Legislature(2017 - 2018)BARNES 124

01/25/2017 01:00 PM RESOURCES

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Audio Topic
01:09:23 PM Start
01:11:34 PM Overview: Update on the Alaska Lng Project
01:50:06 PM Presentation: Alaska Energy Authority, Department of Commerce, Community & Economic Development
02:53:58 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Update: AK LNG Project - continued from 1/23/17 TELECONFERENCED
Presentation: AK Affordable Energy Strategy by
AK Energy Authority
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        January 25, 2017                                                                                        
                           1:09 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Andy Josephson, Co-Chair                                                                                         
Representative Geran Tarr, Co-Chair                                                                                             
Representative Dean Westlake, Vice Chair                                                                                        
Representative Harriet Drummond                                                                                                 
Representative Justin Parish                                                                                                    
Representative Chris Birch                                                                                                      
Representative DeLena Johnson                                                                                                   
Representative George Rauscher                                                                                                  
Representative David Talerico                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Chris Tuck (alternate)                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW:  UPDATE ON THE ALASKA LNG PROJECT                                                                                     
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PRESENTATION(S):     Alaska   Energy  Authority,   Department  of                                                               
Commerce,   Community  &   Economic  Development   ALASKA  ENERGY                                                               
AUTHORITY,   DEPARTMENT  OF   COMMERCE,   COMMUNITY  &   ECONOMIC                                                               
DEVELOPMENT                                                                                                                     
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
GENE THERRIAULT, Government Relations                                                                                           
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Prior to the update on the Alaska LNG                                                                    
Project, offered to provide fiscal notes attached to related                                                                    
legislation for clarification.                                                                                                  
                                                                                                                                
LEIZA WILCOX, Vice President                                                                                                    
Commercial and Economics                                                                                                        
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Continued  the PowerPoint presentation begun                                                             
at  the meeting  of  1/23/17, entitled,  "Alaska Moving  Forward:                                                               
Alaska  LNG   Project  Update,"   dated  1/23/17,   and  answered                                                               
questions.                                                                                                                      
                                                                                                                                
FRITZ KRUSEN, Vice President                                                                                                    
Alaska LNG                                                                                                                      
Alaska Gasline Development Corporation                                                                                          
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Answered questions  during the  PowerPoint                                                             
presentation  entitled,  "Alaska  Moving  Forward:    Alaska  LNG                                                               
Project Update," dated 1/23/17.                                                                                                 
                                                                                                                                
KATIE CONWAY, Government Relations Manager                                                                                      
Alaska Energy Authority                                                                                                         
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled, "Alaska Affordable Energy  Strategy" dated 1/25/17, and                                                               
answered questions.                                                                                                             
                                                                                                                                
CADY LISTER, Chief Economist                                                                                                    
Alaska Energy Authority                                                                                                         
Department of Commerce, Community & Economic Development                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Participated  in the PowerPoint presentation                                                             
entitled, "Alaska Affordable Energy  Strategy" dated 1/25/17, and                                                               
answered questions.                                                                                                             
                                                                                                                                
NEIL MCMAHON, Program Manager for Energy Planning                                                                               
Alaska Energy Authority                                                                                                         
Department   of  Commerce,   Community  &   Economic  Development                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Answered a  question during  the PowerPoint                                                             
presentation entitled, "Alaska  Affordable Energy Strategy" dated                                                               
1/25/17.                                                                                                                        
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:09:23 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  GERAN   TARR  called   the  House   Resources  Standing                                                             
Committee meeting  to order at  1:09 p.m.   Representatives Tarr,                                                               
Birch, Drummond,  Johnson, Parish, Rauscher,  Talerico, Westlake,                                                               
and Josephson were present at the call to order.                                                                                
                                                                                                                                
CO-CHAIR TARR  provided background information on  documents that                                                               
the  committee  previously  received,  and  on  previous  related                                                               
legislation.                                                                                                                    
                                                                                                                                
1:11:34 PM                                                                                                                    
                                                                                                                                
GENE   THERRIAULT,    Government   Relations,    Alaska   Gasline                                                               
Development   Corporation   (AGDC),   Department   of   Commerce,                                                               
Community &  Economic Development  (DCCED), offered to  provide -                                                               
for  the committee's  clarification  - fiscal  notes attached  to                                                               
related legislation.                                                                                                            
                                                                                                                                
^OVERVIEW:  UPDATE ON THE ALASKA LNG PROJECT                                                                                    
          OVERVIEW:  UPDATE ON THE ALASKA LNG PROJECT                                                                       
                                                                                                                              
1:12:16 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  announced that the  first order of  business would                                                               
be  the continuation  of  an  overview begun  at  the meeting  of                                                               
1/23/17  by the  Alaska  Gasline Development  Corporation on  the                                                               
status of the Alaska LNG Project.                                                                                               
                                                                                                                                
1:12:37 PM                                                                                                                    
                                                                                                                                
LEIZA  WILCOX, Vice  President, Commercial  and Economics,  AGDC,                                                               
DCCED, continued  her presentation  from the meeting  of 1/23/17.                                                               
She informed  the committee  that the objectives  of AGDC  are as                                                               
follows (slide 22):                                                                                                             
                                                                                                                                
