Legislature(2013 - 2014)BARNES 124

02/08/2013 03:15 PM LABOR & COMMERCE


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03:33:42 PM Start
03:34:04 PM Confirmation Hearing: || Department of Labor & Workforce Development, Commissioner
03:53:01 PM HB74
05:01:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 3:30 p.m. Today --
+ Confirmation Hearing: TELECONFERENCED
Commissioner, Dept. of Labor & Workforce
Development, Dianne Blumer
*+ HB 74 AIDEA: LNG PROJECT; DIVIDENDS; FINANCING TELECONFERENCED
Heard & Held
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                        February 8, 2013                                                                                        
                           3:33 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Lora Reinbold, Vice Chair                                                                                        
Representative Charisse Millett                                                                                                 
Representative Dan Saddler                                                                                                      
Representative Andy Josephson                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault                                                                                                    
Representative Bob Herron                                                                                                       
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
CONFIRMATION HEARING(S):                                                                                                        
                                                                                                                                
Department of Labor & Workforce Development, Commissioner                                                                     
                                                                                                                                
     Dianne Blumer, Commissioner - Juneau                                                                                       
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
HOUSE BILL NO. 74                                                                                                               
"An Act  relating to development  project financing by  the Alaska                                                              
Industrial  Development  and  Export Authority;  relating  to  the                                                              
dividends  from  the  Alaska  Industrial   and  Export  Authority;                                                              
authorizing   the  Alaska   Industrial   Development  and   Export                                                              
Authority to  provide financing  and issue  bonds for  a liquefied                                                              
natural  gas  production  system   and  natural  gas  distribution                                                              
system; and providing for an effective date."                                                                                   
                                                                                                                                
     - HEARD & HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 74                                                                                                                   
SHORT TITLE: AIDEA: LNG PROJECT; DIVIDENDS; FINANCING                                                                           
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/16/13       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/16/13       (H)       L&C, FIN                                                                                               
02/08/13       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
DIANNE BLUMER, Commissioner                                                                                                     
Department of Labor & Workforce Development (DLWD)                                                                              
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as appointed commissioner during                                                               
her confirmation hearing.                                                                                                       
                                                                                                                                
TED LEONARD, Executive Director                                                                                                 
Alaska Industrial Development & Export Authority (AIDEA)                                                                        
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 74.                                                                
                                                                                                                                
MARK DAVIS, Deputy Director                                                                                                     
Alaska Industrial Development & Export Authority (AIDEA)                                                                        
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the discussion of HB 74.                                                                
                                                                                                                                
GENE THERRIAULT, Deputy Director                                                                                                
Statewide Energy Policy Development                                                                                             
Alaska Energy Authority (AEA)                                                                                                   
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during the discussion of                                                              
HB 74.                                                                                                                          
                                                                                                                                
JOMO STEWART, Energy Project Manager                                                                                            
Fairbanks Economic Development Corporation (FEDC)                                                                               
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 74.                                                                           
                                                                                                                                
REPRESENTATIVE T. WILSON                                                                                                        
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 74.                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:33:42 PM                                                                                                                    
                                                                                                                                
CHAIR  KURT OLSON  called the  House Labor  and Commerce  Standing                                                            
Committee  meeting   to  order  at  3:33  p.m.     Representatives                                                              
Reinbold, Millett,  Saddler, Josephson, and Olson  were present at                                                              
the call to order.                                                                                                              
                                                                                                                                
^Confirmation Hearing:                                                                                                          
^Department of Labor & Workforce Development, Commissioner                                                                      
                    Confirmation Hearing(s):                                                                                
          Department of Labor & Workforce Development                                                                       
                                                                                                                              
3:34:04 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  announced that the  first order of business  would be                                                              
the  confirmation  hearing:    Department  of  Labor  &  Workforce                                                              
Development, Commissioner Dianne Blumer.                                                                                        
                                                                                                                                
3:35:00 PM                                                                                                                    
                                                                                                                                
DIANNE  BLUMER,  Commissioner,  Department  of Labor  &  Workforce                                                              
Development (DLWD),  provided her background, including  her state                                                              
service.   She stated that she  was appointed by  Governor Parnell                                                              
on May 17, 2012;  is a life-long Alaskan, who has  lived in Craig,                                                              
Ketchikan, Sitka,  and Juneau.   She began  working for  the state                                                              
Department  of   Transportation  &  Public   Facilities  (DOT&PF),                                                              
Alaska  Marine Highway  System in  1990.  She  transferred  to the                                                              
Department   of  Administration   (DOA),  and   worked  in   labor                                                              
relations and personnel.   She moved to Southcentral  Alaska about                                                              
seven  years ago,  and worked  as  the deputy  director for  DOA's                                                              
Personnel  and the  Department  of  Revenue (DOR),  Child  Support                                                              
Division.   She also worked in  the governor's office as  a policy                                                              
advisor  for  the   DOA,  Department  of  Commerce,   Community  &                                                              
Economic  Development  (DCCED),  and  the  Department  of  Revenue                                                              
(DOR) until May.                                                                                                                
                                                                                                                                
3:36:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   JOSEPHSON   asked   for   Commissioner   Blumer's                                                              
position  on the governor's  proposal to  reduce the  unemployment                                                              
insurance trust  fund.  He understood  the governor has  found the                                                              
Unemployment Insurance  (UI) fund to be solvent  and contributions                                                              
could  be decreased.   He further  asked whether  she agreed  with                                                              
that position.                                                                                                                  
                                                                                                                                
COMMISSIONER BLUMER  answered yes.  She said she  has some talking                                                              
points  she  is  willing  to  share   with  the  committee.    She                                                              
reiterated she supports the governor's position.                                                                                
                                                                                                                                
CHAIR  OLSON  remarked  the  bill would  likely  come  before  the                                                              
committee for the initial hearing before the legislature.                                                                       
                                                                                                                                
3:37:51 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  whether an  argument might  exist                                                              
that since  Alaska's economy  did not suffer  a recession  in 2007                                                              
and 2008,  the UI contributions  should not be decreased  since it                                                              
would  be more  difficult  to increase  them  during a  subsequent                                                              
recession.                                                                                                                      
                                                                                                                                
3:38:20 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  BLUMER  responded,  in reality,  the  proposed  bill                                                              
would  only allow  the commissioner  of  the DLWD  to suspend,  in                                                              
part  or   in  all,  the   proposed  increase.     Currently,  she                                                              
understood the  tax base is  3.32 percent.   If the  proposed bill                                                              
passes the legislature  then the commissioner would  meet with the                                                              
actuary  next year  to determine  the percentage  of the  increase                                                              
and not on the actual tax base.                                                                                                 
                                                                                                                                
REPRESENTATIVE   JOSEPHSON  pointed   out   prior  problems   with                                                              
actuaries'   predictions  relative   to   the  Public   Employees'                                                              
Retirement  System (PERS)  and Teachers'  Retirement System  (TRS)                                                              
and suggested caution.                                                                                                          
                                                                                                                                
COMMISSIONER  BLUMER related  she  will have  information for  the                                                              
committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  REINBOLD  said she  has  been impressed  with  the                                                              
department's   follow-up   to   questions.     She   thanked   the                                                              
commissioner.                                                                                                                   
                                                                                                                                
3:40:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  SADDLER asked the  commissioner to identify  areas                                                              
in  which the  workforce development  is working  and to  identify                                                              
areas that need improvement.                                                                                                    
                                                                                                                                
COMMISSIONER  BLUMER answered  that  she most  proud of  wonderful                                                              
"Youth  First" program,  as well  as several  other programs  that                                                              
help develop leadership skills.                                                                                                 
                                                                                                                                
3:41:09 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER asked for most effective programs.                                                                       
                                                                                                                                
COMMISSIONER  BLUMER   offered  her  belief  the   most  effective                                                              
training programs  are grants, in which the department  is working                                                              
with industry, such  as the mining program with  the University of                                                              
Alaska  Southeast  (UAS).    She explained  that  the  program  is                                                              
extremely  successful   since  industry   is  involved   from  the                                                              
beginning.   She related  that when  students complete  the course                                                              
they are ready to work for the employer.                                                                                        
                                                                                                                                
