Legislature(2013 - 2014)BARNES 124
03/17/2014 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HCR22 | |
| HB325 | |
| HB367 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 367 | TELECONFERENCED | |
| *+ | HB 325 | TELECONFERENCED | |
| *+ | HCR 22 | TELECONFERENCED | |
| + | SB 138 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 17, 2014
1:03 p.m.
MEMBERS PRESENT
Representative Eric Feige, Co-Chair
Representative Dan Saddler, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Mike Hawker
Representative Craig Johnson
Representative Kurt Olson
Representative Paul Seaton
Representative Scott Kawasaki
Representative Geran Tarr
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE CONCURRENT RESOLUTION NO. 22
Urging the governor to take all action necessary to keep in-
state oil refiners in operation and to keep oil refining
operations in the state competitive.
- HEARD & HELD
HOUSE BILL NO. 325
"An Act increasing the balance of the oil and hazardous
substance release prevention and response fund required to
suspend the surcharge levied on oil produced in the state;
increasing the amount of the surcharge levied on oil produced in
the state that may be appropriated to the oil and hazardous
substance release prevention account; and providing for an
effective date."
- HEARD & HELD
HOUSE BILL NO. 367
"An Act creating a diesel fuel storage facility tax credit for
public utilities; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HCR 22
SHORT TITLE: IN-STATE REFINERIES
SPONSOR(s): REPRESENTATIVE(s) T.WILSON
02/26/14 (H) READ THE FIRST TIME - REFERRALS
02/26/14 (H) RES
03/17/14 (H) RES AT 1:00 PM BARNES 124
BILL: HB 325
SHORT TITLE: OIL SPILL PREVENTION FUND
SPONSOR(s): REPRESENTATIVE(s) MUNOZ
02/21/14 (H) READ THE FIRST TIME - REFERRALS
02/21/14 (H) RES, FIN
03/17/14 (H) RES AT 1:00 PM BARNES 124
BILL: HB 367
SHORT TITLE: DIESEL FUEL STORAGE TAX CREDIT
SPONSOR(s): REPRESENTATIVE(s) ISAACSON
02/26/14 (H) READ THE FIRST TIME - REFERRALS
02/26/14 (H) RES, FIN
03/17/14 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
REPRESENTATIVE TAMMIE WILSON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HCR 22 as sponsor.
LYNN KENT, Deputy Commissioner
Office of the Commissioner
Department of Environmental Conservation (DEC)
Juneau, Alaska
POSITION STATEMENT: Answered questions on HCR 22 and HB 325.
JOHN HUTCHINS, Assistant Attorney General
Oil, Gas & Mining Section
Civil Division (Juneau)
Department of Law (DOL)
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding HCR 22.
JOE BALASH, Commissioner Designee
Office of the Commissioner
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HCR 22.
REPRESENTATIVE CATHY MUNOZ
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 325 as sponsor.
ANDY ROGERS, Deputy Director
Alaska State Chamber of Commerce
Anchorage, Alaska
POSITION STATEMENT: Testified during discussion of HB 325.
CHRISTOPHER CLARK, Chief of Staff
Representative Cathy Munoz
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions regarding HB 325 on
behalf of Representative Munoz, sponsor of the bill.
TOM CHERIAN, Director
Division of Administrative Services
Department of Environmental Conservation (DEC)
Juneau, Alaska
POSITION STATEMENT: Testified during discussion of HB 325.
REPRESENTATIVE DOUG ISAACSON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HB 367 as the sponsor of the
bill.
MEERA KOHLER, President and CEO
Alaska Village Electric Cooperative
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 367.
LUKE HOPKINS, Mayor
Fairbanks North Star Borough
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 367.
COREY BORGESON, President & CEO
Golden Valley Electric Association (GVEA)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 367.
LYNN THOMPSON, Vice President for Power Supply
Golden Valley Electric Association
Fairbanks, Alaska
POSITION STATEMENT: Testified during discussion of HB 367.
ANNA ATCHISON
Kinross Fort Knox Mine
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 367.
JOMO STEWART, Energy Project Manager
Fairbanks Economic Development Corporation
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 367.
ACTION NARRATIVE
1:03:05 PM
CO-CHAIR DAN SADDLER called the House Resources Standing
Committee meeting to order at 1:03 p.m. Representatives Seaton,
Kawasaki, Olson, Feige, and Saddler were present at the call to
order. Representatives Johnson, Hawker, Tarr, and P. Wilson
arrived as the meeting was in progress.
HCR 22-IN-STATE REFINERIES
1:03:29 PM
CO-CHAIR SADDLER announced that the first order of business is
HOUSE CONCURRENT RESOLUTION NO. 22, Urging the governor to take
all action necessary to keep in-state oil refiners in operation
and to keep oil refining operations in the state competitive.
1:03:52 PM
REPRESENTATIVE TAMMIE WILSON, Alaska State Legislature, as the
sponsor, stated that HCR 22 urges the governor to take all
action necessary to keep in-state oil refiners in operation and
to keep oil refining operations in the state competitive. She
referenced the possibility for the closure of the Flint Hills
Refinery and its search for a buyer. She reported that the
Flint Hills Refinery was supplying clean drinking water to local
residents during the problems with contaminated water, and would
continue to do so throughout. She declared that currently it
was more affordable to import fuel than for in-state refining.
