Legislature(2003 - 2004)
03/04/2003 08:05 AM House CRA
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ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS
STANDING COMMITTEE
March 4, 2003
8:05 a.m.
MEMBERS PRESENT
Representative Carl Morgan, Chair
Representative Kelly Wolf, Vice Chair
Representative Tom Anderson
Representative Mike Chenault
Representative Ralph Samuels
Representative Sharon Cissna
MEMBERS ABSENT
Representative Albert Kookesh
COMMITTEE CALENDAR
OVERVIEW: LOW SULFUR DIESEL FUEL
TAPES
03-6, SIDE(S) A & B
CHAIR CARL MORGAN convened the meeting of the House Community
and Regional Affairs Standing Committee at 8:05 a.m.
Representatives Morgan, Samuels, Chenault, and Cissna were
present at the call to order. Representatives Wolf and Anderson
arrived as the meeting was in progress.
SUMMARY OF INFORMATION
CHAIR MORGAN reminded committee members that last year the House
Community and Regional Affairs Standing Committee introduced a
resolution requesting that Alaska be given the most flexibility
in the implementation of the new diesel fuel regulations.
Unfortunately, the resolution died in the Senate Finance
Standing Committee.
RON KING, Program Manager, Air Non-Point & Mobile Sources,
Division of Air & Water Quality, Department of Environmental
Conservation (DEC), began the presentation which can be found in
the committee packet in the document labeled "House Community
and Regional Affairs Standing Committee, New Diesel Fuel
Regulations, February 6, 2003." He explained that approximately
a year ago DEC submitted recommendations to the Environmental
Protection Agency (EPA) regarding the implementation of the
ultra-low sulfur diesel plan for urban Alaska. Urban Alaska was
defined as the contiguous road system and those major ports on
the Alaska Marine Highway. The recommendation was to follow the
national plan, which the EPA accepted. Therefore, the EPA is
preparing its final rule pending the department's recommendation
for rural Alaska. Mr. King explained that the EPA established a
rule to reduce air pollution in order to address health
concerns. The EPA rule proposed lowering the sulfur
particulates from 500 parts per million (ppm) to 15 ppm as well
as placing control equipment on 2007 model cars, trucks, and
buses. The new fuel and control systems will achieve 90 percent
emissions reductions. He noted that the new vehicles will have
to use the new fuel or there is a good likelihood of
catastrophic engine failure. Mr. King reviewed the impacts of
air pollution and pointed out that the estimated health benefits
of this requirement amount to $70 billion nationally.
MR. KING noted the difficulty in estimating the cost impacts of
this rule for Alaska. He estimated that the cost would be $.10
per gallon or more, depending on the cost of fuel and
production. In rural Alaska, the fuel costs are anticipated to
be higher due to the distribution challenges. Furthermore, the
use of ultra-low sulfur diesel fuel as home heating or power
generation may increase the cost to the community because of the
basic increase in the cost of the fuel. Mr. King highlighted
that the distribution impacts for Alaska are quite different
than those for the Lower 48. For instance, Alaska requires
Arctic spec fuel, which is fuel that must be able to be poured
at a temperature of -60 degrees. Although use of ultra-low
sulfur diesel fuel isn't expected to cause any problems in the
engines of vehicles built prior to 2006, there were some issues
during the change from uncontrolled sulfur to the 500 ppm
sulfur.
MR. KING reviewed the options he saw for rural Alaska; options
that keep in mind the goal of minimal impact. Since the
department requested and received additional time to provide its
recommendations, the recommendations aren't due until June 13th.
Mr. King related that the department wants to balance energy
costs with health costs. Although there is a [lack of]
concentration of diesel vehicles in rural Alaska, there are
other sources of diesel emissions such as the power generators
in rural Alaska that use the same engines in eighteen-wheel
trucks. Therefore, the department is seeking funds to identify
potential health benefits and economic impacts.