3:42:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SADDLER  asked Commissioner Blumer to  identify the                                                              
least effective program.                                                                                                        
                                                                                                                                
COMMISSIONER  BLUMER  said  the department  works  with  grantees.                                                              
She  said she  enjoys  the DLWD  and finding  the  right jobs  for                                                              
people.    She  said  she  did   not  encounter  anything  at  the                                                              
department that she does not enjoy.                                                                                             
                                                                                                                                
3:42:47 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON asked  about training  program  for the  homebuilders                                                              
and training for high school seniors.                                                                                           
                                                                                                                                
COMMISSIONER BLUMER  answered that  the department works  with the                                                              
construction academy.   She was  unsure of the success  rates, but                                                              
the program  is extremely  popular.   She reported the  department                                                              
will soon recognize  and award businesses who have  been extremely                                                              
successful  in getting people  trained and  into the  construction                                                              
workforce.                                                                                                                      
                                                                                                                                
3:43:43 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON said  success rate is above 90 percent.   He commended                                                              
the  commissioner  on  the construction  academy,  noting  he  has                                                              
heard  specific  success  stories,  and  he  characterized  it  as                                                              
pretty impressive.                                                                                                              
                                                                                                                                
3:44:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  said  she  has  known  Ms.  Blumer  on  a                                                              
personal and  professional level.   She was  working as  a special                                                              
assistant   and  legislative   liaison   to   the  Department   of                                                              
Administration (DOA)  when she began  working with  Dianne Blumer.                                                              
At  the  time,  Ms.  Blumer  was   working  for  labor  relations,                                                              
negotiating labor agreements.   She considered her a  mentor.  She                                                              
characterized Ms.  Blumer as someone  with excellent  expertise in                                                              
labor  relations and  personnel,  but is  also someone  who has  a                                                              
pragmatic, realistic  idea of labor  relations, job  outlooks, and                                                              
forecasts.  She  commended the working relationships  Commissioner                                                              
Blumer  has   developed  with  the   unions.    She   related  the                                                              
commissioner  has forged  professional  relationships.   She  said                                                              
she has  the utmost  confidence that  Governor Parnell  has picked                                                              
the right  person to  serve as  commissioner.   She commended  the                                                              
commissioner's knowledge  and follow  through.  In  conclusion she                                                              
said she  is fully  behind this  appointment  and has worked  with                                                              
Commissioner Blumer for eight years in several capacities.                                                                      
                                                                                                                                
3:47:37 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON,  after  first  determining  no one  else  wished  to                                                              
testify, closed  public testimony  on the confirmation  for Dianne                                                              
Blumer as  commissioner for  the Department  of Labor  & Workforce                                                              
Development (DLWD).                                                                                                             
                                                                                                                                
3:47:54 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  reminded members that  signing the reports  regarding                                                              
appointments  to   boards  and  commissions  in   no  way  reflect                                                              
individual  members' approval  or disapproval  of the  appointees,                                                              
and  that  the  nominations  are  merely  forwarded  to  the  full                                                              
legislature for confirmation or rejection.                                                                                      
                                                                                                                                
3:48:48 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  moved to  advance the  confirmation of Diane  Blumer,                                                              
appointee as commissioner  of the Department of  Labor & Workforce                                                              
Development to the  joint session for consideration.   There being                                                              
no objection, the confirmation was advanced.                                                                                    
                                                                                                                                
The committee took an at-ease from 3:49 to 3:53 p.m.                                                                            
                                                                                                                                
         HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING                                                                     
                                                                                                                              
3:53:01 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced that the final order of business would be                                                                 
HOUSE  BILL  NO.  74, "An  Act  relating  to  development  project                                                              
financing  by   the  Alaska  Industrial  Development   and  Export                                                              
Authority; relating  to the dividends  from the Alaska  Industrial                                                              
and   Export   Authority;  authorizing   the   Alaska   Industrial                                                              
Development and  Export Authority  to provide financing  and issue                                                              
bonds for  a liquefied natural  gas production system  and natural                                                              
gas distribution system; and providing for an effective date."                                                                  
                                                                                                                                
3:53:05 PM                                                                                                                    
                                                                                                                                
TED LEONARD, Executive  Director, Alaska Industrial  Development &                                                              
Export  Authority (AIDEA),  Department of  Commerce, Community,  &                                                              
Economic Development (DCCED), introduced himself.                                                                               
                                                                                                                                
MARK  DAVIS,  Deputy Director,  Alaska  Industrial  Development  &                                                              
Export  Authority (AIDEA),  Department of  Commerce, Community,  &                                                              
Economic Development (DCCED), introduced himself.                                                                               
                                                                                                                                
3:53:53 PM                                                                                                                    
                                                                                                                                
MR.  LEONARD stated  that  HB 74  consists  of three  parts.   The                                                              
first part  would allow Alaska  Industrial Development  and Export                                                              
Authority (AIDEA) to  provide financing for a project  it does not                                                              
intend  to  own  or  acquire.   The  bill  would  allow  AIDEA  to                                                              
continue  work with  the legislature,  and  the administration  in                                                              
modernizing its  tools.  This bill  would allow AIDEA  to leverage                                                              
more   of   its   investment   by   encouraging   private   sector                                                              
development.   He explained this would  also allow AIDEA  to own a                                                              
project  through  a limited  liability  corporation  (LLC),  which                                                              
would  give  AIDEA  more  protection   on  its  natural  resources                                                              
projects.   To summarize, this bill  would provide AIDEA  with the                                                              
least amount  of risk when financing  a project in which  AIDEA is                                                              
lending money but  will not own the project.   In conclusion, this                                                              
tool  could help  protect  AIDEA's  assets as  a  lender and  part                                                              
owner, especially  as AIDEA  becomes more  involved in  helping to                                                              
finance natural resources' projects.                                                                                            
                                                                                                                                
3:54:48 PM                                                                                                                    
                                                                                                                                
MR. LEONARD  said the second part  of HB 74 would assist  and make                                                              
technical amendments  to the dividend statutes.   The Governmental                                                              
Accounting Standards  Board (GASB)  has changed its  definition of                                                              
terminology  and financial  reporting statutes.   This means  that                                                              
in order to provide  the highest and maximum  dividend, AIDEA must                                                              
change  its  statutes  so  AIDEA's   terminology  matches  GATSB's                                                              
terminology.   For example,  AIDEA's definition  for net  position                                                              
must  match  the GATSB's  definition  of  net position,  he  said.                                                              
Additionally,  AIDEA  has  two  funds:   the  Revolving  fund  for                                                              
normal projects, and  with passage of Senate Bill 25  in 2012, the                                                              
Sustainable  Energy  Transmission   and  Supply  Development  Fund                                                              
(SETS).  Thus,  AIDEA is asking the legislature  for the authority                                                              
to  calculate   dividends  on  each  individual   fund  separately                                                              
instead of the  current netted calculation process.   He explained                                                              
this is  necessary so if  SETS fund suffers  a loss, it  would not                                                              
affect AIDEA's  revolving fund.   Thus  far AIDEA has  distributed                                                              
$345 million in dividends since 1998, he said.                                                                                  
                                                                                                                                
3:56:40 PM                                                                                                                    
                                                                                                                                
MR. LEONARD  explained that  the third part  of HB 74  would allow                                                              
AIDEA  to  participate  in  the development  and  financing  of  a                                                              
liquefied natural  gas (LNG) plant and a natural  gas distribution                                                              
system in  Interior Alaska.  He  explained this would  allow AIDEA                                                              
to work  through the $355  million financing package  the governor                                                              
is  recommending to  the  legislature and  also  utilize the  SETS                                                              
energy financing  tools.  In essence, one portion  would authorize                                                              
AIDEA to lend  to the project more  than one-third of  the cost of                                                              
the project.   Under SETS, AIDEA  can only participate  up to one-                                                              
third  of the  capital cost  of the  project.   This change  would                                                              
give AIDEA  the authority  to invest  more and  to issue  bonds to                                                              
help finance the project.                                                                                                       
                                                                                                                                