She said that, as this could change with time, the legislature
needed to determine the value for maintaining refineries in the
Interior and throughout the state. She stated "for right now we
aren't competitive globally." She questioned the results should
there be a disaster, noting that the State should be as self-
sufficient as possible. She emphasized that it was important
for the governor to move quickly in negotiating a royalty oil
contract with a potential new buyer and to ensure who was
responsible for the aforementioned contamination. She expressed
that her biggest concern was for closure of the refinery and the
necessity of new permits. She declared that the proposed
resolution addressed the need for maintenance of self-
sufficiency, an ability to refine other imports, and use for its
best capacity.
1:06:24 PM
REPRESENTATIVE SEATON referenced page 1, lines 14-16 of the
proposed bill, and inquired how a royalty-in-kind contract would
be negotiated that would help the in-state refineries.
REPRESENTATIVE T. WILSON replied that the current contract was
$2.15 over the price of the North Slope, as the law states that
we get the most for the value. She explained that Department of
Natural Resources (DNR) would account for the import cost which
included many pieces, and not just the price. She said that
this was all "within the realm of the administration when
they're negotiating the contract." She suggested that there was
a possibility for contract negotiation to other uses at the
plant.
1:07:28 PM
REPRESENTATIVE KAWASAKI directed attention back to lines 14-16,
and referenced a recent royalty oil contract with Flint Hills
Resources. He asked if Representative T. Wilson was considering
a new contract with another party, and he asked, if there was
not another party, how this would be possible.
REPRESENTATIVE T. WILSON offered her understanding there were
"some other players at the table." She declared that, as Flint
Hills would no longer have this contract as of June 1, 2014,
this was not a re-negotiation of the contract for Flint Hills.
She stated that Flint Hills had made it quite clear that it
would not be the owner and operator. However, they did want to
ensure that this would be more economical for another party.
This contract would be for the potential buyer with which Flint
Hills was currently negotiating.
REPRESENTATIVE KAWASAKI suggested that, during contract
negotiation, "it's good to know who we're negotiating with." He
questioned the theory that the state would get a good deal from
this negotiation.
REPRESENTATIVE T. WILSON replied that, although there was a lot
of concern to get the most money for a resource, there should
also be consideration for the other ancillary pieces. She said
that the proposed resolution asked for all these points to be
taken seriously, and that there should be some possible
negotiations.
1:09:41 PM
REPRESENTATIVE TARR asked whether the proposed resolution was
being sent to other individuals in addition to the governor.
REPRESENTATIVE T. WILSON replied that "these kind of
negotiations is done by the administration and the governor is
the one who is in charge."
1:10:04 PM
CO-CHAIR SADDLER, acknowledging that the Interior refineries
were "a hot topic in the news," asked why the proposed
resolution did not include refineries in other areas of Alaska.
REPRESENTATIVE T. WILSON replied that the proposed resolution
focused on in-state refineries, as they had different issues and
a different mechanism. She pointed out that the Flint Hills
plant was being shut down. She acknowledged that it was
important to include all the refineries.
CO-CHAIR SADDLER expressed his agreement that there was no
attempt to disparage the other refineries in Alaska.
CO-CHAIR SADDLER directed attention to page 1, line 14, and
asked if this should be a "Resolved" statement as opposed to a
"Whereas" statement.
REPRESENTATIVE T. WILSON expressed her agreement.
CO-CHAIR SADDLER asked if she would accept a conceptual
amendment to make this change.
REPRESENTATIVE T. WILSON expressed her agreement.
CO-CHAIR SADDLER moved to adopt Conceptual Amendment 1, which
would, on page 1, line 14, delete "Whereas" and insert "Be It
Resolved that" with conforming changes.
REPRESENTATIVE JOHNSON asked if this was a motion.
1:12:18 PM
There being no objection, Conceptual Amendment 1 was adopted.
REPRESENTATIVE KAWASAKI directed attention to page 2, line 1,
and asked for the current timeline for the cleanup and how this
proposed resolution could impact the decisions made at
Department of Environmental Conservation (DEC).
1:13:23 PM
LYNN KENT, Deputy Commissioner, Office of the Commissioner,
Department of Environmental Conservation, explained that state
law made owners and operators of a contaminated property jointly
and separately liable for the contamination. She stated that
although DEC had been working primarily with Flint Hills as the
current owner, the Department of Law had recently initiated
action to bring both Williams and Flint Hills forward as
responsible parties to work out the allocation of cost. She
directed attention to the cleanup standards, acknowledging that
this standard had to be based on and supported by sound science.
She relayed that the level set by the Division of Spill
Prevention & Response was being appealed by Flint Hills, and
that it was unknown for how long this appeal process could take.
She returned attention to the question of liability, and she
offered her belief that not having the allocation of cost figure
would not have any impediment to sale of the facility, as the
state administration had offered to enter into a prospective
purchaser agreement with a new buyer, so the new buyer would not
have any liability for pre-existing contamination. She offered
her belief that neither the final clean up standard or the
allocation of costs was necessary to have clarified prior to the
purchase and operation of the facility.
