Legislature(2017 - 2018)SENATE FINANCE 532
02/12/2018 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Credit Rating and Debt Analysis | |
| SB125 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | SB 125 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 125
"An Act relating to the financing and issuance of
bonds for a liquefied natural gas production system
and natural gas distribution system; and providing for
an effective date."
10:12:36 AM
SENATOR PETE KELLY, SPONSOR, discussed SB 125. He read from
a prepared statement:
For the record, I am Senator Pete Kelly, district A
covering the City of Fairbanks and Fort Wainwright.
Madam Chair, members of the Senate Finance Committee,
thank you for hearing SB 125.
Senate Bill 125 extends the time for AIDEA to issue
bonds for the Interior Energy Project (IEP) by five
years to June 30, 2023.
The Interior suffers from the most volatile energy
costs of any community on the Railbelt.
As a result of the cold winters and high prices
residents also burn a lot of wood and coal,
exacerbating the high prices with air quality issues.
It is due to these issues:
We, Governor Sean Parnell and the legislature put a
package together in the form of SB 23 creating the
Interior Energy Project. SB 23 was a funded(ING?)
package
The funding package for the IEP included:
1. $57.5 million dollars in a capital grant, all of
which has been spent or
obligated
2. $125 million dollars in Sustainable Energy
Transition and Supply (SETS) Loans of which $52.8
million dollars has been spent and $45.5 million had
been obligated
3. And $150 million dollars in AIDEA Bonding
Authority, the subject of the bill before you, none of
which has been used to date
The distribution system we have in place due to
limited liquefaction and storage infrastructure, has
never exceeded 70 miles of pipe.
With I think no more than about 1200 customers,
Many of the current customers are commercial in
nature, and many of them have interruptible service
due to the lack of sufficient local backup LNG storage
capacity.
This structure made it challenging to create an
expanded distribution network for other interior
residents and businesses.
For a community that supports two major military
installations and many commercial entities, the
volatility of energy prices has presented a
significant economic impediment.
Madame Chair, the AIDEA team overseeing the IEP has
been advancing the original financing package,
But just as they were ready to deploy the $150
million-dollar bond component, we have essentially run
out of time on the legislative authorization.
This bonding is absolutely necessary for the project
as it will be used to Increase the production capacity
of the LNG plant at Point MacKenzie and further the
expansion of the distribution network.
I want to emphasize that this bonding authorization
can only be used for the purposes of the Interior
Energy Project due to amendments to the financing
package created in 2015 through the passage of HB 105.
The bonding can also only be used to finance
investment-grade grade utility infrastructure due to
covenants included in the agreements signed between
AIDEA and the IGU.
TO DATE:
1. The 2014 and 2015 build-out of a natural gas
distribution system covering nearly all of Fairbanks
and core-North Pole
2. The 2015 AIDEA purchase of the Pentex assets
including the LNG production facilities at Pt.
MacKenzie, LNG trailers, and local distribution
infrastructure
3. The passage last spring of PACE legislation to
assist in commercial conversions to natural gas
4. Last September, AIDEA secured a gas supply
agreement with Hilcorp.
5. This was followed in December, with the signing of
agreements to consolidate the Fairbanks Natural Gas
(FNG) and the Interior Gas Utility (IGU) systems into
a single, investment-grade gas utility through the
sale of the Pentex assets to IGU.
6. And, this month, construction is now underway on a
large-scale 5.2 million gallon LNG storage facility in
south Fairbanks that will support the future customer
growth of the combined utility system.
Even with the recent fall in the price of heating oil
in the past few years, the need for a long-term,
clean, and affordable energy alternative for the
Interior remains a
high priority.
On its present schedule, first expanded gas
availability with the potential to move interruptible
customers to full service is expected in the winter of
2019.
And ... 2020 will see the first full scale efforts to
convert properties with access to the existing
distribution system to gas.
Madame Chair, Extending the sunset for AIDEA's bonding
authority for this project will ensure continued
success of the IEP and will help the interior realize
the vision of clean and affordable natural gas in the
Fairbanks/North Pole area.
Vice-Chair Bishop commented that the fuel that was
delivered to his Fairbanks home the week prior was $2.86
per gallon. He felt that the prices were increasing.
Senator von Imhof wondered whether there was a long-term
contract with the gas supplier in Southcentral Alaska.
Senator Kelly deferred to Mr. Therriault.