3:57:55 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  asked for clarification on  the cap, whether  it is a                                                              
dollar cap or a percentage.                                                                                                     
                                                                                                                                
MR. LEONARD answered  that the new limit is based  on one-third of                                                              
the capital cost.                                                                                                               
                                                                                                                                
MR.  DAVIS  answered  that  legislative   approval  necessary  for                                                              
loans.                                                                                                                          
MR.  LEONARD clarified  that  legislative  approval necessary  for                                                              
bonding, too.                                                                                                                   
                                                                                                                                
3:59:00 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  asked where  else  AIDEA  would foresee  using  this                                                              
capacity.                                                                                                                       
                                                                                                                                
MR.  DAVIS   answered  that   the  AIDEA   has  been   working  on                                                              
implementing  the SETS.    He reported  the  agency has  developed                                                              
regulations,  which have gone  out for  public comment  and should                                                              
be  in place  by  the end  of  March.   He  envisioned using  this                                                              
program  to  support energy  projects  in  rural Alaska,  such  as                                                              
propane  gas distribution  in the  Gulf of  Alaska communities  of                                                              
Cordova and Yakutat.   Additionally, AIDEA is  considering whether                                                              
this  process  could  be  used for  wind  farm  development.    He                                                              
suggested  these projects  would be  projects sold  into the  grid                                                              
and  would not  be stand-alone  projects.   He  remarked that  the                                                              
additional  funding  authority  could  be  used  for  transmission                                                              
lines.                                                                                                                          
                                                                                                                                
4:00:16 PM                                                                                                                    
                                                                                                                                
MR. DAVIS offered  to provide a  sectional analysis of HB  74.  He                                                              
referred to  page 3 to  proposed Section 2  of HB 74,  would allow                                                              
AIDEA  to  provide  development  project  financing.    Currently,                                                              
under  AS 48.88.070  (2),  AIDEA  can  own and  operate  projects;                                                              
however, this proposed  section would extend the  authority to add                                                              
development  project financing.   He characterized  the change  as                                                              
being  more  of a  private  sector  approach.   This  change  also                                                              
corresponds  to  language  on page  9  of  HB  74 by  amending  AS                                                              
44.88.172  (a),   to  allow  project  financing   for  development                                                              
projects that  the authority  does not intend  to own  or operate,                                                              
such as the  Skagway Ore terminal.   This provision would  ask the                                                              
legislature  for the authority  to use  AIDEA's revolving  fund to                                                              
provide development  project financing  as Mr. Leonard  previously                                                              
mentioned.   Thus, this  would allow the  current $480  million in                                                              
the  AIDEA's  revolving  fund  to  be  used  for  financing.    He                                                              
clarified this doesn't  mean AIDEA would not own  projects, nor is                                                              
this  a  change in  direction,  but  it  would simply  give  AIDEA                                                              
another tool to use.                                                                                                            
                                                                                                                                
4:02:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  referred to page 4, line 7 of  HB 74.  She                                                              
asked the  reason for  the change from  "Alaska" to  "state" since                                                              
this term seems interchangeable.                                                                                                
                                                                                                                                
MR. DAVIS  answered this  change is  a technical change  requested                                                              
by the Department  of Law (DOL).  In further response,  he said he                                                              
was unsure if the  changes would be made to all  statutes; however                                                              
it  would specifically  change  the  term in  this  instance.   He                                                              
characterized the change as a reconciling format.                                                                               
                                                                                                                                
4:03:53 PM                                                                                                                    
                                                                                                                                
MR. DAVIS  turned to payment  of dividends on  page 8.   He stated                                                              
that AIDEA  defines  three terms  in AS 44.88.088(b).   While  the                                                              
term "base fiscal  year" would stay the same,  new standards would                                                              
be added under  the GASB board for "net income"  and "unrestricted                                                              
net  income."   In  essence,  this  would  allow the  dividend  to                                                              
increase, he said.                                                                                                              
                                                                                                                                
4:05:23 PM                                                                                                                    
                                                                                                                                
MR.  DAVIS referred  to page  7, to  another technical  amendment,                                                              
which would allow  AIDEA to pay a dividend from  the current AIDEA                                                              
revolving  fund and the  new SETS  fund.   He explained  AIDEA was                                                              
originally intended  to pay a single dividend;  however, the AIDEA                                                              
accounting  staff  suggested  it   would  be  better  to  pay  the                                                              
dividend from  each of the  two funds.  Thus  if one fund  was not                                                              
making  money the  other fund  wouldn't be  tapped, and  different                                                              
rates of  return from each fund  could occur, which  is consistent                                                              
with energy  projects.  He  suggested that  this makes sense.   He                                                              
pointed out changes  on page 7 that affect AIDEA's  Revolving fund                                                              
and on page 8  for the SETS fund.  This concludes  the substantive                                                              
legal issue changes in the bill, he said.                                                                                       
                                                                                                                                
4:06:21 PM                                                                                                                    
                                                                                                                                
MR. DAVIS turned  to page 10, to proposed Section  10, which would                                                              
amend the  uncodified law.    He said this  is designed to  make a                                                              
one-time change  - a waiver -  which would allow AIDEA  to provide                                                              
financing  more  than  one-third  of  the loan  for  the  size  of                                                              
project  contemplated.   Additionally,  he advised  that AIDEA  is                                                              
required  by statute  to request  authority bonding  in excess  of                                                              
$10 million  so this bill would  request authority to  issue bonds                                                              
of $150 million.                                                                                                                
                                                                                                                                
4:07:41 PM                                                                                                                    
                                                                                                                                
MR. DAVIS  said while this  provision would give  AIDEA additional                                                              
legal tools,  in essence,  the bill  would support the  governor's                                                              
Interior  energy  plan.    The  governor's  Interior  energy  plan                                                              
consists of four  components:  $150 million in  bonding authority;                                                              
an appropriation  authority from  the SETS fund  in the  amount of                                                              
$125 million  at an  approximately rate of  3 percent;  a one-time                                                              
general fund appropriation  to AIDEA for $50  million specifically                                                              
for the LNG  plant construction; and existing gas  storage credits                                                              
of $30 million  - which passed  the legislature last session.   To                                                              
summarize,  the  entire  governor's  plan for  the  project  would                                                              
total  $355  million,  he  said.     This  would  allow  AIDEA  an                                                              
opportunity  to pursue  the possibility  of building  a small  LNG                                                              
plant on  the North Slope, truck  the gas to Fairbanks,  and place                                                              
the  gas into  a  natural gas  distribution  system.   Although  a                                                              
small  natural  gas  distribution  system  currently  exists,  the                                                              
aforementioned  $150  million  would  be  used to  build  out  the                                                              
natural gas distribution system in Fairbanks, he stated.                                                                        
                                                                                                                                
4:08:58 PM                                                                                                                    
                                                                                                                                
MR. DAVIS  explained that  the rest  of funds  - the $125  million                                                              
SETS loan,  and $50  million appropriation  for  AIDEA - would  be                                                              
used to  support the construction  of the  LNG plant itself.   The                                                              
goal  would   be  to  provide   gas  delivered  to   Fairbanks  at                                                              
approximately $10.32  per [thousand cubic  feet] Mcf.   He related                                                              
that  AIDEA is  currently undergoing  a  process to  ensure it  is                                                              
possible to  do so.  He explained  that on December 8,  AIDEA sent                                                              
out a  request for interest,  received 16 responses,  and reviewed                                                              
the  responses  internally.    He  related  AIDEA  plans  hire  an                                                              
engineering  firm with expertise  in LNG  plants, and  will expect                                                              
AIDEA's  project manager  - Jim  Strandberg -  and the  consultant                                                              
team  to begin  the process  to  consider the  feasibility of  the                                                              
project,  including the  process  and cost  of a  building an  LNG                                                              
natural gas  distribution system,  along with possible  locations.                                                              
In  fact, AIDEA  has  received turnkey  offers  in the  responses,                                                              
meaning  that  the  companies  already   have  the  pad,  and  are                                                              
offering to build  it.  Additionally, other firms  offered to work                                                              
with AIDEA to accomplish the project.                                                                                           
                                                                                                                                
