Legislature(2019 - 2020)ADAMS ROOM 519
04/01/2019 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB87 | |
| HB106 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 106 | TELECONFERENCED | |
| + | HB 87 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 87
"An Act extending the liquefied natural gas storage
facility tax credit; and providing for an effective
date."
1:30:39 PM
REPRESENTATIVE STEVE THOMPSON, BILL SPONSOR, introduced
himself and thanked the committee for hearing his bill. He
read a prepared statement:
This bill came about through conversations with
stakeholders in the Interior about our progress on
efforts to mitigate high energy costs and improve our
air quality. A key theme in these conversations has
been the importance of ensuring that we're doing
everything we can to stay on track with the Interior
Energy Project. In 2015, the Legislature passed HB 105
to renew and advance the Interior Energy Project, a
project designed to bring low cost energy to as many
residents and businesses of Interior Alaska as quickly
as possible. It has resulted in the creation of the
Interior Gas Utility a not-for-profit public utility
serving the Interior.
In 2012, the Legislature passed legislation to
incentivize the development of liquid natural gas
storage, a key component in achieving the economy of
scale that will enable widespread use of natural gas
in Fairbanks and North Pole. This legislation provided
credits for the construction of above ground LNG
storage facilities with a capacity of 25,000 gallons
or more. There are currently two projects underway,
one in Fairbanks and one in North Pole, that will
benefit from these credits.
HB 87 will extend the sunset date of the original
legislation by 18 months in order to ensure that the
projects underway will be able to capitalize on the
existing credits. This is a bill that can help to
lower energy costs and improve air quality in an area
of the State that desperately needs to do both.
Representative Thompson relayed that the general manager of
the Interior Gas Utility, Dan Britton, would be giving a
slide presentation. He noted there were several people
online who wanted to testify to the bill.
1:33:38 PM
DAN BRITTON, GENERAL MANAGER, INTERIOR GAS UTILITY,
introduced himself and the PowerPoint Presentation:
"Fueling the Future." He thanked the committee for the
opportunity to speak to them about important storage tax
credits for the community of Fairbanks. He began with slide
2: "Interior Energy Project Purpose and Goals: Interior
Alaska." He relayed that the purpose of the Interior Energy
Project was to bring low-cost energy to as many residents
and businesses of Interior Alaska as possible in a timely
fashion. Other goals of the project were to stabilize the
economy and to help improve air quality.
Mr. Britton discussed slide 3: "History":
• Fairbanks Natural Gas, LLC(FNG) began operating in
Fairbanks in Spring of 1998 giving Interior residents
a natural gas heating option. Over 1100 residential
and commercial customers are currently able to enjoy
the benefits of natural gas.
• In November 2012, the Fairbanks North Star
Borough(FNSB) acquired its natural gas utility power
via transfers from the City of Fairbanks and the City
of North Pole and established the Interior Alaska
Natural Gas Utility(IGU).
• May 2018, the IGU consolidated with FNG and now
operates as an integrated, not-for-profit public
utility.
Mr. Britton continued to slide 4: "Energy Costs and Air
Quality." He indicated that some of the reasons the project
was so important to the community were listed on the slide.
He read the slide contents:
• According to the Council for Community and Economic
Research, the FNSB typically has the highest utility
costs in the nation for the 300-plus urban areas
regularly surveyed.
• In September 2006, the EPA lowered the National
Ambient Air Quality Standards for fine particulate
matter less than 2.5 micrometer in diameter (PM 2.5) a
human health hazard.
• In 2009, the EPA designated the more populated
portions of the FNSB as a non-attainment area relating
to PM2.5. The eastern portion of the non-attainment
area (North Pole) has the worst air pollution in the
nation, three and a half times the legal limit and
almost two times worse than the next worse area in the
U.S.
• The FNSB's long-term efforts for clean air are focused
on bringing clean, affordable natural gas to the
Fairbanks area for space heating.
Mr. Britton moved to the chart on slide 5: "Heating Cost
Comparison: U.S. Natural Gas vs. Anchorage Natural Gas vs.
Fairbanks Heating Fuel Equivalent." He explained that the
slide showed a comparison of the price of heating fuel in
Fairbanks to the price of natural gas in Anchorage and in
the United States. He pointed out that the cost of heating
in Fairbanks was higher than most places in Alaska with
natural gas service.
