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