Legislature(2001 - 2002)
03/05/2002 09:08 AM House CRA
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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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