01/25/2013 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB29 | |
| Who's Keeping the Lights and Heat On? Problems and Solutions | |
| Presentation by Agdc | |
| Presentation: Cingsa, Richard Gentges | |
| Presentation: Fairbanks Lng Trucking Option | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | SB 29 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 25, 2013
3:30 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator Fred Dyson, Vice Chair
Senator Peter Micciche
Senator Click Bishop
Senator Lesil McGuire
Senator Hollis French
MEMBERS ABSENT
Senator Anna Fairclough
OTHER LEGISLATORS PRESENT
Senator Charlie Huggins
COMMITTEE CALENDAR
SENATE BILL NO. 29
"An Act relating to the regulation of wastewater discharge from
commercial passenger vessels in state waters; and providing for
an effective date."
- HEARD & HELD
PRESENTATIONS: WHO'S KEEPING THE LIGHTS AND HEAT ON? PROBLEMS
AND SOLUTIONS
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 29
SHORT TITLE: CRUISE SHIP WASTEWATER DISCHARGE PERMITS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/18/13 (S) READ THE FIRST TIME - REFERRALS
01/18/13 (S) RES, FIN
01/23/13 (S) RES AT 3:30 PM BUTROVICH 205
01/23/13 (S) Heard & Held
01/23/13 (S) MINUTE(RES)
01/25/13 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
ANDY ROGERS, Deputy Director
Alaska State Chamber of Commerce
Juneau, Alaska
POSITION STATEMENT: Supported SB 29.
BOB JANES, representing himself
Juneau, Alaska
POSITION STATEMENT: Supported SB 29.
KARLA HART
Alaska Community Action on Toxics
Juneau, Alaska
POSITION STATEMENT: Opposed SB 29.
GUY ARCHIBALD
Southeast Alaska Conservation Council (SEACC)
Juneau, Alaska
POSITION STATEMENT: Opposed SB 29.
CHIP THOMA, President
Responsible Cruising in Alaska
Juneau, Alaska
POSITION STATEMENT: Opposed SB 29.
JOHN KIMMEL
Cruise Line Agencies of Alaska
Ketchikan, Alaska
POSITION STATEMENT: Supported SB 29.
JOSEPH SEBASTIAN, representing himself and his family
Petersburg, Alaska
POSITION STATEMENT: Opposed SB 29.
MICHELLE RIDGEWAY, representing herself
Auke Bay, Alaska
POSITION STATEMENT: Did not support SB 29 in its current form.
DAVE WETZEL, owner
Admiralty Environmental
Juneau, Alaska
POSITION STATEMENT: Supported SB 29.
RICK ROGERS, Executive Director
Resource Development Council of Alaska (RDC)
Anchorage, Alaska
POSITION STATEMENT: Supported SB 29.
FRANK RICHARDS, Manager
Division of Pipeline Engineering and Government Affairs
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Provided update on AGDC.
DAN FAUSKE, President
Alaska Gasline Development Corporation (AGDC)
CEO, Alaska Housing Finance Corporation (AHFC)
Anchorage, Alaska
POSITION STATEMENT: Provided update on AGDC.
DARYL CLOUGHMAN, Anchorage Commercial Manager
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Answered questions on gas contracts related
to the AGDC project.
RICHARD GENTGES, Project Manager
Cook Inlet Natural Gas Storage Alaska (CINGSA)
Kenai, Alaska
POSITION STATEMENT: Presented an overview of the CINGSA project.
MOIRA SMITH, Counsel
Cook Inlet Natural Gas Storage Alaska (CINGSA)
Anchorage, Alaska
POSITION STATEMENT: Answered questions on the CINGSA project.
GENE THERRIAULT, Deputy Director
Energy Policy Development
Alaska Energy Authority (AEA)
Fairbanks, Alaska
POSITION STATEMENT: Presented the Fairbanks LNG trucking option
to meet the gas needs of Interior Alaska.
ACTION NARRATIVE
3:30:09 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators French, Dyson, Bishop, McGuire, Micciche and
Chair Giessel.
SB 29-CRUISE SHIP WASTEWATER DISCHARGE PERMITS
CHAIR GIESSEL announced SB 29 to be up for consideration.
3:31:44 PM
ANDY ROGERS, Deputy Director, Alaska State Chamber of Commerce,
Juneau, Alaska, supported SB 29. He said it has the full support
of the Alaska Chamber membership and is a legislative priority
for them.
He said the cruise ship industry in general touches on a couple
of their other positions: advocating sound science as opposed to
precautionary method for legislation and regulation.
MR. ROGERS said that the Science Advisory Panel found that waste
water discharges from cruise ships currently meet a higher
standard than most if not all of Alaska Municipalities. This
industry has large economic impacts throughout the state
including the Interior; some land-based businesses that rely on
them are Alaska Amphibian Tours in Ketchikan, Alaskan Brewing in
Juneau, and Pike's Landing and Hot Licks Ice Cream in Fairbanks.