   • operate as a public corporation of the state that is                                                                       
     responsible to its board which sets policy for its                                                                         
     shareholders who are the residents of Alaska                                                                               
   • make decisions, based upon business principles, for a                                                                      
     public corporation operating in the world of private                                                                       
     enterprise and guided by expertise in this regard                                                                          
   • ensure transparency with the legislature, the public, and                                                                  
     in the market so that all parties receive balanced                                                                         
     information about the project for the future                                                                               
   • maintain a cooperative relationship with producers, in that                                                                
     the producers are prospective customers and possible                                                                       
     partners in the project                                                                                                    
 • engage major vendors more strategically, recognizing that                                                                    
     the project is potentially risky, but that vendors in the                                                                  
     emerging LNG market have opportunities for success                                                                         
     • structure for third party finance, as part of the                                                                        
     commercial management of the corporation, by securing long-                                                                
     term commitments and low-cost financing that will result in                                                                
     lower costs to construct the project                                                                                       
• maintain the 2023-2025 project in-service window because it                                                                   
     is important for vendors and potential customers to be                                                                     
     aware of the project's target date                                                                                         
• expand the availability of natural gas to instate customers                                                                   
                                                                                                                                
1:19:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  TALERICO recalled  previous discussion  about how                                                               
state  ownership of  the pipeline  would allow  the avoidance  of                                                               
certain tax  liabilities - which  would result in cost  savings -                                                               
and  also  about  third-party  financing  of  the  project.    He                                                               
remarked:                                                                                                                       
                                                                                                                                
     ... I would  consider it ownership when  I would invest                                                                    
     in  one of  these  [projects] and  until my  promissory                                                                    
     note, so to  speak, was, was fully paid  back, ... part                                                                    
     of my  risk would be  to always have ownership  in that                                                                    
     line.  ... Is  there any  of  that line  that will  get                                                                    
     skewed with  third-party financing, and the  ability to                                                                    
     relieve  that tax  liability, if  we  have an  enormous                                                                    
     amount of  partners that have  the investment  in this?                                                                    
     ...   [It]  probably depends  on the  structure of  how                                                                    
     that  financing is  put together.  ... If  there's risk                                                                    
     that  we   do  an   enormous  amount  of   third  party                                                                    
     financing, [and] couple all  these people together, and                                                                    
     ... we   actually don't have the  opportunity, until we                                                                    
     have full  ownership of  that line,  to be  relieved of                                                                    
     that liability ....                                                                                                        
                                                                                                                                
REPRESENTATIVE  TALERICO  was  unsure  that the  state  can  move                                                               
forward when bringing in third-party financing.                                                                                 
                                                                                                                                
MS.  WILCOX  advised  there is  a  tradeoff  between  arms-length                                                               
financing and AGDC will be  working on the financing structure to                                                               
show  how  risk  affects  the project;  the  engineering  of  the                                                               
project has progressed so that there  is a good definition of the                                                               
project,  but  the financial  structuring  work  is critical  and                                                               
requires specialized knowledge.                                                                                                 
                                                                                                                                
REPRESENTATIVE  PARISH   understood  that  AGDC  will   take  out                                                               
approximately $45  billion in  loans, and  asked whether  AGDC or                                                               
the state carries the liability in the case of default.                                                                         
                                                                                                                                
MS.  WILCOX  responded  that  AGDC  does  not  intend  to  assign                                                               
liability for  the project to the  state.  She opined  that under                                                               
the previous project  structure, the state was  a participant and                                                               
"the state essentially carried the risk  for it in some form. ...                                                               
Our  goal is  to  create a,  a structure  where  there's no  more                                                               
exposure than,  than existed under, under  the previous {project]                                                               
and  hopefully less  ...  through the  making  of these  capacity                                                               
contracts, but  I don't have  a full  answer to your  question at                                                               
the moment."                                                                                                                    
                                                                                                                                
1:25:08 PM                                                                                                                    
                                                                                                                                
MS.  WILCOX  stated  that  in   2017,  AGDC  will  focus  on  the                                                               
commercial  area of  engaging  potential  LNG and  infrastructure                                                               
customers.   Infrastructure  customers are  those who  could take                                                               
capacity on the project and  sign agreements upon which financing                                                               
can be based.   The first step is a  marketing exercise to engage                                                               
interest from a  broader market than did  the previous structure.                                                               
The exercise  would require building relationships  and educating                                                               
parties on the project as it  stands today.  Satellite offices in                                                               
Houston and Tokyo were opened  to consolidate work and facilitate                                                               
meetings with  AGDC's part-time expert  help.   Furthermore, AGDC                                                               
will continue to work on  transition agreements for access to the                                                               
site,  which   is  owned  by  ExxonMobil   Corporation,  BP,  and                                                               
ConocoPhillips  Alaska,  Inc.    She advised  that  the  previous                                                               
project did  not focus  on contact with  the broader  market thus                                                               
there is a  need to augment contract staff in  the commercial and                                                               
finance  areas.   In early  March,  potential interested  parties                                                               
whom  she  characterized  as "more  serious  prospects  from  the                                                               
customer and investor community," will  be invited to see Alaska,                                                               
Prudhoe Bay sites, and existing  facilities during the Alaska LNG                                                               
Summit event.   Also  in 2017,  AGDC -  working with  BP -  is on                                                               
track  to  secure  a  financial   advisor  that  will  scrutinize                                                               
contracts, risk, the  costs of capital and debt,  and a financing                                                               
plan.    The focus on "regulatory" is to  establish a project web                                                               
site and prepare  to file a Federal  Energy Regulatory Commission                                                               
(FERC) Section 3 application (slide 23).                                                                                        
                                                                                                                                
1:31:23 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHNSON requested  an updated  organization chart                                                               
and more information on operating costs at the Houston office.                                                                  
                                                                                                                                
MS. WILCOX offered to provide the requested information.                                                                        
                                                                                                                                