Mr. Britton reviewed the chart on slide 6: "Heating Cost
Comparison: Fairbanks Heating Fuel vs. Fairbanks Natural
Gas Equivalent." He noted the slide showed the historical
heating costs in Fairbanks to heating oil. He indicated the
green line represented stably priced energy. The blue line
represented the cost of heating oil. For the most part, the
price of natural gas was less costly than heating oil, but
at times of low oil costs, heating oil could be slightly
less.
Mr. Britton continued to slide 7: "Fairbanks Large LNG
Storage Tank." There were 2 projects he would discuss with
the committee. The first project was the Fairbanks large
liquified natural gas (LNG) storage tank. The tank had a
capacity of 5.25 million gallons and was a
full-containment, double-wall design - the safest
available. He noted that construction started in January
2018 and was advancing on schedule. The estimated
completion date was Fall 2019, and the total construction
cost of the project was $58.4 million. The tank had been
termed, "The heart of the interior project." The tank
allowed for new customers and would begin to alleviate poor
air quality.
Mr. Britton turned to the picture on slide 8: "9th (Last)
Row Welding." The picture showed the inside of the LNG
tank. He pointed out the suspended deck and the aluminum
ceiling. He reported that the steel inside tank was made of
9 percent nickel. Liquified natural gas was stored at -260
degrees Fahrenheit. The specialty alloys could handle the
cold temperatures.
Mr. Britton discussed the picture of the outer tank stairs
on slide 9. He reported that the tank was almost complete,
and stairs were being added to the tank. The piping and
venting were also being worked on currently. Good progress
was being made on the facility.
1:38:51 PM
Mr. Britton advanced to slide 10: "North Pole Storage." He
reported that in addition to the Fairbanks storage
facility, there was a storage facility under design for
North Pole. Distribution systems had been installed in
Fairbanks and North Pole. The North Pole storage facility
was designed to serve the previously installed distribution
system. He read the slide:
• Design of the $12.1 Million LNG storage facility in
North Pole is complete and a Request for Proposals was
issued February 14, 2019. Proposals are due March 21,
2019.
• The targeted completion of construction is November
15, 2019 with operational startup and commissioning by
December 31, 2019.
• The storage facility will have two 75,000 Gallon
storage tanks and a multi-purpose building and will be
connected to the previously constructed 73 miles of
pipe infrastructure in the North Pole area.
Mr. Britton expounded that the two tanks that were part of
the facility would be relocated from the existing storage
facility, currently providing service in Fairbanks, once
the new 5.25 million gallon tank came online.
Mr. Britton continued to the North Pole Storage site plan
on slide 11. He pointed to the two 75,000 tanks. There was
an area where the trucks could offload. He noted the
vaporization equipment that would bring the gas from -260
degrees Fahrenheit to 50 degrees Fahrenheit to be injected
into the distribution pipe. The facility was located across
from what was historically the Flint Hills Refinery and
from one of Golden Valley Electric's power plants. Golden
Valley Electric would be a potential consumer of natural
gas in the future.
Mr. Britton reviewed the benefits of storage on slide 12.
He read from the slide:
• The development of expanded LNG storage facilities in
the Fairbanks and North Pole areas is a critical
component of the IEP as they will increase the
security of supply and provide capacity to serve a
greater number of new customers.
• These storage facilities, with current liquefaction
infrastructure, enable IGU the ability to serve
approximately 3000 new residential customers beginning
the summer 2020.
• The state's LNG storage tax credits are vital in
helping to bring down the cost of providing natural
gas to Interior residents.
• All money from tax credits for tanked storage will be
under the oversight of the Regulatory Commission of
Alaska, the IGU Board and the FNSB Assembly to ensure
these savings are passed along to the rate payers.
Mr. Britton reviewed the estimated impact on rates on
slide 13. The Fairbanks facility would qualify for the
maximum available credit of $15 million. The alternative
was 50 percent of the total capital costs. The North Pole
facility, with a $12 million capital investment, would
qualify for an approximate $6 million credit. The total
credits for the two facilities would equal $21 million. The
range of the rate benefit to consumers based on the current
demand was almost $2 per 1,000 cubic feet. Under the best
case demand, the amount was about $0.72 per 1,000 cubic
feet. As demand grew, the cost would be spread over more
volume. If the Interior Gas Utility was unsuccessful with
storage tax credits, it would need to incur approximately
$21 million in additional debt directly impacting customer
costs.