TOM CHAPPLE, Director, Division of Air & Water Quality,
Department of Environmental Conservation, echoed Mr. King's
comments regarding the goal of balancing the cost and health
benefits of this rule. Although rural Alaska is unique because
it doesn't have a large number of vehicles, the new vehicles in
Alaska will require separate tankage for the [low sulfur] fuel
the newer vehicles require. Therefore, communities will face
infrastructure costs. However, if all fuel use in rural Alaska
went to ultra-low sulfur diesel fuel in rural Alaska, the cost
of power generation would be significantly higher. Mr. Chapple
clarified that the aforementioned benefit of $70 billion over
the cost [of health care] doesn't apply to rural Alaska due to
the lack of vehicles in rural Alaska. He pointed out that there
is no [knowledge of the] health consequences in rural Alaska.
Mr. Chapple stressed the need to obtain more time for rural
Alaska in order to determine the health consequences in an
effort to determine the best way to manage the costs to rural
Alaska.
MR. CHAPPLE, in response to questions, said that the national
data can be reviewed in the context of this rule as part of the
base of scientific information. However, real information about
exposures in rural Alaska must be available to convert the
national science for use at the local level in assessing the
health risks. The department is attempting to obtain federal
funds to perform the aforementioned.
MR. KING, in response to questions, confirmed that there is an
international movement to reduce the sulfur from fuel. There
are indications that Europe is moving toward implementation of
this in the maritime industry. With regard to the energy
efficiency of ultra-low sulfur diesel, Mr. King related his
understanding that currently the energy loss when using this
fuel is less than one-half of one percent. That ultra-low
sulfur fuel is being produced for $.7 a gallon more plus the
transportation costs. Furthermore, the only refinery producing
the Arctic grade fuel is in Edmonton, Canada. He discussed the
possibility of converting power generators and engines to use
this ultra-low sulfur diesel and remarked that the problem is
one of distribution of cost rather than whether the fuel will
work in the engine.
STEVE CLEARY, Executive Director, Alaska Public Interest
Research Group (AkPIRG), noted that cleaner fuel is already
being used in rural Alaska. Mr. Cleary mentioned that [the
department and others] are seeking a grant of over $1 million to
study the health effects [of sulfur] in rural Alaska. Mr.
Cleary highlighted the fact that there is no minimum exposure
threshold; that is certain individuals exposed to any amount of
diesel exhaust can develop cancer, breathing ailments, and
asthma. Since Canada has already moved to lower sulfur diesel,
AkPIRG reviewed Canada's situation. Canada has switched
everything over to [ultra-low sulfur diesel] in order to avoid
the infrastructure costs of dual tankage. Mr. Cleary related
that switching everything in order to avoid infrastructure
costs.
FRANK DILLON, Executive Vice President, Alaska Trucking
Association, expressed the need to be careful when speaking of
the cost-saving health benefits in Alaska as a result of using
lower sulfur fuel. Mr. Dillon related his belief that with the
use of [ultra-low sulfur diesel] there won't be much noticeable
difference in terms of the rates of asthma in either rural or
urban Alaska. Mr. Dillon opined that this [switch to ultra-low
sulfur diesel] is attempting to solve a problem that doesn't
exist in terms of the health issue. The EPA report in the
committee packet doesn't supply any proof that diesel exhaust
emissions cause asthma or cancer, although links and evidence
were found. Reducing the sulfur in fuel isn't bad, but it will
be an expensive and complicated proposition for Alaskans, he
said. No matter what is done, Alaska faces a logistical problem
in that Edmonton, Canada is the only place that produces the
[Arctic grade] fuel. In response to questions, Mr. Dillon
informed the committee that the percentage of diesel used
nationwide in production is about a 50:50 split between diesel
fuel and all other fuels. In Alaska, 90 percent of the fuel in
Alaska goes to jet fuel while 10 percent goes to diesel,
gasoline, and all other products from [Alaska's] refineries.
Therefore, Alaska is significantly different from the Lower 48
and Canada. Mr. Dillon said that although going to [ultra-low
sulfur diesel] for everything makes sense, it will cost money.
MARIE BECKER, Alaska Village Electrical Coop (AVEC), expressed
concern with the increase in cost to consumers. "It's great if
we have a little healthier people, but if they're sitting in the
dark it's not going to do a lot of good," she said. She also
noted concern with regard to the availability of this product.
