Legislature(2013 - 2014)BARNES 124

03/12/2013 11:15 AM House ECON. DEV., TRADE & TOURISM


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Audio Topic
11:20:05 AM Start
11:20:52 AM Overviews(s): Alaska Water Manufacturing and Export
12:16:46 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Discussion: Alaska Water Manufacturing and Export TELECONFERENCED
by water producers in Alaska
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
 HOUSE SPECIAL COMMITTEE ON ECONOMIC DEVELOPMENT, INTERNATIONAL                                                               
                       TRADE AND TOURISM                                                                                      
                         March 12, 2013                                                                                         
                           11:20 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Shelley Hughes, Chair                                                                                            
Representative Bob Herron                                                                                                       
Representative Pete Higgins                                                                                                     
Representative Kurt Olson                                                                                                       
Representative Lance Pruitt                                                                                                     
Representative Harriet Drummond (via teleconference)                                                                            
Representative Geran Tarr                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Lynn Gattis                                                                                                      
Representative Craig Johnson                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEWS(S):  ALASKA WATER MANUFACTURING AND EXPORT                                                                            
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
GINGER BLAISDELL, Staff                                                                                                         
Representative Shelley Hughes                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Presented two short videos on the water                                                                  
export industry in Alaska on behalf of Representative Hughes.                                                                   
                                                                                                                                
GREG WOLF, Executive Director                                                                                                   
World Trade Center Alaska (WTCAK)                                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided background information and                                                                      
answered questions during the discussion on Alaska water                                                                        
manufacturing and export.                                                                                                       
                                                                                                                                
TERRY TRAPP, Chief Executive Officer                                                                                            
True Alaska Bottling (TAB)                                                                                                      
Sitka, Alaska                                                                                                                   
POSITION  STATEMENT:   Participated in  the discussion  of Alaska                                                             
water manufacturing and export.                                                                                                 
                                                                                                                                
LYNN ALLINGHAM, Chief Executive Officer                                                                                         
Alaska Brands Group LLC. (ABG)                                                                                                  
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   Participated in  the discussion  of Alaska                                                             
water manufacturing and export.                                                                                                 
                                                                                                                                
MICHAEL WALTON, Natural Resource Manager                                                                                        
Water Resources Section                                                                                                         
Division of Mining, Land and Water                                                                                              
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions  during the discussion of                                                             
Alaska water manufacturing and export.                                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
11:20:05 AM                                                                                                                   
                                                                                                                                
CHAIR  SHELLEY  HUGHES  called the  House  Special  Committee  on                                                             
Economic Development, International Trade  and Tourism meeting to                                                               
order   at   11:20   a.m.       Representatives   Drummond   (via                                                               
teleconference), Tarr,  Higgins, Pruitt, and Hughes  were present                                                               
at the call  to order.  Representatives Herron  and Olson arrived                                                               
as the meeting was in progress.                                                                                                 
                                                                                                                                
^OVERVIEWS(S):  ALASKA WATER MANUFACTURING AND EXPORT                                                                           
      OVERVIEWS(S):  ALASKA WATER MANUFACTURING AND EXPORT                                                                  
                                                                                                                              
11:20:52 AM                                                                                                                   
                                                                                                                                
CHAIR HUGHES announced  that the only order of  business would be                                                               
overviews on the manufacturing and export of water from Alaska.                                                                 
                                                                                                                                
11:21:02 AM                                                                                                                   
                                                                                                                                
GINGER BLAISDELL, staff to  Representative Shelley Hughes, Alaska                                                               
State  Legislature, informed  the  committee  Chair Hughes  began                                                               
looking at water as an export  and an industry for Alaska after a                                                               
presentation  from  World  Trade  Center  Alaska  on  undeveloped                                                               
industries.  Water as an export,  both as bulk and bottled water,                                                               
is  an  industry that  has  had  some  success  in Alaska.    Ms.                                                               
Blaisdell said  there has been  media interest in  proposed water                                                               
exports from Sitka.  She provided  two short videos, one of which                                                               
was  a short  excerpt from  an  interview with  Mr. Garry  White,                                                               
Executive  Director,  Sitka   Economic  Development  Association,                                                               
Sitka, Alaska.                                                                                                                  
                                                                                                                                