Mr. Britton advanced to the map of installed piping in
Fairbanks on slide 14 which included approximately 140
miles of distribution pipe network. A significant portion
of Fairbanks had access to Natural Gas. On the South side
of the map there was a small red square showing the
location of the storage facilities from which the gas would
be sent out into the distribution system.
1:43:28 PM
Mr. Britton turned to slide 15 showing the map of the 72-
mile installed piping network in North Pole. It was South
of Hurst Road in one of the higher areas of non-attainment
for poor air quality. He offered that expanding gas into
the area was extremely important.
Co-Chair Wilson commented that she did not have a conflict
of interest because the pipe did not run to her house.
Vice-Chair Ortiz clarified that without granting credits to
North Pole and Fairbanks the borough would take on an
additional $21 million in debt. He asked if he was correct.
Mr. Britton replied that it would be the rate payers of the
Interior Gas Utility who would take on the debt. The
borough would not take on the debt, rather it would be the
utility.
Vice-Chair Ortiz suggested that if the state were to take
up the credits, it would be obligated in the initial $21
million. He wondered if he was accurate.
Mr. Britton responded in the affirmative. The state would
pay the tax credits.
Representative LeBon informed the committee that the pipe
ran in front of his home in House District 1. He noted that
his district contained the heaviest concentration of piping
extending to residential and commercial properties. He
noted that the community of Fairbanks had been waiting
about 50 years for the project to come online. Although
service was already available to 1,100 Fairbanks customers
since 1998, the concentration for the home owner was
significantly greater than under Fairbanks Natural Gas. He
was excited about the project and asked committee members
to support the extension of the timeline for the credits.
They were critical to the energy needs of Fairbanks and to
breathing clean air which provided multiple benefits.
Representative Josephson commented on the slide reflecting
3,000 customers. He was trying to determine if more storage
facilities would be needed with a population of about
90,000 in the Fairbanks area.
Mr. Britton responded that the facilities under development
represented the first step for the Interior Energy Project.
The storage facilities allowed the utility to add new
customers. The next step would be additional liquefaction
capacity. The utility was currently designing to expand
liquefaction from 50,000 gallons per day to 100,000 gallons
per day with an additional 100,000 gallons per day. The
board of directors approved the utility moving forward with
the front end engineering and design work for the project.
The Storage facility allowed the utility to use its
existing production assets running them 365 days per year.
The utility would fill the storage in the summer and draw
it down during the winter to meet peak needs of the first
group of 3,000 new customers. The additional liquefaction
capacity allowed the utility to go beyond 3,000 customers
and to begin adding the following several thousand. The
storage facilities were meant to satisfy the Interior
Energy Project's storage needs well into the future.
1:47:55 PM
Co-Chair Wilson directed Ms. Glover from the Department of
Revenue to review the fiscal note.
COLLEEN GLOVER, DIRECTOR, TAX DIVISION, DEPARTMENT OF
REVENUE, indicated she had visited the storage tank in
Fairbanks and was very impressed by it. The fiscal note had
a zero fiscal impact to the Tax Division. It was an
extension of an existing credit that was already programed
into the division's system. The fiscal note was
indeterminate because of the division not wanting to
forecast tax payer confidential information. The taxpayer
had provided new information required for the credit. Also,
she relayed that if the credit was extended, it could open
up to new entities that the state was not aware of. She
reported that no one had received the credits to-date. The
period of the extension was 18 months and would only apply
to LNG storage facilities with a certain capacity. There
were provisions in current statute that if the facilities
were to cease operation within a certain amount of time,
after 9 years they would have to pay back a portion of the
credits. These provisions did not change with the bill. The
bill had an immediate effective date.
Co-Chair Wilson asked if the credit was a cashable credit
or one that could be taken off of their tax liability.