4:10:32 PM                                                                                                                    
                                                                                                                                
MR.  DAVIS   pointed  out  that   if  HB  74  passes   it  doesn't                                                              
necessarily  mean funds  will  be spent  since  AIDEA will  comply                                                              
with the  standard process  it uses on  all projects.   First, the                                                              
AIDEA board would  want to ensure the project  meets its statutory                                                              
authority  and goals.   In  this instance,  the determination  has                                                              
already  been   made  since  AIDEA   is  authorized  to   build  a                                                              
gasification project  under the SETS  funding.  Next,  AIDEA would                                                              
perform the  necessary due diligence  to make certain  the project                                                              
will pencil  out to  ensure AIDEA  can make a  return, as  well as                                                              
for the  private sector.  However,  the proposed LNG  plant cannot                                                              
be built solely  from funds authorized in this bill.   In fact, it                                                              
will  be  necessary for  AIDEA  to  reach  out to  obtain  private                                                              
capital to make  this project work.  "That's how  AIDEA works," he                                                              
said.                                                                                                                           
                                                                                                                                
4:11:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT  recalled he  mentioned  $150 million  for                                                              
distribution in Fairbanks.   She asked whether money  is set aside                                                              
for a study  first and the funding  would be used for  the natural                                                              
gas distribution system.                                                                                                        
                                                                                                                                
MR. DAVIS answered  that AIDEA has resources available  it can use                                                              
to invest  in projects.   Thus AIDEA would  use internal  funds to                                                              
conduct the  study; however, the  $150 million represents  AIDEA's                                                              
best  estimate  for costs  to  build  a natural  gas  distribution                                                              
system for  the core  and middle-density areas  of Fairbanks.   He                                                              
offered  his  belief  this  represents  the  best  opportunity  to                                                              
supply gas to the  maximum amount of people at the  best cost.  In                                                              
further response,  Mr. Davis said he  was unsure of the  number of                                                              
homes that would be served.                                                                                                     
                                                                                                                                
4:12:44 PM                                                                                                                    
                                                                                                                                
GENE  THERRIAULT,   Deputy  Director,   Statewide  Energy   Policy                                                              
Development,   Alaska  Energy  Authority   (AEA),  Department   of                                                              
Commerce,  Community, &  Economic  Development (DCCED),  explained                                                              
that two  proposals are  planned in Fairbanks  for the  build out:                                                              
Fairbanks  Natural  Gas,  the  existing   operator  of  the  small                                                              
distribution  system, plans to  push out  and cover 16,000  homes;                                                              
and  the  Fairbanks   Economic  Development   Corporation  (FEDC),                                                              
previously received  state money to  consider how far  the natural                                                              
gas  distribution system  could  be built  out.   He reported  the                                                              
FEDC  has estimated  it may  be able to  serve 22,000  homes.   He                                                              
reiterated that this  would represent the core dense  area and the                                                              
secondary area,  but would cover  as much of the  Interior housing                                                              
and business community as possible.                                                                                             
                                                                                                                                
REPRESENTATIVE  MILLETT asked whether  homeowners would  incur any                                                              
costs to connect to the natural gas distribution system.                                                                        
                                                                                                                                
MR. DAVIS agreed  various ways to construct hookups  exist, but he                                                              
envisioned AIDEA's  design would  be to lower  the actual  cost or                                                              
finance hookup  costs.   He reiterated  various models  exist, but                                                              
obviously the  lower cost or best  financing for homeowners  is an                                                              
important  consideration.   He said  he personally  worked on  the                                                              
Girdwood  gas  conversion  20 years  ago  so  he is  sensitive  to                                                              
people's concerns about hookup costs.                                                                                           
                                                                                                                                
4:14:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT   asked  whether  the  16,000   or  22,000                                                              
homeowners  have  any  "buy  in"  for the  project  if  costs  are                                                              
associated with a necessary conversion to LNG.                                                                                  
                                                                                                                                
MR. DAVIS  answered  that the best  sales plan  for homeowners  is                                                              
AIDEA's  work  to supply  gas  to  Fairbanks  at $10.32  Mcf  with                                                              
delivery estimates  ranging from $13 to  $17.29.  He said  this is                                                              
based  on  models  that the  Alaska  Energy  Authority  (AEA)  has                                                              
performed   using  various   assumptions  and   parameters.     He                                                              
concluded that  LNG service  should result in  a 40 to  50 percent                                                              
reduction  in heating  cost bills  to  the Fairbanks'  homeowners,                                                              
compared  to  current  diesel  fuel  cost  of  $3.90  per  gallon.                                                              
Accordingly,  if  diesel  fuel costs  increase,  this  would  only                                                              
improve the viability of the project, he said.                                                                                  
                                                                                                                                
4:16:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MILLETT asked  how  it would  impact Fairbanks  if                                                              
the  state  invests  $355  million   for  thermal  heat  and  then                                                              
competing  projects  in Anchorage  are  subsequently  built.   She                                                              
suggested  this   would  make   electricity  cost  effective   and                                                              
wondered if  residents would then  need to convert  from liquefied                                                              
natural gas  to electric  heat.  She  acknowledged this  project -                                                              
the  LNG and  natural  gas distribution  system  project to  serve                                                              
Fairbanks  - sounds  good now,  but expressed  concern about  what                                                              
might happen if a lower cost solution arrives later.                                                                            
                                                                                                                                
MR.  LEONARD   acknowledged  a   proposed  in-state   pipeline  is                                                              
certainly  a potential  project;  however, AIDEA  believes such  a                                                              
project  would be  compatible  with the  proposed  LNG project  in                                                              
Fairbanks.   He advised  that prior  to building  out the  natural                                                              
gas distribution system,  a guarantee must exist to  ensure gas is                                                              
available  to serve  the customers.    He pointed  out that  AIDEA                                                              
believes  the $150  million in  bonding  would sufficiently  build                                                              
out  the distribution  system to  accommodate gas.   Granted,  the                                                              
natural gas  distribution system would  be built in  sections, but                                                              
AIDEA would  not need to  issue bonds as  a whole;  instead, AIDEA                                                              
would  issue  bonds  as  needed  to  build  out  the  natural  gas                                                              
distribution system.   Further, one  of AIDEA's roles has  been to                                                              
determine whether  projects pencil out  to benefit consumers.   In                                                              
fact, this  project was designed  by the governor to  provide low-                                                              
cost financing  and the only pure  state grant funding  request is                                                              
the  $50 million  equity funding  since  the rest  of the  project                                                              
would  be financed  with private  sector  and utility  funds.   He                                                              
pointed   out   determining   cost   effective   availability   of                                                              
electricity  goes beyond  AIDEA's ability  so he  deferred to  Mr.                                                              
Therriault to answer  that question.  However,  he reiterated that                                                              
AIDEA believes synergy exists between the two projects.                                                                         
                                                                                                                                
4:19:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MILLETT  said she is  hopeful that the  Healy Clean                                                              
Coal  Project (HCCP)  will provide  another  opportunity for  low-                                                              
cost electricity  to  the Railbelt.   She surmised  coal would  be                                                              
the most cost effective energy.                                                                                                 
                                                                                                                                
MR. LEONARD  said AIDEA also hopes  that HCCP will be  up quickly;                                                              
however,  he understood  that HCCP  would not  replace heating  in                                                              
Fairbanks.    While  Golden  Valley  Electric  Association  (GVEA)                                                              
could  explain  this  more  fully, GVEA  anticipates  one  of  its                                                              
turbines  could  be  switched  to   gas.    In  conclusion,  AIDEA                                                              
believes  that HCCP  coming  online  will help  reduce  electrical                                                              
costs in Fairbanks, but will not replace using gas for heating.                                                                 
                                                                                                                                
