Legislature(2013 - 2014)BARNES 124
03/18/2013 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| HB76 | |
| SB23 | |
| HB112 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 76 | TELECONFERENCED | |
| += | HB 112 | TELECONFERENCED | |
| + | SB 23 | TELECONFERENCED | |
SB 23-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
[Contains discussion of HB 74.]
3:48:30 PM
CHAIR OLSON announced that the next order of business would be
the CS FOR SENATE BILL NO. 23(FIN) "An Act relating to
development project financing by the Alaska Industrial
Development and Export Authority; relating to the dividends from
the Alaska Industrial Development 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."
CHAIR OLSON noted that SB 23 is the companion bill to HB 74,
which has been hears several times in this committee with much
public testimony. Therefore, public testimony for SB 23 will be
brief as it's virtually the same bill as HB 74.
3:49:11 PM
CHAIR OLSON explained that SB 23 contains the financing for the
Fairbanks liquefied natural gas (LNG) project and the AIDEA
[direct financing provisions remain] in HB 74. He explained
that it is easier to manage these projects in two separate
bills. He noted that he is awaiting the final draft of HB 74.
3:50:32 PM
REPRESENTATIVE REINBOLD moved to adopt the proposed committee
substitute, the HCS CS for SB 23, labeled 28-GS1738\O, Bailey,
3/15/13, as the working document.
CHAIR OLSON objected for the purpose of discussion.
3:50:55 PM
TED LEONARD, Executive Director, Alaska Industrial Development &
Export Authority (AIDEA) and Alaska Energy Authority (AEA),
Department of Commerce, Community, & Economic Development
(DCCED), introduced himself.
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development
(DCCED), introduced herself.
3:51:10 PM
MR. LEONARD explained that Version O would remove the direct
financing language leaving in the bill the language for the
dividend calculation for AIDEA and the liquefied natural gas
(LNG) project. The fiscal note has been revised to show the
reduction from the committee substitute, the direct language,
leaving the fiscal note that relates to the dividend and the LNG
project. He further explained that there isn't any change to
the dividend language [from the revolving fund and the
Sustainable Energy Transmission and Supply Development (SETS)
fund] or the LNG language that was in HB 74, which remains the
same in SB 23.
CHAIR OLSON remarked the fastest way to expedite the LNG project
is to use a bill that has passed the other body.
3:52:50 PM
REPRESENTATIVE REINBOLD expressed compassion about the energy
issues in Fairbanks; however, said she has questions since she
is interested in the long-term fiscal health of the state.
Referring to charts she distributed to members entitled, "DHHS
Public Assistance Non-Formula Comparisons by Allocation" and
"Division of Public Assistance Benefits by Census Areas," she
pointed out that for FY 13 the state Division of Public
Assistance (DPA) spent $3,389,944 in Fairbanks. She
acknowledged that the state needs a comprehensive and
sustainable energy plan, but questioned when - with the
implementation of the LNG trucking to Fairbanks - the
legislature could expect to see these state subsidies decline
since Fairbanks receives substantial subsidies through the [Low
Income Home Energy Assistance Program] LIHEAP.
3:55:01 PM
REPRESENTATIVE REINBOLD then asked whether the project sponsors
can secure long-term gas contracts with industrial users and
utilities to ensure that this investment is recouped. She
offered that her goal is to ensure that the Sustainable Energy
Transmission and Supply Development fund (SETS) loan will not be
jeopardized by not securing long-term gas contracts.
MR. LEONARD answered yes; that part of the process AIDEA will go
through in completing its feasibility study and prior to the
SETS loan will be to secure long-term contracts with the
utilities that would use the gas from this project. He
reiterated that part of the loan process will necessitate that
the contracts are in place.
3:55:59 PM
REPRESENTATIVE REINBOLD asked for clarification on the length of
the long-term contract, specifically whether it would be 5, 10,
or 20 years in length.
MR. LEONARD recalled that Fairbanks Natural Gas (FNG) is
considering a 15-year contract, but until the process is
completed the contract terms of the SETS and LNG contracts is
not definite. He assured her that AIDEA will have customers to
guarantee the project.