Members as far as Nome - like Bering Air and Nome Adventure
Tours - benefit from guests coming to the state by sea.
3:35:01 PM
BOB JANES, representing himself, Juneau, Alaska supported SB 29
and said he makes his living off the cruise industry as a tour
operator. He is not a scientist, but it is all about science. He
urged them to look to the Science Advisory Panel report for
making policy decisions.
3:37:30 PM
KARLA HART, Alaska Community Action on Toxics, Juneau, Alaska,
didn't support SB 29 and said the rush on this bill did not seem
warranted or appropriate. SB 29 calls for sunseting the panel
before its work is done, which she opposed. The final report
from the Science Advisory Panel is not out yet and she hoped it
would get some review and peer discussion.
She said the Governor's urgency was artificially created around
the summer timeframe for issuing the permit and quick action
would betray the voters of Alaska who voted for this higher
standard of clean water.
MS. HART said the volume and size of the ships warrant special
consideration as most of them are larger than most communities
in Alaska, and cumulatively they represent a large population
increase.
Their pollution is not small scale. If an Alaskan community
doesn't meet discharge standards, it's in their front yard; they
know where it comes from and who is responsible and they have to
clean it up. On the other hand, ships discharge anywhere, so
remote areas you might go to for subsistence harvest or
commercial fishing that you might think are clean because they
are far away from any apparent discharge could actually be
getting a pretty substantial burden over time. A lot of the
pollution is from heavy metals that bio-accumulate over time,
and it is not known what they do to people or the environment.
3:40:23 PM
MS. HART stated the Chamber representative urged action based on
sound science rather than a precautionary principle, but
everyone knows that regulations, including Environmental
Protection Agency (EPA) regulations, are a blend of science and
politics with industry input. They do know now that the impacts
of very small amounts of toxics, undetectable under technologies
of a few years ago, have really significant impacts on people.
So, she asked them to slow down; the cruise industry will
survive another year and Alaskans will appreciate the chance for
good consideration.
3:41:03 PM
GUY ARCHIBALD, Southeast Alaska Conservation Council (SEACC),
Juneau, Alaska, opposed SB 29, but if it passes urged not
sunseting the Science Advisory Panel. He said he is a chemist
and because SB 29 is based on the Science Advisory Panel report,
he wanted to comment, in particular, on the comparison in it of
copper loads with the loading from natural rivers and the
comparison of cruise ships to land-based treatment facilities,
mixing zones and some treatment options that were examined.
MR. ARCHIBALD explained that comparing cruise ship waste water
loadings with a natural source such as the Mendenhall River is
really not sound science for a number of reasons. He explained
that the form of the element matters; whether it's in its total
form or its dissolved form, and the report did not make that
distinction. He could eat a handful of copper pennies and have
no ill effects, but if he takes that same amount of copper and
dissolves it into water and drinks it, it would probably kill
him. So, the form matters.
He said the type of oxidative state also matters and explained
that these heavy metals come in various oxidative states; some
are absorbed by life and some are not. A human body will absorb
iron in the ferrous state, but not in the ferric state, yet the
science report doesn't make that distinction.
MR. ARCHIBALD said the source of the contamination matters. They
know the Copper River has a high level of copper in it that
often exceeds the water quality criteria for aquatic life, but
those fish have had thousands of years and hundreds of
generations to adapt to that level of copper in the water.
Science tells them that even a small increase in the amount of
copper is still detrimental to fish that are even adapted to
high levels of copper in the water. And at the final level, the
argument that cruise ships only contribute a fraction of the
copper in the Mendenhall River is a false comparison; it is
somewhat the same logic his teenagers use: everybody is doing
it; why can't I?
He asked if SB 29 passes that the science panel not be sunseted,
but that the report be finalized and published for peer review,
which is the norm for scientific reports. He further asked that
the end of high compliance with water quality criteria be
retained as an incentive for the industry to do a better job as
land-based treatment systems have done.
3:44:58 PM
CHIP THOMA, President, Responsible Cruising in Alaska, Juneau,
Alaska, opposed advancing SB 29. His preference was that all
large cruise ships coming to Alaska deposit their waste in
federal waters.{ Luckily, they are coming to a point with the
size and configuration of these ships that they are able to hold
their waste for five days or more during which time they transit
Southeast Alaska.
MR. THOMA also stated that all ships are now being built with
flex-pipe, which does not have copper or any metals in it. Once
those ships - primarily run by Princess Cruise Lines - are
phased out, the ships will be either clean or practically clean,
depositing waste in the Gulf of Alaska or at the Juneau
treatment plant, which Princes does right now. All those aspects
are coming to a good conclusion in the long run. In the short
run, these standards should be retained and "just give these
guys a few more years of extension." Every year technological
advances in waste water treatment were being made.