10:19:57 AM
JOE BURNS, STAFF, SENATOR PETE KELLY, noted that there was
the most recent bill version in the members' packets. He
stated that the only change from the original version was a
title change, which cleared up some ambiguity in the
original title.
Co-Chair MacKinnon remarked that she may have had an impact
on that change, because she wondered which entity was
financing the bonds.
Co-Chair MacKinnon OPENED public testimony.
10:21:07 AM
GENE THERRIAULT, DEPUTY DIRECTOR, STATEWIDE ENERGY POLICY
DEVELOPMENT, ALASKA ENERGY AUTHORITY, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, referenced
Senator von Imhof's question. He stated that the current
gas supply that was secured from Hilcorp was for a three-
year period of time. He remarked that there was offered a
longer term contract, but the entity that was purchasing
and consolidating the utilities asked not to lock in a
longer period of time. He stated that the AIDEA board
decided that three years, with potential extensions, was
acceptable. He shared that it allowed for the ability to
look for other potential sources outside of Cook Inlet that
may lower the price of gas. He remarked that in 2015, HB
2015 was passed, and the legislature put a number of
requirements on the AIDEA board. He stated that one of
those requirements that the board needed to see a supply of
gas, understand all the components of the infrastructure,
and have an estimation of the delivered price. She stated
that the supply contract allowed for no take or pay
obligation to accommodate the anticipated growth, because
Hilcorp had provided flexibility to the enterprise.
Senator von Imhof wondered when the current contract
expired. She asked whether the terms would remain the same
or require re-negotiation if there was a renewal in the
contract.
Mr. Therriault replied that the old contract was supposed
to end at the end of march. The new contract started at
that time, but there was an avoidance of a 3 percent
increase in the old contract on January 1. He stated that
it was three years from the end of March. He furthered that
in order to get increased capacity, the producer must be
given 18 months advance notice. He stated that for the
five-year extensions, the terms could be renegotiated. He
noted that there was no current discussion about reopening
those terms, but he believed the producer would be amenable
to consider a possible request.
Senator von Imhof observed that the current contract would
expire in 2021. She surmised that, at that time, both
parties would meet to discuss, terms, and other topics.
Mr. Therriault replied in the affirmative. He furthered
that, with existing customers, the utility must start the
discussions well before the end of the contract in order to
show the Regulatory Commission of Alaska.
Co-Chair MacKinnon wondered whether Mr. Therriault had
prepared testimony to provide to the committee.
Mr. Therriault replied that he was available to primarily
answer questions.
10:25:21 AM
Senator Stevens wondered whether the bill provided for all
of the energy needs of the two bases. He felt that it would
be crucial to the security of the bases.
Mr. Therriault replied that there was currently no
anticipated use on the bases. He shared that Ft. Wainwright
had some of the facility across the river, which was not
heated, but had a distributed heat loop off their power
plant. That power plant ran on coal, and remarked that it
was difficult to compete with the price of oil. He remarked
that there was some infrastructure that could avail itself
of a pipe distribution. He stated that Eielson was
approximately 7 miles from North Pole, and there was some
estimation of the cost of what it would take to pipe
energy. He stated that most facilities on Eielson were
heated with a distributed heat loop. He remarked that until
they decided to use a different source of generation for
the bases, there was no anticipated use. He hoped to pick
up some use for some of the facilities. He remarked that
there had been responses to a request from the Department
of Energy to examine the interest of changing the energy
source for Fort Greely. He remarked that there was an RFP
to examine who may have that capability. He understood that
there would be no capability of pushing gas via pipe
distribution, the Fort Greely area could source LNG out of
the plant expansion. He remarked that it was all a volume
enterprise: the higher the volume, the lower the per unit
cost.
Co-Chair MacKinnon remarked that she had asked in another
committee whether there were any anchor tenants. She shared
that there were people who were interested in gas, but no
anchor tenants like the ones thought of for industry. She
wondered whether that had changed since that committee
question. She shared that there was a possibility that a
retailer or small box store may be interested, but no
anchor tenants like the mine or military bases.
Mr. Therriault replied that there were no current anchor
tenants. He shared that mining operations up the Dalton
Highway had been watching the program to see the delivered
price in the community at bulk LNG. He stated that once
that price was seen, those operations could run the
economics for continuing to drive a further distance for
delivery.
10:28:40 AM
Co-Chair MacKinnon queried the anticipated cost to
consumers.