3:57:03 PM
REPRESENTATIVE REINBOLD recalled AIDEA testimony relating that
if the gasline is constructed the LNG can be repurposed to
supply industrial users and serve rural Alaska. She asked
whether any feasibility study has been done to assure it is
viable to do so.
MR. LEONARD answered that AIDEA is in the process of doing so.
He offered that AIDEA has hired Northern Economics to begin this
work; however, this will be part of the process AIDEA will
undergo prior to submitting the project to AIDEA's Board of
Directors for project approval. In any case, looking at that
long-term demand is very important in terms of timing for the
pipeline.
MS. FISHER-GOAD suggested that Mr. Leonard has covered this
quite well. The expectation is that after the pipeline is
built, additional industrial customers would continue to be able
to utilize this [LNG], in particular, some of the mining
districts will need electrical generation as well as liquid fuel
for trucks. Additionally, AEA has been working on the rural
energy programs to ensure that the project and components can be
used to produce liquid fuel for areas on the river system and
rural road system. In essence, AIDEA anticipates this [LNG]
project would be used in areas not served by a pipeline.
3:59:08 PM
REPRESENTATIVE REINBOLD, summarizing her concerns, expressed her
desire for assurance that if this project moves forward the
state can anticipate a decrease in the LIHEAP. Second, she
expressed the need to be sure the long-term contracts will be in
place so the state can recoup a good investment on the SETS
loan. Third, she expressed interest in ensuring that a
feasibility study will be conducted so the project can be
repurposed. In brief, Representative Reinbold related that her
goal is to have a long-term energy plan for the entire state and
to ensure the state maintains its good bond rating.
MS. FISHER-GOAD answered that the AEA has been working closely
with all the regions of the state to develop regional energy
plans to address energy needs in the state. She cautioned that
what will work in the Railbelt area or even in the Fairbanks
area isn't necessarily what will work in Southeast Alaska. In
fact, AEA reviews these issues regionally. Ms. Fisher-Goad
clarified that the LIHEAP program, a statewide program based on
income not necessarily the cost of energy in an area, is not an
AEA program. She suggested that the LIHEAP should perhaps be
addressed through the HSS. Although the Power Cost Equalization
Program (PCE) is an AEA program, it does not serve the Fairbanks
area since the GVEA is not eligible utility.
4:01:07 PM
REPRESENTATIVE REINBOLD clarified that her point is that if the
legislature is going to provide relief in Fairbanks, it seems to
follow that energy costs will be lowered.
MS. FISHER-GOAD answered that is correct.
REPRESENTATIVE REINBOLD said she also assumed the [LNG or
propane] would provide more affordable energy for residents.
She explained she could provide substantial detail about public
assistance, including adjustments made [in the HSS committee].
CHAIR OLSON remarked this is not the forum to discuss [the
health and social services aspects].
4:01:54 PM
REPRESENTATIVE CHENAULT asked whether Version O has any negative
effects on AIDEA moving forward on the Fairbanks [LNG/propane]
trucking project.
MR. LEONARD replied no.
4:02:31 PM
REPRESENTATIVE CHENAULT characterized this project as an
opportunity to assist residents in Fairbanks. He noted he has
questions that AIDEA can't currently answer, such as the
location and the costs of the LNG plant, which won't be
available until the feasibility study is completed at which
point the project could move forward if it is deemed feasible.
He said he is fairly comfortable with AIDEA moving forward with
this bill since it would allow AIDEA to examine costs and
perhaps move forward with a project that will assist Fairbanks
as soon as possible. He offered his belief that this project is
not in competition with other energy projects, such as an in-
state gasline or a big natural gas pipeline. He reiterated his
support for the LNG trucking project to assist the community of
Fairbanks, and in turn create opportunities in other areas in
the state that do not currently have lower-cost energy. He
noted his agreement with Representative Reinbold that the public
assistance funding is high and although it isn't under AIDEA's
purview, some of the assistance provided to individuals is for
energy assistance. If that funding were available for [energy]
projects, it might be possible to have a long-term energy supply
for most areas of the state, he said. He acknowledged that it
is a tough battle to offer the cheapest energy to everyone in a
state the size of Alaska. However, without projects like this
no opportunities will exist and residents will continue to pay
high prices for fuel. Therefore, he offered his willingness to
move forward with SB 23 to help the Interior residents.
