Legislature(2019 - 2020)ADAMS ROOM 519

05/11/2019 09:00 AM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Heard & Held
-- Public Testimony --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 87(FIN) Out of Committee
HOUSE BILL NO. 87                                                                                                             
     "An Act extending the liquefied natural gas storage                                                                        
     facility tax credit; and providing for an effective                                                                        
10:04:21 AM                                                                                                                   
Co-Chair  Wilson  referenced  the document  she  distributed                                                                    
earlier  in the  member's  packets  titled "Interior  Alaska                                                                    
Natural   Gas  Utility   Schedule   of  Sustainable   Energy                                                                    
Transmission  and Supply  (SETS)  Loan Funds  as  of May  9,                                                                    
2019" (copy  on file).  She emphasized  that the  SETS funds                                                                    
were a loan  fund. She questioned where the  funding to move                                                                    
the tanks from  Fairbanks to the North Pole  would come from                                                                    
and if  the project would  only supply Fairbanks  if funding                                                                    
was insufficient.                                                                                                               
DAN   BRITTON,   INTERIOR   GAS  UTILITY,   FAIRBANKS   (via                                                                    
teleconference),  reviewed the  formerly cited  document. He                                                                    
pointed to the SETS fund  totaling $125 million. He read the                                                                    
following from the document:                                                                                                    
          North Pole Distribution System     $29,346,778                                                                        
          Fairbanks Distribution System      $14,806,184                                                                        
          Fairbanks 5.25M Gallon Storage Facility                                                                               
          North Pole Storage Facility        $678,542                                                                           
          Pentex Acquisition                 $21,208,913                                                                      
          Total Proceeds Used                $103,066,697                                                                       
          Remaining Loan Proceeds            $21,933,303                                                                        
     Remaining Committed Project Uses                                                                                         
          Fairbanks 5.25M Gallon Storage     $18,147,587                                                                        
          Fairbanks and North Pole Customer Service                                                                             
          Connections                        $1,992,250                                                                         
          North Pole Storage Facility        $993,466                                                                           
          Titan 2 & 3 FEED                   $800,000                                                                         
          Total Remaining Committed Project Uses                                                                                
          Remaining Loan Proceeds            $0                                                                                 
Mr.  Britton  indicated  that the  Interior  Energy  Project                                                                    
(IEP)  had  the  ability  to  issue  Conduit  Revenue  Bonds                                                                    
through Alaska  Industrial Development and  Export Authority                                                                    
(AIDEA)  that was  backed  by the  moral  obligation of  the                                                                    
state of up  to $150 million. The project  hired a financial                                                                    
advisor  and  began  the  process   of  preparing  the  bond                                                                    
package. The  initial bond issuance would  total $75 million                                                                    
to cover  the cost to  construct the liquefaction  plant and                                                                    
Fairbanks   Gas  Storage   Facility.  The   IEP  secured   a                                                                    
commitment of $14  million in funding from a  local bank and                                                                    
requested access to  a $7.5 million line of  credit from the                                                                    
Fairbanks North  Star Borough who assessed  whether to allow                                                                    
the line of  credit to proceed. He concluded  that the short                                                                    
term funds and the bond  funding he described were the funds                                                                    
IEP would employ to fund the projects.                                                                                          
10:09:23 AM                                                                                                                   
Co-Chair Wilson asked for verification  that the project was                                                                    
over  $200 million  in  debt. Mr.  Britton  answered in  the                                                                    
negative. He  clarified that the total  indebtedness was the                                                                    
$125  million  in  SETS funding.  The  bond  issuance  would                                                                    
subsequently create  a total  indebtedness of  $200 million.                                                                    
The SETS loans had a  15-year deferral accruing no principal                                                                    
payments  or  interest  along  with  an  additional  5  year                                                                    
further deferral  if the conversion process  was slower than                                                                    
anticipated.  The  $125 million  was  flexible  debt put  in                                                                    
place  by  the  legislature  to  remove  some  of  the  risk                                                                    
associated with the conversion.                                                                                                 
Representative Knopp asked  about the construction timeframe                                                                    
and total  cost associated with the  liquefaction plant. Mr.                                                                    
Britton answered  that the  liquefaction expansion  cost $50                                                                    
million. He  explained that construction  was on  a two-year                                                                    