The other day, Mr. Thoma said had a question about the quality
of the bunker water, so he called the water superintendents of
the three major bunker towns - Ketchikan, Juneau and Skagway -
and asked the copper count in the bunker water being delivered
to the cruise ships(after the water is treated). Ketchikan had
an interesting story. The Ketchikan superintendent said he had a
high copper count; 17 parts per billion but he had 70 parts per
billion of lead. So, he went down to the dock and looked and saw
the brand new metal ball valve they had just bought (made in
India). He took that ball valve off and replaced it with a
plastic one and did a new test after letting the water settle
for eight hours, and copper came back at 2 parts per billion and
.6 percent billion for lead. The source of the high count before
was obviously from the ball valve.
Then Mr. Thoma said he talked to the Skagway superintendent who
had tested the municipal docks and found them below the average.
The one private dock was above average and it was all because of
the ball valves. In summary he said that a lot basic stuff can
be done and it being done between the loading of the water on
and changing the copper pipes. Once these ships are gone, this
problem is over. But don't give them an exemption now!
3:49:07 PM
JOHN KIMMEL, Cruise Line Agencies of Alaska, Ketchikan, Alaska,
supported SB 29, because holding cruise ships to the same
standard as everyone else is fair. The Legislature came up with
the Science Advisory Panel who studied it for three years; it's
time to listen to their recommendations and move on. It's about
jobs as well; his family depends on the income from those jobs.
3:50:58 PM
JOSEPH SEBASTIAN, representing himself and his family,
Petersburg, Alaska, opposed SB 29. His family had fished in
Southeast Alaska for 35 years and had watched the development of
both the sport fish and cruise ship industries. His children are
now fishermen and worked their way through college on fishing
boats. His neighbor's son just bought a new boat and permit;
Petersburg is a fishing town as are many towns in Southeast
Alaska. This bill is bad for Alaska's fishing industry; its
whole claim to clean, pristine waters has to have a foundation
in reality, in science and in public perception.
MR. SEBASTIAN related that ocean acidification was taking place
due to air-borne carbon pollution settling on the ocean in
amounts that change the water's PH factor. Now SB 29 wants to
add more pollution to it to compound this already existing
problem. If the cruise ship industry that makes billions of
dollars in profit every year is unwilling to uphold and protect
our clean pristine Alaskan waters, then they really have no
place here and are not welcome. He said SB 29 is "a slap in the
face to thousands of Alaskan fishing families and the fishing
industry in general."
He summarized that every year technological advances are being
made and they are already on their way to achieving a good
balance with an industry that could be more neutral than it is
now in terms of discharges and water quality.
3:54:49 PM
MICHELLE RIDGEWAY, representing herself, Auke Bay, Alaska, said
she is a member of the Alaska Cruise Ship Waste Water Science
Advisory Panel and did not support SB 29 in its current form.
She believed that the implications of introducing more ship
discharge at the volume of some 800 cubic meters per day per
ship (best estimate) times 20 ships times 180 per years is an
unacceptable level of introducing contaminants into our
ecosystem. Quite frankly she thought they would be appalled by
the long-term degradation of the state's marine ecosystem if the
bill was allowed to go forward in its current form.
She said SB 29 calls for establishing mixing zones for moving
vessels, but pleaded with them to avoid going down that path.
She believed it would be exceedingly difficult to get Alaskans
to agree where it would be acceptable to discharge water that
contains copper, zinc, nickel and ammonia at levels that are
known to be acutely and chronically toxic to marine life. How
would areas for subsistence harvests be avoided or some of the
established state water parks or areas that are critical for the
dive fisheries or commercial and sport fisheries, tourism that
operate in clean water? "Clean water is our brand; wild and free
is a mantra in Alaska. Now is the time to continue to protect
that," she said.
She added that a number of studies demonstrate clearly that
metals at very low levels, especially copper, are toxic to
marine life - and it is described in DEC records. They disfigure
herring embryos at very low levels; salmon smolts and adults
lose their sense of smell, can't find their way home and are
subject to much higher levels of predation, not to mention the
fact that heavy metals bio-accumulate in the food web; ingesting
them impacts our immune system as well as that of marine
mammals. She urged them to look a little harder for a solution
that is based on solid technology that does exist and good solid
science that exists, as well.
3:59:03 PM
DAVE WETZEL, owner, Admiralty Environmental, Juneau, Alaska,
said he is an independent company that has managed the sampling,
monitoring and testing of large and small cruise ships in
Southeast Alaska since 2000. He supported SB 29 as a sound and
practical solution to approach cruise ship monitoring. SB 29
applies Alaska water quality standards consistently for all
people who discharge in Alaska, whether they are a waste water
treatment plant, a mining company or a cruise ship. They aren't
really looking at scaling back any of Alaska's water quality
regulations that are not intended to be applied at the point of
discharge.
