Legislature(2013 - 2014)BARNES 124
03/05/2013 08:00 AM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB71 | |
| HB84 | |
| HB76 | |
| HB74 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 71 | TELECONFERENCED | |
| *+ | HB 84 | TELECONFERENCED | |
| *+ | HB 76 | TELECONFERENCED | |
| += | HB 74 | TELECONFERENCED | |
HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
9:53:28 AM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 74 "An Act relating to development project
financing by the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska Industrial
and Export Authority; authorizing the Alaska Industrial
Development and Export Authority to provide financing and issue
bonds for a liquefied natural gas production system and natural
gas distribution system; and providing for an effective date."
9:53:35 AM
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development
(DCCED), informed the committee that her PowerPoint presentation
will update the committee on the proposal to bring liquefied
natural gas (LNG) to the Fairbanks area. She said HB 74 would
develop a catalyst and financing package with the strength of
the Alaska Industrial Development and Export Authority (AIDEA)
to provide low-cost North Slope natural gas and propane to
Interior Alaska. This package provides an opportunity for the
project to happen, but passage of HB 74 does not necessarily
mean the project would move forward since numerous assumptions
have been made and lots of work is happening to determine
feasibility. This presentation will show the status of the
project development and where a significant difference can be
made with the financing package to provide lower cost heating
fuel to Interior residents. She reiterated the project provides
the catalyst and gives AIDEA additional tools, although she
noted HB 74 is primarily a financing package [slides 2-3]. She
described the LNG project as one that would help build out the
LNG to Interior Alaska by trucking gas to consumers while
assuring the private sector is used as much as possible. The
natural gas would be liquefied on the North Slope and trucked to
Interior Alaska and propane would be delivered to the Interior.
Although the initial phase would serve Fairbanks and the North
Pole area, gas would also be made available for other parts of
Interior Alaska. The LNG would be stored and degasified in the
Interior and the distribution system would be built out to
provide natural gas for heating. Additionally, the distribution
system would lay the foundation when a gas line comes to
Interior Alaska and the LNG customers could transition to have
their gas distributed from the pipeline [slide 4]. Ms. Fisher-
Goad pointed out the LNG trucking value chain [slide 5]. The
AEA and AIDEA have been working to develop the proposed LNG
project. In fact, AIDEA has worked with the proposers and sent
a letter of interest out to help develop the package and
initiate the due diligence.
9:57:36 AM
MS. FISHER-GOAD explained what's been happening with the cost of
heating fuel and what this project could do to make a
significant difference for many customers in Interior Alaska
[slide 6]. She explained the graph, noting fuel oil is roughly
$4 per gal and this project proposal has the wholesale LNG cost
at approximately $3.50 per thousand cubic feet (Mcf). This
figure was based on information from project proponents who
anticipate natural gas contracts will be available from the
North Slope to provide gas at that price. She explained that
the blue part of the graph is the liquefaction plant, the green
part of the bar charts is trucking, and the yellow portion is
the regas storage and distribution portion which brings natural
gas to the home. Thus, this graph demonstrates the cost savings
in using natural gas versus fuel oil, which could reduce costs,
which start at $4, by nearly 50 percent for Interior residents.
She referred to an earlier question by the committee, which was
to ask why an electricity future wouldn't be considered as an
alternative. She turned to slide 7, entitled, "Heating Energy
Supply Comparison," which shows that electricity costs would
need to be $.04 - $.06 per kilowatt per hour (kWh) in order to
be competitive. She said she appreciated the economist's
development of the slide since it demonstrates the heating costs
for electricity in Fairbanks is currently at $.22 per kWh. She
pointed out the significant difference between electricity and
fuel oil costs, which also demonstrates the reason AIDEA is
considering the LNG trucking proposal to Fairbanks.
10:00:11 AM
MS. FISHER-GOAD turned to plant use and expansion which begins
to discuss the startup costs in district [slide 8]. The initial
plant would be a 9 billion cubic feet (Bcf) plant that would
provide 4.5 Bcf for space heat, 2.0 Bcf for electricity, and 2.5
Bcf for industrial use. At start up, the eligible customers are
estimated at 7,800 LNG and 1,800 propane customers. As the
distribution system expands, the LNG plant would serve 15,900
LNG and 2,700 propane customers.
