Legislature(2015 - 2016)HOUSE FINANCE 519
03/22/2016 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB74 | |
| Preliminary Spring 2016 Revenue Forecast, Department of Revenue | |
| HB143 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 74 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | HB 143 | TELECONFERENCED | |
HOUSE BILL NO. 143
"An Act authorizing the Alaska Industrial Development
and Export Authority to issue bonds to finance the
infrastructure and construction costs of the
Sweetheart Lake hydroelectric project; and relating to
legislative approval for a loan from the power project
fund to the Lynn Canal Transmission Corporation."
Co-Chair Neuman MOVED to ADOPT the proposed committee
substitute for HB 143, Work Draft (29-LS0599\S).
There being NO OBJECTION, it was so ordered.
JANE PIERSON, STAFF, REPRESENTATIVE STEVE THOMPSON,
explained the changes between the S version and the H
version. The first change was the title. The title was
shortened to address what was currently in the bill. The
loan from the Power Project Fund to the Lynn Canal
Transportation Corporation had been removed and was no
longer addressed in the bill or in the title. Section 1 had
been amended to remove financing through AS.44.88.172.
Under version S financing would be what was known as
conduit funding paid through the revenue derived from the
project. The revenue bonds and interest due would not
constitute a general obligation to the state or the
authority. Bonds would not be applied against the
authority's 12 month bonding limitation in AS.44.88.095A.
As previously stated Section 2 of the bill was removed. It
would have been a loan for the Lynn Canal Transmission
Corporation. The repealer date was changed in Section 2
from June 30, 2019 to June 30, 2020.
Co-Chair Neuman assumed that the legislation allowed Alaska
Industrial Development and Export Authority (AIDEA) to work
as a conduit to help the project move forward but did not
obligate AIDEA to the financial packet.
Ms. Pierson replied that he was correct.
Representative Gara asked why the reference to the Lynn
Canal Transportation Corporation was removed.
Ms. Pierson answered that it was in working with the bill
sponsor. It was a fund that would have had to be
recapitalized for $22 million. In the state's fiscal times
it was not looking to recapitalize or to cap out its
bonding.
Representative Gara noted that he would have questions for
AIDEA.
REPRESENTATIVE CATHY MUNOZ, SPONSOR, explained that the
committee substitute for HB 143 would allow financing for
the construction of a hydroelectric facility dam located 43
miles South of Juneau. The proposed project would generate
19.8 megawatts of power and would allow the Kensington Mine
to come off of diesel generation and move to hydroelectric
power. The project would increase hydro capacity by about
20 percent and would result in many jobs for the community.
The initial application to Federal Energy Regulatory
Commission (FERC) occurred in 2009. The final FERC permit,
the final environmental impact study (EIS), and the final
404 permit were expected in the summer of 2016.
4:47:22 PM
Representative Pruitt asked if there was a power sales
agreement between Kensington Mine and the developer of the
Sweetheart Lake Project.
Representative Munoz deferred the question to the chief
executive officer of the Kensington Mine.
Representative Gara asked what percentage of power
generated from the project would go to the Kensington Mine.
Representative Munoz deferred the question to experts
available to speak to the bill.
Co-Chair Thompson asked the other testifiers to come
forward to address the committee.
KEITH COMSTOCK, CEO, JUNEAU HYDROPOWER INC., indicated that
there was a slide presentation in the member packets
titled: "Juneau Hydropower and Lynn Canal Transmission"
(copy on file). He began by providing a brief history of
the project. It was a project identified by the federal
government in 1906 as having significant hydropower
capacity. In 1929 it was identified as a federal power site
classification and removed from other uses. There had been
multiple attempts to look at the project. For a number of
reasons such as access to a market, the timing, or other
issues have prevented the project from moving forward. In
the mid to late 80s the state had come closest to building
the project. In December of 2009 Juneau Hydropower filed
for a FERC preliminary permit. At that time the company
began studying and investing money to do all the various
environmental studies, the hydrological studies, and
fortunately for the company the project had been studied
repeatedly and had 40 years of water data. The 40 to 50
year old water data was saying the same as the new water
data. He continued that from 2009 to 2014 the company
conducted environmental, hydrological, and preconstruction
studies. It had worked on all of the various regulations
and defining the customer base. In May 2014 the company
submitted its final FERC license application that FERC
accepted. Once the application was accepted the timeline
began for the EIS. The final comment period was a few
months prior. The company was expecting its final license,
the 404 permit, and the notice to proceed on or around the
July timeframe. Also in February the company announced the
existence of the Juneau District Heating, a major customer
for Juneau Hydropower Inc. The company received unanimous
letters of support from the City and Borough of Juneau
assembly. He was before the committee asking for support in
order to find some bond financing.