Mr. Therriault replied that there was a document that
showed that the delivered price was over $20 per NCF of
gas, which was equivalent to $2.77 fuel oil. He believed
that once there was service to residential and
uninterrupted customers, the price would reduce in 2020 to
$17.31 per NCF of gas. He stated that it would be down to
$15.48 in 2022, which would be approximately $2.00 in fuel
oil.
Senator von Imhof felt that the transportation costs could
increase the costs, because of liability, insurance, and
labor costs. She wondered whether there was ability to
revisit a fixed pipeline, which was a fixed asset that
could depreciate over time.
Mr. Therriault stated that AIDEA was focused on LNG
delivery. Part of the difficulty was the seasonal swing in
energy demand in Fairbanks. It was necessary to have pipe
capacity for triple the volume in winter.
10:33:12 AM
JOMO STEWART, INTERIOR GAS UTILITY, FAIRBANKS (via
teleconference), testified in support of the bill.
10:33:48 AM
JIM DODSON, PRESIDENT, FAIRBANKS ECONOMIC DEVELOPMENT
CORPORTATION, SAN DIEGO (via teleconference), spoke in
support of the bill.
10:34:30 AM
JIM MATHERLY, MAYOR, FAIRBANKS (via teleconference),
testified in support of the bill.
10:35:16 AM
JON COOK, CHIEF FINANCIAL OFFICER, AIRPORT EQUIPMENT
RENTALS, FAIRBANKS (via teleconference), spoke in support
of the bill. He thought the bill was critical to his
company.
Co-Chair MacKinnon CLOSED public testimony.
Vice-Chair Bishop discussed the fiscal note.
Co-Chair MacKinnon noted on page 2 of the fiscal note,
which said that the principal amount of the bonds
authorized may not exceed $150 million plus the cost of
capitalized interest, bond counsel fees, trustee fees,
rating fees, financial investor fees, and other costs that
the authority considered reasonable and appropriate.
Senator Olson asked if there were private investors.
Mr. Therriault stated there were not private investors
involved. He detailed that AIDEA had put out an RFP, There
was a request for the company to step away from the
project, and it had agreed.
Senator Olson considered the price of oil hovering for an
extended length of time, and wondered whether there was a
concern that the economy of Fairbanks would take stress to
payback the bonds.
Mr. Therriault replied that the numbers in HB 105 were
based on only 50 percent of the potential customers. He
furthered that originally there was anticipation that the
price of fuel presented enough of a delta to get upwards of
70 to 75 percent of the customers. He remarked that because
of the smaller delta, the expectation was reduced to 50
percent. He felt confidant that they could reach the target
numbers.
10:41:26 AM
Senator Olson considered the purchase in 2013 when the bill
was passed. He wondered whether inflation was a concern.
Mr. Therriault stated that when the consolidation of the
utilities was negotiated, the contractual documents had a
number of covenants.
Co-Chair MacKinnon asked Mr. Therriault to explain how much
money the state had invested in the Interior Energy
Project.
Mr. Therriault replied that the original financing plan was
$57.5 million of capital grants, with allowance for $125
million of SETS financing. He stated that there was a
specific appropriation for the SETS fund for that purpose.
The potential for the $150 million of bonds, but the bonds
had not yet been accessed. He stated that under the
contractual agreements from December 2017, all of the
capital money would have been deployed with $70 million to
$80 million of the SETS funds.
Co-Chair MacKinnon recalled that the total was $337.5
million of state support for the project. She queried the
state's investment for storage.
Mr. Therriault replied that storage was the "bottleneck."
He stated that more customers could be served with the
current small plant in MatSu, except that there was a
requirement for five days of product in the community in
order to serve customers in case of an interruption.
10:45:28 AM
Co-Chair MacKinnon asked if the state had granted bonds for
support of storage facilities in the Interior.
Mr. Therriault stated that the financing for the storage
was utilization of some of the SETS authorization.
SB 125 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB125 Supporting Document - House Bill 105 Plan Memorandum - Copy.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |
| SB125 Letters of Support (January 30, 2018) - Copy.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |
| SB125 Supporting Document - AIDEA IEP Quarterly Report January 2018 - Copy.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |
| SB125 Sponsor Statement ver. U.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |
| SB125 Summary of Changes Versions A to U - Copy.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |
| SB125 Supporting Documents - News Articles.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |
| SB 125 Support Letter.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |
| SB 125 Support Resolution.pdf |
SFIN 2/12/2018 9:00:00 AM |
SB 125 |