Legislature(2013 - 2014)HOUSE FINANCE 519
04/04/2013 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB74 || SB23 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 21 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | HB 74 | TELECONFERENCED | |
| += | SB 23 | TELECONFERENCED | |
HOUSE FINANCE COMMITTEE
April 4, 2013
9:01 a.m.
9:01:33 AM
CALL TO ORDER
Co-Chair Stoltze called the House Finance Committee meeting
to order at 9:01 a.m.
MEMBERS PRESENT
Representative Alan Austerman, Co-Chair
Representative Bill Stoltze, Co-Chair
Representative Mark Neuman, Vice-Chair
Representative Mia Costello
Representative Bryce Edgmon
Representative Les Gara
Representative Lindsey Holmes
Representative Scott Kawasaki, Alternate
Representative Cathy Munoz
Representative Steve Thompson
Representative Tammie Wilson
MEMBERS ABSENT
Representative David Guttenberg
ALSO PRESENT
Ted Leonard, Executive Director, Alaska Industrial
Development and Export Authority, (AIDEA), Department of
Commerce, Community and Economic Development; Sarah Fisher-
Goad, Executive Director, Alaska Energy Authority,
Department of Commerce, Community and Economic Development;
Nick Szymoniak, Project Economist, Alaska Energy Authority
(AEA), Department of Commerce, Community and Economic
Development.
SUMMARY
HB 74 AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
HB 74 was HEARD and HELD in committee for further
consideration.
CSSB 23(FIN)
AIDEA: LNG PROJECT; DIVIDENDS; FINANCING
CSSB 23(FIN) was HEARD and HELD in committee for
further consideration.
HOUSE BILL NO. 74
"An Act relating to development project financing by
the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska
Industrial and Export Authority; authorizing the
Alaska Industrial Development and Export Authority to
provide financing and issue bonds for a liquefied
natural gas production system and natural gas
distribution system; and providing for an effective
date."
CS FOR SENATE BILL NO. 23(FIN)
"An Act relating to development project financing by
the Alaska Industrial Development and Export
Authority; relating to the dividends from the Alaska
Industrial Development and Export Authority;
authorizing the Alaska Industrial Development and
Export Authority to provide financing and issue bonds
for a liquefied natural gas production system and
natural gas distribution system; and providing for an
effective date."
9:02:20 AM
TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, (AIDEA), DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, shared that
HB 74 would allow AIDEA to provide project financing for
projects that not owned and operated by the authority. He
listed the beneficial reasons for providing AIDEA with the
ability to use project financing without ownership:
• It more closely matches AIDEA's financing tools with
the nature of the projects being financed, and is more
consistent with public policy supporting economic
development finance programs.
• It reduces complexity, cost and time involved in
structuring financings
• It provides AIDEA (and the state) more protection
from possible risk and liabilities associated with
projects being financed
• It can improve overall economics of financings by
more closely aligning ownership with potential tax
benefits.
Co-Chair Stoltze queried the types of projects that could
be undertaken under HB 74.
9:05:37 AM
Mr. Leonard listed the projects for which the new financing
tool could be used:
• Industrial development as opposed to commercial real
estate
• Oil and gas
• Minerals and mining
• Infrastructure development (ports, roads, etc.)
Mr. Leonard relayed that a mining development on Prince of
Whales Island could provide the opportunity to invest in a
separation plant used in harvesting rare earth minerals. He
stressed the importance of developing the rare earth
minerals unique to the state. Additionally, mining
facilities in Ketchikan were under consideration which
would provide high paying jobs for the area. He relayed
that AIDEA did not need to have control of the projects
through ownership, but would be important for economic
development in the region.
Co-Chair Stoltze noted that Co-Chair Austerman joined the
meeting.
Mr. Leonard furthered that as AIDEA started assisting
smaller independent companies in oil and gas production,
the authority could be involved in the production
facilities for those projects. He felt that the main
benefit the authority could provide would be assistance in
resource development for projects. The authority would also
gain the ability to partner with Alaska banks on energy
projects.
Representative Kawasaki asked what affect combining the two
bills would have on the AIDEA trucking project.
9:08:31 AM
Mr. Leonard replied that the direct financing would
probably not have an effect on the financing of a
production facility. He stated that there was a $20 million
to $40 million gap in financing. The direct financing may
have the ability to assist; it was not designed to do so.
The financing could additionally assist in any spin-off
facility once gas was flowing to the interior.
