.
In 2012, the Legislature passed legislation to
incentivize the development of liquid natural gas
storage, a key component in achieving the economy of
scale that will enable widespread use of natural gas
in Fairbanks and North Pole. This legislation provided
credits for the construction of above ground LNG
storage facilities with a capacity of 25,000 gallons
or more. There are currently 2 projects underway, 1 in
Fairbanks and 1 in North Pole, that will benefit from
these credits.
HB87 will extend the sunset date of the original
legislation by 18 months in order to ensure that the
projects underway will be able to capitalize on the
existing credits. This is a bill that can help to
lower energy costs and improve air quality in an area
of the State that desperately needs to do both.
REPRESENTATIVE THOMPSON reported that Southeast Alaska had
benefited from low energy costs through subsidized hydro-
electric systems and Southcentral Alaska had benefited from low
energy costs due to the proximity of the gas in Cook Inlet. He
stated that the Interior of Alaska had a "PM 2.5 problem that
we're trying to mitigate because we burn wood to heat up there
and high cost diesel fuel." He pointed out that PM 2.5 could
have a big effect if something was not done to reduce the
pollution as both the federal government and the EPA
(Environmental Protection Agency) were threatening to withhold
federal highway funds and stopping future economic development
projects. He shared a concern for the military. He emphasized
that the proposed bill would ensure storage facilities and lower
energy costs.
11:07:56 AM
REPRESENTATIVE RAUSCHER asked about the federal withholding of
highway funds.
11:08:13 AM
REPRESENTATIVE THOMPSON explained that through the EPA, the
federal government had the ability to declare that, as the city
was not in compliance with air quality, it could withhold
federal highway funds. He reported that there was the potential
loss of $30 million of highway funds.
11:08:36 AM
REPRESENTATIVE RAUSCHER asked if these highway funds were
directed to the local area or the entire state.
REPRESENTATIVE THOMPSON replied that these funds were for the
northern region, and not the entire state.
REPRESENTATIVE RAUSCHER asked if this had been threatened.
REPRESENTATIVE THOMPSON replied, "yes, they have."
11:09:40 AM
DAN BRITTON, General Manager, Interior Gas Utility (IGU),
presented a PowerPoint titled "Fueling the Future of the
Fairbanks North Star Borough. He paraphrased from slide 2,
titled "Interior Energy Project PURPOSE AND GOALS," which read:
to bring low-cost energy to as many residents and
businesses of Interior Alaska as possible, as quickly
as possible ...
Stabilize the Economy
Help Improve Air Quality
MR. BRITTON moved on and paraphrased slide 3, titled "History,"
which read:
Fairbanks Natural Gas, LLC(FNG) began operating in
Fairbanks in Spring of 1998 giving Interior residents
a natural gas heating option. Over 1100 residential
and commercial customers are currently able to enjoy
the benefits of natural gas.
In November 2012, the Fairbanks North Star
Borough(FNSB) acquired its natural gas utility power
via transfers from the City of Fairbanks and the City
of North Pole and established the Interior Alaska
Natural Gas Utility(IGU).
June 2018, the IGU consolidated with FNG and now
operates as an integrated, not-for-profit public
utility.
11:11:04 AM
MR BRITTON shared slide 4, "Energy Costs & Air Quality," and
paraphrased the slide, which read:
According to the Council for Community and Economic
Research, the FNSB typically has the highest utility
costs in the nation for the 300-plus urban areas
regularly surveyed.
In September 2006, the EPA lowered the National
Ambient Air Quality Standards for fine particulate
matter less than 2.5 micrometer in diameter (PM 2.5) a
human health hazard.
In 2009, the EPA designated the more populated
portions of the FNSB as a non-attainment area relating
to PM2.5. The eastern portion of the nonattainment
area (North Pole) has the worst air pollution in the
nation, three and a half times the legal limit and
almost two times worse than the next worse area in the
U.S.
The FNSB's long-term efforts for clean air are focused
on bringing clean, affordable natural gas to the
Fairbanks area for space heating.
11:12:29 AM
MR. BRITTON presented slide 5, titled "Fairbanks Large LNG
Storage Tank," and paraphrased the slide, which read:
5.25 Million gallon capacity
Full-Containment, double wall design
Construction commenced January 2018
Advancing On-schedule
Completion date estimated Fall 2019
Construction Costs $58.4 Million
11:13:35 AM
MR. BRITTON addressed slide 6, titled "9th (Last) Row Welding"
and explained that the inner tank pictured was 9 percent nickel
steel with an aluminum ceiling. He reported that the tank was
almost complete.