He had seen all of the major types of treatment systems that
were developed for operation in Alaska and had sampled and
reviewed the results from them all. These are the best systems
that are available right now; the military is actually looking
at using some of them. He observed a remarkable consistency
between the different types of advanced waste water treatment
systems in that they all treat water to basically the same
quality between different ships of the same system and the same
ship from year to year. So, it's really only sensible to apply
the same strategy for discharges from land-based plants to ships
at sea. The intent of the Alaska water quality standards is to
establish limits for the quality of the water body, itself; it's
not a point of discharge standard.
MR. WETZEL asked them to consider that cruise ship discharges
are much a small volume than from land-based plants. And his
experience in dealing with the vessel owners is that they are
all very committed to operating their systems properly and in an
optimal manner. They are also very interested in meeting
regulations and are involved on a daily basis in how their
results are coming out. He said it's important to encourage
proper use of these systems, because otherwise they might be
encouraged to simply discharge outside of regulated areas that
are just as sensitive as salmon rearing habitat as state waters.
4:03:14 PM
RICK ROGERS, Executive Director, Resource Development Council of
Alaska (RDC), Anchorage, Alaska, supported SB 29. He said over
the last several years one of their key priorities has been to
encourage the state to promote and defend the integrity of
Alaska's permitting process, which includes predictable, timely
and efficient processes that are based on good science and
economic feasibility. They applaud the tireless work of the
Science Advisory Panel that met at least 15 times over three
years and came up with some good solid information to a rational
waste water discharge policy for the cruise industry.
This is not a rushed process given the amount of time and
deliberation that has gone into supporting this bill. It's clear
after reviewing the findings of that group and DEC
recommendations that meeting current water quality standards at
the point of discharge from cruise ships is not feasible and
isn't necessary to protect the public and aquatic species.
MR. ROGERS summarized that SB 29 establishes a policy that is
based on sound science and economic feasibility; many small
businesses and communities rely on cruise business activity for
their livelihoods. The cruise ship industry has some of the
cleanest discharge among dischargers in Alaska; better than many
municipalities and fishing boats. It's troubling to start
singling out one industry over another.
CHAIR GIESSEL closed public testimony and held SB 29.
^Who's keeping the Lights and Heat on? Problems and Solutions
Who's Keeping the Lights and Heat on? Problems and Solutions
4:07:12 PM
CHAIR GIESSEL said they would wrap up this series today and that
the problem had been clearly defined over the last four
meetings; Alaskans are saying it's time for action on the energy
issue and today some folks would testify on some possible
solutions.
^Presentation by AGDC
FRANK RICHARDS, Manager, Division of Pipeline Engineering and
Government Affairs, Alaska Gasline Development Corporation
(AGDC), Anchorage, Alaska, introduced himself.
DAN FAUSKE, President, Alaska Gasline Development Corporation
(AGDC), and CEO, Alaska Housing Finance Corporation (AHFC),
Anchorage, AK, said he was happy to be able to give them this
update.
MR. RICHARDS, noting their "Year-End Report 2012" that detailed
how the project had advanced over the last year and a half, said
that HB 369 mandated that the AHFC develop a project plan for an
in-state gas pipeline. The Alaska Gasline Development
Corporation (AGDC) is a subsidiary of the AHFC and is charged
with moving the project forward. The Alaska Stand Alone Project
(ASAP) is the project that is being developed to meet the
mandate, which is to deliver gas to Fairbanks and to the Cook
Inlet region at the earliest possible date and at the lowest
possible cost. The Governor voiced his support recently for
their project in his state of the state message.
4:10:31 PM
MR. RICHARDS said their progress had been significant. This
potential $8 billion mega-project has been advanced by acquiring
604 miles of state right-of-way and another 100 miles of federal
right-of-way has been applied for. They have completed a final
environmental impact statement (EIS), which is essentially the
National Environmental Policy Act (NEPA) document that was
published in the Federal Register last October; the public
comment period ended in November and they are waiting for a
decision from the Bureau of Land Management (BLM). These are the
"assets" the state has in its portfolio to advance the project.
As they have advanced through the environmental stage, the world
markets have changed dramatically in favor of natural gas with
the shale gas and oil explosion down south and market conditions
for the North American product are changing quite rapidly.
Specifically, the natural gas liquids (NGL) market has been
impacted greatly. The original design concept was that this
pipeline would flow NGLs to be able to meet the desire of
providing gas for the lowest possible cost, but was what once
selling at a premium to oil is now selling less than oil. He
mentioned that AIGA capped any competing state-funded project at
500 mmcf/day flow rate.
