Legislature(2001 - 2002)

03/05/2002 09:08 AM House CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                         March 5, 2002                                                                                          
                           9:08 a.m.                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW:   ALASKA DEPARTMENT  OF EVIRONMENTAL  CONSERVATION LOW-                                                               
SUFLUR DIESEL SULFUR FUEL REQUIREMENTS.                                                                                         
                                                                                                                                
TAPES                                                                                                                         
                                                                                                                                
02-14, SIDES A & B                                                                                                              
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Representative  Carl   Morgan  Co-Chair,  reconvened   the  House                                                               
Community  and Regional  Affairs Standing  Committee to  order at                                                               
approximately 9:08  a.m.  [Minutes pertaining  to the legislation                                                               
heard this  day can  be found  in the 8:10  a.m. minutes  for the                                                               
same date.]                                                                                                                     
                                                                                                                                
PRESENT                                                                                                                       
                                                                                                                                
Committee  members present  were  Representatives Morgan,  Meyer,                                                               
Murkowski, Guess, and Kerttula.                                                                                                 
                                                                                                                                
SUMMARY OF INFORMATION                                                                                                        
                                                                                                                                
DAVID  ROGERS,  Deputy  Director,   Division  of  Air  and  Water                                                               
Quality,  Department Environmental  Conservation;  and RON  KING,                                                               
Program Manager  of the  Air and Nonpoint  and Mobile  Sources at                                                               
Department   Environmental  Conservation   (DEC)  presented   the                                                               
committee  with   information  on   the  December   2000  Federal                                                               
Environmental Protection  Agency (EPA)  rule to  reduce emissions                                                               
of particulate  matter (PM)  and Nitrogen  Oxide (NOx)  from year                                                               
2000 and newer large trucks and buses.                                                                                          
                                                                                                                                
MR. ROGERS  referred to his  handout entitled,  "Alaska Ultra-Low                                                               
Sulfur Diesel  Fuel Transition  Plan", to  describe the  types of                                                               
vehicles covered [and  not covered] by the rule.   [A copy of the                                                               
handout and presentation are included in the committee packet.]                                                                 
                                                                                                                                
MR. ROGERS explained  that to meet the  EPA ruling, manufacturers                                                               
would  have to  install  after-treatment  devices. These  devices                                                               
require  the  use of  "ultra-low  sulfur  diesel fuel"  having  a                                                               
sulfur  content  of 15  parts  per  million  (ppm).   That  is  a                                                               
considerable lower sulfur content  than fuel currently being used                                                               
in Alaska.  Non-use of the  low sulfur fuel will result in engine                                                               
and  warranty  problems.    Alaska  may  be  exposed  to  federal                                                               
penalties.                                                                                                                      
                                                                                                                                
MR. ROGERS explained further that it  is a health issue and there                                                               
will  be a  90  percent reduction  in  PM and  NOx  with the  new                                                               
equipment  in the  vehicles.   He briefly  explained the  adverse                                                               
health and environmental effects from PM and NOx.                                                                               
                                                                                                                                
MR.  ROGERS said  ultra-low sulfur  diesel  fuel will  be in  our                                                               
communities in  the fall of  2006.  Fuel  will cost more  but how                                                               
much more is  unknown.  The EPA  has looked at this  in the Lower                                                               
48  and it  looks like  the cost  will be  five cents  or more  a                                                               
gallon.  Mr.  Rogers stated the cost to Alaskans  will be higher,                                                               
and the cost to rural Alaskans will be even more.                                                                               
                                                                                                                                
MR. ROGERS  indicated fuel  might have to  be imported  to Alaska                                                               
because it's  a new kind of  diesel fuel and it's  very expensive                                                               
to build facilities necessary to  produce this fuel in Alaska. It                                                               
may be hard to  find the fuel for Arctic purposes  and in fact he                                                               
didn't  think this  Artic  grade fuel  is  being produced  today.                                                               
Refining  of this  fuel requires  a  new process.   He  described                                                               
other impacts of  using the fuel including  separate tank systems                                                               
for different fuel  grades [because the different  grades of fuel                                                               
can't be  mixed]; and energy  efficiency loss.   The fuel  can be                                                               
used in  older vehicles  not requiring  ultra-low sulfur  fuel to                                                               
operate.                                                                                                                        
                                                                                                                                
MR. ROGERS says  the good news is that the  EPA recognizes Alaska                                                               
is  different  and  the  state  has  the  ability  to  develop  a                                                               
transition plan specific to Alaska.   He cited the National Plan,                                                               
or generic  plan, and cited  that Alaska  is the only  state that                                                               
has  the opportunity  to propose  an alternative  subject to  EPA                                                               
review.   Mr. Rogers went  on to cover  the variety of  plans and                                                               
their timelines, which is listed in the handout.                                                                                
                                                                                                                                