4:21:06 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON recalled  the  GVEA said  it would  take                                                              
$400 to  600 million  and more  than 22,000  homes to  do so.   He                                                              
assumed  that number  of homes  would serve  about 60,000  people.                                                              
He  asked whether  the LNG  project and  natural gas  distribution                                                              
system would cover everyone.                                                                                                    
                                                                                                                                
MR. DAVIS  said this  project is not  designed to cover  everyone,                                                              
but  the natural  gas  distribution system  would  cover the  most                                                              
cost effective  areas.  He  understood the proposed  project would                                                              
produce  a two-percent  stream  of  propane, which  could  provide                                                              
heating for approximately  2,200 additional homes.   He reiterated                                                              
a natural  gas distribution  system typically  serves core  areas.                                                              
For example  the Matanuska-Susitna  valley  service is an  example                                                              
of this.                                                                                                                        
                                                                                                                                
4:22:34 PM                                                                                                                    
                                                                                                                                
MR.  DAVIS  suggested  AIDEA  believes this  project  would  be  a                                                              
bridge to  the gas pipelines, albeit  an important one,  since any                                                              
pipelines  would be  designed to  provide greater  coverage.   For                                                              
example,  the Alaska  Stand  Alone  Pipeline (ASAP)  study  covers                                                              
substantially more customers than this project, he said.                                                                        
                                                                                                                                
MR. LEONARD  cautioned that  $355 million  does not represent  the                                                              
full build out  natural gas distribution system  in Fairbanks, but                                                              
would provide  the core build out  of the system.  Thus,  the core                                                              
build out  of the  natural gas distribution  system would  provide                                                              
the catalyst  to expand the natural  gas distribution system.   He                                                              
recalled  the  full  natural gas  distribution  system  build  out                                                              
would  cost  $400 to  500  million  and the  initial  distribution                                                              
plant would  cost $220 million for  nine billion cubic  feet (BCF)                                                              
system.   He  explained  the system  could  be expanded  in 4  Mcf                                                              
segments up to 20  BCF.  He reiterated the $355  million would not                                                              
cover  a  full  build  out  or  a  full  maximum  capacity  plant;                                                              
however,  the LNG  plant and  natural gas  distribution system  is                                                              
meant to  be the core  and catalyst to  provide cheaper  energy to                                                              
Fairbanks.    Additionally,  AIDEA  believes  this  project  would                                                              
provide  the basis  to finance  the  additional build  out of  the                                                              
natural gas distribution  system.  He reiterated  the $355 million                                                              
represents the  core amount  to get the  project going.   Even so,                                                              
he did  not anticipate  AIDEA coming to  the state for  additional                                                              
funds,  he said.   Instead,  he stated  that once  the project  is                                                              
operational,  the natural  gas distribution  system will  be built                                                              
on the success of getting the highest and medium sections built.                                                                
                                                                                                                                
4:24:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked for scalability to  large or small                                                              
gas  lines   and  whether  the   proposed  LNG  and   natural  gas                                                              
distribution  system  to  Fairbanks  has  value  to  the  proposed                                                              
natural gas projects.                                                                                                           
                                                                                                                                
MR. LEONARD answered  that the way the projects  merge together is                                                              
that first  AIDEA would  provide gas to  Fairbanks and  then build                                                              
out the  natural gas  distribution system.   Meanwhile,  the state                                                              
must  decide which  gasline  will  come to  Fairbanks.   Once  the                                                              
natural gas flows  to Fairbanks, demand from the  LNG plant exists                                                              
either  by  moving  the  LNG plant  to  Fairbanks  and  using  the                                                              
natural gas pipeline  to serve Interior Alaska or the  LNG will be                                                              
used in  mines.  For  example, AIDEA is  currently working  on the                                                              
proposed road  to Ambler.  However,  once built, the mines  in the                                                              
Ambler area  would need  an estimated at  180 megabytes  of energy                                                              
and anticipates using  natural gas as feedstock  for these plants.                                                              
He  reiterated AIDEA  believes  trucking LNG  to  Fairbanks is  an                                                              
interim  solution   that  would  help  promote  the   natural  gas                                                              
distribution  system  once a  natural  gas  pipeline is  built  to                                                              
Fairbanks, the LNG plant could be used for another purpose.                                                                     
                                                                                                                                
MR. DAVIS  interjected  that is  important since  the life  of the                                                              
proposed LNG  plant is beyond  the anticipated use  for Fairbanks.                                                              
Therefore,  by finding residual  uses for  the plant,  which AIDEA                                                              
believes  exists, would  allow AIDEA  to amortize  the plant  over                                                              
the  appropriation life  of  the plant  and  therefore reduce  the                                                              
debt service.                                                                                                                   
                                                                                                                                
4:27:29 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON asked  for investment by Fairbanks,  Fairbanks Natural                                                              
Gas,  Fairbanks North  Star Borough  (FNSB),  the Fairbanks  North                                                              
Star  Borough   School  District   since   this  will  allow   for                                                              
significant savings.                                                                                                            
                                                                                                                                
MR. DAVIS answered  that AIDEA anticipates traveling  to Fairbanks                                                              
in the near  future, and that contracts  will need to  be in place                                                              
for  financing since  financing can't  occur without  commitments.                                                              
Again, this represents  a finance package and not  anything beyond                                                              
the  normal AIDEA  process.   Currently,  AIDEA  will examine  the                                                              
benefits of  the engineering that  offered by other  groups, which                                                              
is  part of  the  due diligence  process.   He  acknowledged  that                                                              
AIDEA is  on a fast  track to  get this done  since people  need a                                                              
solution; however,  the LNG project will also provide  a bridge to                                                              
a natural gas  pipeline.  He offered his belief  long-term markets                                                              
exist  for  trucked LNG  to  areas  that  cannot  be served  by  a                                                              
pipeline.   He said some uses  are industrial, such as  for mines.                                                              
In fact,  mines prefer  trucking in LNG  rather than  using diesel                                                              
in terms  of cost.   Further, LNG  has less environmental  impact,                                                              
which  is also  important to  mining.   Finally, LNG  can also  be                                                              
used for  other residential  uses so it  provides a  flexible plan                                                              
to work with pipeline.                                                                                                          
                                                                                                                                
4:29:30 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  asked specifically  what Fairbanks Natural  Gas, LLC,                                                              
(FNG) will bring to the table.                                                                                                  
                                                                                                                                
MR.  DAVIS  related  that  FNG   has  made  a  proposal  which  is                                                              
confidential so  he is not at  liberty to disclose  the specifics.                                                              
He added  that AIDEA is current  meeting with FNG, but  it doesn't                                                              
mean an  agreement will be reached.   Additionally, GVEA  has also                                                              
made a proposal and AIDEA will meet with them, too.                                                                             
                                                                                                                                
4:30:17 PM                                                                                                                    
                                                                                                                                
MR.  DAVIS concluded  AIDEA is  very  pleased with  the idea  that                                                              
good proposals  have been received.   He said that AIDEA's  job as                                                              
the state  investment bank  is to  review proposals and  determine                                                              
which  one  will  best  meets the  governor's  stated  goal:    to                                                              
substantially  lower  the  cost   of  energy  in  Fairbanks.    In                                                              
response to  a question, he suggested  that within the  next three                                                              
weeks  AIDEA should  be  able to  advise  the  legislature on  the                                                              
assessment of the proposals before them.                                                                                        
                                                                                                                                
CHAIR  OLSON asked  how the legislature  could  make such  a major                                                              
decision since it does not currently have a lot of information.                                                                 
                                                                                                                                
MR.  DAVIS clarified  that AIDEA  is  requesting an  appropriation                                                              
from the  legislature which would  not be used unless  AIDEA meets                                                              
its goals.   He reiterated  that the  project cannot  move forward                                                              
unless AIDEA determines the project is viable.                                                                                  
                                                                                                                                