So last year, they changed the design concept to go from a rich
gas stream with entrained NGLs to a lean gas (utility grade) the
benefit being that a 36-inch diameter pipe would operate at a
lower psi than originally anticipated (1480) with a 12-inch 37-
mile pipeline lateral running from Dunbar into Fairbanks
reducing the number of compression facilities needed to push the
gas. There would be a gas conditioning facility on the North
Slope and one compressor station. Not only does shifting from
rich to lean gas reduce the number of stations needed to be able
to deliver the gas to Fairbanks and Southcentral, it allows for
more off take points for Alaskans, Alaskan businesses or a major
development to tie into the line and acquire the gas at a very
reasonable rate. This also means they have been able to lower
the tariffs for consumers and lower the operational,
construction and financing risks for the project. Reducing the
number of facilities reduces the environmental footprint as
well. The overall cost of the project is $7.7 billion (in 2012
dollars) is about the same as the original concept as opposed to
a delivered price last year of $7.5 billion. But when inflation
was factored in it rose to $7.7 billion.
MR. RICHARDS emphasized that they are not in competition with
the AGIA project. They are moving forward with the mandate given
to them by the legislature, which is delivery of gas to
Alaskans.
Page 6 identified the stage-gate approach they were using in
development of the project. In 2011 the project was delivered
and they are now in "Front-End Loading" (FEL) 2. He said
advancing this project to FEL 3 (project sanction) will take
legislation and additional funding. An open season would require
a considerable amount of engineering work to refine the numbers
necessary to give accurate cost estimates to the producers and
shippers who would like to commit gas to the project.
Page 7 of his handout was the project schedule, the top portion
being the schedule mandated by HB 369, which granted them the
project portfolio in July 2010, and an aggressive completion
timeframe of 2015. With the support of the legislature, first
gas would be in late 2019 and full transmission in 2020.
MR. RICHARDS said enabling legislation and appropriate funding
would get the project to an open season in late 2014 and that
would determine the commercial interest on their project. Firm
transportation agreements are needed to get to project sanction
in the late 2015. If that is the case, they move forward to
procuring the pipe, the gas conditioning facility and then go
forward with the construction in 2017-2019.
4:17:51 PM
The new optimized design case resulted in the tariff inputs
being changed, which resulted in a significantly better tariff
than had been projected in 2011. So, he summarized that they
have longer terms and an updated capital cost estimate, they
have added contingencies to the cost estimates that were in
there just to identify they are trying to be realistic and they
have changed the way they look at the rate of return on equity
for an equity partner, changed the debt equity split from 70/30
to 75/25 and looked at the cost of impacts of delay and
inflation.
4:18:37 PM
Slide 10 had the tariff comparison. In 2012 dollars the tariff
to deliver gas to Fairbanks from Cook Inlet ranged from $4.25 to
$6.00 and from MatSu to Kenai it was $5.00 to $7.25. The
levelized terms were $4.75 to $6.50 for Fairbanks and $5.75 to
$8.00 for Big Lake. The cost drivers at the bottom of the slide
listed the significant factors that could impact the tariff
either lowering or increasing it. If the capital cost creeps up
or down, it's an impact $.50 to $.80 between Fairbanks and
Anchorage. If there is a state contribution to the project of $1
billion could reduce the tariff by $.45. If the rate of return
on the private equity is reduced or increased that has a $.20
per mmbtu impact. Adding 10 years to the bonds reduces the
tariff by $.75. Slide 11 showed the optimized cost to Anchorage
consumers from $9.00 to $11.25 per mmbtu and for Fairbanks
consumers from $8.25 to $10.00 per mmbtu. These rates are
significantly better than previous rates.
MR. RICHARDS said the project would cost Alaskans $400 million
to fund the work through FEL 3 (project sanction). At that
point, an ownership model determination would be made to advance
this project either as a state project, private project or
something in between. The benefit would be a long-term natural
gas supply for Alaskans allowing new economic opportunities for
power generation, equipment operation and resource development.
4:21:31 PM
Their cost to consumers assumed $2 to purchase gas in Prudhoe
Bay and $2 for distribution, Enstar's rate that Anchorage Bowl
consumers are paying. They used the same $2 cost for
distribution in Fairbanks as an assumption because nothing has
been built yet.
If fully funded, the facilities and pipeline engineering could
be advanced to get to an open season. They would advance the
regulatory permitting activities and agency engagements to
finalize and move the necessary state and federal permits
forward and work on an engineering field investigation involving
geotechnical, hydrologic and cultural efforts. Partial funding
would move the completion time out into the future.
4:23:07 PM
SENATOR MICCICHE asked if 2.5 percent inflation would also apply
to the consumer if the project is delayed additional time.
MR. RICHARDS answered yes; the 2.5 percent is applied to all
construction products across the board, which carries through to
the consumer price.