11:14:11 AM
MR. BRITTON addressed slide 7, titled "Outer Tank Stairs," which
depicted the tank from outdoors.
11:14:38 AM
MR. BRITTON addressed slide 8, titled "North Pole Storage." He
paraphrased the slide, which read:
Design of the $12.1 Million LNG storage facility in
North Pole is complete and a Request for Proposals was
issued February 14, 2019. Proposals are due March 21,
2019.
The targeted completion of construction is November
15, 2019 with operational startup and commissioning by
December 31, 2019.
The storage facility will have two 75,000 Gallon
storage tanks and a multi purpose building, and will
be connected to the previously constructed 73 miles of
pipe infrastructure in the North Pole area.
11:16:18 AM
MR. BRITTON addressed slide 9, "North Pole Storage - Site Plan,"
which depicted the ground plan for the North Pole storage
facility. He shared that it would be located across the street
from the former Flint Hills Refinery, and near a Golden Valley
Electric Association (GVEA) power generation facility. He
reported that this facility included storage, natural gas
vaporization, and unloading structures which allowed them to
take the LNG from a truck or a container into the stationary
tanks. He pointed out that LNG was stored at minus 260 degrees
Fahrenheit, and to make it usable by consumers, it was heated to
between 50 and 100 degrees Fahrenheit and then injected into the
underground piping system. Once it leaves the LNG storage
facility, IGU was considered a conventional natural gas utility
and could provide gas service to customers. He explained that
the added cost for the service was due to the LNG infrastructure
and the need to liquefy, transport, and store the gas, and then
put it in the pipe network for customers.
11:17:43 AM
MR. BRITTON paraphrased from slide 10, "Benefits of Storage,"
which read:
The development of expanded LNG storage facilities in
the Fairbanks and North Pole areas is a critical
component of the IEP as they will increase the
security of supply and provide capacity to serve a
greater number of new customers.
These storage facilities, with current liquefaction
infrastructure, enable IGU the ability to serve
approximately 3000 new residential customers beginning
the summer 2020.
The state's LNG storage tax credits are vital in
helping to bring down the cost of providing natural
gas to Interior residents.
All money from tax credits for tanked storage will be
under the oversight of the Regulatory Commission of
Alaska, the IGU Board and the FNSB Assembly to ensure
these savings are passed along to the rate payers.
11:19:06 AM
MR. BRITTON reported that, as they were a public gas utility,
any savings were always passed on to the consumer. IGU was a
not-for-profit and they did not return any earnings to the
Borough, as it all stayed within the utility for reinvestment
toward expansion of gas service for more customers. He relayed
that the storage credit benefit to IGU rates was estimated to be
$15 million for Fairbanks and $6 million for North Pole. He
noted that the current price was about $2 per MCF per thousand
cubic feet of gas and, with the increase of demand, the price
would go down to about $0.72. He projected that the price would
go down in the future to about $0.35.
MR. BRITTON addressed slide 11, "Estimated Impact on Rates," and
paraphrased the slide, which read:
Without storage credits, IGU will incur $21 million in
additional debt with an estimated rate impact of
$1.93/MCF at existing demand to $0.72/MCF at Base Case
demand (in 2022). Actual rate impact depends on
customer conversions and associated demand.
11:20:17 AM
MR. BRITTON addressed slide 12, "Installed Piping Fairbanks,"
which depicted a map showing 140 miles of the piping
distribution network for gas access. He stated that more
conversions were now just contingent on the availability of
additional gas supply.
MR. BRITTON, in response to Representative Rauscher, said that
the colors represented different pipe size: red equals 8-inch,
blue equals 6-inch, green equals 4-inch, and yellow equals 2-
inch pipe.
MR. BRITTON, in response to Representative Rauscher, said that
there were a few options for third-party damages. He said that
there could be a shut off for valving. He noted that, as there
was not any steel in the system, the pipe could be squeezed to
shut off flow close to the damage. He reported that each
emergency was evaluated slightly differently dependent on where
the gas was escaping and the proximity of structures.
REPRESENTATIVE RAUSCHER asked about the response time.