REPRESENTATIVE SEATON asked for clarification that reasonable
clean-up standards supported by science would not have an impact
on the decisions that were currently under appeal.
MS. KENT replied that the clean-up standard was under appeal,
although it did not have to hold up the sale of the refinery to
a new operator.
REPRESENTATIVE SEATON asked if the language in the proposed
resolution to "expeditiously set up a reasonable cleanup
standard supported by science" would impact what DEC would look
at as the cleanup standard which it suggested.
MS. KENT deferred to the Department of Law, and opined that this
language would not influence any appeal.
1:16:42 PM
JOHN HUTCHINS, Assistant Attorney General, Oil, Gas & Mining
Section, Civil Division (Juneau), Department of Law (DOL),
expressed his agreement with the testimony from Ms. Kent.
1:17:58 PM
JOE BALASH, Commissioner Designee, Department of Natural
Resources, in response to Representative Seaton, pointed out
that restriction of the terms for a refinery to within the
boundaries of the North Star Borough would only include two
operations, and would exclude two others on the North Slope and
"two south of the range." He noted that further expansion
raised questions regarding the legislative intent for the
actions by the administration. He observed that there was the
ability to transfer the upcoming Flint Hills contract to a
prospective buyer, should a buyer be identified, as that
contract had already been reviewed and approved by the
legislature. He cautioned the committee about using price of a
royalty contract as the sole means to make any refinery
competitive in Alaska with other imported products. He opined
that there were other ways to achieve this, and that the
governor had convened a subset of his cabinet, including the
commissioners of DEC and DNR, as well as the Attorney General,
to consider ways to assist any prospective buyer of the Flint
Hills facility. They were also having extensive discussion for
the importance of maintaining the existing refineries. He noted
that there was a concern for losing other refineries. He
acknowledged that offering the royalty for sale at some discount
had been considered, although there was concern that discounting
a fraction of the royalty would lead to requests for discounts
to the remaining royalty. He noted that pricing of West Texas
Intermediate (WTI) versus Alaska North Slope (ANS) would realize
a difference of almost $150 million of royalty to the state. He
offered his belief that there were more efficient ways to ensure
Alaska based refining, and that the governor was considering
other recommendations. He noted that some of this $150 million
value would go to the producers of the royalty, whereas the
administration would prefer to find a solution to keep the
refineries healthy and keep the benefits to those refineries and
the consumers in Alaska.
1:23:43 PM
REPRESENTATIVE T. WILSON stated that she had not intended to
preclude the other refineries, and that there were other issues,
as well, that needed to be resolved. She said "all refineries
are very important and I don't want to step on any, but I just
want it done fast." She requested to have the resolution
brought back to the committee in a short time. She stated that
she would talk with the committee members to ensure that any
other questions were answered.
1:24:24 PM
CO-CHAIR SADDLER held over HCR 22.
1:24:30 PM
REPRESENTATIVE HAWKER requested that the sponsor ensure that
Flint Hills concurred with the proposed resolution.
REPRESENTATIVE T. WILSON replied that, as she wanted to ensure
that no refineries would be closed, she would broaden the
proposed resolution, and make sure that Flint Hills and the
other refineries were in support.
REPRESENTATIVE HAWKER offered his desire to have formal
endorsements to the resolution from the refineries involved.
REPRESENTATIVE T. WILSON expressed her agreement.
1:25:16 PM
REPRESENTATIVE SEATON requested that the commissioner of DNR
report whether a new contract would delay the opening of the
Flint Hills refinery, as the legislature would not be available
to approve a royalty in-kind contract which was different than
the existing contract.
HB 325-OIL SPILL PREVENTION FUND
1:26:00 PM
CO-CHAIR SADDLER announced that the next order of business is
HOUSE BILL NO. 325, "An Act increasing the balance of the oil
and hazardous substance release prevention and response fund
required to suspend the surcharge levied on oil produced in the
state; increasing the amount of the surcharge levied on oil
produced in the state that may be appropriated to the oil and
hazardous substance release prevention account; and providing
for an effective date."
1:26:16 PM
REPRESENTATIVE CATHY MUNOZ, Alaska State Legislature, stated
that she had chaired the budget subcommittee for the Department
of Environmental Conservation (DEC) operating budget for the
past two years and that the committee had closely reviewed long
term options to maintain the oil and hazardous substance release
prevention and response funding. She reported that the fund had
originally been established to provide a reliable source of
payment to the expenses incurred by DEC in responding to a
release or threatened release of oil or hazardous substances.
In the wake of the Exxon Valdez oil spill in 1989, the Alaska
State Legislature had passed a bill which levied a $0.05
surcharge on each barrel of crude oil produced in Alaska. In
1994, there was legislation to establish two separate funds, the
prevention fund and the response fund. In 2006, as oil
production was declining, there was legislation to change the
division of the receipts so that $0.04 would go to the
prevention fund to pay for DEC activities for the prevention of
oil spills, and $0.01 would be dedicated to the response fund
for major oil spill response. She relayed that the current
$0.04 surcharge for prevention activities raised about $6.5
million each year with additional interest income of about $1
million and income from fines and penalties of about $1.5
million.