SENATOR MICCICHE asked if they were looking at the 2019
delivered price or does inflation have to be calculated.
MR. RICHARDS said the tariff comparison (slide 10) for Fairbanks
indicated a levelized tariff at project start up of $4.75 to
$6.50 or essentially $.50 more and that is the cost of inflation
factored over the life of construction.
CHAIR GIESSEL asked him to wrap up.
MR. RICHARDS summarized that the critical pieces necessary to
advance the project are confidentiality, funding, the authority
to determine ownership and contract carrier status. He said they
are advancing the project and are ready to do the will of the
legislature.
4:24:56 PM
SENATOR MCGUIRE said the last sentence on page 3 addressing the
issue of contract versus common carrier says that the AGDC has
virtually no chance of attracting adequate shipping commitments
or financing as a common carrier and asked him to expand on that
a little bit, because that was not her intention when her bill
was merged with the House bill that this came from. Being an
exclusive contract carrier is a new notion coming out of HB 9.
Mr. Richards did a very successful expression of interest (EOI),
and even though it was confidential he was able to describe that
at least .5 bcf was potentially there for bidding with firm
transportation offers, but she wanted to know if a common
carrier was still possible.
MR. RICHARDS said the best person to address this question was
their commercial manager, Mr. Cloughman.
4:26:53 PM
DARYL CLOUGHMAN, Anchorage Commercial Manager, Alaska Gasline
Development Corporation (AGDC), Anchorage, Alaska, explained
that fundamentally, oil pipelines tend to be common carriers and
gas pipelines tend to be contract carriers. That is how it was
under the Alaska Gasline Inducement Act (AGIA). The reason is in
order to finance the pipeline long-term with revenue bonding the
one supplying the funding needs a guaranteed income stream to
pay off the bonds. You only get that through long-term
contractual commitments where the shipper has to pay the tariff
whether they bring the gas to the pipeline or not over the
period of the contract. Typically those contracts are a minimum;
for Denali and APP it was 20 years and they offered terms all
the way out to 35 years. This project is consistent with that. A
contract carriage doesn't mean that down the road if someone
wanted to come in south of the 68th parallel they couldn't still
enter into the pipeline, they would have to pay any expansion
costs and their terms would be different than the original
shippers'.
SENATOR MCGUIRE said there are two different ways of doing gas
pipelines, as well, and certainly some are done as common
carriers. That discussion was had in the AGIA debate and one of
the issues was whether or not you can allow for competition into
the marketplace that would benefit the consumer over a long term
period. The question is who pays for the expansions. Her point
was that HB 9 had contract carriers in it, but the enabling
legislation didn't and she wanted to if the private sector knew
that for the EOI.
4:30:00 PM
MR. FAUSKE added that wasn't part of the discussion during the
EOI meetings. Knowing there was use for about 260 mmcf/day, they
were trying to determine if there was a commercial interest to
use the extra 250 mmcf/day and they were able to max out the 500
mmcf/day. Looping and added compression would present an avenue
for more gas to get into the line. They weren't anticipating a
great deal of concern, because he couldn't imagine explorers or
producers would get too revved up over that amount of gas. That
issue was much more pertinent to the debate on an AGIA line of
3.5 to 4.0 bcf/day.
^Presentation: CINGSA, Richard Gentges
4:32:14 PM
RICHARD GENTGES, Project Manager, Cook Inlet Natural Gas Storage
Alaska (CINGSA), Kenai, Alaska, presented an overview of their
project. He explained that it involved the conversion of a
Cannery Loop production field to a gas storage facility. Fifty
prospects all across the Cook Inlet were looking at before this
one was selected. The reservoir originally contained about 26.5
bcf and had produced about 23 bcf from the time it was
discovered in October 2000 until CINGSA acquired in July 2011.
It is well suited for Southcentral Alaska's market both today
and longer-term. Part of the selection consideration was that
very fact. The original design was to store 11 bcf of working
gas and 7 bcf of base gas.
He explained that base gas is put into the reservoir and stays
there to establish a minimum operating pressure level so that
the cycling of gas in and out of the facility can be carried out
more efficiently. In this particular case, that minimum pressure
is 600 psi with all the base gas in the ground. Working gas, in
contrast, is the volumes they have contracted for with customers
to store and it is cycled in and out of the reservoir. In this
case it can be cycled in and out of the field in about 120-150
days either way. Typically, this facility and storage fields in
general, inject gas during the summer months and then it's
withdrawn and produced back to the market during the winter.
This facility was designed to deliver a maximum of 150 mmcf/day,
but that is not a sustainable withdrawal/injection rate for the
entire inventory. It actually drops off by about 50 percent as
the field reaches its maximum capacity and likewise when the
field is on withdrawal. It does so, because pressure declines as
the gas is produced out and that is what actually provides the
driving force for deliverability. Based on some limited testing
of the field, the actual maximum deliverability appears to be a
little bit short of the design level. They first estimated it
would take about five wells to sustain that 150 mmcf/day
deliverability rate, but now it looks like two more wells will
be needed to actually do that.