MR.  ROGERS covered  the  status of  DEC  workshops held  between                                                               
April and  July in Anchorage;  the actions necessary by  April 1,                                                               
2002;  and,  future  ultra-low sulfur  fuel  initiatives  on  the                                                               
horizon, which are also covered in the handout.                                                                                 
                                                                                                                                
MR. ROGERS said  DEC is doing its best; it's  complicated and DEC                                                               
is trying  to listen to  everyone before  the deadline.   He said                                                               
                                                                st                                                              
DEC expects to make  a cut soon.  He noted the upcoming  April 1                                                                
deadline.                                                                                                                       
                                                                                                                                
A question  from Representative Scalzi  led to discussion  on the                                                               
use of the new fuel in new trucks.   He also discussed the use of                                                               
new fuel  in old trucks.      Mr. King discussed  some mechanical                                                               
issues dealing with use of the  new fuel in old engines and noted                                                               
that in order to achieve  the full benefit of emission reductions                                                               
of  the new  fuel  in old  engines it  will  require a  catalytic                                                               
converter and particle trap.                                                                                                    
                                                                                                                              
MR. KING  noted that aircraft are  not subject to the  new rules.                                                               
Aircraft  emissions  are  controlled   by  the  Federal  Aviation                                                               
Administration.                                                                                                                 
                                                                                                                                
REPRESENTATIVE  SCALZI and  MR. KING  discussed requirements  for                                                               
aircraft,  backhoes,  fishing boats,  et  cetera.   They  further                                                               
discussed on-road, off-road, and marine uses.                                                                                   
                                                                                                                              
REPRESENTATIVE MURKOWSKI  expressed her concerns with  trains and                                                               
air quality  issues in Anchorage.   She also inquired  about fuel                                                               
refining issues.                                                                                                                
                                                                                                                                
BILL BOYCOTT, Director of Refining,  Williams Alaska, North Pole,                                                               
gave  an overview  of Williams  and Petrostar's  refineries.   He                                                               
noted that his experience is in  the Lower 48 and Canada where he                                                               
has gone through  the low sulfur fuel conversions.    Alaska is a                                                               
unique situation  and is currently  operating under  an exemption                                                               
from the low sulfur diesel  requirements.  He stated two upcoming                                                               
dates will require  major investments.  The  "National Plan" will                                                               
result in road diesel at 15 ppm  sulfur by June 1, 2006. The next                                                               
date is  January 1,  2007 when  30 ppm  is required  for gasoline                                                               
sulfur content.   He  said the "National  Plan" is  geared toward                                                               
the  Lower  48  where  road   diesel  is  a  large  component  of                                                               
refineries product slate.  In  Alaska he estimated there is about                                                               
100,000  barrels of  fuel  demand and  about  30,000 barrels  are                                                               
diesel.  Of that 30,000 barrels,  only about 5,000 is road diesel                                                               
and would  fall under  the EPA  rule.  He  pointed out  that road                                                               
diesel is  a very minor product  for the industry in  Alaska, and                                                               
jet  fuel  drives the  refining  industry  in  Alaska.   If  this                                                               
situation was in  the Lower 48, the refiners would  be looking at                                                               
modifications to  equipment currently  producing 500  ppm diesel.                                                               
Mr.  Boycott  said   the  refiners  in  Alaska   are  looking  at                                                               
grassroots  construction  costs.   The  investment  cost for  the                                                               
North Pole  refinery alone is estimated  to be in excess  of $100                                                               
million in order to produce this  product. It is not economic and                                                               
would   not  be   responsible  to   shareholders  to   make  this                                                               
investment.   Therefore, the  product will  have to  be imported,                                                               
which may  lead to cost increases  of 20 to 40  cents per gallon.                                                               
Importation is  the direction Williams  is heading.   Mr. Boycott                                                               
said  he is  looking  at lower  cost options  but  has not  found                                                               
anything  that  will  work.   He  discussed  other  environmental                                                               
factors that will influence their decisions.                                                                                    
                                                                                                                                
REPRESENTATIVE  MURKOWSKI   and  MR.  BOYCOTT   discussed  Alaska                                                               
exporting crude oil while importing refined product.                                                                            
                                                                                                                                
REPRESENTATIVE  SCALZI and  MR. BOYCOTT  engaged in  conversation                                                               
about Arctic grade diesel product.                                                                                              
                                                                                                                                