Therefore, she suggested the need for pilot studies to determine
the impacts and costs to those [AVEC] represents.
TC WILSON, Director, Safety & Engineering Service, Alaska Rural
Electric Cooperative Association (ARECA), pointed out that over
70 percent of the electric utilities in Alaska are cooperatives.
Although ARECA realizes that eventually all the fuel in the
world will be ultra-low sulfur fuel, ARECA requests that the
implementation be postponed as long as possible. Mr. Wilson
acknowledged that most of the utility plants he has visited have
diesel engines that are basically the same engineering as a
truck engine but are much larger and more sophisticated and run
diesel engines at optimum efficiency daily. With regard to the
cost of converting one of the aforementioned engines, Mr. Wilson
estimated that the gaskets alone would amount to $2,500 which
doesn't account for maintenance down time and operation efforts
to replace the gaskets. Therefore, if the mandatory aspects of
the change could occur over a long period of time, the regular
maintenance cycles of the engines could be utilized to change
the gaskets. Mr. Wilson said that he does not have the
understanding that the new fuel won't damage old engines.
Furthermore, cooperatives operate on the edge financially and
[problems] with this conversion could be catastrophic to the
electric generation in rural Alaska.
SHAEN TARTER, Vice President, Yukon Fuel, pointed out that the
road system in Alaska will accommodate demand without storage
whereas rural Alaska will require storage of six to seven months
worth of product due to transportation barriers. He also
pointed out that Jet A fuel is generally moved in Western Alaska
and then downgraded to heating fuel number 1 or diesel number 1.
Although he agreed that it would be easier to change everything
to [ultra-low sulfur] diesel at once, it wouldn't take into
account the storage of Jet A in Western Alaska that is
downgraded later. In such a situation, an separate tanks and
pipelines will be required and thus there will be financial
impacts and transportation challenges. Mr. Tarter informed the
committee that Yukon Fuel supports having more time to implement
this rule and review the impact to rural Alaska.
BILL BOYCOTT, Chemical Engineer, Williams Alaska Petroleum,
acknowledged the worldwide trend toward the removal of sulfur
from fuel. In regard to manufacturing, Mr. Boycott related that
at this point the production of [ultra-low sulfur] fuel isn't
economic and thus import scenarios are being reviewed. Another
milestone is [the removal of sulfur] from gasoline. After this
rule is implemented, Mr. Boycott saw two options for supply to
the state. One option would be the transport of fuel from some
West Coast facility. However, those fuels aren't made to
Alaska's specifications and thus would lead to batch operations.
The problem is that the size of the batches and units are
typically large while [Alaska's] demand is quite small and thus
difficulties are anticipated. Therefore, the Edmonton, Canada,
refinery is probably the easiest option logistically, although
perhaps the highest in cost.
MR. BOYCOTT predicted that in Alaska this rule change will
result in short-term supply issues with a high price early one.
Therefore, it would be difficult to have the Bush transition at
the same time the road system does and thus he suggested
transitioning the road system first in order to help establish
the supply chains. Furthermore, there are other considerations
because Alaska consumes about 31,000 barrels a day of diesel of
which less than 5,000 barrels a day is transported via the road.
Therefore, the Bush, the railroad, the marine system, and
heating oil are all part of the consumption. Alaska has a lot
of small demands that, in aggregate, make a reasonable demand,
although individually the demands don't justify the construction
of new equipment.
AL EWING, Chief of Staff, Denali Commission, noted he was
available to answer questions. In response to questions, he
said that there has been no research with regard to the cost of
cleaning out tank farms to accept this ultra-low sulfur diesel.
CHRIS MELLO, Program Manager, Alaska Energy Authority (AEA),
informed the committee that AEA is still waiting for the costs
to flesh out. However, AEA believes this is doable and won't be
the largest problem that Bush Alaska faces, although there will
be an associated cost.
ANNOUNCEMENTS
There were no announcements.
COMMITTEE ACTION
The committee took no action.
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:15 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-Third
Alaska State Legislature this information may be obtained by
contacting the Legislative Reference Library at (907) 465-3808.
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