REPRESENTATIVE MUNOZ said that current law applied the $0.01 to
the response fund savings account until the fund was valued at
$50 million, and then the $0.01 would be suspended. Currently,
that response fund account was valued at $49 million. She
reported that in Fiscal Year 2016, the prevention account would
operate at a $6.5 million deficit, which, due to declining oil
production, would increase to almost $8 million by FY 2022. She
acknowledged that this did not take into account new production,
as it was based on current revenue forecasts. She relayed that
the subcommittee had adopted intent language which directed the
administration to present viable, long term ideas to the
legislature for financing and managing the oil and hazardous
substance prevention and response fund. In response to this
intent language, DEC suggested the use of general funds to cover
the projected deficit. She declared that proposed HB 325 would
begin a discussion for a solution to the long term shortfall for
activities by the Division of Spill Prevention and Response.
She stated that the bill had two components. Sections 1 and 2
would maintain the $0.01 surcharge in place until the response
fund was valued at $75 million. The second component would
increase the $0.04 surcharge for the prevention activities to
$0.07, an increase of about $4.5 million in annual revenue. She
referenced a letter from the Chamber of Commerce [Included in
members' packets] which stated that prevention fund activities
reached across industries that were primarily funded by the oil
industry. She shared that the budget subcommittee had discussed
ways to spread the prevention costs, including a refined
products tax. She pointed out that the proposed bill did not
fully fund the projected deficits, and that amendments would be
considered for a broader application.
REPRESENTATIVE MUNOZ mentioned that the Division of Spill
Prevention and Response had operated efficiently, with an annual
growth over the past 10 years of 1.5 percent, and the addition
of only two full time positions during that time frame. She
reported that DEC had cut back considerably on its use of the
prevention account, noting that the department had stopped
requesting capital appropriations for the clean-up of state
owned sites in FY 2011. She said that a loan and grant program
for the removal of underground storage tanks was also withdrawn.
She declared that the core mission of the prevention account
remained to pay for operational costs and readiness activities
within the Division of Spill Prevention and Response and to work
toward preparedness and prevention of large and small oil and
hazardous substance spills. She shared that, with increasing
exploration activity, it was important to maintain a robust
spill prevention and response capacity.
1:32:55 PM
REPRESENTATIVE KAWASAKI expressed his agreement for the
difficulty to obtain funding, especially with the decline in oil
production and an aging infrastructure. Referencing the letter
from the Chamber of Commerce, he asked if there was a better way
to do this.
REPRESENTATIVE MUNOZ suggested that amendments to the proposed
bill could consider a broader application across industries,
although it had not been included in the proposed bill.
1:34:14 PM
CO-CHAIR FEIGE directed attention to the pages in the pamphlet
that referenced the spills and corresponding volume by industry,
and asked if there was a directly proportional cost between the
size of the spill and the cleanup.
REPRESENTATIVE MUNOZ deferred to DEC.
1:36:02 PM
LYNN KENT, Deputy Commissioner, Office of the Commissioner,
Department of Environmental Conservation, replied that there was
no direct proportional increase between the size and the cost of
a spill clean-up. She said that variables such as type of
material spilled and location of spill greatly influenced the
costs.
1:37:04 PM
CO-CHAIR SADDLER opened public testimony on HB 325.
1:37:18 PM
ANDY ROGERS, Deputy Director, Alaska State Chamber of Commerce,
referenced the aforementioned letter from the Chamber of
Commerce, which expressed its concerns for the proposed increase
to the per barrel tax and to the cap for the fund. He stated
that the business community had ideological opposition to a fee
targeted at one specific industry, but used to distribute
services to a larger community. He referenced the audit numbers
for the fund from 2005 - 2007, which listed administrative costs
for contaminated sites of 53 percent, while administrative costs
for prevention and emergency response were more than 72 percent.
He offered his belief that the projected deficit for the fund
could indicate the increase to the administrative costs. He
noted the concern of the business community for the targeting of
a single industry to fund operations to police a much broader
audience. He questioned the necessity of an increase, opining
that the business community would like to have the intent of the
fund addressed if a potential increase, or decrease, was
proposed to the per barrel tax levied against the producers. He
stated that these should be driven by the cost necessary to
support the intent of the fund, and not by an assigned
percentage increase. He asked about the use of technology for
clean-ups, and how legislation had refined the wording for
liability borne by spillers. He suggested that the state could
mitigate some of its responsibility to have funds on hand to
deal with spills. He suggested that there should be a basis
beyond "things get more expensive over time as an argument for a
potential increase." He again referenced the comments contained
in the letter the chamber had submitted. He expressed his
desire for more information during the upcoming discussions. He
stated that the chamber had significant concerns for immediate
percentage increases to the fund and to its cap.
REPRESENTATIVE KAWASAKI asked whether Mr. Rogers had any
suggestions for the most appropriate way to manage the fund.
MR. ROGERS replied that he did not know if he was or ever would
be qualified to offer a better way to perform spill remediation
because he was not in the industry. However, he stated, when
the business community reviewed a fund with a specified purpose
and a single funding mechanism that did not solely address
problems created by the industry, there was concern.