Representative Kawasaki noted that the original SB 23 and
HB 74 had specific economic for the project to move forward
as an interior trucking proposal. He queried what the
economics would look like if the current versions of SB 23
and HB 74 passed separately.
Mr. Leonard believed that the economics would remain the
same under either the house or the senate versions. The
authority believed there were plenty of reasons in the rate
of return for the private sector to be involved in the
production facility on the North Slope. He furthered that
the intent of the legislation was to authorize $275 million
to provide financing for the project.
Representative Wilson clarified that HB 74 had been on
AIDEA's radar before SB 23.
9:11:11 AM
Mr. Leonard responded that HB 74 had been under discussion
some time.
Co-Chair Stoltze agreed.
Mr. Leonard continued that the authority had been exploring
ways to modernizing its tools in an effort to have a
vehicle to partner with financial institutions and find
better ways to match financing to projects.
Representative Wilson understood that the bill would
provide another tool for AIDEA to assist the state in order
diversify the economy beyond the oil industry.
Mr. Leonard replied in the affirmative.
9:12:17 AM
Vice-Chair Neuman understood that the legislation would not
only add benefits to the North Star Borough School District
by reducing costs but beyond to the Ambler Mining District
and further into western and northwestern Alaska. He probed
how many more positive economic opportunities throughout
the state could be derived from passage of the legisaltion.
Mr. Leonard answered that the authority did not have exact
numbers for benefits outside of bringing down the price of
heating oil, and the equivalent of diesel, by approximately
50 percent, which would have a beneficial effect for mining
as the state switched over and began using LNG for
industrial needs.
Co-Chair Stoltze clarified that the bill would not bring
down the cost of fuel but would provide an alternative.
Mr. Leonard continued that it would also provide an
alternative to expensive fuels for Alaskan's to use in
mining operations.
Vice-Chair Neuman asked whether the gas treatment facility
could be moved in order to be used in different locations.
Mr. Leonard replied that the plant could be moved and could
be located to wherever it would be most beneficial.
Representative Thompson asked for clarification on which
bill was being discussed.
Co-Chair Stoltze replied that HB 74 and SB 23 were being
heard in conjunction.
Representative Gara referred to the authority's work to
spur economic development over time. He asked whether there
was any danger of AIDEA backing too many projects and
risking fiscal stability.
Mr. Leonard replied in the negative. He believed that the
bill would allow for more leverage and more investment from
private investors. The entity had strong cash flows and had
an investment capacity of approximately $400 million.
Representative Gara asked for a list of projects, including
potential projects, the entity had helped to finance over
the past five years.
9:17:17 AM
Mr. Leonard stated that the information would be provided
to the committee.
Co-Chair Austerman mentioned HB 4, which would potentially
bring the gas pipeline to tidewater and beyond. He wondered
if the authority would be interested in a project similar
to the one suggested by HB 4.
Mr. Leonard believed that the type of project in HB 4 would
fall under AIDEA's purview. He added that AIDIA could not
be involved in the financing of an in-state pipeline.
SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY
AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, replied that the trucking of the LNG to the
Fairbanks area, not propane, was the economic driver of SB
23. However, propane would be a byproduct and AIDEA
anticipated that the plant would provide propane to
approximately 1800 homes. The entity had committed to look
at opportunities to provide propane, and other gas less
expensive than diesel, to other regions of the state. She
stated that the micro LNG concept was an emerging
technology that the authority was exploring, but the
potential was really for propane. She furthered that the
project did not necessarily provide enough propane for all
outlying communities. If there was propane in a larger
volume through the pipeline project the authority planned
to analyze the business structure and economics that would
be needed for a propane conversion that would benefit the
most communities.
Co-Chair Stoltze surmised that the propane project would
only provide to off the grid Interior communities.
Ms. Fisher-Goad answered that initially that would be the
case.
Co-Chair Stoltze understood that the authority had other
tools for eventual expansion.
Ms. Fisher-Goad responded that the legislation would expand
the opportunities for more communities to have a gas rather
than diesel in the future. The authority boasted a strong
technical team to develop the economics as well as
technical engineers with experience in rural Alaska.
Additionally, much work had been done by other state
entities that AIDEA would be referencing as the project
progressed.
9:23:35 AM
Co-Chair Austerman asked whether there was work that would
occur with Alaska Gasline Development Corporation (AGDC).
He queried the compatibility between propane and a major
pipeline.
Ms. Fisher-Goad replied that the information that the
authority would be gathering would be valuable to AGDC. The
authority intended to follow up with the AGDC.