Ms. Glover responded that the credit could be handled
either way. The tax credit could be paid with cash from the
Oil and Gas Tax Credit Fund or it could be taken as a
credit against a facility's state corporate income tax.
1:50:05 PM
Co-Chair Wilson OPENED Public Testimony.
BRYCE WARD, MAYOR, FAIRBANKS NORTH STAR BOROUGH, FAIRBANKS
(via teleconference), spoke in support of the bill. He
indicated that the Fairbanks North Star Borough (FNSB) had
approximately 100,000 residents with about 25,000 homes.
The additional 3,000 new customers, made possible with the
expansion of the storage tanks, was 3,000 of the 25,000
homes. The project was also a key component in addressing
the air quality issues in the Interior by allowing a
cleaner source of energy to be used for wood, solid fuel
burning heating mechanisms, and for oil fired heating
devices within a home. Natural gas was a much cleaner
source of fuel than fuel oil or some of the other solid
burning appliances currently being used. Currently, the
majority of the FNSB was in a non-attainment area. It was
critical for the borough to address the current air quality
problem.
1:52:07 PM
MICHAEL MEEKS, CHIEF OF STAFF, FAIRBANKS NORTH STAR
BOROUGH, FAIRBANKS (via teleconference), spoke in favor of
the bill. He had been an original board member for the
Interior Gas Utility. As chairman and vice chairman of the
board, he attested that the Interior needed the gas tax
extension for LNG storage facilities. The last financial
model he had seen incorporated the tax credits into IGU's
calculation for the estimated cost at the meter for the
customer. He suggested that without the extension, the
price of the meter would increase for the customer, and the
number of customers that would convert from fuel oil to
natural gas would decrease. The loss of the tax credits
would mean that IGU would have to make up the money somehow
- most likely through bonds incurring more debt. The loss
of the tax credits would incur an additional $21 million in
debt and would add an additional $1.93/MCF to the customer
using the current demand forecast models. The cost at the
meter had to be low enough to attract customers. The
project was already challenged with customer density issues
and costs. He did not want to make things harder by loosing
the credits. The increased costs would do nothing to help
the air quality issues and energy security concerns in
Fairbanks. He asked members to support the legislation.
1:53:23 PM
JOHN COOK, J AND J DEVELOPMENT, FAIRBANKS (via
teleconference), spoke in support of HB 87. His company
owned and had developed much of the retail land in the
Bentley Trust area since about 2006 or 2007. He explained
that most of the box stores that came in built off of the
same footprint nationwide. They used gas-fired heaters and
air conditioners to heat their stores and were not able to
heat with other sources. His company had not been able to
add uninterruptable supply. For several years it had
hampered his company from developing its property and
providing jobs and economic development to Fairbanks.
Previous legislatures and administrations had been
supportive of the legislation to-date. He urged members to
support the bill.
1:55:42 PM
JOMO STEWART, FAIRBANKS ECONOMIC DEVELOPMENT CORPORATION,
FAIRBANKS (via teleconference), spoke in support of the
bill and the project. He indicated that the tax credit
extension would help with the last portion of state
investment. He hoped the state would follow through. The
LNG storage project was a follow on to the Cook Inlet
Recovery Act of 2010. The bill represented a similar state
investment in above-ground natural gas storage for a
community in the heart of Alaska that could use the cost of
energy assistance as well as help with air quality issues.
He hoped the committee would support and help the
legislation move forward.
1:57:05 PM
Co-Chair Wilson CLOSED public testimony.
Co-Chair Wilson indicated the bill would be set aside.
HB 87 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB87 Sponsor Statement 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-FEDC Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-FNSB Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-City of Fairbanks Resolution 4869 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-GFCC Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB87 Supporting Document-IGU Letter of Support 3.25.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| H-FIN_HB87 Presentation_3.28.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 87 |
| HB106 ver A Sponsor Statement 3.26 (1).pdf |
HFIN 4/1/2019 1:30:00 PM SFIN 5/6/2019 9:00:00 AM |
HB 106 |
| HB106 ver A Back up info 3.26.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 106 |
| HB106 Fiscal Note 3.31.19.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 106 |
| HB 106 Unalaska FIA School Debt Reimbursement 4-1-2019.pdf |
HFIN 4/1/2019 1:30:00 PM |
HB 106 |