REPRESENTATIVE BIRCH  asked to review  a spreadsheet  on staffing                                                               
and monthly payroll costs in the Houston and Tokyo offices.                                                                     
                                                                                                                                
REPRESENTATIVE  RAUSCHER asked  whether the  legislature will  be                                                               
invited to the Alaska LNG Summit event.                                                                                         
                                                                                                                                
MS. WILCOX said,  "I would say not the entire  legislature."  She                                                               
explained the  event is for  the benefit  of customers and  is in                                                               
response to  the business culture that  seeks substantive project                                                               
focus  information, rather  than a  promotional event.   However,                                                               
there  will  be  representation from  the  "federal  delegation,"                                                               
Native corporations, and key leadership.                                                                                        
                                                                                                                                
MS. WILCOX  returned to the  presentation, noting  AGDC's primary                                                               
objective  is  to  establish a  commercial  structure  that  will                                                               
ultimately   secure  capacity   reservations   to  underpin   the                                                               
financing of the construction and  operation of the project.  She                                                               
pointed out that  although an equity alignment  structure was the                                                               
previous choice for  advancing the project, that is  not the only                                                               
option,  and  AGDC  has  made   an  adjustment  [to  the  tolling                                                               
structure] for the market and for the participants (slide 24).                                                                  
She  directed  attention  to  a  chart  which  illustrated  three                                                               
options as to  who could be holding capacity  contracts that will                                                               
underpin the  financing (slide  25).   Capacity contracts  can be                                                               
held by:                                                                                                                        
                                                                                                                                
   • a producer that will sell its own LNG                                                                                      
   • a third party buyer of LNG that reserves capacity                                                                          
 • a [merchant] party that is buying gas upstream and selling                                                                   
     it in the market                                                                                                           
                                                                                                                                
MS.  WILCOX explained  that the  third option  requires contracts                                                               
"that match on  both ends, in order to make  them financeable, so                                                               
that will take some careful orchestration."                                                                                     
                                                                                                                                
1:37:41 PM                                                                                                                    
                                                                                                                                
CO-CHAIR JOSEPHSON  surmised the first  model is Senate  Bill 138                                                               
[passed in the 28th Alaska State Legislature].                                                                                  
                                                                                                                                
MS.  WILCOX said  not exactly,  because in  Senate Bill  138, the                                                               
producer was not the toller, but  the owner of capacity; a toller                                                               
does  not bring  capital to  the project,  unless it  is also  an                                                               
investor, but it  reserves a block of capacity -  for a period of                                                               
time - that it will take or pay.                                                                                                
                                                                                                                                
CO-CHAIR  JOSEPHSON  understood  that with  equal  shares,  there                                                               
would be  no payments on tolling  on tariff.  However,  the state                                                               
in the  first model is a  producer, or acting as  a producer, and                                                               
held one-quarter share.                                                                                                         
                                                                                                                                
MS. WILCOX said correct.                                                                                                        
                                                                                                                                
CO-CHAIR JOSEPHSON remarked:                                                                                                    
                                                                                                                                
     In the second model, the merchant you called the buyer                                                                     
     ...  would be  the ultimate  purchaser serving  to also                                                                    
     act as a toller to own part of the carrying capacity.                                                                      
                                                                                                                                
MS. WILCOX  stated the  merchant may not  be the  ultimate buyer,                                                               
and may  sell to buyers in  the market, but would  hold ownership                                                               
of "the gas between wellhead and  the jetty."  She then turned to                                                               
investment and stated that in  order to bring investment into the                                                               
project,  there  must  be  interest in  the  tolling  model  from                                                               
customers and tollers.   However, said interest does  not need to                                                               
be  final  or  unconditional  in order  to  advance  the  project                                                               
through the next stage-gate (slide 26).                                                                                         
                                                                                                                                
REPRESENTATIVE BIRCH  observed that  the project will  provide "a                                                               
stable infrastructure  investment" and  pointed out that  a level                                                               
of taxation is  a component of stability.  He  asked whether AGDC                                                               
has a mechanism for providing  a stable infrastructure investment                                                               
that includes property and state tax structure.                                                                                 
                                                                                                                                
MS. WILCOX  advised that AGDC is  not a taxing entity,  thus must                                                               
work with  the Department of Revenue  and the legislature.   In a                                                               
tolling  structure as  related to  taxes,  AGDC will  serve as  a                                                               
pass-through entity; however, AGDC  recognizes that there will be                                                               
impacts on communities,  and communities and the  state will need                                                               
to be fairly compensated.                                                                                                       
                                                                                                                                
REPRESENTATIVE BIRCH questioned how  AGDC will provide stability,                                                               
in light of the recent  unstable taxing environment, that will be                                                               
sufficient to attract capital.                                                                                                  
                                                                                                                                
MS. WILCOX acknowledged  that a tolling model does  not solve all                                                               
the problems of  tax stability; a tolling model  can bring stable                                                               
investment,  cheaper  capital,  and   parties  from  outside  the                                                               
market.   In fact, the  question of  tax stability is  a separate                                                               
issue for those who will pay  tolls.  In conclusion, she informed                                                               
the  committee  that  the  Houston-based  LNG  team  consists  of                                                               
experts with broad  connections and experience in  the LNG market                                                               
who are serving as part-time  consulting contractors to AGDC, and                                                               
who are managed  by Mr. Mitchell.  In Tokyo,  AGDC is represented                                                               
by Mr. Shiratori (slide 27).                                                                                                    
                                                                                                                                
