Legislature(2001 - 2002)
04/18/2001 01:44 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 236
"An Act relating to the contracting and financing
authority of the Alaska Industrial Development and
Export Authority; authorizing the authority to issue
bonds in a principal amount not to exceed $76,000,000
to finance the acquisition, design, construction,
inventory, and operation of natural gas, propane air,
or manufactured gas public utility facilities; and
providing for an effective date."
RANDY RUARO, STAFF, REPRESENTATIVE WILLIAMS testified in
support of the legislation. He explained that the
legislation would provide the legislative approval necessary
for the Alaska Industrial Development and Export Authority
(AIDEA) to review the Southeast and Gulf of Alaska gas
project for bond funding, required under AS 44.88.095(g) for
projects over $10 million dollars. Approval does not mean
that the project would be funded as there are other
statutory requirements. There is a zero fiscal note.
Co-Chair Williams noted that it was not his intention to
move the bill from committee at that time.
PAUL RUSANOWSKI, SENIOR VICE PRESIDENT OPERATIONS, ALASKA
INTRASTATE GAS COMPANY, ANCHORAGE spoke in support of HB
236. He noted that the project would bring utility gas
utility service to Southeast and Gulf of Alaska communities.
The project is based on the production, transportation and
storage of liquid natural gas, liquid petroleum gas and
manufactured gases. The company is approved by the Alaska
Public Utilities Commission in 17 communities and is
involved in long-term operations and maintenance of local
gas distribution systems. They contract with communities to
provide gas supplies and marine transportation. The
communities involved include: 4 in the Gulf of Alaska and 13
in Southeast Alaska. The legislation would allow them to
expand to include five more communities in Southeast Alaska.
Juneau, Ketchikan, Sitka and Kodiak would be the largest
communities served. He projected a residential load of 5
billion cubic feet annually (for all four communities
combined) within 5 years of startup. He estimated that an
additional 3.7 billion cubic feet of commercial and
industrial loads would be available. He stated that there
would be 10 to 12 billion cubic feet annually, about 10
years out in the project.
Mr. Rusanowski provided members with a handout of slides
that were projected during his presentation(copy on file).
He reviewed the slides. He noted that gases move through
pipes to a processing facility and are stored and
transported. They are then re-injected into storage fields
and stored as liquids. Supplies would come from Prince
Rupert, which is the closest point.
Mr. reviewed major components of the project: acquisition of
gas supplies, transportation, storage and distribution. Gas
would come from Northern British Columbia and Southern Yukon
Alberta and Prince Rupert Canada have active gas fields.
Marine transportation involves three different modes: a
barge (1 million gallon capacity), railcar aqua train
(180,000 and 500,000 existing capacity) and existing small
bulk gas carriers (500,000 to 2 million capacity).
Representative Croft questioned what would happen in the
event of a collision or spill of a liquefied gases. Mr.
Rusanowski explained that they would float out on the water
and vaporize. Some would dissolve in the water but most
would be vaporized. There would not be an expulsion. The
double haul is designed to prevent damage to the internal
tanks. It is easier to repair the hull than to repair the
tanks. The purpose is not containment.
Mr. Rusanowski showed slides of existing facilities (copy on
file.) He stressed that the residential and small business
service is their focus. Residential service is expected at
$7.25 dollars per cubic feet and $7.95 dollars monthly
service charge. He compared the proposed rate with other
states. The rate would be about .40 cents above the national
average, but competitive to Northeastern states.
Once gas comes to the communities operations and management
costs would be under the control of the company. Debt
service is 30 percent. Fuel represents 62 percent of the
cost structure and transportation represents 32 percent. He
emphasized that efficiency would impact costs. Wholesale
liquid petroleum prices from Canada during the last 4 years
have ranged from .20 to .40 cents. He estimated their cost
at .25 to .30 cents a gallon.