timeframe  beginning in  the fall  of  2019 and  an RFP  was                                                                    
issued for liquefaction and  pretreatment equipment that was                                                                    
part of the front end engineering and design process.                                                                           
10:11:28 AM                                                                                                                   
Vice-Chair Johnston  MOVED to  ADOPT the  proposed committee                                                                    
substitute (CS)  for HB 87, Work  Draft 31-LS0619\U (Nauman,                                                                    
5/9/19). There being NO OBJECTION, it was so ordered.                                                                           
Co-Chair Wilson  asked for her  staff to review  the changes                                                                    
in the CS.                                                                                                                      
LYNN GATTIS,  STAFF, REPRESENTATIVE TAMMIE  WILSON, reviewed                                                                    
the changes  in the CS. She  relayed that on page  1, line 7                                                                    
the date  was changed  from January 30,  2021 to  January 1,                                                                    
2021 and on  page 2, line 9 (a) $7.5  million was changed to                                                                    
$5 million. She  added that on page 2, lines  10 (b) through                                                                    
11 were deleted.                                                                                                                
Representative LeBon discussed that  the North Pole facility                                                                    
tanks  were currently  located in  South Fairbanks  and were                                                                    
previously owned by Fairbanks  Natural Gas. He asked whether                                                                    
he  was  correct. Mr.  Britton  affirmed  the statement.  He                                                                    
furthered  that  the North  Pole  facility  would allow  the                                                                    
tanks to be moved to  that location. The relocation required                                                                    
the  installation  of  vaporization  equipment  to  vaporize                                                                    
liquid natural  gas (LNG). Representative  LeBon ascertained                                                                    
that the  IEP had  two parts:  The Fairbanks  component that                                                                    
included  the 5.25  million tank  that  was currently  under                                                                    
construction  and  the North  Pole  component  that was  not                                                                    
connected to  the Fairbanks market. He  wondered whether his                                                                    
statement  was  accurate.  Mr.   Britton  responded  in  the                                                                    
affirmative.  He elaborated  that the  two systems  were not                                                                    
connected at  present but would eventually  be connected and                                                                    
the same  rates would be  charged. They would be  managed as                                                                    
one service  area but were  currently independent.  The only                                                                    
way to  provide gas  service in  North Pole  was to  add the                                                                    
storage facility that  would provide LNG to  pipes that were                                                                    
currently  under  nitrogen  pressure.  Representative  LeBon                                                                    
asked how  large the North  Pole piece was in  comparison to                                                                    
the Fairbanks  component. Mr. Britton answered  that the IEP                                                                    
had installed 72  miles of the distribution  system in North                                                                    
Pole and  Fairbanks had over  140 miles of  the distribution                                                                    
system  with  plans to  expand  the  North Pole  system.  He                                                                    
elucidated  that   the  demand   primarily  came   from  the                                                                    
Fairbanks  area.  North Pole  would  account  for around  35                                                                    
percent  of  the  total  demand  versus  the  core  area  of                                                                    
Fairbanks at 65 percent.                                                                                                        
10:16:47 AM                                                                                                                   
Representative  LeBon asked  if  the LNG  supply lines  were                                                                    
almost  completed. Mr.  Britton answered  that the  Interior                                                                    
Gas Utility (IGU) had completed  most of the Phase 1 planned                                                                    
distribution  system and  the next  phases of  expansion for                                                                    
North  Pole  would  come  in  future  years  when  expansion                                                                    
estimates were confirmed, and the demand increased.                                                                             
Co-Chair  Wilson asked  why the  two systems  were separate.                                                                    
Mr. Britton  answered that until  June 2018 the  two systems                                                                    
had  been  under  separate ownership.  They  were  currently                                                                    
under  common ownership  through the  purchase of  Pentex by                                                                    
IGU,  which provided  the   opportunity to  connect the  two                                                                    
systems. The original system was  not designed for expansion                                                                    
into the  North Pole.  Providing service  to the  North Pole                                                                    
required  proper  pressure  that  necessitated  the  storage                                                                    
facility in North Pole.                                                                                                         
10:18:39 AM                                                                                                                   
Vice-Chair  Ortiz  asked  whether  HB 87  extended  the  tax                                                                    
credit  program  for  up  to   $15  million.  He  asked  for                                                                    
Co-Chair Wilson  replied in the negative.  She detailed that                                                                    