1:45:33 PM
CO-CHAIR SADDLER asked how other states managed to share these
expenses for funding.
1:45:47 PM
CHRISTOPHER CLARK, Chief of Staff, Representative Cathy Munoz,
Alaska State Legislature, explained that, during the
presentations on the spill response fund, they had asked what
other states were doing. He noted that the history of this fund
in Alaska was unique, as it was created prior to the 1989 Exxon
Valdez oil spill, and "then significantly tweaked thereafter."
He said that he was unsure if there were any similar funds,
although there had been discussions for the way other states
addressed the means for levying fees on industry.
1:46:43 PM
REPRESENTATIVE SEATON announced that he had three proposed
amendments: one specifically addressing a restriction to the
usage of the fund, another for diversifying the funding source,
and a third regarding fees for a review of contingency plans.
1:47:49 PM
CO-CHAIR SADDLER asked if there had been any consultation with
the Alaska Oil and Gas Conservation Commission (AOGCC) for its
perspective.
MR. CLARK replied that there had not been any discussions.
REPRESENTATIVE SEATON clarified that he was also on the finance
subcommittee for DEC.
REPRESENTATIVE P. WILSON shared that she was also on the
subcommittee, and that it had been evident that it was necessary
to increase the availability of funds, as it was functioning on
a deficit.
REPRESENTATIVE HAWKER suggested that another option was to
review the use of the money, and whether it was only being used
for its designation. He offered his belief that the money was
being used for "things that absolutely are unrelated to the
purpose for which it's being put in there, a material amount of
the money."
REPRESENTATIVE OLSON questioned whether this included the
cleaning up for soy bean spills or general training.
REPRESENTATIVE HAWKER expressed his agreement for "that kind of
thing as well as the commissioner's office, I believe,
administrative costs, it's not hard to track, just look at fund
sources in the short form of the budget." He suggested that
people would be amazed at where this money was going. He stated
that this was taking money from the oil industry "to pay the
faults of all the other industries, as well as administrative
costs that just really, in my opinion, should not be allocated
to this fund."
REPRESENTATIVE JOHNSON requested that DEC report on what
percentage of the bills was not recovered. He offered his
belief that this was an emergency fund that should be
reimbursed, and questioned what portion was not reimbursed by
industry. He suggested that a fund that was reimbursed only
needed "enough money in the pot to respond."
REPRESENTATIVE P. WILSON reported that there was an ongoing
cleanup effort which could not be discussed because of a
lawsuit, with the possibility that the state could end up paying
"an absolute huge amount."
REPRESENTATIVE JOHNSON clarified that he was not as confident
that the state was truly on the hook for expenses as the other
parties both had deep pockets.
1:52:54 PM
REPRESENTATIVE TARR asked for an update on the legacy projects
at contaminated sites, and an update on the administrative costs
at DEC as the numbers cited by Mr. Rogers differed from those
which she remembered from a presentation to the budget
subcommittee.
MS. KENT replied she did not know where the Alaska State Chamber
of Commerce got its percentages. She said that she did not have
them with her, but she would supply them to the committee.
1:54:25 PM
TOM CHERIAN, Director, Division of Administrative Services,
Department of Environmental Conservation, said that he would get
back to the committee with an answer.
REPRESENTATIVE TARR asked for more information regarding the
legacy sites.
MS. KENT, in response to Representative Tarr, said that a lot of
the contaminated sites in which DEC was involved were federal
sites, so federal grant funding was used for the clean-up. She
said that the funding by the response fund from the prevention
account for oversight was used for other privately owned sites
and state owned sites. Whenever possible, DEC tried to recover
the costs. She said that the state had stopped using prevention
account funds for clean-up of state owned or state managed
orphan sites, and, instead, requested general fund
appropriations through the capital budget. She opined that
there could still be open budgets funded from the prevention
account, although new money had not been requested from the
prevention account for several years
CO-CHAIR SADDLER asked if Representative Tarr was referring to
the Bureau of Land Management (BLM) legacy wells.
REPRESENTATIVE TARR asked if there were a number of sites that
still needed to be cleaned up, although the projects had
finished decades before, versus projects that were currently
active but would need a clean-up should there be a spill.
CO-CHAIR FEIGE requested an estimate of the revenues, as well as
a range of revenue under various scenarios, that would be raised
under the proposed amendments to be offered by Representative
Seaton. He directed a question to DEC, and inquired what the
different types of contaminants were in each of those earlier
spills in order to more equitably spread the costs to the
offending industry.
1:58:33 PM
CO-CHAIR SADDLER held over HB 325 and kept public testimony
open.
HB 367-DIESEL FUEL STORAGE TAX CREDIT
1:58:44 PM
CO-CHAIR SADDLER announced that the final order of business is
HOUSE BILL NO. 367, "An Act creating a diesel fuel storage
facility tax credit for public utilities; and providing for an
effective date."