10:01:01 AM
MS. FISHER-GOAD discussed the capital cost breakdown [slide 9].
The estimated cost of the LNG plant is $220 million, with the
regas, storage, and redistribution for a total startup cost of
$425 million. She explained that the estimates are based on
project proponents who developed this project last year. This
concept is not a new concept, but is one that has developed in
the past few years to provide an affordable fuel source to the
Fairbanks area. She reiterated that these assumptions are being
vetted and the due diligence is starting with Mr. Leonard's team
on the technical discussion of the project.
10:02:09 AM
MS. FISHER-GOAD then turned to [slide 10] with regard to
household heating savings, which compares the current monthly
fuel oil costs in the Interior with the potential range of fuel
oils with the natural gas future. She highlighted that this
demonstrates AEA's mission to reduce the cost of energy for
Alaskans. The aforementioned coupled with the fact that AIDEA
is the development financing agency for the state results in a
very good marriage of sister agencies to develop a project to
help pursue gas for Interior Alaskans. There would also be
significant savings in heating costs if LNG can be trucked to
Fairbanks at this point. Furthermore, changing from oil heat to
LNG also provides a reduction in the uncertainty of the price
[slide 11]. She pointed out that there is a direct correlation
between crude oil prices and fuel oil prices. In 2008, Alaskans
using diesel fuel began to see a significant increase in heating
costs. Of course, Interior Alaska and rural Alaska are the
colder parts of the state. With the LNG future, the swing
between low and high prices is reduced. However, as crude
prices fluctuate, a significant difference exists.
Additionally, use of natural gas can reduce overall emissions,
which has been a significant concern in Interior Alaska [slide
12]. Thus natural gas could help increase public health
benefits substantially.
10:04:55 AM
MS. FISHER-GOAD moved on to the long-term use of LNG [slide 13].
She recalled concern was raised in terms of what would happen to
the infrastructure as a pipeline is developed. However, all the
existing entities can be served by the pipeline, including the
existing space heating and electrical generation, she said. The
pipeline would replace the trucking system; however, the
liquefaction plant is moveable and could continue to serve areas
in which a pipeline would not serve. Thus AEA and AIDEA believe
a real significant industrial development can be done post
pipeline. Additionally, this can assist with further expansion
of rural Alaska river system and highway system in order to
continue to supply LNG and propane to other areas of the state.
10:06:28 AM
CHAIR OLSON asked for the project's timeframe.
MS. FISHER-GOAD projected that if everything pencils out and
AIDEA is able to develop the financing package that it would
like, first gas would flow into the system in the last quarter
of 2015 [slide 14].
10:07:06 AM
TED LEONARD, Executive Director, Alaska Industrial Development
and Export Authority (AIDEA), Department of Commerce, Community
& Economic Development (DCCED), stated that HB 74 would provide
authorization for AIDEA to participate in the financing through
two separate streams of funding. One stream would be AIDEA's
direct financing of $275 million to the project through AIDEA's
issuance of $150 million in bonds. The rate on the direct
financing would be the bond rate plus 25 basis points that AIDEA
will have for managing the project. The second revenue stream
would be direct financing of $125 million at 3 percent, which is
set in statute [from the Sustainable Energy Transmission and
Supply Fund established last year] [slide 14-15]. Additionally,
the Governor's proposed FY 14 capital budget proposes another
$50 million in general fund dollars for the purpose of reducing
direct costs to consumers in Interior Alaska. This would be an
equity investment by the state using some type of public-private
partnership (P3) agreement.
10:08:24 AM
MR. LEONARD explained the funding sources for the initial
distribution system build out totals $355 million.
Additionally, based on existing statutes, credits can be used in
distribution and production phases. More specifically, the
credits are available for providing LNG storage. He anticipated
LNG storage on the North Slope and in Fairbanks for
regasification.