the project  was extended  for one year  and the  cost could                                                                    
not exceed more  than $5 million; any  additional amount was                                                                    
not covered  under the  tax credit  program and  the project                                                                    
had to  be completed  to the  point of  commercialization to                                                                    
qualify for  the credit.  She clarified  that that  the "old                                                                    
program" that  included the $15  million tax  credit program                                                                    
expired on  the date  as planned. The  bill provided  a one-                                                                    
year extension  and lowered  the credit  to $5  million. She                                                                    
added  that  if  the  IGU could  commercialize  its  storage                                                                    
plants by  December 31,  2019 they  would still  be eligible                                                                    
for  the $15  million tax  credit, failing  that they  would                                                                    
fall   under  the   $5   million   plan.  Vice-Chair   Ortiz                                                                    
appreciated the clarification.                                                                                                  
Co-Chair  Wilson offered  that the  Fairbanks areas   energy                                                                    
costs  were not  equalized with  of  the cost  of energy  in                                                                    
Anchorage,  but  she desired  an  eventual  end of  the  tax                                                                    
credit program.  She learned  that areas  of the  Mat-Su and                                                                    
bush still heavily relied on diesel fuel.                                                                                       
Representative Carpenter  wondered about the length  of time                                                                    
it  would take  to  repay the  tax  credit. Co-Chair  Wilson                                                                    
answered that the project would  not generate revenue to the                                                                    
state. The project was a  benefit to the Interior for paying                                                                    
a high cost for energy for many years.                                                                                          
Vice-Chair Ortiz asked if the $5  million would be a part of                                                                    
the  bonding   option.  Co-Chair  Wilson  answered   in  the                                                                    
negative and  added that bonding  would come first  in order                                                                    
to complete the  Fairbanks project. The IEP had  to be ready                                                                    
for commercialization  by the deadlines  to be  eligible for                                                                    
the tax credit. She noted that  there was a chance IEU would                                                                    
not  complete  the  program  in  time;  therefore,  the  tax                                                                    
credits would be void.                                                                                                          
10:23:47 AM                                                                                                                   
Vice-Chair Johnston asked about the fiscal note.                                                                                
Co-Chair Wilson  answered that the bill  reduced the maximum                                                                    
amount of the credit to $5  million of the costs incurred to                                                                    
establish or  expand the facility if  the facility commences                                                                    
commercial operation on or after  January 1, 2020 and before                                                                    
January 1, 2021. She explained  that the tax credit depended                                                                    
on the  timing of the  projects  completion and  whether the                                                                    
Department  of  Revenue  (DOR) bond  issuance  for  the  tax                                                                    
credits was sufficient  to include the credits  for IEP. The                                                                    
project would have to wait  in line behind other tax credits                                                                    
or may  never receive  it, since  it ultimately  depended on                                                                    
appropriation by the legislature.                                                                                               
10:25:04 AM                                                                                                                   
Vice-Chair  Johnston MOVED  to  REPORT CSHB  87(FIN) out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal note.                                                                                                       
CSHB 87(FIN)  was REPORTED  out of  committee with  four "do                                                                    
pass"   recommendations   and    six   "no   recommendation"                                                                    
recommendations and  with one new indeterminate  fiscal note                                                                    
from the Department of Revenue.                                                                                                 
10:25:52 AM                                                                                                                   
AT EASE                                                                                                                         
10:27:25 AM                                                                                                                   

Document Name Date/Time Subjects
HB 87 CS WORKDRAFT FIN v.U.pdf HFIN 5/11/2019 9:00:00 AM
HB 87
HB 87 SETS Loan Funds Interior.pdf HFIN 5/11/2019 9:00:00 AM
HB 87
SB 74 Additional Document - FY15-FY19 School BAG By District - DEED 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Additional Document - FY 2019 School BAG Awards by District and School - DEED 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Additonal Document - AK Broadband and Satellite Networks Map 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Additonal Document - FY2019 Schools Under 25 - DEED_FCC 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 AK Networks through 2010.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 AK Networks through 2017.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Oppose Document 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Sectional Analysis 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Sponsor Statement 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Summary of Changes 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Supporting Document (2) 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
SB 74 Supporting Document 5.10.19.pdf HFIN 5/11/2019 9:00:00 AM
SB 74
HB139 Sponsor Statement 4.17.19.pdf HFIN 5/11/2019 9:00:00 AM
HB 139
HB139 Supporting Information- APFC 4.17.19.pdf HFIN 5/11/2019 9:00:00 AM
HB 139