4:51:18 PM
Representative Kawasaki asked Mr. Comstock to tell him
about the company's attempt to make private financing
available or whether private financing has been available.
Mr. Comstock answered that the project had been 100 percent
privately financed, very unusual for a hydro power in
Alaska. He had not received any or applied for any grants
or assistance from any state or federal agencies. Every
dollar to-date had been private money. He was bringing his
own private equity to the project. In addition, should
AIDEA invest in the company, the company would still be
required to put up a significant amount of private equity.
Representative Kawasaki asked how much equity Juneau
Hydropower had in the project to-date. He wondered if the
amount of the bond, $120 million, was enough to complete
the project.
Mr. Comstock replied that the entity had invested
approximately $4 million private dollars in the project at
present. The company anticipated that between Juneau
Hydropower Inc., the Juneau District Heating, and the Lynn
Canal Transmission Corporation, the project totaled
approximately $175 million. He was expecting to put in
about $40 million to $50 million in private equity.
Representative Gara spoke to the Juneau District Heating
component that would convert energy from the canal into
heat. He asked if the component was contingent on the
Sweetheart Lake project.
Mr. Comstock answered that the items were related. He
provided a brief explanation of Juneau District Heating
project. The Ted Stevens Marine Research Center in Auke Bay
had a first generation seawater heat pump system. It
resulted in a savings of 120 gallons of fuel annually by
switching to seawater heat pump heating. The heating only
supplied a building. The same concept was in use - a
generation 2 heating system - at the Alaska Sea Life Center
in Seward. The Juneau District Heating system would be a
third generation heating system, a high heat system, which
would allow a building like Alaska's State Capital building
to cheaply and easily convert from an oil-based system to a
seawater heat pump based system or a hot water based system
without a costly retro fit only having to change certain
equipment. The other two systems were low-heat systems that
required new construction. The company was copying a system
that was first brought online in Drammen, Norway, in 2011.
The payback on their total investment was under 3 years.
Seawater heat pumps were an old technology. However, modern
refrigerants and the ability to boil refrigerants to very
high temperatures have made it viable as a capacity to heat
a city.
4:55:33 PM
Representative Gara asked how the seawater portion was
related to the Sweetheart Lake Hydro Project.
Mr. Comstock answered that in order to run the heat pumps
it required a significant amount of electricity. He
suggested that for every unit of electricity that was put
in, 3 units of heat energy resulted. It was an incredible
efficiency of 300 percent. This efficiency was the reason
the numbers worked to pay for the more expensive costs such
as digging up and laying down pipes. If a person were to
burn oil it was 85 or 90 percent efficient and natural gas
was 95 percent efficient. This project would provide a 300
percent efficiency rate. It required a lot of energy which
the Sweetheart Lake project would be able to provide.
Representative Gara asked for comfort that the project
would not damage fisheries.
Mr. Comstock replied that he was a life member of Trout
Unlimited and had been involved in cold water fisheries
issues most of his adult life. He spoke to the Sweetheart
Lake fishery claiming it was a no-deposit and no-return
salmon fishery. In other words, the Sockeye Salmon that
were stocked by Douglas Island Pink and Chum, Inc. (DIPAC)
the local hatchery were stocked and could get out. However,
they could not get back to span again. Therefore, they had
to be artificially replenished every year. His organization
worked closely with DIPAC who supported the project. His
organization believed it would enhance the fishery versus
causing any distraction at all from the fishery. They have
had good support from the sportsmen and the fishing
community.