Representative Croft noted that prices have increased in the
last years. Mr. Rusanowski agreed that prices had gone up,
but explained that the higher prices are not holding. He
explained that natural gas is a single carbon methane
molecular. Liquid petroleum gases are gases at near normal
temperature such as ethane, propane, and butanes. He
explained that liquid petroleum gases are now being put into
the natural gas stream in pipelines throughout North
America. The natural gas stream had been previously returned
to oilfields to maintain pressure or used to create
specialty products such as bottled propane. Propane stores
well and indefinitely. All the gases that go into the
pipeline are indistinguishable at the burner tip. Each one
provides a different amount of energy. Gases are balanced to
provide a stable energy content.
Mr. Rusanowski compared petroleum gases to crude oil. He
noted that their prices are linked. When there are peaks in
crude oil prices, petroleum gases do not follow as sharply.
Mr. Rusanowski referred to community energy surveys. He
noted that the annual energy consumption in Southeast Alaska
is 165 million BTU per year. The average cost of fuel oil in
rural Southeast Alaska was $1.74 dollars per gallon in 1999.
The average annual cost of fuel is $2,700 dollars a year in
small communities.
TAPE HFC 01 - 85, Side B
Mr. Rusanowski discussed savings for rural homeowners. He
estimated that there would be a 15 to 40 percent savings.
Those with the highest electric rates have the best savings.
Representative John Davies questioned what assumptions were
made regarding amortization of infrastructure costs. Mr.
Rusanowski noted that those cost were not included. An
incentive program was built in to allow cost recovery of
those modifications in 5 years or less.
Mr. Rusanowski reviewed a slide that compared the gas and
electric cost to operate a clothes dryer in Anchorage and
their service area (page 7 of handout). He concluded that
the stable pricing structure makes it advantageous to
convert to gas.
Mr. Rusanowski explained that their estimates use a 9-year
build out scenario. He added that they expect the actual
build out to be only 6 to 7 years. He anticipated a bump in
the fourth year as the first three communities come on line
and then steady growth from that point.
Mr. Rusanowski discussed marketing incentives, which would
make it in the interest of the public to convert. Juneau,
Ketchikan and Sitka would be the first communities to
receive services. Klawock and Craig would most likely be the
next two served.
Representative Croft noted that Angoon and Kake have the
lowest percent benefit and questioned why they would be
among the first served. Mr. Rusanowski noted that the
scenario is based on transportation logistics. The plan
takes advantage of the fact that the route would go by these
communities, because of the size they could be engineered
quickly. Savings would be less in these smaller communities
due to the cost for waterfront storage and send out
facilities. The infrastructure is the same in every
community. There is a small population to serve, but a large
volume of gas still needs to be available. There are fewer
people to amortize against.
Mr. Rusanowski noted that there would be 200 or more jobs
created during construction. There would be 15 permanent
full time jobs created in Juneau, another 35 jobs throughout
other areas of Southeast Alaska and 50 or more related
secondary industry jobs.
Mr. Rusanowski observed that there would be an equity
investment of $11.5 million dollars and loans of $45 million
dollars. There would be internally generated revenues of $13
million dollars. Infrastructure costs in the communities
would be $45 million dollars.
Mr. Rusanowski pointed out that HB 239 would provide
legislative approval for a utility project of over $10
million dollars and authorizes a bond limit of $76 million
dollars. There would be a sunset date of July 1, 2006 for
issuance of bonds. This would allow focus on the development
and finance program in AIDEA, which would target
development, ownership and operation of facilities like
road, ports and utilities. These projects would need to be
essential to the economic well being of the area,
financially feasible and supported by local communities. The
project would move into the due diligence and economic
feasibility review with AIDEA when the legislation is
passed.
Representative Whitaker asked if there is a downside to the
project. Mr. Rusanowski did not think there would be a
downside to introducing gas utilities to the communities.
The service would enhance infrastructure and provide
different opportunities. Some employees could be displaced
as the use of fuel oil is decreased but there would be an
increase in gas related jobs. He maintained that communities
would be more attractive for development and acknowledged
that some could view this negatively. Gas provides a clean
fuel source with environmental benefits. He discussed the
benefits, such as a reduction in pollution.