10:09:22 AM
MR. LEONARD highlighted the potential financing tools potential
finance options for initial build out [slide 16]. The financing
AIDEA is requesting for the initial distribution system build
out would consist of $425 million with communities and utilities
providing full financing for the expansion of a 9 Bcf to a 13.5
Bcf plant. He described the funding, which includes a direct
loan for the production facility for $125 million, with the
general fund appropriation providing the investment for the
equity portion for the state, with funding including the storage
credit. In order for the project to work, private investment
must occur, estimated at approximately $70 million of the $425
million.
10:10:43 AM
MR. LEONARD explained the different costs to bring gas to
Fairbanks, excluding the distribution system [slide 17]. He
detailed the interest at $.25 for the $10.28 per Mcf. The
principal on the loan would be $.46 per Mcf; and the return on
equity would be $.21 per Mcf. He pointed out that the majority
of the cost to bring gas to Fairbanks is in the trucking, the
natural gas contract, and a small amount of actual operations
[as depicted on the colored bar graph on the right of the
slide.]
10:11:34 AM
MR. LEONARD related the project timeline and milestones [slide
18]. He explained that the feasibility stage is currently
happening, from February to August 2013. The plant and storage
is anticipated to start in June 2013, with gas delivery
anticipated in the last quarter of 2015. The build out of the
distribution system would happen in 2014-15. He reported that
AIDEA and AEA have had a team in Fairbanks meeting with
proponents - the project sponsors. Last week three days of
meetings were held. AIDEA has two engineering firms on board to
begin analyzing the two turnkey proposals from project sponsors,
including HDR, Inc. and MEI, LLC. He advised that MEI is an
expert on building liquefaction plants and to date the company
has built approximately 300 plants around the world.
Additionally, AIDEA also has financial advisors who have begun
to review the financial feasibility of the plant, which will
continue through June 2013. He reiterated the goal to have
first gas delivered during the last quarter 2015.
10:13:15 AM
REPRESENTATIVE REINBOLD recalled Fairbanks households would
convert to gas. She asked for an estimate of the time frame and
the approximate cost per household for conversion.
MS. FISHER-GOAD estimated that the costs would range from $300
to $500 per household. However, due to the significant annual
savings AIDEA believes some incentives exist for conventional
financing to help handle the necessary conversion costs. Since
AIDEA is currently working through the due diligence, she did
not anticipate Fairbanksans to do so until due diligence is
completed and when the project and cost-savings figures are
proven up.
10:14:58 AM
REPRESENTATIVE REINBOLD asked for clarification on the private
investment of $70 million as part of the potential finance
options.
MR. LEONARD answered that money would come from the project
sponsors, which is likely going to be one of the utilities.
Additionally, on for storage side the investment would come from
the various utilities investing in the distribution system,
including Fairbanks Natural gas, and the new utility, Interior
Gas Utility. He pointed out that this type of project is one in
which AIDEA is currently involved; as AIDEA invests its money,
the project sponsor is also expected to invest, which creates a
combination of funds to perform the build out and the project
construction.
10:16:19 AM
REPRESENTATIVE REINBOLD, referring to the moveable facility,
asked where the facility would move and the cost to move it.
CHAIR OLSON also asked whether the LNG facility would be skid
mounted or if it would be dismantled and rebuilt.
MR. LEONARD answered that he doesn't have the cost to move the
facility; however, it is a modular facility. It is built in
parts and constructed so it would be moved in the same way.
One possibility would be to move it to Fairbanks next to the
proposed pipeline and "it would be a customer to utilize... gas
coming off the pipe to make LNG," which would be trucked to
mining operations, for example. He noted the Ambler mine is
scheduled to come on line in 2019 and other mines have indicated
a preference for LNG, if possible. Further, the LNG would be
trucked down the Richardson Highway; however, he does not
currently have the cost for that trucking. He related this
would be part of the due diligence undertaken by the agency. He
offered his belief that the cost of moving the plant would not
be a significant cost for the plant.
10:18:08 AM
REPRESENTATIVE CHENAULT said he noticed one slide did not
include trucking capital. He asked whether any estimate
existed. He anticipated it would be reasonable but wondered why
the trucking estimates were not included.
MS. FISHER-GOAD answered that trucking is obviously a part of
cost to get to Fairbanks. The financing that will be made
available by AIDEA and the potential $50 million would not be
used in the development of the trucking cost. She related her
understanding from discussions with the utility proponents
mentioned earlier that the trucking portion would be contracted
with a company to provide this service. She agreed the cost
exists, but the financing package would not be used to finance
the trucking cost.
