Legislature(2019 - 2020)ADAMS ROOM 519
05/11/2019 09:00 AM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| HB139 | |
| HB87 | |
| SB74 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 139 | TELECONFERENCED | |
| + | SB 74 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 87 | TELECONFERENCED | |
HOUSE BILL NO. 87
"An Act extending the liquefied natural gas storage
facility tax credit; and providing for an effective
date."
10:04:21 AM
Co-Chair Wilson referenced the document she distributed
earlier in the member's packets titled "Interior Alaska
Natural Gas Utility Schedule of Sustainable Energy
Transmission and Supply (SETS) Loan Funds as of May 9,
2019" (copy on file). She emphasized that the SETS funds
were a loan fund. She questioned where the funding to move
the tanks from Fairbanks to the North Pole would come from
and if the project would only supply Fairbanks if funding
was insufficient.
DAN BRITTON, INTERIOR GAS UTILITY, FAIRBANKS (via
teleconference), reviewed the formerly cited document. He
pointed to the SETS fund totaling $125 million. He read the
following from the document:
Uses
Projects:
North Pole Distribution System $29,346,778
Fairbanks Distribution System $14,806,184
Fairbanks 5.25M Gallon Storage Facility
$37,026,281
North Pole Storage Facility $678,542
Pentex Acquisition $21,208,913
Total Proceeds Used $103,066,697
Remaining Loan Proceeds $21,933,303
Remaining Committed Project Uses
Fairbanks 5.25M Gallon Storage $18,147,587
Fairbanks and North Pole Customer Service
Connections $1,992,250
North Pole Storage Facility $993,466
Titan 2 & 3 FEED $800,000
Total Remaining Committed Project Uses
$21,933,303
Remaining Loan Proceeds $0
Mr. Britton indicated that the Interior Energy Project
(IEP) had the ability to issue Conduit Revenue Bonds
through Alaska Industrial Development and Export Authority
(AIDEA) that was backed by the moral obligation of the
state of up to $150 million. The project hired a financial
advisor and began the process of preparing the bond
package. The initial bond issuance would total $75 million
to cover the cost to construct the liquefaction plant and
Fairbanks Gas Storage Facility. The IEP secured a
commitment of $14 million in funding from a local bank and
requested access to a $7.5 million line of credit from the
Fairbanks North Star Borough who assessed whether to allow
the line of credit to proceed. He concluded that the short
term funds and the bond funding he described were the funds
IEP would employ to fund the projects.
10:09:23 AM
Co-Chair Wilson asked for verification that the project was
over $200 million in debt. Mr. Britton answered in the
negative. He clarified that the total indebtedness was the
$125 million in SETS funding. The bond issuance would
subsequently create a total indebtedness of $200 million.
The SETS loans had a 15-year deferral accruing no principal
payments or interest along with an additional 5 year
further deferral if the conversion process was slower than
anticipated. The $125 million was flexible debt put in
place by the legislature to remove some of the risk
associated with the conversion.
Representative Knopp asked about the construction timeframe
and total cost associated with the liquefaction plant. Mr.
Britton answered that the liquefaction expansion cost $50
million. He explained that construction was on a two-year
timeframe beginning in the fall of 2019 and an RFP was
issued for liquefaction and pretreatment equipment that was
part of the front end engineering and design process.
10:11:28 AM
Vice-Chair Johnston MOVED to ADOPT the proposed committee
substitute (CS) for HB 87, Work Draft 31-LS0619\U (Nauman,
5/9/19). There being NO OBJECTION, it was so ordered.
Co-Chair Wilson asked for her staff to review the changes
in the CS.
LYNN GATTIS, STAFF, REPRESENTATIVE TAMMIE WILSON, reviewed
the changes in the CS. She relayed that on page 1, line 7
the date was changed from January 30, 2021 to January 1,
2021 and on page 2, line 9 (a) $7.5 million was changed to
$5 million. She added that on page 2, lines 10 (b) through
11 were deleted.