Representative Whitaker concluded that the project would
bring economic growth and opportunity. He questioned the gas
source.
Mr. Rusanowski noted that they have agreements with Amoco
Canada (the largest holder of gas reserves in Canada). He
stressed that Alaskan gas would be used when available and
Cook Inlet gas would be used if additional reserves are
discovered.
Mr. Rusanowski noted that average household consumption is
165 million BTU per year. The American Gas Association
estimates 170 million BTU per year.
Representative Whitaker questioned if the high price of gas
in the market was an anomaly and what factors could lower
the price. Mr. Rusanowski pointed out that gas and oil have
generally been coupled. They were decoupled during the last
excursion in prices. This has only happened one other time
in the past 30 - 40 years. Wholesale gas prices rose from
$2.50 - $3.50 per million BTU's to $13 dollars. The federal
government cost projection is $4.00 dollars by next year.
The current cost is $5.00 dollars per BTU. There has been an
increase in gas exploration.
Representative Whitaker disagreed that there would be a
significant reduction of the value of gas. Supply is still
out stripping demand. The futures market indicates that the
prices will remain high. He expressed support for the
project.
Mr. Rusanowski noted that the competition is with fuel oil
prices. As long as fuel oil prices remain high (they are
currently at $28 dollars) it doesn't matter what gas is.
Representative Lancaster noted that the project was
originally to bring gas from Alaska. Mr. Rusanowski
explained that the Cook Inlet reserves were in question. A
10-year reliable gas source is needed. They were unable to
secure a long-term commitment for gas from Cook Inlet. He
noted the intent to return to Alaskan gas when it is
available.
Representative Lancaster clarified that it is not their
intent to generate power. Mr. Rusanowski noted that they
would need certificates from the Regulatory Commission [in
order to generate power]. They could not sell gas for power
generation without approval.
Representative Lancaster questioned the cost of the
feasibility study. Co-Chair Williams explained that it would
go before AIDEA and that AIDEA would incorporate the cost.
The legislation only puts the project before AIDEA for
consideration. Mr. Rusanowski added that it would be a year
or two out before bonding would take place.
Representative John Davies asked if the AIDEA proposal would
come before the legislature.
KATELYN MARKLEY, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY (AIDEA) testified via teleconference. She
clarified that the once the legislature provides the bond
authorization a due diligence process by AIDEA would have to
be completed. This includes a feasibility study to determine
that the project is advantageous to the state of Alaska.
Sources and uses of funds would then be reviewed. Sufficient
revenues for debt and operation would have to be
demonstrated. The Alaska Industrial Development and Export
Authority would do a risk analysis and market review. They
would also review the credit strength of participants,
demand on public facilities, and adverse affects on
communities. They would also assess job creation and
determine if it is consistent with bonding authorization.
The projects would also have to be approved by the
communities. The project would not come before the
legislature again. Once the feasibility study is completed
the AIDEA board would approve or disapprove the project.
Representative Harris noted that the project would provide
possibilities to reduce rural utility costs. He asked the
process involved to gain approval from the Alaska Regulatory
Commission to sell gas to a utility system.
Mr. Rusanowski stated that it would make sense for some
communities to consider [the use of gas to generate power].
There would have to be a fully operational and functioning
gas utility in the community with an alternative fuel source
readily available for the electric utility. The electric
utility could approached the gas company. The gas utility
would have to assess their reserves to see if there are
sufficient reserves and how it would affect their customers.
The analysis would then be used to approach the Regulatory
Commission with the electric utility to apply for the right
to sell gas for the purpose of generating electricity. If it
is determined to be in the public's interest they would
determine the rate and conditions for sale. It would be
initiated by the electric utility. The Regulatory Commission
could determine that the rate should be higher or lower
depending on cost and the service being provided by the gas
utility. The regulatory prices would determine the
legitimate charges for the service.
HB 236 was heard and HELD in Committee for further
consideration.
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