MARK SMITH,  Yukon Fuel Company,  Anchorage, spoke  about tankage                                                               
and  shipping products  to  rural  Alaska.   Adding  a super  low                                                               
sulfur  diesel is  going to  add a  20 percent  added complexity,                                                               
starting at the refinery where the  fuel is loaded to the village                                                               
level where it  is used.  Speaking on behalf  of his customers it                                                               
would be unusual to find  infrastructure [in rural villages] that                                                               
would easily  be able  to handle another  discrete product.   Mr.                                                               
Smith stated  he does not  have good  cost estimates for  what he                                                               
thinks this would  be, but looking at the  increase in complexity                                                               
by 20 percent,  the cost of fuel would increase  about 20 percent                                                               
on  an infrastructure  basis.   On  behalf of  his customers  and                                                               
supply chain, he would like to see a blended transition.                                                                        
                                                                                                                                
MEERA KOHLER, Chief Executive Officer  of Alaska Village Electric                                                               
Cooperative  (AVEC),  gave  an  overview  of  her  organization's                                                               
operations.   Last  year AVEC  paid  about $1.37  per gallon  for                                                               
diesel.  Their  retail cost of electricity is about  40 cents per                                                               
kilowatt-hour.   Twenty-eight percent of the  cost of electricity                                                               
is fuel.   She related her  expectation of an increase  of around                                                               
25 cents  per gallon in  rural villages, which translates  to two                                                               
cents a kilowatt-hour, or $1.25 million  on an annual basis.  Ms.                                                               
Kohler said  if the fuel efficiency  is reduced further by  14 to                                                               
15 percent,  the number will  almost double.  Ms.  Kohler related                                                               
operational  problems   with  AVEC's  equipment  that   would  be                                                               
attributed to the  new fuel, and the storage tanks  used to store                                                               
diesel will  have to be completely  cleaned if they will  be used                                                               
to store the new diesel fuel.   Ms. Kohler stated her belief that                                                               
Alaska's  current exemption  for sulfur  content has  not exposed                                                               
Alaskans  to  adverse  health   impacts,  and  cited  differences                                                               
between the Lower  48 and Alaska.  She stated  it is unreasonable                                                               
to impose expensive requirements on our  state at this time.  Ms.                                                               
Kohler  recommended  Alaska  seek  exemption  from  any  mandated                                                               
changes to the  sulfur content of diesel fuel whether  used on or                                                               
off road until  at least 2007.  After that  a phased approach can                                                               
be used. She asked that Alaska  be allowed to continue to use its                                                               
continued  exemption of  500  ppm  fuel.   Ms.  Kohler asked  the                                                               
legislature to  adopt a resolution  or a bill requesting  DEC and                                                               
EPA to obtain the maximum flexibility possibility for Alaska.                                                                   
                                                                                                                                
FRANK   DILLION,   Executive  Vice-President,   Alaska   Trucking                                                               
Association; Chair,  Citizen's Air Quality Advisory  Board, noted                                                               
that he  also sits  on the Technical  Committee of  the Anchorage                                                               
Metropolitan Area Transportation Study  (AMATS).  Going to ultra-                                                               
low 15 ppm sulfur content does  not solve the problem with sulfur                                                               
or  diesel particulate  in the  air  in Alaska,  either in  urban                                                               
regions  or rural  Alaska.   The circumstances  in the  Lower 48,                                                               
highly concentrated  and dense population areas  with more diesel                                                               
sources [trucks], result in problems  with sulfur.  This new fuel                                                               
helps that and  possibly provides some health benefits.   He said                                                               
actual carcinogenic  danger and  health danger of  diesel remains                                                               
to be scientifically  proven and the results are  open to debate.                                                               
Ultra-low sulfur  fuel will be used  in Alaska in trucks  and the                                                               
cost is  going to increase  by about 25  to 40 cents  per gallon.                                                               
Also, when  there are  lower BTUs  in the  fuel there  is reduced                                                               
performance meaning less  freight is hauled at  a higher expense.                                                               
Mr. Dillon said the trucking  industry won't pay for these costs;                                                               
Alaska citizens  whether they are urban  or rural will pay.   Mr.                                                               
Dillon  complemented  both  DEC  and EPA  for  working  with  the                                                               
trucking industry  over the  past nine  years to  try to  come up                                                               
with a  palatable way  to solve  the problem.   He  expressed his                                                               
thanks to  the committee  for getting  a better  understanding of                                                               
the  difficulties  facing  refiners, distributors,  truckers  and                                                               
ultimately Alaskans.                                                                                                            
                                                                                                                                
REPRESENTATIVE  MURKOWSKI  and  MR. DILLION  discussed  potential                                                               
problems with diesel truck engines and their manufacturers.                                                                     
                                                                                                                                