4:38:12 PM
He said slides 3, 4 and 5 summarized the permits CINGSA had to
obtain in order to construct this facility and it took about 36
months from concept to actual operation, which is fairly typical
for this kind of facility. During the permitting process they
worked closely with the Office of Major Projects within the
Department of Natural Resources (DNR), which provided very
significant efficiencies, the most efficient in his experience.
Over 30 local, state and federal permits were required to
construct this facility; the review and approval time for each
ranged from a couple days to over a year for a few and there
were numerous public hearings at all levels of government. It
was a very thorough review process and they got excellent
cooperation from all the agencies.
MR. GENTGES said the key message is that this project was very
well vetted and by that virtue it allowed CINGSA to actually
modify the design to address some concerns. This process was
very consistent with most of the projects he had been on in
other states and countries.
4:40:57 PM
He said they commissioned the injection facilities and began
operations in April 2012. Overall, the construction phase had
300,000 man hours all without incident or injury and 150-170
contractors were on site at any given time.
4:41:46 PM
SENATOR FRENCH said CINGSA was a "just-in-time solution" to Cook
Inlet gas supply problems and without it some people in
Southcentral would be short of gas. He asked if expanding CINGSA
or building another similarly sized facility would help them
through the short-term Cook Inlet gas supply problem.
MR. GENTGES answered yes - to the extent gas supply is available
locally and that it can be stored during the summer months.
4:43:35 PM
Slide 6 was a "snapshot" of an eight-day look at how the
facility performed right before Christmas when it was really
cold. It was a good test of the facility; the withdrawal rates
ranged from about 40 - 60 mmcf/day with peak rates of about 80
mmcf/day; the performance was largely consistent with their
expectation. They saw some degree of improving performance out
of some of the wells, but need more operating data to fully vet
that.
4:44:39 PM
MOIRA SMITH, Counsel, Cook Inlet Natural Gas Storage Alaska
(CINGSA), Anchorage, Alaska, said they had received a request
for an expansion of the facility. They always knew that the
reservoir they selected had additional capacity available and
contemplated both in their tariff and commercial arrangements
that they might at some point move to an expansion to allow for
extra storage capacity within the reservoir along with
additional deliverability. So, they are now in the process of
considering their reaction to that request for expansion in
addition to considering the possibility of drilling two more
wells to ensure they can perform at the contracted and designed
capacity under the current arrangement (150 mmcf/day).
^Presentation: Fairbanks LNG trucking option
4:46:10 PM
GENE THERRIAULT, Deputy Director, Energy Policy Development,
Alaska Energy Authority (AEA), Fairbanks, Alaska, presented the
Fairbanks LNG trucking option to meet the needs of the Interior.
He said the project goal, established by the administration, was
to provide the lowest cost energy to the most Interior consumers
as soon as possible with a supply of gas trucked down from the
North Slope. The plan is to get the gas first to the Interior
market, and then out to a much larger geographic area over time.
The administration also wanted to use the power of the private
sector as much as possible to make this project workable.
Slide 4 had the economic modeling that had been done so far. AEA
had not engineered a plant but they know that there are private
sector entities that have done a lot of that work. So they
tapped into the best engineering information they could get from
Fairbanks Natural Gas (FNG), who last year was working on a 7
bcf project concept, and Flint Hills and Golden Valley Electric
Association (GVEA) that together were working on a 9 bcf
concept.
The model's key assumptions:
-building a 9 bcf plant just to choose some capacity that could
be used for comparison
-$50 million of capital available on the public side
(anticipating the plant would serve a public need of electric
generation that is distributed through a regulated distribution
system and natural gas distributed a regulated pipe system)
-state support for industry demand (for a larger volume)
4:50:10 PM
MR. THERRIAULT said they looked at bi-furcating the plant into
two sections: 4.5 bcf initially for public need and 4.5 bcf for
the industrial need. Then they took a capital appropriation and
focused that on paying down the debt component on the public
side of the plant. He said the plant wouldn't really be divided
and it would have only one stream of product coming out, but one
price would have a lower debt component that serves the public
need and another price that would serve the industrial need. The
concept is that the industrials benefit from being part of a
larger volume plant, but they could more likely afford to carry
the full debt component that would go along with the LNG
produced on their side.