Representative Gara wondered if there were any wild fish
runs that would be impacted in the area.
Mr. Comstock reported that there were no significant wild
runs in the lake because the lake was high in elevation
which meant it was a relatively low biomass, low producing
lake. There were some native Dolly Varden trout that would
not be impacted. There was a small population of Rainbow
trout first stocked in the 50s. The company had worked very
closely with the Department of Fish and Game (DFG) and the
Department of Natural Resources (DNR) on the issues and
they had been very supportive.
4:58:38 PM
Co-Chair Neuman asked if the group anticipated asking AIDEA
for future investments into the project. Mr. Comstock asked
if he meant beyond the request currently before the
committee.
Co-Chair Neuman understood that AIDEA's role in the project
was to provide some conduit bonds so that the company would
provide for its own financing. Alaska Industrial
Development and Export Authority would help set up the
financing mechanism. He asked if he was correct. Mr.
Comstock replied in the affirmative.
Co-Chair Neuman asked if it was the company's intent to ask
AIDEA to invest in the project. Mr. Comstock answered that
the entity's intent was to work with AIDEA as a partner to
work with the Goldman Sachs Group and various folks in the
country. He did not anticipate returning to the legislature
with an additional funding request in the future if that
was what Co-Chair Neuman was asking. He did not know the
full gamut of products and services available from AIDEA.
At the moment discussions had been focused mostly around
conduit bonds.
Co-Chair Neuman commented that his question was about
whether the financial plan for the project revolved around
AIDEA's investment. It sounded like it did not. Mr.
Comstock answered that funds from AIDEA were desired but
not required.
Vice-Chair Saddler asked about the percentage of power the
dam would use. Mr. Comstock answered that his belief was
that Kensington Mine's demand was about 60 percent of the
capacity.
Vice-Chair Saddler asked how much the Juneau District
Heating project would consume. Mr. Comstock replied that it
would take the bulk of the balance.
Vice-Chair Saddler asked if the Juneau District Heating
project would be possible without the Sweetheart Lake
project. Mr. Comstock answered that it would not be
possible. Currently the local utility had issues with the
possibility of running out of power, especially in low
water years. They had several major interruptible customers
such as the Greens Creek Mine, Princess Cruises, and a
variety of others. The short answer was not without a
significant supply of power into the community.
5:01:39 PM
Representative Pruitt asked about the Lynn Canal
Transmission Project that was removed in the committee
substitute. He wondered if Mr. Comstock was associated with
the change.
Mr. Comstock responded that Juneau Hydropower was one of
the members of the Lynn Canal Transmission Corporation.
Another primary member was the Alaska Power and Telephone
Company (the utility for Haines and Skagway and other
places). His company would like to ask for money from
AIDEA, but it was hard to ask for the funds if they did not
exist. The entity believed it could locate other sources of
funding. The company liked the terms and the interest rate
in AIDEA's program. He understood the state's current
fiscal situation and indicated that his company could
access money at a slightly higher interest rate in the
market.
Representative Pruitt wanted to ensure the legislature did
not fund another project and then find the company short of
funds before project completion. He wondered if the company
could financially handle the intertie separately. Mr.
Comstock answered that he was fairly certain. The company
had several viable plans.
Representative Pruitt asked for the total cost of the
project. Mr. Comstock answered that between the Lynn Canal
Transmission Corporation portion (set up as a non-profit to
keep transmission costs as low as possible), the build out
of the Juneau District Heating (putting pipes in the ground
and building a heat pump facility), and the Sweetheart Lake
Hydro Plant the cost would total approximately $175
million.
Representative Pruitt spoke to the hydroelectric project
itself. He asked for the cost of that portion. Mr. Comstock
answered that the cost was about $125 million without
contingencies. The amount depended on how wet the winter
was, how long it took to build, and others things. He
thought the $175 million total project cost was a good,
safe number. Juneau District Heating was a subsidiary of
Juneau Hydropower Inc. They were one and the same as far as
construction costs went. His company had been given
direction from Wall Street and other financial entities to
keep the items together as a single package.
5:05:32 PM
Representative Kawasaki asked whether the revenue bonds
would be tax exempt.