1:46:21 PM                                                                                                                    
                                                                                                                                
FRITZ  KRUSEN,  Vice  President,  Alaska  LNG,  AGDC,  DCCED,  in                                                               
response  to an  earlier  question, said  the  Houston office  in                                                               
calendar  year 2017  will  cost $160,000;  Mr.  Mitchell will  be                                                               
working fulltime  and others will  be working part-time,  and the                                                               
current estimate  of costs is  $1 million, which will  be updated                                                               
when  possible.    He  stated his  personal high  regard for  the                                                               
team.                                                                                                                           
                                                                                                                                
CO-CHAIR  TARR  and  Co-Chair Josephson  requested  AGDC  provide                                                               
fiscal  notes, additional  financial  records, and  a history  of                                                               
spending over the last four years.                                                                                              
                                                                                                                                
^PRESENTATION:  ALASKA ENERGY  AUTHORITY, DEPARTMENT OF COMMERCE,                                                               
COMMUNITY & ECONOMIC DEVELOPMENT                                                                                                
 PRESENTATION:  ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE,                                                            
                 COMMUNITY & ECONOMIC DEVELOPMENT                                                                           
                                                                                                                                
1:50:06 PM                                                                                                                    
                                                                                                                                
CO-CHAIR TARR  announced that the  final order of  business would                                                               
be a report  from the Alaska Energy Authority.   She reminded the                                                               
committee that  the aforementioned report is  mandated in Section                                                               
75,  Senate   Bill  138   [passed  in   the  28th   Alaska  State                                                               
Legislature].                                                                                                                   
                                                                                                                                
1:51:20 PM                                                                                                                    
                                                                                                                                
KATIE  CONWAY,   Government  Relations  Manager,   Alaska  Energy                                                               
Authority  (AEA), Department  of Commerce,  Community &  Economic                                                               
Development  (DCCED),  reminded the  committee  AEA  is a  public                                                               
corporation of the state working to  reduce the cost of energy in                                                               
Alaska.    She  provided  the   first  section  of  a  PowerPoint                                                               
presentation entitled,  "Alaska Affordable Energy  Strategy," and                                                               
also referred  to a document entitled,  "Alaska Affordable Energy                                                               
Strategy:    A  Framework   for  Consumer  Energy  Sustainability                                                               
Outside of  the Railbelt,"  found in the  committee packet.   Ms.                                                               
Conway informed  the committee that  the lights are on  in small,                                                               
isolated,  and remote  communities far  from the  Railbelt.   The                                                               
energy  systems   generating  power  in  small   communities  are                                                               
complicated  and   require  maintenance;  in  fact,   unlike  the                                                               
Railbelt, energy  systems that are  not connected to a  grid have                                                               
no backup.   Affordable energy  is a  fundamental need and  not a                                                               
luxury  (slide 2).    In much  of  Alaska, energy  infrastructure                                                               
consists of  bulk fuel tank  farms, power  generation facilities,                                                               
and electrical  distribution systems which much  be maintained at                                                               
a  yearly capital  cost of  over $30  million, not  including the                                                               
operational costs  for personnel or  fuel (slides  3 and 4).   In                                                               
the last 15  years, over $1 billion have been  invested in energy                                                               
projects throughout non-Railbelt  Alaska, three-quarters of which                                                               
were federal funds.   Although the need to  invest continues, the                                                               
availability  of public  funding is  decreasing, and  communities                                                               
still  need  to provide  safe,  reliable,  and affordable  energy                                                               
(slide 5).  Ms. Conway  stated that state government must provide                                                               
a  framework  to  maximize  federal  dollars,  encourage  private                                                               
sector   investment,   prepare   communities  to   utilize   debt                                                               
financing,  ensure proper  project  selection, provide  technical                                                               
assistance,  and  consumer   protection;  therefore,  the  Alaska                                                               
Affordable Energy  Strategy (AkAES)  is a framework  for changing                                                               
the way  the state  provides critical  energy programs.   Through                                                               
its recommendations,  AkAES is  a strategic  plan to  improve the                                                               
methods by  which the state  works with  non-Railbelt communities                                                               
and utilities to identify, evaluate,  develop, and maintain cost-                                                               
effective energy solutions (slide 6).                                                                                           
                                                                                                                                
1:57:15 PM                                                                                                                    
                                                                                                                                
MS. CONWAY  continued, noting  that in  2014, AEA  was originally                                                               
tasked to  develop a plan  for cost-effective energy  outside the                                                               
scope of  the proposed natural  gas pipeline; however,  AkAES has                                                               
grown to  include other areas and  is now independent of  the gas                                                               
pipeline.   The agency  determined that  only the  Railbelt would                                                               
benefit  from  the  gas  pipeline,  thus  the  AkAES  study  area                                                               
includes  "everywhere else."    Also,  AkAES considered  existing                                                               
energy policies and goals (slide  7).  She stressed the following                                                               
key points:                                                                                                                     
                                                                                                                                
   • the study area includes everything but the Railbelt                                                                        
   • the study was a research-based project conducted over two                                                                  
     years                                                                                                                      
   • the study did not develop a list of recommended capital                                                                    
     projects, but focused on improving the decision-making                                                                     
     process and expanding options for financing energy projects                                                                
   • the final recommendations are a web of related factors.                                                                    
                                                                                                                                