1:59:01 PM
REPRESENTATIVE DOUG ISAACSON, Alaska State Legislature, offered
some of the history to the introduction of the bill, its need,
and its broader application. He reported that the closure
announcement by Flint Hills Refinery revealed an adverse effect
to the consumer as the availability of fuel storage,
specifically HAGO (heavy atmospheric gas oil) and LAGO (light
atmospheric gas oil), to Golden Valley Power for electricity
generation would now be limited. He explained that an
agreeable, competitive lease price between Golden Valley Power
and Flint Hills would be necessary to forego the necessity of
building new tanks for the storage of five to ten days of fuel.
He shared that the Alaska Village Electric Cooperative,
Incorporated (AVEC) had submitted a letter, dated March 17,
2014, detailing its needs and its support of the proposed bill
[Included in members' packets]. He reported that AVEC owned and
operated 47 bulk fuel tank farms, about half of which had
benefited from the Denali Commission funding for improvements.
He declared that it was necessary to address the "woeful need of
upgrades and expansion." He noted that it was not his intention
to keep Alaska indentured to diesel fuel, although it was clear
that diesel would be around for decades to come as its
infrastructure was already in place. He explained that HB 367
would offer a tax credit similar to the previously offered gas
storage credits. Although the proposed bill would allow for up
to $15 million in credit, it was more likely to be about $5
million, or 50 percent of the cost. He declared that the
proposed bill was not trying to incentivize other refined
products to Alaska, but to offer the lowest delivered cost to
the consumer in Alaska. Therefore, the beneficiaries were
restricted to Alaska regulated utilities, and he noted that the
attached fiscal note [Included in members' packets] revealed
there were not a lot of these. He declared that the proposed
bill would offer the possibility for substantial relief to the
affected communities in the service districts and minimize the
economic impact on communities dependent on Flint Hills fuel.
He said that encouraging industry and affordable power should be
of great importance to the state.
2:05:29 PM
REPRESENTATIVE P. WILSON noted that these tax credits had
originally been intended for small communities throughout
Alaska, but this proposed bill would now offer this credit to
much larger communities and would set a different precedent.
REPRESENTATIVE ISAACSON, in response, said that AVEC had not
been a past recipient and its 55 community members had not
received storage credits of this nature. He pointed out that
the proposed bill restricted this to Alaska regulated utilities.
He said that the Golden Valley Electric Association region would
continue to need HAGO and LAGO fuel until an alternative fuel
could be found for its antiquated diesel driven turbines in
North Pole. He described the maximum usage from the other
electric generation in the area. He stated that the proposed
bill would allow the opportunity for fuel storage to the
Fairbanks and North Pole area in addition to the other small
communities.
REPRESENTATIVE P. WILSON pointed out that her community "is in
the same boat certain times of the year." She relayed that the
community paid extra when it was necessary to use diesel fuel.
REPRESENTATIVE ISAACSON replied that there was currently a fuel
surcharge on each monthly bill in his region, and it was always
in excess of the cost to generate power. He declared that there
was not a firm supply of hydro power or natural gas in the
Fairbanks region.
REPRESENTATIVE P. WILSON said that she still had concerns for
the proposed bill.
REPRESENTATIVE ISAACSON explained that there were Golden Valley
Electric Association representatives to specifically address any
of her concerns.
2:10:53 PM
REPRESENTATIVE ISAACSON, in response to Co-Chair Saddler,
explained that HAGO and LAGO were specific cuts in the refining
tower, as different products were distilled at different
temperatures.
CO-CHAIR SADDLER asked what HAGO stood for.
REPRESENTATIVE ISAACSON said that he would report back to its
meaning.
REPRESENTATIVE OLSON offered his understanding that the Healy
Coal plant would be coming on line in the near future, and he
asked for clarification that this excess capacity would not be
sufficient to replace the aforementioned generators.
REPRESENTATIVE ISAACSON replied that this was his understanding,
and he deferred to Golden Valley Electric Association for more
information.
2:12:30 PM
REPRESENTATIVE SEATON requested a spreadsheet to the breakdown
in price per kilowatt from Golden Valley Electric Association
versus the remote villages included in the proposed bill.
REPRESENTATIVE ISAACSON offered his belief that AVEC and Golden
Valley could each supply this to the committee.
CO-CHAIR FEIGE shared that the power company in his district was
Matanuska Electric, a public utility and a non-profit
corporation. He questioned whether the public utility paid
taxes, and asked what tax liability the public utilities would
write this refundable credit against, as most of them were non-
profits.
REPRESENTATIVE ISAACSON, in response, directed attention to
Section 1, lines 8-9, which covered both scenarios and allowed
for a payment in lieu of a tax credit.
CO-CHAIR FEIGE asked for clarification that if there was not a
tax liability there would be a payment.
REPRESENTATIVE ISAACSON expressed his agreement.
REPRESENTATIVE SEATON requested an explanation to the uses of
the oil and gas tax credit fund mentioned on page 2 of the
fiscal note analysis [Included in members' packets] and asked if
this could deplete that fund.
REPRESENTATIVE ISAACSON replied that he would get back with an
answer.
REPRESENTATIVE TARR said that she would hold her questions
regarding the fiscal note until someone from DNR could answer
them.
2:15:32 PM
CO-CHAIR SADDLER opened public testimony.