11:22:48 AM                                                                                                                   
                                                                                                                                
A video was presented from 11:22 a.m. to 11:24 a.m.                                                                             
                                                                                                                                
11:24:55 AM                                                                                                                   
                                                                                                                                
A video was presented from 11:24 a.m. to 11:28 a.m.                                                                             
                                                                                                                                
11:29:09 AM                                                                                                                   
                                                                                                                                
MS. BLAISDELL described  a 30-inch diameter pipe  which runs from                                                               
Blue Lake to  tidewater in Sitka.  This  infrastructure was built                                                               
with a state grant and is ready for future development.                                                                         
                                                                                                                                
CHAIR HUGHES asked for the cost and age of the pipe.                                                                            
                                                                                                                                
MS. BLAISDELL was unsure.                                                                                                       
                                                                                                                                
11:29:59 AM                                                                                                                   
                                                                                                                                
GREG  WOLF,   Executive  Director,  World  Trade   Center  Alaska                                                               
(WTCAK),  stated  that water  is  blue  gold for  Alaska  because                                                               
unlike  some  other  natural resources,  water  is  abundant  and                                                               
renewable.   Alaska's  small  population  and small  agricultural                                                               
industry   means  there   is  a   great  supply   of  water   for                                                               
commercialization.    Mr.  Wolf recalled  that  Alaska  companies                                                               
interested in exporting  water have been working  since the early                                                               
1990s, at that  time proposing to export bottled  water to Japan.                                                               
He clarified  that WTCAK considers  all exports to be  to foreign                                                               
countries, however, there  are possible markets in  the Lower 48.                                                               
An obstacle  to water exports is  the economy of scale  needed to                                                               
produce a cost per unit that  is competitive in the market.  This                                                               
is  due in  part to  the small  customer base  in Alaska.   Also,                                                               
transportation  costs to  ship overseas  or to  the Lower  48 are                                                               
challenging.   On the  other hand,  the interested  parties today                                                               
are larger, better capitalized,  and designed for exporting their                                                               
products.  He  opined the opportunities are  large although there                                                               
is a lot of competition and there are other business challenges.                                                                
                                                                                                                                
11:36:08 AM                                                                                                                   
                                                                                                                                
CHAIR HUGHES asked for examples of successful water exporters.                                                                  
                                                                                                                                
MR.  WOLF   observed  bottled  water  from   other  countries  is                                                               
available  indicating that  bottled water  operators from  around                                                               
the  world have  found success.    In further  response to  Chair                                                               
Hughes, he observed  that bottled water comes  from many locales,                                                               
and offered to further research his response.                                                                                   
                                                                                                                                
11:38:27 AM                                                                                                                   
                                                                                                                                
TERRY  TRAPP,  Chief  Executive  Officer,  True  Alaska  Bottling                                                               
(TAB), stated his company has been  working in Sitka for 10 years                                                               
and  in 2006  acquired a  bulk water  license from  the City  and                                                               
Borough of Sitka for the export  of freshwater.   The company has                                                               
been  working on  developing bulk  water for  export since  then,                                                               
however, initial  interest in  contracts for  bulk water  was low                                                               
because  of  the cost  of  transportation,  but now  interest  is                                                               
growing due  to drought  and a  diminishing supply  of freshwater                                                               
around the world.   With potential customers in  the Middle East,                                                               
Mexico, and China, he said  the costs are now justified, although                                                               
the costs of developing the  bulk water industry remain daunting.                                                               
For example,  a loading station capable  of accommodating vessels                                                               
1,000 feet  in length is needed  in Sitka, and the  large vessels                                                               
needed to  make shipping economic  are not available.   Mr. Trapp                                                               
said TAB  is looking to partner  with a shipping line  to acquire                                                               
an appropriate  vessel.   In addition to  the loading  station in                                                               
Sitka, receiving  infrastructure with food-grade  piping, storage                                                               
facilities,  and bottling  plants must  be developed.   A  voyage                                                               
from Sitka to  the Middle East takes twenty-eight  to thirty days                                                               
thus  one vessel  would  only make  six voyages  per  year.   His                                                               
company has  made many investments  to seek funding and  meet the                                                               
economic  challenges, and  is very  committed to  the bulk  water                                                               
business.   Mr. Trapp pointed out  that his company is  forging a                                                               
new  industry  and a  lot  of  capital  is  needed to  make  this                                                               
opportunity a reality.                                                                                                          
                                                                                                                                