4:05:35 PM
REPRESENTATIVE HERRON referred to Section 4 and the change on
page 3, line 12.
MR. LEONARD explained that this language sets up the capital
reserve for the state's moral obligation. The change on line 12
would replace "chairman" with "chair" and "no" with "not," which
are technical changes; however, the whole section relates to the
moral obligation of the state and allows AIDEA to set up a
capital reserve to provide the state's backing for this credit.
He explained that this language is estimated to change the
investment grade to a high investment grade and the amount of
basis points from 175 to 200 basis points will lower the cost of
the bond.
CHAIR OLSON asked whether AIDEA would have an AAA rating.
MR. LEONARD answered it could be one or two ratings below. He
clarified that the state has an AAA rating, and the moral
obligation requires considering the bond, but this language
would give it a boost it would not otherwise have if it was
based on revenue bonds for a utility. Thus the language [in
Section 4] would bring it up to an AA or AA plus rating, he
said.
4:07:39 PM
REPRESENTATIVE HERRON said he supports this bill in order to do
something to address energy costs as the legislature has
discussed gas projects and reductions in energy costs for a long
time. In broader terms, the state is huge and there have been
various [energy] subsidies including the Four Dam Pool and the
Cook Inlet gas project. Passage of SB 23 will also be a huge
subsidy and, perhaps, in the future other parts of the state
will also receive subsidies. In short, Representative Herron
said it does make sense to do something and he hoped the bill
will work out and if not, the [legislature] will just need to
try something else.
4:08:43 PM
REPRESENTATIVE MILLETT, referring to the fiscal note and the
language Interior Energy Plan, asked whether AIDEA will prepare
an energy plan specifically for Fairbanks with the liquefaction
project in mind.
MS. FISHER-GOAD responded that the Interior Energy Plan has been
the term used for the financing package in the proposed FY
capital budget and the authorizations provided to AIDEA in
SB 23.
REPRESENTATIVE MILLETT said the House Special Committee on
Energy is often criticized for not having an energy plan for the
entire state. However, no one solution fits the entire state,
which has been the fundamental barrier to creating a statewide
plan. Therefore, she opined that it is good for the Interior to
move forward with this project, even if it may not be palatable
for Anchorage or Southeast Alaska residents. The state has
historically funded large-scale energy programs in the state as
there has been no private sector provider. Further, the state
has subsidized electric utilities and Interior Alaska has waited
for a solution. She viewed this as a start and once energy is
provided to Fairbanks it will open up more job opportunities,
which would offer the opportunity for people to get off
[LIHEAP]. She offered to support this to make sure this energy
rich state is not anemic in providing sustainable energy for its
citizens.
MS. FISHER-GOAD, in response to Representative Josephson, stated
that she first reviewed [Version O] this weekend. In further
response, Ms. Fisher-Goad explained that when the committee
removed the direct financing program a number of conforming
amendments were necessary.
4:12:50 PM
REPRESENTATIVE JOSEPHSON referred to page 2 of the fiscal note,
which specifies that the Interior Energy Plan will receive $125
million from the SETS direct financing. He asked whether that
was removed since the funding for this project is in the
operating budget.
MS. FISHER-GOAD answered that what changed was the AIDEA fiscal
note shows $750,000 in services request. She offered her belief
the other fiscal note stands since it does not need to change.
She reiterated that the direct financing program does not impact
the Interior Energy Plan, so removing that from the bill does
not impact the $125 million. Again, that fiscal note stands as
is and is informational. In further response, Ms. Fisher-Goad
agreed that the AIDEA adjustment that will remain in HB 74.
4:14:35 PM
REPRESENTATIVE JOSEPHSON asked whether the changes in Version O
would change rating from AAA to something less.
MS. FISHER-GOAD explained that typically when a moral obligation
is placed on a bond, the rating would be one or two notches
below the entity providing the moral obligation since the
obligation is not a general obligation, but is a different
circumstance.