4:52:05 PM
MR. THERRIAULT said the re-gas, storage and distribution costs
were presented in a range with the expected utility price of
around $10 delivered to the city gate. They received internal
data from FNG, which is currently in the business of piping gas
to a small number of consumers in the Interior. Therefore, they
know how much each foot of pipe costs and what it costs to bore
under a road and to hook up a new consumer (industrial v.
residential). Based on that and what they saw as the economics
of the ideal build-out, they thought they could do the storage,
re-gas and distribution facility for a price that would push the
total up to the top of the solid orange box [$13.50].
MR. THERRIAULT said they also had some price information on a
larger build-out of distribution that was done by the Fairbanks
Economic Development Corporation (FEDCO), whose desire was to
see that distribution system pushed out further (when the number
of houses served on each mile drops down so the cost of serving
the next house goes up). That is part of why they saw those
costs as being a little bit higher. Their prices were built
around an engineer's estimate that had a plus or minus 30-40
percent variable range. The shared orange bar indicated that
highest cost in the local area.
MR. THERRIAULT said AEA believed the realistic price was
somewhere between the top of the solid orange and the top of the
shaded orange. FNG's estimated cost was a little less FEDCO's
(probably due to the engineers being conservative), because FNG
knew what they had purchased theirs for. So, splitting the
difference, they estimated $15/mcf for delivering gas to
residential consumers. FEDCO arbitrarily determined that they
wanted to cut in half what the residential consumer was
currently paying for heat generated with fuel oil. He believed
with the governor's financing and support package that they
could get in the ballpark of achieving that target for the
community.
4:56:00 PM
SENATOR FRENCH asked if his numbers were consistent with those
of Antony Scott, UAF economist, who recently did a presentation
to the committee comparing several different methods of getting
gas to Southcentral.
MR. THERRIAULT said Mr. Szymoniak, his project economist, and
Mr. Scott had talked - and by the way, he encourages economists
to talk to economists not to collaborate on the model but to
scrutinize it - and his understanding was that things didn't
line up perfectly, but if you adjust for differences in some of
the assumptions, they get pretty close.
4:57:05 PM
Slide 5 was a written explanation of the project components:
Natural gas would be secured on the North Slope and liquefied in
the plant and put into trucks, trucked into the community where
it would be stored in cryogenic tanks, re-gassed and then
distributed, or for an industrial user they might have a
cryogenic tank on-site. Slide 6 depicted that infrastructure.
Slide 7 give an idea of the project team (AIDEA and AEA being
sister authorities both within the DCCED). It showed himself,
Kirk Warren, the technical engineer, Nick Szymoniak, the project
economist; and the AIDEA side had Mark Davis, Director of
Financing the operation and business structure and Jim
Strandberg, the Energy Development and Financing Officer. They
believe this is a collaborative structure with AEA leading the
policy development of the project, ensuring that the project
goals are defined and consistent with the public interest by
engaging the public, industry and elected officials.
AIDEA, wondering who might be out there wanting to take
advantage of the governor's proposed financing and support
package, who might want to bring either a turnkey proposal or
technical engineering expertise or financing expertise to the
mix, so that if they didn't select a turnkey proposal and wanted
to pull together a collaborative team, the people in the private
sector were actually interested in that, put out a request for
letters of interest. That solicitation got 16 responses, some
were turnkey and others turned in interest in financing,
engineering and project management.
5:00:08 PM
MR. THERRIAULT said a business consultant was already on the
board as part of the team and that AEA was trying to bring on
some engineering expertise and a project management consultant,
as well, but due to the procurement process that wouldn't happen
until sometime in February.
The governor's financing package totaled $325 million, plus the
storage credit allowance that was passed in legislation last
year. If you consider that the project could avail itself of two
storage credits (that legislation allowed for sharing of the $30
million credit), because storage is associated with the
liquefaction plant on the North Slope and with the re-gas
facility in the community, each storage tank could potentially
qualify for $15 million of state assistance. Then the
administration considers that the state was offering a total of
$355 million comprised of those components.
Slide 11 broke down the governor's package. It had a $50 million
appropriation to AIDEA to potentially take an ownership stake in
this infrastructure very similar to other operations.
Legislation was introduced requesting that AIDEA be authorized
to issue up to $50 million in bonds that would be used as a
source of funding for loans that would go out, the attempt being
to bring those loans in so that the capital that would be
available through them would be at or below 3 percent interest.
His budget had an additional capitalization of the SETS program
that was set up last year with an initial capitalization of $125
million and the governor wanted to add another $125 million to
that for this project. That adds up to the $325 million and the
$30 million for the storage credits. Page 12 showed the expected
timeline.
5:03:37 PM
MR. THERRIAULT said one of the things he wanted to leave them
with was that AEA had developed a core capability to run this
model with different numbers in case they want to run changes to
the governor's suggested plan. He concluded saying he was
available to answer questions.
5:05:39 PM
CHAIR GIESSEL thanked him and finding no further business to
come before the committee adjourned the Senate Resources
Committee meeting at 5:05 p.m.