11:44:42 AM                                                                                                                   
                                                                                                                                
CHAIR HUGHES asked how much a large vessel would cost.                                                                          
                                                                                                                                
MR. TRAPP advised  a vessel 900 feet to 1,000  feet in length and                                                               
125 feet  wide that  could carry approximately  35 million  to 38                                                               
million gallons would cost from $60 million to $70 million.                                                                     
                                                                                                                                
CHAIR HUGHES  then asked about  the necessary  permitting process                                                               
to allow TAB access to the water.                                                                                               
                                                                                                                                
MR. TRAPP said  TAB has not applied for the  permits that will be                                                               
required, but has renewed its  contract with the City and Borough                                                               
of  Sitka  and  is  in  the process  of  lining  up  funding  and                                                               
customers, although  attracting customers is not  difficult.  The                                                               
infrastructure is  a difficulty in that  existing facilities that                                                               
have been  used for oil  cannot be used  for potable water.   His                                                               
company is  close to submitting plans  to the city and  will then                                                               
proceed with permitting.  Mr. Trapp  restated that one of the key                                                               
factors is  developing a transportation  system that  is economic                                                               
when  compared  to  the  cost  of  desalinization.    In  further                                                               
response  to  Chair  Hughes,  he said  closer  markets  would  be                                                               
northern China and Mexico.                                                                                                      
                                                                                                                                
11:51:05 AM                                                                                                                   
                                                                                                                                
CHAIR  HUGHES  asked   whether  the  Middle  East   is  the  most                                                               
interested.                                                                                                                     
                                                                                                                                
MR. TRAPP  explained that China has  severely contaminated ground                                                               
water  but areas  of the  Middle East  are devoid  of water.   In                                                               
further response to  Chair Hughes, he estimated  shipping of bulk                                                               
water would begin within the next two years.                                                                                    
                                                                                                                                
11:52:16 AM                                                                                                                   
                                                                                                                                
LYNN  ALLINGHAM, Chief  Executive  Officer,  Alaska Brands  Group                                                               
LLC. (ABG),  informed the  committee ABG  is a  locally-owned and                                                               
operated company  that bottles water  from Eklutna Lake  in small                                                               
pack  polyethylene  terephthalate  fiber (PET)  plastic  bottles.                                                               
The company  has sales  throughout Alaska  and exports  to Korea,                                                               
Japan, Taiwan,  and soon to  China.   Water from Eklutna  Lake is                                                               
unique it  in that is alkaline  and better for health.   She said                                                               
value  is added  to  the water  by  filtering, disinfecting,  and                                                               
packaging  in   Alaska,  and  the   company  is   providing  good                                                               
manufacturing  jobs.   Challenges to  ABG's success  were raising                                                               
capital, regulations,  and permitting.   Ms. Allingham  urged for                                                               
more  incentives  to  attract small  business  investment.    The                                                               
greatest barrier to the company's  success is high freight costs.                                                               
Ms.  Allingham  concluded  that ABG  is  utilizing  an  abundant,                                                               
renewable, natural resource to produce a value-added product.                                                                   
                                                                                                                                
11:54:26 AM                                                                                                                   
                                                                                                                                
CHAIR HUGHES asked whether there  were problems in the permitting                                                               
and regulation processes.                                                                                                       
                                                                                                                                
MS.  ALLINGHAM relayed  the  construction  permitting process  in                                                               
Anchorage  is   very  convoluted   and  burdensome  due   to  the                                                               
interpretation  of the  state building  code.   In addition,  the                                                               
permitting process  for becoming  a water  bottler is  obtuse and                                                               
antiquated;  in  fact,  the agency  confused  U.S.  Environmental                                                               
Protection  Agency (EPA)  and U.S.  Food and  Drug Administration                                                               
(FDA)  regulations.   In further  response to  Chair Hughes,  she                                                               
said the agency  referred to was the  Department of Environmental                                                               
Conservation.                                                                                                                   
                                                                                                                                
REPRESENTATIVE HERRON asked if there  is a model state for Alaska                                                               
to follow.                                                                                                                      
                                                                                                                                