MS. CONWAY  noted that although  the recommendations  target non-                                                               
Railbelt  Alaska, there  are statewide  benefits to  saving state                                                               
funds (slide 8).  The study  found a wide range of power systems,                                                               
from small  villages reliant  upon diesel  fuel to  larger cities                                                               
generating renewable  energy.  The  median community size  in the                                                               
study is  300 people, and  76 percent  of the communities  in the                                                               
study are not  connected by road or by the  Alaska Marine Highway                                                               
System.   The  median electric  rate is  $0.62 per  kilowatt hour                                                               
before [adjustments  to the cost of  power in rural areas  by the                                                               
Power Cost  Equalization (PCE) program],  and the  median heating                                                               
oil cost is $4.55 per gallon.   She pointed out that a one gallon                                                               
equivalent  of natural  gas in  Southcentral costs  less than  $1                                                               
(slide 9).   Ms. Conway  said AkAES  seeks to ensure  that energy                                                               
funds are spent  at their highest value by  the following actions                                                               
(slide 10):                                                                                                                     
                                                                                                                                
  • improving project selection, ensuring that the most cost-                                                                   
     effective projects are completed first                                                                                     
 • diversifying  financing     options    removing    certain                                                                   
     difficulties                                                                                                               
• strengthening accountability and maximizing the useful life                                                                   
     of assets                                                                                                                  
                                                                                                                                
MS.  CONWAY informed  the  committee that  AEA  studied over  150                                                               
reports generated  within and outside  Alaska, and  analyzed over                                                               
3,000   energy  infrastructure   projects  submitted   by  Alaska                                                               
agencies.   The  project also  incorporated the  [Regional Energy                                                               
Planning   program  through   AEA]   and  engaged   stakeholders.                                                               
Finally,  AkAES  commissioned   studies  on  end-use  efficiency,                                                               
liquefied  natural  gas,  fuel   delivery  and  storage,  utility                                                               
management, and  barriers to private  investment in  rural Alaska                                                               
(slide 11).   The  study information  has been  incorporated into                                                               
the  Alaska   Affordable  Energy   Model  that   compares  energy                                                               
structure  options  and  that  can   be  used  to  make  informed                                                               
decisions.   She concluded  that "affordable"  is interchangeable                                                               
with  "cost-effective,"  and  although   AEA  found  that  it  is                                                               
difficult to  lower costs, there are  opportunities for improving                                                               
cost-effectiveness,   such   as   energy  efficiency   for   both                                                               
residential   and  non-residential   buildings  and   facilities.                                                               
Further, AEA  found through AkAES  that given the  variability of                                                               
conditions  and  circumstances,  there are  no  one-size-fits-all                                                               
solutions (slide 13).                                                                                                           
                                                                                                                                
2:03:56 PM                                                                                                                    
                                                                                                                                
CADY  LISTER,   Chief  Economist,   AEA,  DCCED,   continued  the                                                               
presentation, noting  that the recommendations proposed  by AkAES                                                               
are   built  on   stakeholder   engagement,  collaboration,   and                                                               
comprehensive  research, and  are  organized  into four  pillars:                                                               
identification,    project    financing,    accountability    and                                                               
sustainability, and  funding programs,  all of which  support the                                                               
goal of safe,  reliable, stable and affordable  energy.  Further,                                                               
the  study   identified  that   solutions  must   include  direct                                                               
financing  from  grants  and  loans,  technical  assistance,  and                                                               
requirements such as mandates,  standards, and regulations (slide                                                               
14).    Ms. Lister  said  that  research identified  areas  where                                                               
barriers led  to higher cost  energy, such as the  expectation of                                                               
federal and  state grants.   Informing utilities  and communities                                                               
how  to access  debt financing  will  reduce the  need for  state                                                               
grants.  State and federal funding  has also led to projects that                                                               
were driven by available funding,  rather than by the community's                                                               
needs.   Furthermore, with insufficient maintenance  the expected                                                               
performance  or economic  life of  a project  is compromised,  as                                                               
would  an insufficient  level of  technical expertise  (slides 15                                                               
and 16).   Ms. Lister  said each of the  proposed recommendations                                                               
may not be  applicable in every community  but, collectively, the                                                               
recommendations offer solutions for the study area.                                                                             
                                                                                                                                
2:08:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE WESTLAKE spoke of his  experience with AEA and the                                                               
challenges  of energy  systems in  rural Alaska.   He  questioned                                                               
what  communities  have  been contacted  about  AEA  specifically                                                               
implementing the recommendations.  He remarked:                                                                                 
                                                                                                                                
     Some  places  have  ...  worked  with  AEA  [and]  have                                                                    
     decided  maybe   a  better   venue  is   going  through                                                                    
     Department  of Energy,  [or]  Tribal  energy ...  where                                                                    
     they really feel that there's  a disconnect between the                                                                    
     state  services that  they do  have, versus  just going                                                                    
     one  to one  with  the federal  dollars  that AEA  does                                                                    
     hold.                                                                                                                      
                                                                                                                                
MS.  LISTER  expressed  her  belief that  there  are  few  energy                                                               
systems  in Alaska  that  have  been not  been  impacted by  AEA,                                                               
including in  Juneau and  in the Northwest  Arctic Borough.   She                                                               
said   AEA   values   federal  investment   and   seeks   greater                                                               
collaboration in the future.                                                                                                    
                                                                                                                                
REPRESENTATIVE  BIRCH   asked  what  efforts  AEA   has  made  to                                                               
standardize equipment  and to make equipment  less complicated in                                                               
rural Alaska.                                                                                                                   
                                                                                                                                
MS. CONWAY  said the presentation  underway is introducing  a new                                                               
way for  AEA, state agencies,  and regional partners  to proceed.                                                               
She  offered to  discuss AEA's  ongoing programs  in detail  at a                                                               
future point in time.                                                                                                           
                                                                                                                                