2:15:51 PM
MEERA KOHLER, President and CEO, Alaska Village Electric
Cooperative, noted that AVEC served 55 villages which were very
dependent on diesel fuel for energy. She said that most of the
tank farms were a little bigger than 100,000 gallons, with about
22 of the tank farms still in need of upgrades. She said that
this opportunity for a tax credit for half of the cost for
refurbishing the tank farms was "extremely attractive and very
important because otherwise the only opportunity we would have
is to take out loans that simply adds costs to very, very high
cost of electricity already."
REPRESENTATIVE TARR asked if the 22 tank farms in need of
upgrades were each a separate entity to apply for the proposed
tax credit.
MS. KOHLER, in response, said that the 22 tank farms all
belonged to the Alaska Village Electric Cooperative, although
there may be other public utilities that were looking to improve
diesel fuel storage facilities. She said that the State of
Alaska was making an updated assessment of tank farms, as it had
not been done since the late 1990s, and that this would give an
idea of the continuing need. She explained that the local
utility in a small village could be run by the local city
government or the local tribal corporation, which often did not
have a lot of borrowing capacity. She stated that even with
this credit, it would still be necessary for them to find
outside financing to supplement the remainder of the cost. She
questioned the demand from these small villages because of this
cost. She reported that utilities similar to AVEC which were
funded through loans from the Rural Utility Collaborative or
private lenders had the ability to leverage the money from this
tax fund. She stated that AVEC did pay a gross receipts tax as
a cooperative, which was a modest tax back to the state. She
said that the tax break was not a significant component for
AVEC.
CO-CHAIR SADDLER asked if there was an estimate to the cost of
the upgrade to the aforementioned 22 tank farms.
MS. KOHLER, in response, explained that a small tank farm in a
village scenario would cost about $12-$13 per gallon for a
capacity of about 150,000 to 200,000 gallons; however, in a
larger tank farm, 500,000 gallons to a few million gallons, it
would cost about $2-$2.50 per gallon. She said that a major
refurbishment of the existing tank farms, salvaging whatever
tanks possible, would cost about $1 million for a 150,000 gallon
tank farm. She estimated a total investment of about $70-$75
million to refurbish all 22 tank farms.
REPRESENTATIVE TARR asked if AVEC could apply for the credit
from all the projects it was working on.
MS. KOHLER offered her belief that this would be the case,
although she opined that the intent of the bill was to support
facilities which began work after the effective date of the
bill. She said that AVEC did not work on more than 2-3 tank
farms each year, which would be an investment of about $5-$7
million each year for tank farm upgrades and refurbishments.
2:24:53 PM
REPRESENTATIVE SEATON, referring to page 2, line 4 of the
proposed bill, read that a storage facility would not qualify if
it had been in operation as a diesel fuel storage facility
before the effective date of the proposed bill. He offered his
belief that the proposed bill was only referencing new tank
farms and new tanks, and not refurbishments or upgrades.
MS. KOHLER offered her understanding that the intent was to not
include facilities which were completed prior to the effective
date, but that an existing tank farm of more than 100,000
gallons would qualify for funding toward a substantial
refurbishment.
CO-CHAIR SADDLER offered his belief that the proposed language
said that if the facility, and not a specific tank, were used as
a diesel facility, it would not qualify.
REPRESENTATIVE ISAACSON replied "that's one of the tweaks we'll
bring back to you."
MS. KOHLER, in response to Co-Chair Feige, said that AVEC tank
farms were under US Coast Guard and EPA jurisdiction, and were
inspected two to three times each year, with minor maintenance
performed throughout the year. She reported that EPA
requirements would necessitate stricter testing to ensure tank
integrity. She acknowledged that it was an ongoing struggle to
add extra cost to an already expensive bill to pay for upgrade
projects. She said that AVEC spent about $1 million annually on
tank farm operations, and that there was not very much money
left. She called it "a hand to mouth existence."
CO-CHAIR FEIGE asked how much money did AVEC set aside for
programmed replacement of tanks, or were they simply looking to
the State of Alaska for capital money for replacements.
MS. KOHLER replied that AVEC had never looked to the state for
funds to replace tank farms, as it had never been available.
She said that the funding from the Denali Commission had been
the first time that any significant money had been put into
major upgrades to the tank farms. She shared that the gross
revenue from non-fuel sources was about $18 million annually,
which paid for generation maintenance, overhauls, tank farm
operations and maintenance, spill response, and administration,
noting that "there has never been a lot available." There had
not been a lot of investment since the initial investments in
tank farms 40 years prior. She reported that there would be
$100,000 - $150,000 on an individual tank farm for a major
refurbishment on a couple of locations on an annual basis. She
pointed out that this only addressed the electric utility and
did not address the remaining 75 percent of tank storage in a
village which was non-utility.
CO-CHAIR SADDLER asked that she report back to the committee
with "a clear idea of the total cost that what it might take to
refurbish the tanks that your co-operatives rely on."
REPRESENTATIVE P. WILSON noted that page 2 stated that
qualification for the credit in this section required that a
diesel fuel storage facility must have a diesel derived fuel
volume of at least 100,000 gallons. She pointed out that, as
there had been testimony to a need for smaller facilities, this
should be adjusted.
2:32:24 PM
CO-CHAIR SADDLER opened public testimony on HB 367.