CHAIR OLSON questioned  this since once the money  is available an                                                              
expectation occurs  that the  project will be  built.  He  said he                                                              
personally needs more information on the proposals.                                                                             
                                                                                                                                
4:31:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  commented  everyone wants  solutions  to                                                              
the  energy  problems  and  legislators   are  aware  of  Interior                                                              
Alaska's  needs for  relief; however,  she did  not want  anything                                                              
remotely  like the  price tag  - the  $500 million  on the  Alaska                                                              
Gasline Inducement  Act (AGIA) project.   She asked  whether AIDEA                                                              
has checked with  the private sector to determine  if this project                                                              
fits into a long-term energy plan.                                                                                              
                                                                                                                                
MR.  DAVIS  answered yes.    He  explained  that the  request  for                                                              
information  to the private  sector was  sent to assess  interest.                                                              
Further,  the proposed LNG  project and  natural gas  distribution                                                              
system is  intended to be a  public private partnership  (P3) with                                                              
AIDEA.  Initially,  AIDEA would like  to drive rates down  to help                                                              
consumers, but  the long-term plan  for the proposed LNG  plant is                                                              
to  sell LNG  commercially.   Therefore, AIDEA  has been  checking                                                              
demand  with the  private sector  market for  the proposed  plant.                                                              
He  envisioned  two  streams  for  the  proposed  LNG  plant:  one                                                              
consisting of regulated  utility stream directed to  a natural gas                                                              
distribution  system in Fairbanks;  second,  a stream directed  to                                                              
industrial uses at a different, non-regulated price.                                                                            
                                                                                                                                
4:33:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  stated she wanted  to make sure  that the                                                              
project  fits in with  long-range  energy plans.   She said,  "I'm                                                              
going to  be cautiously  listening to  the long-term solution  for                                                              
the energy plan and making sure it fits into that."                                                                             
                                                                                                                                
MR. DAVIS  responded that AIDEA  invests in projects for  a return                                                              
and supports  energy plans, which  is the reason AIDEA  is working                                                              
with the Alaska  Energy Authority (AEA).  The  advantage of having                                                              
AEA  as a  partner is  that AEA  can  provide the  policy side  to                                                              
ensure  consistency  and AIDEA  can  provide the  financing  side.                                                              
The AIDEA  considers this  project as  compatible with  a pipeline                                                              
so project  planning is based on  another source of gas  that will                                                              
subsequently supplant  the LNG. Thus AIDEA will  determine whether                                                              
the LNG project  pencils out in the short run, and  if natural gas                                                              
becomes  available whether  the plant  can be  used, and if  AIDEA                                                              
can  obtain  a  rate  of  return  sufficient  to  repay  the  debt                                                              
service.   He concluded by stating  that is the process  AIDEA has                                                              
been using.                                                                                                                     
                                                                                                                                
4:34:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked expressed  concern that  other gas                                                              
projects will supplant the LNG project.                                                                                         
                                                                                                                                
MR.  DAVIS acknowledged  it may  have been  due to  his choice  of                                                              
syntax.   He clarified, with  respect to  the LNG and  natural gas                                                              
distribution  system in  Fairbanks,  that a  natural gas  pipeline                                                              
would be  an excellent way to  supply gas to major  city; however,                                                              
in  terms of  residual  use  the LNG  could  also  be supplied  to                                                              
industrial and residential users outside of Fairbanks.                                                                          
                                                                                                                                
4:35:19 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  him to describe  the mobility  of                                                              
the LNG plant,  and whether it  could be relocated from  the North                                                              
Slope.                                                                                                                          
                                                                                                                                
MR.  DAVIS related  that the  request for  interest specified  the                                                              
proposed LNG plant  must have a moveable capability  sufficient to                                                              
traverse the  Dalton highway.  Thus  the proposed LNG  plant could                                                              
be  moved  to  any  location  on   the  road  system,  he  stated.                                                              
Currently,  AIDEA  is considering  Fairbanks  as  a potential  LNG                                                              
plant location to  support the Ambler district mining,  but an LNG                                                              
plant could  be moved  to Southcentral Alaska  if gas  needs exist                                                              
in that  area.   Naturally, any  business plan  would examine  all                                                              
the parameters,  including  any market changes;  however,  his job                                                              
is to ensure  AIDEA builds a project  with a rate of  return built                                                              
into it that works for the private sector.                                                                                      
                                                                                                                                
4:36:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  asked   him  to  compare  his  bill  to                                                              
another   AIDEA  bill   before  the   legislature  introduced   by                                                              
Representative T Wilson.                                                                                                        
                                                                                                                                
MR.  DAVIS  responded   that  the  aforementioned   bill,  HB  58,                                                              
proposes to  provide funding  for the LNG  plant, but not  for the                                                              
rest of  the natural  gas distribution  system.   While AIDEA  has                                                              
not developed an  opinion on that bill, HB 74 places  the LNG to a                                                              
source, which  is probably a good  business plan.  Of  course, the                                                              
first question  the bond market must  ask is the source  of gas to                                                              
put  into the  distribution system.   Alternatively,  to build  an                                                              
LNG plant,  the bond market  will ask who  will purchase  the gas.                                                              
He explained  that HB  74 would  build using  a tandem  process so                                                              
the  financial  questions  are  answered  on  both  sides  of  the                                                              
equation.                                                                                                                       
                                                                                                                                
4:37:35 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON invited Representative T. WILSON to join the table.                                                                 
                                                                                                                                
4:37:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON offered  his belief  that this  begs the                                                              
question in  terms of production  and distribution.   He suggested                                                              
the committee would  need to hear more about  the proposed natural                                                              
gas supply.                                                                                                                     
                                                                                                                                
MR. DAVIS  answered  that two of  the proposals  of interest  have                                                              
contracts  in  place  with  one  of  the  North  Slope  producers;                                                              
however, the details remain confidential.                                                                                       
                                                                                                                                
4:38:40 PM                                                                                                                    
                                                                                                                                
MR.  LEONARD  reiterated  that   AIDEA's  involvement  is  due  to                                                              
project financing  capability.  The governor's finance  package is                                                              
based on a private  sector model of low cost financing.   In fact,                                                              
one  of  AIDEA's main  roles  is  to provide  access  to  low-cost                                                              
capital   for  projects.     Further,   the   request  for   state                                                              
appropriation  is limited  to  a $50  million  catalyst, with  the                                                              
rest  of the  financing  - the  bonds and  the  $125 million  SETS                                                              
loan- would be repaid over the life of the LNG plant.                                                                           
                                                                                                                                
4:39:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T.  WILSON  asked   whether  AIDEA  has  projected                                                              
specifically how other communities would benefit.                                                                               
                                                                                                                                
MR.  LEONARD answered  that  AIDEA will  assess  other demands  as                                                              
part of due  diligence process.   He said AIDEA believes  that the                                                              
LNG plant  would be used by  more than just Fairbanks,  especially                                                              
once a  natural gas  line connects to  Fairbanks AIDEA  would fund                                                              
alternative  demands.    He  concluded  that  AIDEA  is  currently                                                              
undertaking this process.                                                                                                       
                                                                                                                                
REPRESENTATIVE  T. WILSON  said  she would  not  go so  far as  to                                                              
characterize the  project in HB  74 as being a  statewide project;                                                              
however,  she  acknowledged   that  Fairbanks  is   not  the  only                                                              
community with  energy needs.   She offered  her belief  that this                                                              
project could  answer some  of the rural  communities, as  well as                                                              
some of the Railbelt communities.                                                                                               
                                                                                                                                
CHAIR OLSON pointed  out AIDEA previously mentioned  providing LNG                                                              
to villages and mining areas.                                                                                                   
                                                                                                                                