REPRESENTATIVE RAUSCHER  would also like to  hear further details                                                               
on ongoing programs.                                                                                                            
                                                                                                                                
2:13:16 PM                                                                                                                    
                                                                                                                                
MS. LISTER,  in response to  Representative Westlake,  said AEA's                                                               
mission is to reduce the cost  of energy in Alaska.  She returned                                                               
to  the presentation,  stating that  current  state energy  goals                                                               
include energy  efficiency, renewable energy targets,  the use of                                                               
instate  gas, the  use of  the [Power  Project Loan  Fund program                                                               
through  AEA],  and  leadership   in  renewable  and  alternative                                                               
energy; AEA  recommends that the  state energy policy  be amended                                                               
to include a  goal to ensure safety,  stability, reliability, and                                                               
affordability in all communities by  2030.  Of the aforementioned                                                               
four pillars,  the first  pillar is  the identification  of cost-                                                               
effective projects  by improving  access to  community-level data                                                               
that  will  inform  good  decision-making.    Data  is  currently                                                               
available  on   community  goals   and  consumer,   utility,  and                                                               
environmental  needs.   The  collection and  sharing  of data  is                                                               
facilitated  by the  [Alaska Energy  Data  Gateway, Institute  of                                                               
Social  and Economic  Research, University  of Alaska  Anchorage]                                                               
and  the  [Alaska  Retrofit  Information  System,  Department  of                                                               
Transportation  & Public  Facilities], reporting  to PCE  and the                                                               
Renewable  Energy Fund,  and the  Alaska Affordable  Energy Model                                                               
developed  by  AkAES.   Further,  the  recommendation  urges  the                                                               
collection  and updating  of related  data by  codifying existing                                                               
agencies'   work.     In   addition,   for  communities   seeking                                                               
assistance,  the  state will  help  identify,  plan, and  finance                                                               
energy  projects  and  program,   beginning  with  high-cost  PCE                                                               
communities.      Ms.   Lister    advised   that   the   forgoing                                                               
recommendation aligns  with House  Bill 306  [passed in  the 26th                                                               
Alaska State Legislature] (slides  17-20).  Recommendation A-3 is                                                               
to establish a building energy code for residential and non-                                                                    
residential new  construction and  major renovation;  building to                                                               
an  efficient energy  standard is  cost-effective, saves  energy,                                                               
and saves  money (slide 21).   Moving  to the second  pillar, she                                                               
said    financing   cost-effective    projects   includes    five                                                               
recommendations  working  toward  improved  access  to  financing                                                               
tools for  communities.  Recommendation  B-1 relates to  the Bulk                                                               
Fuel  Revolving Loan  program,  DCCED,  which offers  communities                                                               
financing   to  purchase   large  quantities   of  fuel;   it  is                                                               
recommended  that  the  same mechanism  should  be  available  to                                                               
purchase  non-petroleum  fuels,  such   as  cordwood  or  pellets                                                               
(slides 22 and 23).  As  AkAES found that many communities are in                                                               
a position to  assume more debt for  projects, Recommendation B-2                                                               
is to create easier ways  for utilities and communities to access                                                               
financing.  She cited a  successful renewable energy project that                                                               
was financed by a combination  of grants, loans, bonds, and local                                                               
matching  funds, although  the financing  arrangements were  very                                                               
complex.  To make securing  existing financing options easier for                                                               
utilities   and  communities,   Recommendation   B-2  creates   a                                                               
financing "one-stop-shop":  the  Community Energy Fund for Alaska                                                               
(CEFA)(slide 24).                                                                                                               
                                                                                                                                
2:20:26 PM                                                                                                                    
                                                                                                                                
MS.  LISTER  informed  the committee  that  CEFA  would  organize                                                               
financing  that   is  available  to   utilities,  municipalities,                                                               
boroughs, cities,  Tribes, and  non-residential facilities  to be                                                               
used for generation,  distribution, transmission, and demand-side                                                               
energy  efficiency   projects.    She  stressed   how  access  to                                                               
financing  saves  money.    Recommendation  B-3  creates  a  loan                                                               
program with  refund provisions that reward  project performance;                                                               
for example, portions of a loan  would be refunded if the project                                                               
lasts for a  long time and is maintained  throughout its economic                                                               
life  (slide 25).   Recommendation  B-4 is  to statutorily  allow                                                               
voluntary  on-bill  financing  and Commercial  Property  Assessed                                                               
Clean Energy  (C-PACE), which is a  financing mechanism described                                                               
by forthcoming  proposed legislation.  She  further explained the                                                               
benefits   of   C-PACE   and  on-bill   financing   (slide   26).                                                               
Recommendation B-5  is to  stabilize state  funding for  the low-                                                               
income  residential weatherization  program, and  to modify  home                                                               
energy rebate  rules to expand  access to  residential efficiency                                                               
services.  The recommendation seeks  $10 million per year for the                                                               
weatherization   program   because   residential   weatherization                                                               
maintains the  best return  on investment  for energy  savings to                                                               
consumers.  Further, she explained  the benefits of expanding the                                                               
dormant home energy rebate program  (slide 27).  The third pillar                                                               
is    accountability   and    sustainability,    and   has    six                                                               
recommendations  focused   on  a   system  that   encourages  the                                                               
operational  life  of  energy  systems,  and  that  improves  the                                                               
ability  of  entities  to  access   debt  financing  (slide  28).                                                               
Recommendation  C-1  is  to  strengthen  business  and  financial                                                               
management  assistance for  PCE-eligible utilities;  for example,                                                               
reducing   non-fuel  costs   through   more  efficient   business                                                               
operations.   Studies have  shown that  some PCE  communities are                                                               
paying almost one-half of their  total cost per kilowatt hour for                                                               
administration  (slide 29).   Recommendation  C-2,  [draw on  the                                                               
state's  partnerships with  regional  and  statewide entities  to                                                               
more cost  effectively provide needed  assistance] builds  off of                                                               
the successes of existing regional  activity.  Ms. Lister pointed                                                               
out that regional entities are  more aware of a community's needs                                                               
and are quicker to respond than  is the state.  The Tanana Chiefs                                                               
Conference  and the  Alaska Native  Tribal Health  Consortium are                                                               
examples of  regional organizations  that could  provide services                                                               
such as the management of  utility financing, accounting, utility                                                               
cooperatives,  maintenance, and  emergency  response (slide  30).                                                               
Recommendation C-3,  [develop a cost-effective  regulatory system                                                               
to  ensure  PCE-eligible  electric  utilities  continue  to  meet                                                               
standards to  be fit, willing,  and able], would ensure  that the                                                               
standards a community once met  to obtain a Certificate of Public                                                               
Convenience  and Necessity  (CPCN) are  maintained.   A community                                                               
that  continues to  meet these  standards would  ensure that  its                                                               
assets are  maintained, minimize  its fuel  cost, and  retain its                                                               
access to financing (slide 31).                                                                                                 
                                                                                                                                