2:32:59 PM
LUKE HOPKINS, Mayor, Fairbanks North Star Borough, said that
ensuring that the borough and the surrounding region had enough
diesel fuel storage for electrical generation was an important
piece for financial relief to the electric cooperative
association.
2:34:19 PM
COREY BORGESON, President and CEO, Golden Valley Electric
Association (GVEA), said that the potential closing of the Flint
Hills Refinery brought a significant number of issues to GVEA,
and that fuel storage was one of them. He acknowledged that
Flint Hills had control of a significant amount of storage, on
what was considered a very contaminated site. He declared that
it was essential for GVEA to have its own storage facilities for
HAGO and LAGO from the North Pole refinery. He said that HAGO
could not be transported into Alaska, as it needed warmer
temperatures for transportation. He remarked that an alternate
fuel source, even with the Healy Coal plant and LNG trucking
project, would always be needed in the community. He declared
that the fuel storage was very important to the utility.
REPRESENTATIVE OLSON asked for the approximate price for power
generated by the two generators at Flint Hills versus the price
for coal at the Healy plant.
MR. BORGESON explained that these were measured in different
ways. In kilowatt hours when dispatching the power, the
generators had a cost of $0.23 per kilowatt hour for HAGO fuel
and $0.16 per kilowatt hour for naphtha fuel. He reported that
the utility spent about $61 million on naphtha and $13 million
for HAGO.
CO-CHAIR SADDLER asked about the coal cost.
MR. BORGESON replied that the cost was about $0.65 per kilowatt
hour for fuel, although including labor would be about $0.12 per
kilowatt hour.
MR. BORGESON, in response, said that the turbines at Flint Hills
generated about 180 megawatts and the coal plant generated an
additional 50 megawatts.
REPRESENTATIVE P. WILSON asked for the amount of tank storage at
the Flint Hills facility.
2:42:12 PM
LYNN THOMPSON, Vice President for Power Supply, Golden Valley
Electric Association (GVEA), said that GVEA had 50,000 gallon
storage tanks each for HAGO and naphtha, and that GVEA relied on
the Flint Hills refinery to pipe in product for the turbines
when they were being operated.
2:42:52 PM
ANNA ATCHISON, Kinross Fort Knox Mine, said that the mine was
the largest gold producer in Alaska, and that it was the largest
customer to GVEA, as it took a lot of power and fuel to produce
gold from a low grade ore body. She relayed that the mine used
about 24 million kilowatt hours each month, the second largest
non-labor cost. She pointed out that the mine was the fifth
largest private employer in the borough, and, as its employees
also lived in the area, they were also affected by the
uncertainty for the future of energy, especially since the
announcement for the closure of the Flint Hills Refinery. She
declared support for HB 367 and the efforts of GVEA to reduce
and stabilize power costs for all rate payers.
MS. ATCHISON, in response to Representative Seaton, offered her
belief that the mine paid about $0.19 per kilowatt hour for
electricity to the mine, although she could get back to the
committee with an exact number.
2:45:00 PM
JOMO STEWART, Energy Project Manager, Fairbanks Economic
Development Corporation, spoke in support of HB 367, noting that
energy was "a big, big deal" when people live in a cold, dark
metropolitan area. He said that it was a necessary component of
the economy and that its availability, affordability, and
reliability impacted all the other aspects of the economy. He
directed attention to earlier efforts by the state to recognize
this necessity for energy storage. He listed state programs
which included participation with the Denali Commission, and
various energy and LNG storage tax credits including the Cook
Inlet tax incentives and credits. He reiterated support for
proposed HB 367.
2:47:04 PM
CO-CHAIR SADDLER closed public testimony and held over HB 367.
2:47:34 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:47 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB325 AP Stories.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 Conservation Surcharge on Oil Statutes.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Budget Sub Presentation.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Budget Sub Slide.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Oil & Haz Prev Account Report.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 Sectional Analysis.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 Sponsor Statement.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 Version A.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325-DEC-RFA-03-14-14.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325-DOR-TAX-3-14-14.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB367 AVEC Letter.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 367 |
| HB367 GVEA Letter.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 367 |
| HB367 Sponsor Statement.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 367 |
| HB367 Version C.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 367 |
| HB367-DOR-TAX-03-14-14.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 367 |
| HCR 22 ADN Article i.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 ADN Article ii.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 ASRC White Paper.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 Clarion Article i.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 EIA FAQ.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 Cook Email.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 Hazardous Substances Statutes.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 News-Miner Article i.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 News-Miner Article ii.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 News-Miner Article iii.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 News-Miner Article iv.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 Proposed Sale.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 Sponsor Statement.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 Sulfolane Investigation.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR22-LEG-SESS-3-15-14.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 DNR Document i.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 DNR Document ii.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HCR 22 DNR Document iii.pdf |
HRES 3/17/2014 1:00:00 PM |
HCR 22 |
| HB325 Alaska Chamber Letter.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 Version A.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Response 3.26.14, Doc 1.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Response 3.26.14, Doc 2.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |
| HB325 DEC Response 3.26.14, Doc 3.pdf |
HRES 3/17/2014 1:00:00 PM |
HB 325 |