11:56:45 AM                                                                                                                   
                                                                                                                                
MS. ALLINGHAM advised  that California, Texas, and  New York have                                                               
bottled water regulations that are  separate from water treatment                                                               
regulations; however, not all are  an improvement.  She suggested                                                               
that  the  International  Bottled  Water Association  is  a  good                                                               
resource for the industry.                                                                                                      
                                                                                                                                
CHAIR HUGHES offered the committee's assistance.                                                                                
                                                                                                                                
MS. ALLINGHAM restated the importance  of economic incentives for                                                               
investment, such as tax credits.                                                                                                
                                                                                                                                
11:59:00 AM                                                                                                                   
                                                                                                                                
MR.  WOLF said  Alaska  Glacier Products  LLC.  (AGP) is  another                                                               
bottled water company that has  a different approach to marketing                                                               
than  ABG.    Its  approach  is as  a  co-packer,  providing  the                                                               
bottling capacity for  another company - such as  a grocery store                                                               
chain - to market its private brand or label.                                                                                   
                                                                                                                                
CHAIR HUGHES asked  the Department of Natural  Resources (DNR) to                                                               
explain the  permit process for  a business to bottle  and export                                                               
water.                                                                                                                          
                                                                                                                                
12:02:10 PM                                                                                                                   
                                                                                                                                
MICHAEL  WALTON,   Natural  Resource  Manager,   Water  Resources                                                               
Section,  Division  of  Mining,  Land and  Water,  Department  of                                                               
Natural  Resources, said  his section  issues water  rights under                                                               
the Alaska Water  Use Act.  Alaska has  addressed exporting water                                                               
from  the state  in AS  46.15.035,  the statute  that relates  to                                                               
exporting  water from  one of  the  six hydrologic  units in  the                                                               
state.  The  statute has four main components.   The commissioner                                                               
of  DNR must  find the  water to  be exported  is surplus  to the                                                               
needs of that  unit, there must be satisfaction  of AS 46.15.080,                                                               
and  there  is a  public  interest  element.    If the  water  is                                                               
approved for export, the permittee  must pay a water conservation                                                               
fee to  the state  and, if  the water  source is  fish-bearing, a                                                               
reservation  must  be  established   to  protect  fish  and  fish                                                               
habitat.  Mr. Walton advised  that a business owner interested in                                                               
the export  of water should  review AS 46.15.035 and  contact the                                                               
water resources  section.  In  further response to  Chair Hughes,                                                               
he said he was unsure of how  long an application would take - if                                                               
there  are no  fish,  the  process is  expedited.   For  example,                                                               
permits to  Aleut Corp. for  water in  Adak took about  one year.                                                               
Permits to appropriate water are not the final water rights.                                                                    
                                                                                                                                
12:08:31 PM                                                                                                                   
                                                                                                                                
CHAIR HUGHES asked whether the Adak permits involved fish.                                                                      
                                                                                                                                
MR. WALTON  indicated fish surveys  were needed on the  lakes and                                                               
outflow streams and fish reservations were required.                                                                            
                                                                                                                                
CHAIR HUGHES  asked all of  the presenters  to speak to  the most                                                               
significant  hurdle  to  their businesses  and  what  action  the                                                               
legislature can take.                                                                                                           
                                                                                                                                
12:10:21 PM                                                                                                                   
                                                                                                                                
MS. ALLINGHAM  offered to work  with DEC on  proposed regulations                                                               
or legislation for a bottled water industry in Alaska.                                                                          
                                                                                                                                
CHAIR  HUGHES recalled  proposals to  export ice  and to  build a                                                               
water pipeline.                                                                                                                 
                                                                                                                                
MR.  WOLF stated  that  at  one time  bags  of  glacial ice  were                                                               
transported  to Japan  for expensive  bar  drinks.   Furthermore,                                                               
Governor Hickel was  ahead of his time  and proposed transporting                                                               
water out of state in a pipeline.                                                                                               
                                                                                                                                
12:16:46 PM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee on  Economic Development,  International Trade                                                               
and Tourism meeting was adjourned at 12:16 p.m.                                                                                 
                                                                                                                                

Document Name Date/Time Subjects
Water Export National Geographic article.pdf HEDT 3/12/2013 11:15:00 AM