2:29:37 PM                                                                                                                    
                                                                                                                                
MS. LISTER  continued to Recommendation C-4,  [require large non-                                                               
residential buildings  that receive PCE  to have an  energy audit                                                               
and  perform cost-effective  retrofits]  that  would help  ensure                                                               
that  assets   are  maintained  and  ensure   the  financial  and                                                               
managerial  health of  utilities by  having an  energy audit  and                                                               
performing retrofits  within ten years  (slide 32).   She advised                                                               
that  currently   the  Regulatory  Commission  of   Alaska  (RCA)                                                               
determines  the eligibility  of  new infrastructure  after it  is                                                               
built, which is a barrier  to private investment.  Recommendation                                                               
C-5 [empower  RCA to  have siting  authority over  generation and                                                               
transmission facilities  for regulated  utilities in  study area]                                                               
would reduce  uncertainty and provide consumer  protection (slide                                                               
33).   Recommendation C-6,  to enact  a 1  percent per  year fuel                                                               
reduction  target  for  electric utilities  until  cost-effective                                                               
gains have  been realized, is  designed to provide  a requirement                                                               
for utilities to perform continuous  quality improvements such as                                                               
reducing  fuel consumption,  lowering  line  loss, and  improving                                                               
efficiency.  She pointed out  that the recommendation is not that                                                               
utilities  proceed with  projects  that would  increase costs  to                                                               
consumers (slide 34).  The  fourth pillar of funding programs was                                                               
specified by the AkAES enabling  legislation, and requires both a                                                               
plan for  potential revenue sources  for programs  recommended by                                                               
the study,  and a  means for  directly underwriting  energy costs                                                               
(slide 35).   Thus, Recommendation  D-1 is to use  the Affordable                                                               
Energy Fund  - funded by  20 percent  of royalties from  a future                                                               
gas pipeline  - and  used for  areas of the  state not  served by                                                               
said pipeline  (slide 36).   As this  fund will not  be available                                                               
for at least one decade,  alternative funding sources are needed,                                                               
and Recommendation D-2 is to  pay for PCE administrative expenses                                                               
and  fund-specific   energy  programs   with  PCE  funds.     She                                                               
acknowledged  the  importance  of   maintaining  the  Power  Cost                                                               
Equalization  Endowment Fund  and said  the recommendation  is to                                                               
increase  the  allocation from  earnings  to  administer the  PCE                                                               
program, which is currently subsidized  with general funds (slide                                                               
38).    Ms.  Lister  referred   to  energy  policy  reports  that                                                               
identified per-unit  energy surcharges as  a means to  fund cost-                                                               
effective  projects  [reports  not  provided].   Based  on  these                                                               
reports   and   methods   commonly   used  in   the   Lower   48,                                                               
Recommendation D-3  is [to support community  energy projects and                                                               
programs,  establish  a  universal service  charge]  (slide  39).                                                               
Recommendation  D-4 is  to continue  the Power  Cost Equalization                                                               
program  and to  revive  the Alaska  Heating Assistance  Program.                                                               
The PCE  program is  the largest and  most broad-based  source of                                                               
energy funding  in the  study area.   Further,  the need  for PCE                                                               
will not  be eliminated by AkAES,  and the benefits from  the PCE                                                               
endowment  fund are  extremely important  to rural  Alaska (slide                                                               
40).   Finally,  for  the committee's  consideration, Ms.  Lister                                                               
stated that a state entity  with the authority to consolidate and                                                               
manage consumer  energy to the  extent that is  reasonable, would                                                               
increase the  efficiency of delivering  state energy  programs to                                                               
communities  (slide   41).    She  cautioned   against  spreading                                                               
implementation  of   the  foregoing   recommendations  throughout                                                               
departments and  agencies, with the  exception of  tasks directed                                                               
to RCA.                                                                                                                         
                                                                                                                                
2:38:13 PM                                                                                                                    
                                                                                                                                
MS. LISTER presented the following conclusions (slide 42):                                                                      
                                                                                                                                
   • lights and heat must remain on which requires investment in                                                                
     energy infrastructure                                                                                                      
   • the state's budgetary challenges require more affordable                                                                   
     community energy systems strengthened through policy,                                                                      
     regulatory, and statutory change                                                                                           
   • AkAES provides guidance for said change                                                                                    
                                                                                                                                