Mr. Comstock responded that Representative Kawasaki's
question would be better directed to AIDEA. He reported
that his company was not basing its decisions on any
potential future tax credits or subsidies.
Representative Kawasaki asked if Mr. Comstock's private
corporation would be required, if it were to obtain the
loans, to pass on savings to consumers or if the company
would be regulated through the Regulatory Commission of
Alaska (RCA).
Mr. Comstock believed that the hydropower function would be
a qualifying facility and not necessarily a regulated
entity. It was likely that Juneau District Heating would be
a regulated entity.
Co-Chair Thompson thanked Mr. Comstock for testifying and
introduced the next testifier. He asked Mr. Springsteen to
review the decision tree that was in member packets.
JOHN SPRINGSTEEN, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (via teleconference),
introduced himself. He explained that the handout showed
the decision making process for any project that AIDEA
considered for AIDEA financing. He relayed that AIDEA was
looking at a conduit bond issuance for the particular
project being discussed which would be subject to the
requirements of the actual bond buyers. He believed that
their process would marginally mirror AIDEA's process. He
relayed that when AIDEA was reviewing projects for an AIDEA
investment the first step was to perform a suitability
assessment to determine if the project fit the mission of
providing jobs and creating revenue for the State of
Alaska. If the project met the mission and was suitable for
AIDEA then a feasibility analysis would follow. Alaska
Industrial Development and Export Authority would evaluate
whether the project could be done, made economic sense to
complete, and was feasible. If their criteria was met AIDEA
would move into the due diligence step, a much more
detailed review. If agreements to terms and conditions for
financing could be crafted then they would be improved
internally by AIDEA's investment committee and then by the
board of directors. The last phase would be the
finalization and closing of the deal which included
completing the agreements and doing the financing. Alaska
Industrial Development and Export Authority believed that
it would be a similar process for the bond buyers in the
case of a conduit issuance.
5:09:33 PM
Vice-Chair Saddler referred to page 13 of the AIDEA
document titled "Analysis and Decision-Making" (copy on
file). He asked Mr. Springsteen to list the elements in the
last blue box, after phase 4 was completed. Mr. Springsteen
answered that after the finalization and closing of the
agreements, ongoing interactions with the party AIDEA
financed would ensue tracking the progress of the project
and ensuring that the objectives set out with the funds
were being met.
Representative Gara asked if the $120 million requested for
the project would impact AIDEA's bonding capacity. Mr.
Springsteen replied that because it was a conduit issuance
and the project was funded on the merits of the project it
would not affect AIDEA's bonding capacity. However, it
currently affected AIDEA's rolling 12 month limit of $400
million. Through the proposed legislation the issuance
would not be counted towards the cap.
Representative Gara asked for detail related to a conduit
issuance. Mr. Springsteen answered that AIDEA only filled
the role of a facilitator related to a conduit issuance,
which was very difference than in the case of an AIDEA
obligation bond where AIDEA's revenue and assets were
providing a backstop for a bond issuance. In the case of a
conduit issuance AIDEA was only a facilitator.
Representative Gara asked about AIDEA's compensation as a
facilitator. Mr. Springsteen answered that AIDEA paid for
issuance costs and the reward was that economic capital was
being brought to the State of Alaska resulting in economic
and enterprise development and jobs.
Representative Gara observed that the project seemed great,
but he wondered if it would cost AIDEA. Mr. Springsteen
replied that AIDEA was paid back through issuances.
Representative Gara asked if AIDEA had an option to own a
portion of the project.
Co-Chair Thompson stated that the option to own was from
the old version of the bill.
Representative Gara asked if he was correct in assuming
that AIDEA did not have an option to own the project
because all it was doing was helping to secure the bonding.
Mr. Springsteen answered in the affirmative.
5:14:39 PM
Representative Kawasaki asked how long phases 1 through 4
in the established decision making process took. Mr.
Springsteen answered that the process typically took 4 to 6
months given the need for review and for board comment and
interaction. In certain cases the process could be
accelerated.
Representative Edgmon asked about the benefits the project
would provide to the longevity of the Kensington Mine by
providing lower cost energy.