MR. BRITTON replied that the response time was generally less
than 30 minutes, and often, the gas flow was shut off within 15
minutes after that. He shared that the longest potential for a
challenging situation with remote excavation would be an hour
from the time of arrival to the gas shut off.
REPRESENTATIVE FIELDS asked if the downtown core of Fairbanks
also had this infrastructure.
MR. BRITTON replied that completion of the downtown core
installation had started during recent sidewalk projects to
reduce impact on the roadways. He pointed out that, as other
areas had access to steam and hot water service as an
alternative to wood and oil heat, these had not yet been fully
completed with gas service but would be in the next few years.
11:24:17 AM
MR. BRITTON moved on to slide 13, "Installed Piping North Pole,"
and explained the construction of Phase 1 of the expansion, in
three distinct zones for contracting purposes. He reported that
about 72 miles of gas piping had been completed in one of the
areas. He added that there were six phases planned.
MR. BRITTON, in response to Representative Rauscher, explained
that the LNG storage facility would be the two red squares on
the south portion of the map on slide 12. He pointed to the red
square on the south-west portion of the map and reported that
this where the new large storage tank was being constructed
adjacent to the operating facility.
11:26:17 AM
REPRESENTATIVE PRUITT asked if the two 75-thousand-gallon tanks
would be sufficient for the six phases in North Pole.
MR. BRITTON said that the initial design for these two tanks had
enough capacity for Phases 1 - 3, although the overall project
design was set up for the full six phases. He said that
additional tankage would be necessary for the remaining three
phases. He added that the vaporization capacity and the design
of the systems was set up to allow for the addition of a
vaporizer and additional boilers to meet the needs.
REPRESENTATIVE PRUITT asked if the committee should expect a
visit when it was time for Phases 4 - 6.
MR. BRITTON replied that the additional phases were not
anticipated for five to ten years. He stated that, at that
point, the utility would be established with substantially more
customers, with an expectation that the future financial needs
would be provided through utility revenues versus a return to
the State of Alaska for assistance. He said that, although the
utility would always be open to the opportunity for
contributions that could reduce the cost to consumers, the
intention was for that work to be "borne by rate payers in the
future."
11:28:31 AM
CHAIR HOPKINS opened public testimony [Due to technical
difficulties, the following testimonies were difficult to
understand].
11:28:57 AM
MICHAEL MEEKS, Chief of Staff, Mayor Jim Matherly, said that he
had been an original board member to the Interior Gas Utility
and had been chairman of the board for three years. He declared
that the Interior needed to have tax and credit exemption for
LNG storage facilities. Without this extension, the price per
meter would increase and the number of customers making the
choice to convert from fuel oil to gas would most likely
decrease.
11:30:31 AM
BRYCE WARD, Mayor, Fairbanks North Star Borough, stated that the
project would reduce the cost and would address the air quality
issue by converting to a cleaner source of energy for heating.
11:32:09 AM
JOMO STEWART, Fairbanks Economic Development Corporation, stated
support for HB 87 and referenced the letter [dated March 11,
2019] from the Fairbanks Economic Development Corporation
[Included in members' packets]. He said that the proposed bill
was crucial to the success of the construction of the facility
as it would help drive down costs.
11:34:15 AM
VIKKI JO KENNEDY, Grandma Brigade, said that she was honored to
address friends in Fairbanks. She declared that, although she
was proud of the gas line, she had concern for the funding,
emphasizing that the state could not afford to continue this.
REPRESENTATIVE RAUSCHER asked if she was in support of the
proposed bill.
MS. KENNEDY replied, "yes."
11:36:52 AM
The committee took a brief at-ease.
11:37:14 AM
PATRICE LEE, Director, Interior Gas Utility, stated her support
for HB 87. She stressed the importance for addressing the poor
air quality and that an answer to the problem would be
affordable energy. This would also provide a necessary economic
boom.
11:38:52 AM
CHAIR HOPKINS closed public testimony.
11:39:02 AM
REPRESENTATIVE SPOHNHOLZ moved to report HB 87 out of committee
with individual recommendations and the accompanying zero fiscal
note. There being no objection, HB 87 was moved from the House
Special Committee on Energy.
11:39:30 AM
The committee took an at-ease from 11:39 a.m. to 11:42 a.m.
11:42:00 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:42 a.m.