CO-CHAIR  JOSEPHSON referred  to Recommendation  C-4 -  enhancing                                                               
existing buildings  with energy  audits -  and asked  whether the                                                               
recommendation includes new construction.                                                                                       
                                                                                                                                
MS. LISTER responded that there  is a recommendation to establish                                                               
a  building  energy  code  for  residential  and  non-residential                                                               
buildings.                                                                                                                      
                                                                                                                                
REPRESENTATIVE BIRCH  requested a  summary of  the total  cost of                                                               
the  PCE program,  including how  many  communities benefit,  the                                                               
cost  per resident,  and an  aggregated  cost of  the program  by                                                               
community.                                                                                                                      
                                                                                                                                
MS. CONWAY stated she will provide the requested information.                                                                   
                                                                                                                                
CO-CHAIR  TARR questioned  whether the  annual report  on PCE  is                                                               
available online.                                                                                                               
                                                                                                                                
MS. LISTER said historic information is posted online.                                                                          
                                                                                                                                
MS. CONWAY  added that the  current fiscal year annual  report is                                                               
due to be posted online the second week in February.                                                                            
                                                                                                                                
MS.  LISTER, in  response  to Representative  Rauscher, said  the                                                               
report would be on PCE-eligible communities.                                                                                    
                                                                                                                                
CO-CHAIR TARR asked for a glossary of AEA programs.                                                                             
                                                                                                                                
MS. LISTER offered to provide relevant information.                                                                             
                                                                                                                                
REPRESENTATIVE PARISH asked  the presenters to provide  a copy of                                                               
their script.   He then asked whether pellets  and firewood would                                                               
be subject  to the aforementioned [Recommendation  D-3] universal                                                               
service charge.                                                                                                                 
                                                                                                                                
2:43:22 PM                                                                                                                    
                                                                                                                                
NEIL  MCMAHON, Program  Manager  for Energy  Planning, AEA,  said                                                               
there has  been no policy  decision on whether firewood  would be                                                               
included, and asked the legislators for guidance.                                                                               
                                                                                                                                
REPRESENTATIVE PARISH said he would prefer not.                                                                                 
                                                                                                                                
CO-CHAIR TARR  pointed out that  some of the  recommendations are                                                               
items  of  interest  to  legislators  who  may  wish  to  provide                                                               
guidance on specific recommendations.                                                                                           
                                                                                                                                
REPRESENTATIVE TALERICO  advised that his constituents  would not                                                               
support  Recommendation A-3,  which is  to establish  residential                                                               
and  non-residential building  energy codes.   He  also expressed                                                               
his  interest in  expanding the  ability  to purchase  non-diesel                                                               
fuels  through the  Bulk  Fuel Revolving  Loan  program, such  as                                                               
coal, peat, and biomass; in fact,  there is a need to define non-                                                               
diesel fuels.   In regards to Recommendation B-3,  he opined that                                                               
a successful project is its  own reward, and cautioned about only                                                               
rewarding good behavior.                                                                                                        
                                                                                                                                
MS.  LISTER, in  response to  Representative Westlake,  explained                                                               
that Recommendation D-2 is specifically  addressed to the funding                                                               
of  the  Circuit  Rider program,  which  enables  communities  to                                                               
contact AEA  when problems with  a diesel powerhouse arise.   The                                                               
program  can  also provide  onsite  operator  training.   Another                                                               
program  brings   rural  powerhouse   operators  to   Seward  for                                                               
training.                                                                                                                       
                                                                                                                                
MS. CONWAY  added that  the related  programs are  Circuit Rider,                                                               
[Power Plant] Operator Training, and Community Assistance.                                                                      
                                                                                                                                
MS.  LISTER addressed  the payment  of direct  PCE administrative                                                               
expenses,  explaining that  general funds  have been  subsidizing                                                               
the  costs  of  administering  the PCE  program  along  with  the                                                               
portion that is taken from earnings  to pay AEA and RCA for their                                                               
administrative costs.   However, general funds  are becoming less                                                               
available,  and the  full cost  of administering  the program  is                                                               
approximately $600,000.                                                                                                         
                                                                                                                                
2:50:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  WESTLAKE  questioned  why  AEA "sees  this  as  a                                                               
subsidy."   He asked  whether AEA works  with the  Alaska Housing                                                               
Finance  Corporation and  the Alaska  Industrial Development  and                                                               
Export Authority in order to streamline processes.                                                                              
                                                                                                                                
MS. CONWAY  responded that there  was an administrative  order to                                                               
explore [related] options  that has not been  finalized, thus she                                                               
could not comment at this time.                                                                                                 
                                                                                                                                
2:53:58 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 2:53 p.m.                                                                 
                                                                                                                                

Document Name Date/Time Subjects
AkAES_Revised1.23.17.pdf HRES 1/25/2017 1:00:00 PM
Alaska Energy Authority Alaska Affordable Energy Strategy Report
AkAES for HRES 1-25-17 REVISED.pdf HRES 1/25/2017 1:00:00 PM
Alaska Energy Authority Alaska Affordable Energy Strategy Report
012317_ House Resc. AGDC presentation.pdf HRES 1/25/2017 1:00:00 PM
Alaska Gasline Development Corporation
SB 138 Fiscal Note Summary.PDF HRES 1/25/2017 1:00:00 PM
SB 138
HB 4 Fiscal Note Summary.pdf HRES 1/25/2017 1:00:00 PM