Representative LeBon discussed that the North Pole facility
tanks were currently located in South Fairbanks and were
previously owned by Fairbanks Natural Gas. He asked whether
he was correct. Mr. Britton affirmed the statement. He
furthered that the North Pole facility would allow the
tanks to be moved to that location. The relocation required
the installation of vaporization equipment to vaporize
liquid natural gas (LNG). Representative LeBon ascertained
that the IEP had two parts: The Fairbanks component that
included the 5.25 million tank that was currently under
construction and the North Pole component that was not
connected to the Fairbanks market. He wondered whether his
statement was accurate. Mr. Britton responded in the
affirmative. He elaborated that the two systems were not
connected at present but would eventually be connected and
the same rates would be charged. They would be managed as
one service area but were currently independent. The only
way to provide gas service in North Pole was to add the
storage facility that would provide LNG to pipes that were
currently under nitrogen pressure. Representative LeBon
asked how large the North Pole piece was in comparison to
the Fairbanks component. Mr. Britton answered that the IEP
had installed 72 miles of the distribution system in North
Pole and Fairbanks had over 140 miles of the distribution
system with plans to expand the North Pole system. He
elucidated that the demand primarily came from the
Fairbanks area. North Pole would account for around 35
percent of the total demand versus the core area of
Fairbanks at 65 percent.
10:16:47 AM
Representative LeBon asked if the LNG supply lines were
almost completed. Mr. Britton answered that the Interior
Gas Utility (IGU) had completed most of the Phase 1 planned
distribution system and the next phases of expansion for
North Pole would come in future years when expansion
estimates were confirmed, and the demand increased.
Co-Chair Wilson asked why the two systems were separate.
Mr. Britton answered that until June 2018 the two systems
had been under separate ownership. They were currently
under common ownership through the purchase of Pentex by
IGU, which provided the opportunity to connect the two
systems. The original system was not designed for expansion
into the North Pole. Providing service to the North Pole
required proper pressure that necessitated the storage
facility in North Pole.
10:18:39 AM
Vice-Chair Ortiz asked whether HB 87 extended the tax
credit program for up to $15 million. He asked for
clarification.
Co-Chair Wilson replied in the negative. She detailed that
the project was extended for one year and the cost could
not exceed more than $5 million; any additional amount was
not covered under the tax credit program and the project
had to be completed to the point of commercialization to
qualify for the credit. She clarified that that the "old
program" that included the $15 million tax credit program
expired on the date as planned. The bill provided a one-
year extension and lowered the credit to $5 million. She
added that if the IGU could commercialize its storage
plants by December 31, 2019 they would still be eligible
for the $15 million tax credit, failing that they would
fall under the $5 million plan. Vice-Chair Ortiz
appreciated the clarification.
Co-Chair Wilson offered that the Fairbanks areas energy
costs were not equalized with of the cost of energy in
Anchorage, but she desired an eventual end of the tax
credit program. She learned that areas of the Mat-Su and
bush still heavily relied on diesel fuel.
Representative Carpenter wondered about the length of time
it would take to repay the tax credit. Co-Chair Wilson
answered that the project would not generate revenue to the
state. The project was a benefit to the Interior for paying
a high cost for energy for many years.
Vice-Chair Ortiz asked if the $5 million would be a part of
the bonding option. Co-Chair Wilson answered in the
negative and added that bonding would come first in order
to complete the Fairbanks project. The IEP had to be ready
for commercialization by the deadlines to be eligible for
the tax credit. She noted that there was a chance IEU would
not complete the program in time; therefore, the tax
credits would be void.
10:23:47 AM
Vice-Chair Johnston asked about the fiscal note.
Co-Chair Wilson answered that the bill reduced the maximum
amount of the credit to $5 million of the costs incurred to
establish or expand the facility if the facility commences
commercial operation on or after January 1, 2020 and before
January 1, 2021. She explained that the tax credit depended
on the timing of the projects completion and whether the
Department of Revenue (DOR) bond issuance for the tax
credits was sufficient to include the credits for IEP. The
project would have to wait in line behind other tax credits
or may never receive it, since it ultimately depended on
appropriation by the legislature.
10:25:04 AM
Vice-Chair Johnston MOVED to REPORT CSHB 87(FIN) out of
committee with individual recommendations and the
accompanying fiscal note.
CSHB 87(FIN) was REPORTED out of committee with four "do
pass" recommendations and six "no recommendation"
recommendations and with one new indeterminate fiscal note
from the Department of Revenue.
10:25:52 AM
AT EASE
10:27:25 AM
RECONVENED