4:41:15 PM                                                                                                                    
                                                                                                                                
MR.  LEONARD  pointed  out  that   AIDEA  also  assesses  economic                                                              
development.   He  said AIDEA  believes this  plant provide  mines                                                              
with  an  alternative  to the  high  cost  of  energy needs.    He                                                              
emphasized  that the cost  of energy  would play  a vital  part in                                                              
determining feasibility of developing any mine.                                                                                 
                                                                                                                                
MR.  DAVIS  remarked that  AIDEA  has  been  asked to  develop  an                                                              
industrial road  for the Ambler  mining district and  through this                                                              
process AIDEA  has identified  a need  for energy, and  internally                                                              
identified LNG as  the best source, confirmed by the  mines.  Even                                                              
though  this doesn't  mean these  mines will  be built, AIDEA  has                                                              
begun the  environmental process  and the mines  are working  on a                                                              
memorandum  of   understanding  (MOU)  to  develop   their  mines.                                                              
Perhaps the two  will come together, and if they  do, at a certain                                                              
point the mines will need a lot of energy.                                                                                      
                                                                                                                                
4:42:48 PM                                                                                                                    
                                                                                                                                
JOMO   STEWART,  Energy   Project   Manager,  Fairbanks   Economic                                                              
Development  Corporation  (FEDC)  stated  he wished  to  speak  in                                                              
support  of the bill,  the process,  and the  policy decision  the                                                              
bill represents.   He  said the FEDC  energy believes  that energy                                                              
is  a  necessary  component and  fundamental  underpinning.    The                                                              
availability  and  affordability   of  energy  impacts  all  other                                                              
aspects of  the economy,  and it  either acts  as a lubricant  for                                                              
the economy  or drains the well  of financial capital  and sapping                                                              
the economic  vitality of a  community.   In fact, in  Alaska this                                                              
is  true  on   a  statewide  basis;  however,   in  Fairbanks  the                                                              
challenge  has been  the  affordability of  energy.   Thus,  while                                                              
plenty  of energy  is  available in  Fairbanks,  energy costs  are                                                              
pricey and  is draining  the well of  financial capital,  he said.                                                              
At the  same time, Anchorage and  the Cook Inlet  have experienced                                                              
energy at a  good price, but as  the decline curve begins  to kick                                                              
in, these communities are also facing an availability challenge.                                                                
                                                                                                                                
4:44:48 PM                                                                                                                    
                                                                                                                                
MR.  STEWART, in  response  to Representative  Millett's  concern,                                                              
related  that  in 2011,  the  legislature  funded a  $500,000  gas                                                              
distribution  study in Fairbanks.   Although  Fairbanks wanted  to                                                              
transition to  gas, and a  number of proposals  - either  a bullet                                                              
line  or  the  large diameter  line  -  were  proposing  pipelines                                                              
transiting   Fairbanks,   the   community   did   not   have   any                                                              
distribution  system  infrastructure.   In  fact,  that study  was                                                              
completed  in   2012  and  reported   to  the  legislature.     In                                                              
Fairbanks, there  is broad agreement that the  governor's proposal                                                              
represents a  good start.   The FEDC  understood that  large scale                                                              
grants  would  not  likely  be forthcoming,  but  FEDC  wanted  to                                                              
explore  ways to  help  community  to transition  to  gas under  a                                                              
payback system.   He  offered his belief  this bill  provides that                                                              
system.   He said  FEDC believes  the policy  decisions were  made                                                              
several years ago  with the power project fund and  the SETS funds                                                              
were created  to allow  for project  financing.   The question  is                                                              
whether the  state will  use those mechanisms  in earnest  to help                                                              
communities transition  to fuels that would allow energy  to be an                                                              
underpinning  and fuel  for the  engine  of growth  rather than  a                                                              
drain on community finances.                                                                                                    
                                                                                                                                
4:46:34 PM                                                                                                                    
                                                                                                                                
MR.    STEWART   recalled    Representative   Millett    mentioned                                                              
electricity  and asked  whether  a Susitna  Hydroelectric  project                                                              
might  come along  and  make  the LNG  plant  obsolete.   He  then                                                              
answered that  question, relating the  FEDC started with  the goal                                                              
of  bringing   affordable  energy   to  as  many   residences  and                                                              
businesses as  possible, as quickly  as possible.  The  FEDC chose                                                              
as a target $15  per million metric British thermal  units (MMBtu)                                                              
to the structure,  whether it was a home or a  business.  However,                                                              
to use  electricity the cost  would need  to be $.05  per kilowatt                                                              
hour (kWh).   Currently, Fairbanks electricity runs  $.23 per kWh,                                                              
with $.13  representing GVEA's overhead.   Even if fuel  was free,                                                              
Fairbanks's cost would  be double the target amount  of $15 MMBtu,                                                              
he said.  In fact, it would be comparable to current fuel costs.                                                                
                                                                                                                                
MR. STEWART discussed  the feasibility of the proposed  LNG plant.                                                              
Actually, the  bullet line  economics requires  a fully  built out                                                              
Fairbanks,  using  19  -  21 billion  cubic  feet  (Bcf)  of  gas.                                                              
Currently, Fairbanks  uses about  1 Bcf of  gas.  In  essence, the                                                              
LNG   plant  would   allow  the   community  to   build  out   its                                                              
infrastructure.    He characterized  this  as  a chicken  and  egg                                                              
concept,  in that  gas becomes  available but  the community  does                                                              
not have  a natural  gas distribution  system or the  distribution                                                              
system exists  without any  gas to  feed it.   He emphasized  that                                                              
moving forward  an LNG  facility with  a natural gas  distribution                                                              
system allows  Fairbanks to build  out its infrastructure  to feed                                                              
larger projects,  such as a bullet  line or the major  gas line to                                                              
the coast.                                                                                                                      
                                                                                                                                
4:48:55 PM                                                                                                                    
                                                                                                                                
MR. STEWART  pointed out  that the  LNG could  have a  longer life                                                              
even when larger  projects come on line.   Once LNG is  on a truck                                                              
it can  go anywhere via  the road system,  such as  Healy, Denali,                                                              
Glennallen, or  Talkeetna.  While  Fairbanks is first at  the gate                                                              
since  it has  been working  on these  issues for  some time,  the                                                              
utility  of  having LNG  to  serve  other communities  will  still                                                              
remain.   Finally,  in  terms of  grant  versus financing  issues,                                                              
Fairbanks  is financially  challenged  since fuel  oil costs  have                                                              
been sucking  $200  to 400 million  per year  from the  community,                                                              
which  has  placed   a  serious  drain  on   Fairbanks's  economy.                                                              
However,  the FEDC  still believes  it  has the  means to  provide                                                              
payback.   Initially, FEDC  considered creating  a revolving  loan                                                              
fund so rather than  give money to a project the  state would make                                                              
funds available  to a  project, the project  would repay  the fund                                                              
so the  funds would  be available  for other  communities  who are                                                              
ready to  begin to  transition into the  lower-cost paradigm.   He                                                              
conceded  that  the FEDC  believes  HB 74  takes  a  step in  that                                                              
direction.                                                                                                                      
                                                                                                                                