REPRESENTATIVE JOSEPHSON asked whether AIDEA and AEA is content
with [Version O].
MS. FISHER-GOAD answered yes; [Version O] will fulfill the needs
of the Interior Energy Plan as testified. She explained that
the impacts of the direct financing program and the benefits
will be discussed by Mr. Leonard. She said the AEA would not be
involved in a bill [regarding the direct financing program]. In
further response, Ms. Fisher Goad agreed [Version O] is a stand-
alone bill.
4:16:07 PM
REPRESENTATIVE SADDLER referred to page 3, lines 18-19, of
Version O, and asked the size of the capital reserve fund.
MR. LEONARD explained that the capital reserve fund will be set
up for this specific bond. Thus there isn't any money until the
bond is issued. Typically, a capital reserve fund usually
equates to one year of debt service so it will depend on the
size of the bond issued. He suggested this bond may be issued
in a series in conjunction with the build out of the
distribution system and a portion of the $150 million would be
for the first series. He also explained that this language
states that AIDEA will set up a capital reserve fund for the
debt service for this bond. In the event insufficient revenue
is not available to repay the bond, AIDEA's Chair would ask the
legislature to appropriate money to replenish the capital
reserve. He assured members that AIDEA would ensure that this
would not happen, but again, that is the purpose of a reserve
account. He explained that the aforementioned language creates
a moral obligation and although the legislature does not have to
appropriate the money, the state would not want to impinge on
its moral obligation so it would likely replenish the reserve
account. He pointed out that AIDEA is currently considering
ways to have a second layer of credit to back up the moral
obligation.
4:18:28 PM
REPRESENTATIVE SADDLER inquired as to whether as each series of
bonds is issued the size of the capital reserve account would
also increase.
MR. LEONARD answered yes; it would increase up to the annual
debt service.
REPRESENTATIVE SADDLER inquired as to the original source of the
capital reserve account.
MR. LEONARD answered that it would be bond proceeds itself. In
further response, he explained the remainder would be used to
make the last bond payment.
4:19:08 PM
CHAIR OLSON, after first determining no one else wished to
testify, closed public testimony on SB 23.
CHAIR OLSON removed his objection. There being no further
objection, Version was before the committee.
4:20:03 PM
REPRESENTATIVE CHENAULT remarked that SB 23 will give AIDEA an
opportunity to truck LNG to Fairbanks and other opportunities
that it might bring to other communities in the state.
REPRESENTATIVE JOSEPHSON remarked that if these types of prices
Fairbanks is experiencing occurred in Southcentral Alaska the
prices would not be tolerated. He stated that the prices for
fuel oil are so high because the price of oil is at $120 per
barrel. Combined with the non-attainment issues for air quality
and that compared to other large projects, such as a dam or a
pipeline, this project is quite inexpensive. Representative
Josephson offered his belief that SB 23 is a good investment and
the people of the FNSB are worthy of this. He offered his
support for the bill.
REPRESENTATIVE HERRON related he has listened to the testimony
given by Interior residents and found the comments to be
sincere, in fact, many residents are scared and need help, and
the legislature is ready to give them help. He hoped when
people in other communities in the state need help that
Fairbanksans will remember 2013.
REPRESENTATIVE CHENAULT said that energy prices are not only
high in Fairbanks or in rural Alaska. In fact, the price per
gallon for diesel fuel on the Kenai Peninsula is higher than it
is in Fairbanks. He said the anticipated effect of the LNG
project ranges from $13-15, but this year short-term contracts
were let in the Cook Inlet for $15 Mcf gas. While Cook Inlet
residents receive a break on natural gas, over 50 percent of the
Cook Inlet residents are not on a gas distribution grid and heat
with propane, diesel, coal, and wood, he said. Fortunately,
there is more wind in Cook Inlet than in Fairbanks, he pointed
out.
4:23:35 PM
REPRESENTATIVE CHENAULT moved to report the proposed House
committee substitute, (HCS) for SB 23, labeled 28-GS1738\O,
Bailey, 3/15/13, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, HCS CSSB 23(L&C) was reported from the House Labor
and Commerce Standing Committee.