RANDY ROMANESKO,  City Manager, City of  Nome, expressed concerns                                                               
of  the city,  Nome's citizens,  and citizens  of the  Bering Sea                                                               
region.  He spoke to  financial impacts on consumers in virtually                                                               
every  aspect of  community  life in  Nome.   Fuel  is now  $2.30                                                               
gallon  and  the  price  will   increase  by  20  percent.    New                                                               
infrastructure  will be  necessary  such as  new  fuel lines  and                                                               
headers, and installation of appropriate  tankage.  Mr. Romanesko                                                               
thanked DEC  for coming to  Nome and conducting  public meetings,                                                               
but noted his  concerns about the plan from  a market standpoint.                                                               
One is  limited demand with very  few vehicles using the  fuel in                                                               
the area; the other is pushing  a federal problem to a local area                                                               
without  any money  to  support it  and when  there  is no  local                                                               
problem.  Mr.  Romanesko said he would like to  see the committee                                                               
adopt a resolution with provisions  requiring DEC to request that                                                               
the EPA  reevaluate and  address the  ramifications and  costs to                                                               
rural   Alaska  consumers   and  to   try  to   maintain  maximum                                                               
flexibility  to allow  operations  to continue  in an  economical                                                               
fashion.                                                                                                                        
                                                                                                                                
MR. VERN RAUSCHER, General  Manager, Tlingit-Haida Rural Electric                                                               
Association, stated his association  serves Kake, Angoon, Hoonah,                                                               
and the Chilkat Valley.   He spoke to the high  cost of power and                                                               
fuel consumption.   Because the power is diesel  generated, it is                                                               
some of  the costly power in  Southeast Alaska at about  33 cents                                                               
per  kilowatt-hour.    The  association  purchases  approximately                                                               
750,000  gallons  per year.    Low-sulfur  fuel is  estimated  to                                                               
increase  the cost  per  gallon by  about  20 to  25  cents.   He                                                               
mentioned  the other  conversion costs  and that  other redundant                                                               
tank farm upgrades would all be  borne by the customers and would                                                               
most likely  mean a  rate increase  to the  already high  cost of                                                               
power. Mr. Rauscher  stated there is not an  air quality problem,                                                               
and  the minute  benefits of  low  sulfur fuel  aren't worth  the                                                               
additional  costs to  the consumer  and possibly  the Power  Cost                                                               
Equalization program.  Mr.  Rauscher requested that consideration                                                               
be  given  to all  the  consequences  of future  mandated  sulfur                                                               
reduction in Alaska, especially the cost to the customer.                                                                       
                                                                                                                                
REPRESENTATIVE MURKOWSKI  asked Mr.  King for a  clarification as                                                               
to  whether the  low  sulfur rule  is going  to  apply to  moving                                                               
sources and whether stationary generators  are subject to the low                                                               
sulfur requirements rule.                                                                                                       
                                                                                                                                
MR. KING  replied that the fuel  is the problem.   The fuel comes                                                               
in  one bulk  load and  is then  distributed to  various sources:                                                               
power,  home  heating,  and  mobile sources.    The  rule  itself                                                               
excludes power generation  but the logistics of the  way the fuel                                                               
is distributed means totally separate  tanks, total separation of                                                               
everything,  and  that's adds  a  significant  cost.   Generators                                                               
would  get picked  up  as a  consequence of  having  to shift  to                                                               
ultra-low sulfur diesel.                                                                                                        
                                                                                                                                
CO-CHAIR  MORGAN stated  that Mr.  Mahon's written  comments were                                                               
submitted and available to the committee.                                                                                       
                                                                                                                                
AL  EWING,  Denali  Commission,  stated  the  commission  had  no                                                               
testimony but was taking notes and was available for questions.                                                                 
                                                                                                                                
JOHN HANDELMAN,  General Manager,  City of Nome  Utilities, spoke                                                               
to  the utilities  concerns and  reiterated  that eventually  low                                                               
sulfur fuel  only will be available  and it will not  be possible                                                               
for barges to  bring multiple quantities of fuel.    He explained                                                               
the increased costs the City of  Nome Utility would incur.  Power                                                               
costs will  be increased  by 33  percent in Nome  due to  the new                                                               
fuel.  Nome cannot absorb these  costs.  He further explained the                                                               
logistical  problems that  Nome  will  face.   He  said he  would                                                               
submit written comments.                                                                                                        
                                                                                                                                
ANNOUNCEMENTS                                                                                                                 
                                                                                                                                
There were no announcements.                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Community  and  Regional  Affairs   Committee  was  adjourned  at                                                               
approximately 10:05 a.m.                                                                                                        
                                                                                                                                
NOTE:   The meeting was  recorded and handwritten log  notes were                                                               
taken.  A  copy of the tape(s)  and log notes may  be obtained by                                                               
contacting the  House Records  Office at  State Capitol,  Room 3,                                                               
Juneau,  Alaska  99801  (mailing address),  (907)  465-2214,  and                                                               
after  adjournment of  the second  session  of the  Twenty-Second                                                               
Alaska  State Legislature  this  information may  be obtained  by                                                               
contacting the Legislative Reference Library at (907) 465-3808.                                                                 

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