4:51:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T.  WILSON,  Alaska State  Legislature,  said  she                                                              
would like  to answer a few questions  she has heard asked  in the                                                              
building.   According the  Environmental Protection  Agency (EPA),                                                              
Fairbanks  has an air  quality problem.   In  fact, Fairbanks  has                                                              
become a  non-attainment area,  subject to transportation  funding                                                              
losses,  in particular  for any  potential troops.   As a  result,                                                              
Fairbanks must find  an affordable, alternative source  of energy.                                                              
Currently, wood,  coal, oil, or  gas represent potential  choices,                                                              
but fuel  oil is currently  $4.10 per  gallon.  Additionally,  the                                                              
average  temperature  in  November   and  December  was  minus  30                                                              
degrees.   Luckily  the temporary  is  zero today.   Although  her                                                              
first choice  would be to have  a private company  provide energy,                                                              
Fairbanks is  too small  to attract a  private company,  she said.                                                              
However,  the community  can only  grow  if it  has an  economical                                                              
source of  energy.  Once again,  this creates the chicken  and the                                                              
egg circumstance  since the community can only  attract affordable                                                              
energy if  it grows and it  can't grow without  affordable energy.                                                              
She offered  her belief the  LNG project in  HB 74 is  not limited                                                              
to Fairbanks.   Granted, the  Fairbanks community  would initially                                                              
benefit  the most;  however, the  LNG could also  serve the  rural                                                              
residents who  have been  moving from  the rural communities  into                                                              
Fairbanks  and Anchorage  areas  since  affordable  energy is  not                                                              
available  in rural  Alaska.  In  fact, rural  Alaska's costs  are                                                              
worse  than what  Fairbanks is  experiencing.   Naturally, she  is                                                              
excited  a  pipeline  project will  come  to  Fairbanks;  however,                                                              
Fairbanks can't wait  ten years for it to arrive  due to economics                                                              
and the looming negative impacts from the EPA.                                                                                  
                                                                                                                                
4:53:38 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T. WILSON  suggested that  Fairbanks is  comparing                                                              
affordable gas  to oil.  She  pointed to the University  of Alaska                                                              
Fairbanks  and  its desire  to  put in  a  coal plant  since  even                                                              
natural  gas is  not as  affordable  as coal.   Specifically,  for                                                              
sake  of the  Fairbanks community,  the  LNG project  would be  an                                                              
interim  measure and  not  a competing  project.    In short,  the                                                              
proposed gaslines  must undergo substantial  permitting processes,                                                              
while the  EPA insists  Fairbanks use cleaner  energy.   She said,                                                              
"I know.   I don't get it either.   We're under those  two guns at                                                              
this point."  At  the present time, AIDEA is going  after the next                                                              
step, which  is what to  do when Fairbanks  does not need  the LNG                                                              
any longer.  Fortunately,  Alaska has mines in areas  that the gas                                                              
line  will not  serve.   In fact,  the gas  line will  not get  to                                                              
other  parts  of the  state  first.   Therefore,  AIDEA  has  been                                                              
considering  ways to  ensure  the  proposed LNG  is  usable in  25                                                              
years.   In conclusion,  she said  that Fairbanks appreciates  the                                                              
governor's  plan so  Fairbanks  will make  it  work; however,  the                                                              
proposed  LNG plant  is  not just  for  Fairbanks.   Further,  she                                                              
acknowledged  some communities  have felt  the stress even  longer                                                              
than Fairbanks has.                                                                                                             
                                                                                                                                
4:55:11 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  asked  for clarification  on  the  cost.                                                              
She  remarked that  many people  are  afraid of  another AGIA,  in                                                              
which the  state is awaiting the  private sector, which  turns out                                                              
to  be false  hope, even  though  it is  a  $500 million  project.                                                              
Granted, the financing is different, she said.                                                                                  
                                                                                                                                
CHAIR OLSON interjected it is a different $500 million.                                                                         
                                                                                                                                
REPRESENTATIVE REINBOLD  emphasized the legislature  wants a long-                                                              
term energy  plan and  wants a solution;  however, she  would like                                                              
to  know how  this  fits  together,  what other  communities  will                                                              
invest, and  whether it is  truly a plan  that is worth  investing                                                              
in.                                                                                                                             
                                                                                                                                
REPRESENTATIVE  T. WILSON  answered that  Fairbanks is  definitely                                                              
worth  investing in.   In  fact,  Fairbanks will  not continue  to                                                              
exist if it does not obtain affordable energy.                                                                                  
                                                                                                                                
4:56:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T. WILSON  compared the proposed  funding  for the                                                              
LNG  project with  AGIA.   First, the  state would  not be  giving                                                              
Fairbanks $500  million to see what  might happen in a  10- to 20-                                                              
year timeframe.   At the onset, this is broken  down into specific                                                              
parts,  including storage  tanks  the legislature  funded  through                                                              
tax  credits.   Second,  the infrastructure  would  be built  from                                                              
loans or  bonds and not an  appropriation.  Specifically,  the $50                                                              
million for  the proposed  LNG project  requires AIDEA  to undergo                                                              
its  due diligence  process for  bonding, which  means AIDEA  must                                                              
determine the  project pencils out.   If not, loans would  need to                                                              
make  up the  $200  to $225  million  necessary  for the  project.                                                              
Therefore,  additional  natural   gas  distribution  system  funds                                                              
won't be spent  unless the proposed  LNG plant is in place.   With                                                              
AGIA,  the  state  funded  millions  of  dollars  for  permitting;                                                              
however,  that  type  of  permitting   is  not  required  for  the                                                              
proposed LNG plant, she said.                                                                                                   
                                                                                                                                
4:57:59 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD asked  whether  the local  owners are  on                                                              
board for the necessary conversions.                                                                                            
                                                                                                                                
REPRESENTATIVE  T. WILSON related  the legislature is  considering                                                              
a  bill  that  would  create  a   low-interest  loan  program  for                                                              
homeowners  who improve  or replace  their  home heating  systems.                                                              
Additionally, homeowners  can apply for rebates.   She said, "They                                                              
are absolutely  buying in.  We're  having them buy in  even on the                                                              
wood stove  change out  program."  She  continued by  stating that                                                              
Fairbanks  is changing  its system  from wood  stoves to meet  the                                                              
EPA's air  quality requirements.   She  emphasized that  Fairbanks                                                              
cannot continue  to use  diesel fuel oil,  even if prices  dropped                                                              
slightly;  however,  the  alternative energy  is  primarily  wood.                                                              
She  offered  her belief  that  Fairbanks  cannot meet  the  EPA's                                                              
requirements  without using  gas.   In fact,  the state stands  to                                                              
risk  losing its  transportation  funds if  Fairbanks cannot  meet                                                              
attainment,  she said.   In  further  response, Representative  T.                                                              
Wilson  answered that  it fits  into the  long-range energy  plan,                                                              
and is not a  competing plan.  The federal government  requires so                                                              
much permitting  and it takes so  long to go through  the process,                                                              
she said.                                                                                                                       
                                                                                                                                
4:59:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  T. WILSON characterized  the proposed  LNG project                                                              
as  an interim  project;  however,  what  makes the  project  more                                                              
feasible  is  the  proposed  LNG will  be  available  for  mining;                                                              
districts  and Fairbanks  is already  seeking  partnerships.   She                                                              
reiterated that  $50 million is the requested  state appropriation                                                              
and the  rest of the financing  would be in  loans and bonds.   In                                                              
fact,  if it  needs to  come  from the  capital  budget she  would                                                              
endorse it as worthwhile.                                                                                                       
                                                                                                                                
5:00:32 PM                                                                                                                    
                                                                                                                                
CHAIR  OLSON  commented  the most  compelling  argument  he  heard                                                              
today is  the life and  safety issue.   He emphasized  that people                                                              
need to  be reminded  how bad  the situation  is for Fairbanks  in                                                              
terms of  air quality.  He  stated that public testimony  would be                                                              
held open on HB 74.                                                                                                             
                                                                                                                                
[HB 74 was held over.]                                                                                                          
                                                                                                                                
5:01:18 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Labor and Commerce Standing Committee meeting was adjourned at                                                                  
5:01 p.m.                                                                                                                       

Document Name Date/Time Subjects
Commissioner DOLWD - Blumer #2.pdf HL&C 2/8/2013 3:15:00 PM
Resume DBlumer
HB74 ver A.pdf HL&C 2/8/2013 3:15:00 PM
HB 74
HB74 Fiscal Note-1-2-011613-CED-Y.PDF HL&C 2/8/2013 3:15:00 PM
HB 74
HB74 Hearing Request.pdf HL&C 2/8/2013 3:15:00 PM
HB 74
HB74 Sectional Analysis.pdf HL&C 2/8/2013 3:15:00 PM
HB 74
HB74 Transmittal Letter.pdf HL&C 2/8/2013 3:15:00 PM
HB 74