10:19:47 AM
REPRESENTATIVE CHENAULT commented that although he understands
the need for the project and supports the project, he has some
questions. He asked whether AIDEA is considering any financing
distribution for other communities.
MR. LEONARD answered yes; that under the SETS program AIDEA has
been contacted by small community outside of Anchorage for an
air gas propane system and distribution system for it. He
related that AIDEA is beginning to receive requests through the
SETS program.
10:21:12 AM
REPRESENTATIVE CHENAULT related that the state funded a gas
pipeline to Homer, which will be repaid, in part, through an
assessed fee on rates. However, Homer has assessed its
[property owners] in the amount of about $3,900 per parcel in
order to get a gas distribution system. He was curious as to
whether other communities have contacted AIDEA as he anticipated
other communities will expect to have distribution systems and
ask for funding. Therefore, he expressed hope the state is
ready and willing to assist other communities in that endeavor.
Representative Chenault then said he hoped to move the bill
forward once questions are answered.
10:23:08 AM
REPRESENTATIVE JOSEPHSON remarked this seemed inexpensive
considering the alternatives. He recalled one slide would serve
15,000 customers; however 100,000 reside in the Fairbanks North
Star Borough. He asked how this would serve the additional
85,000 people.
MR. LEONARD answered that instead of people the number of
customers is estimated. He said a full build out is estimated
to serve 19,000 customers, although currently there are 22,000
to 25,000 total units.
10:24:14 AM
REPRESENTATIVE JOSEPHSON asked about $105 million for
distribution system and asked whether that refers to trucking
not retrofitting homes.
MR. LEONARD answered that the $105 million distribution is to
get the pipeline to the neighborhoods and the mains to the
neighborhoods. After the mains are completed, a hookup from
Fairbanks Natural Gas or IGU - which is estimated from the main
to the house at $300 to $500 per household - would need to
happen.
[HB 74 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB71 Supporting Documents-Assorted Letters of Support 3-1-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 71 |
| HB84 ver A.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 84 |
| HB84 Sponsor Statement.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 84 |
| HB84 Sectional Analysis.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 84 |
| HB84 Supporting Documents-Letter Ed Kringer DOD 2-11-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 84 |
| HB84 Supporting Documents-Testimony-Mark San Souci Regional Liaison NW DOD 02182013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 84 |
| HB76 ver A.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Transmittal Letter 1-17-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Sectional Analysis 1-21-2012.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Fiscal Note-DOLWD-CO-1-17-13.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Fiscal Note-DOLWD-UI-1-17-13.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Supporting Documents-DOLWD Q&A 1-28-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Supporting Document-UI STEP TVEP flow chart 1-29-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Supporting Documents-UI Trust Fund Balances 2-14-2013 pdf.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Supporting Documents-Letter NFIB 1-18-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Supporting Documents-Treasury Offset Program 2-14-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Supporting Documents-Historical UI Rates 1-21-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Opposing Documents-Letter AK AFL-CIO 2-20-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB76 Opposing Documents-Letter AK District Council of Laborers 2-25-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB74 Supporting Documents-AIDEA-AEA Policy Presentation 3-4-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB74 Supporting Documents-Op Ed Newsminer - Fairbanks Chamber 2-16-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB74 Supporting Documents-AIDEA Project Analysis Process 2-26-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB74 Supporting Documents-Committee Questions & Answers 2-26-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB74 Supporting Documents-Interior Energy Plan.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB74 Supporting Documents-Letter-GFCC 2-15-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB74 Supporting Documents-North Pole Resolution(1) 2-4-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB74 Supporting Documents-North Pole Resolution(2) 2-4-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |
| HB71 Draft Proposed CS ver U.PDF |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 71 |
| HB76 Opposing Documents-Letter Teamsters Local 959 3-4-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 76 |
| HB74 Supporting Documents-Letter Teamsters Local 959 3-4-2013.pdf |
HL&C 3/4/2013 3:15:00 PM HL&C 3/5/2013 8:00:00 AM |
HB 74 |