Co-Chair Thompson replied that the general manager from
Kensington Mine would be testifying.
Representative Edgmon would hold his question for the
upcoming testifier.
Representative Wilson asked if the reason for the
legislation being considered was due to the legislature
deciding that if a loan was over a certain dollar amount it
had to come through statute.
Mr. Springsteen answered that AIDEA had a restriction for
general obligation bonds and for total bonds issued in the
rolling 12 month period. In the case of an AIDEA general
obligation bond over $25 million where the authority was
providing its assets as a backstop to the bond buyers
required legislative approval. In the case of a conduit
issuance the question would be about the $400 million 12-
month rolling cap for bond issuances.
Representative Wilson asked for verification that AIDEA
would conduct due diligence to ensure the investment was
sound. Mr. Springsteen replied that in terms of the project
and due diligence both AIDEA and the actual bond buyers
performed independent and similar reviews.
Representative Wilson asked for verification that his
answer was a "yes". Mr. Springsteen replied in the
affirmative. In any instance AIDEA had a reputation to
uphold in the bond market.
Representative Pruitt asked whether AIDEA would have
invested in the project on its own without the
legislature's influence if the $400 million cap was not in
place and there was not a need for the current legislation
before the committee. Mr. Springsteen answered that it
would be the type of project AIDEA would consider with its
own funds.
Co-Chair Thompson Invited the next testifier to provide
their statement.
5:18:23 PM
MARY BECKER, MAYOR, JUNEAU, relayed that the Juneau
Assembly had unanimously voted in support of the Juneau
Hydropower project at Sweetheart Lake and the Juneau
District Heating project. She thanked the committee for
taking up the legislation.
RODNEY HESSON, IBEW, JUNEAU, spoke in support of the
project.
5:20:06 PM
WAYNE ZIGARLICK, GENERAL MANAGER, COEUR ALASKA, KENSINGTON
MINE, introduced himself.
Representative Edgmon asked about the benefits the project
would offer to the Kensington Mine in terms of savings in
the future.
Mr. Zigarlick responded that the mine's single largest cost
of production was labor and the second was electricity.
Although it was difficult to quantify what kind of
extension there might be with a reduction in power costs,
any reduction in the mine's operating costs had the
potential to take mineralized material that was not
currently generating profits to do so. Thus, the life of
the mine would be extended.
Representative Edgmon surmised that the Kensington Mine was
the backbone of the project. He also thought the life of
the mine as it was currently envisioned would be
commiserate with the life of the bond issuance and possibly
beyond.
Mr. Zigarlick asked for clarification.
Representative Edgmon stated that, given the significance
of the operations of the Kensington Mine and its role in
the overall project, it would extend the life span of the
mine enough to essentially pay off the loan package.
Mr. Zigarlick answered that he was unsure of the length of
the loan package. However, the Kensington Mine's life was
dynamic in that it grew every year and was very dependent
on metal prices and other factors. He believed the
Kensington Mine would be around for a long time, but he did
not know the length of time specifically.
Representative Edgmon clarified that he was not trying to
put the testifier in a box with the question. He spoke to
long-term opportunities that cheaper power could provide
citing Red Dog Mine as an example.
Mr. Zigarlick replied that Representative Edgmon was
accurate.
5:23:25 PM
Co-Chair Thompson OPENED public testimony.
Co-Chair Thompson CLOSED public testimony.
Co-Chair Neuman asked if Alaska Energy Authority (AEA)
would play a role in the transmission of the electrical
power lines in the project.
SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY
AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT (via teleconference), answered that currently
AEA would not play a role in the project.
Co-Chair Thompson explained that HB 143 would have a
forthcoming zero fiscal note.
Co-Chair Neuman MOVED to REPORT CSHB 143(FIN) out of
committee with individual recommendations and the
accompanying fiscal notes. There being NO OBJECTION, it was
so ordered.
CSHB 143(FIN) was REPORTED out of committee with a "do
pass" recommendation and with one forthcoming zero fiscal
note from the Department of Commerce, Community and
Economic Development.
Co-Chair Thompson discussed the schedule for the following
day.