Co-Chair Austerman understood that there was a limited
amount of propane that would move down the possible
pipeline offered in HB4. He assumed that in order to make
more space for gas in the line, propane would be extracted
on the North Slope.
Co-Chair Stoltze believed that the number was 3,500 barrels
per day of propane in the proposed gasline.
Vice-Chair Neuman understood that approximately 25 percent
of the gas produced in Prudhoe Bay was LNG. Of the 2.5 bcf
of LNG per day, half would be propane. He believed that HB
4 diminished the ability to handle propane, but if there
was a demand for propane after the open season the
specifics of the project could be changed.
9:26:36 AM
Co-Chair Austerman asked if there would be a plant at the
North Slope end of the pipeline that would extract propane
and LNG.
Vice-Chair Neuman replied in the affirmative.
Co-Chair Austerman asked if the two projects were
compatible.
Vice-Chair Neuman replied that currently the gas-treatment
facility in Prudhoe Bay did process propane. He stated that
there was compatibility between the two projects. The
facility was mobile and could be used in multiple areas of
the state.
Ms. Fisher-Goad interjected that the authority's role in
the project's development was to determine whether there
was a market and more demand for propane. The trucking
proposal in the liquefaction plant would provide a limited
amount of propane. She spoke to compatibility with the in-
state pipeline. The distribution system that would be
partially financed by AIDEA, through SB 23, would provide a
distribution system that could be served by a pipeline in
the area. The liquefaction plant would be a modular system
that could be used in other areas. She stated that the LNG
trucks would be replaced by the pipeline and that the
economic structure needed to be in place to make propane a
viable, low cost fuel resource for other areas.
9:30:08 AM
Co-Chair Austerman restated his question. He wondered why
two plants were needed.
NICK SZYMONIAK, PROJECT ECONOMIST, ALASKA ENERGY AUTHORITY
(AEA), DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC
DEVELOPMENT, answered that the scale of the two
liquefaction plants was very different. The plant
associated with the in-state pipeline would be considerably
larger. If the pipeline was built the authority planned to
relocate their line somewhere along the larger line, but
the smaller plant under discussion would not be able to
replace that LNG plant expected for exports.
Co-Chair Austerman asked why the gas could not come from
the pipeline liquefaction plant proposed in HB 4.
Mr. Leonard believed that the gas treatment plant for an
in-state pipeline would only treat the gas before it went
through the pipeline. The plant in SB 23 involved gas
treatment, but was mainly utilized to liquefy gas. One of
the compatibilities with the in-state pipeline was that it
could be customer to the in-state pipeline if it were to be
moved down to Fairbanks where gas could be taken off the
pipeline, liquefied and then transported to interior
communities.
9:32:15 AM
Mr. Szymoniak replied that the two projects would serve
different demands. The LNG export plant with the pipeline
would serve primarily the export license. He stated that on
the demand side, the infrastructure, technology and study
needed to integrate the fuels would be the same for the
coastal communities that could be served by an LNG plant
coming off of the pipeline, as it would with the
authority's LNG plant. The effort was to understand in
parallel the potential demand moving forward.
Vice-Chair Neuman added that the business plan in the
legislation stood alone and would be independent of whether
another pipeline project moved forward or not.
Representative Holmes pointed to SB 23. She understood that
the short term goal of the project was to get relatively
clean and inexpensive gas to the Interior. She wondered if
the bill would provide more affordable gas to the Interior
than the alternative of importing LNG.
Ms. Fisher-Goad responded that with respect to having the
needs of the Interior served by an import, the authority
did not have anything to use as a model. Currently,
Fairbanks natural gas had supply arriving from Cook Inlet
and trucking up north; however, the gas supply had not been
there enough to have that particular model expanded, so no
comparison had been done. In planning for trucking from the
North Slope the authority drew information from two
entities that had existing long term gas contracts, at a
range and a cost that was known, as well as estimates and
the cost structure of a plant which illustrated that a
reduction in the cost for heating could be made in interior
Alaska through the plan that was presented in SB 23. There
were unknowns concerning whether there was an alternative
that would be less expensive.
Representative Wilson surmised that the propane would be
available to whoever wanted to buy it. It might end up in
rural areas, but only if those that bought it brought it
there.
9:37:48 AM
Mr. Szymoniak replied in the affirmative. He anticipated
that the propane would initially be used in the surrounding
parts of Fairbanks, but the authority was working to
provide propane to rural Alaska.
Representative Wilson wondered if it would be possible for
communities surrounding Fairbanks to take advantage of the
storage tax credit and develop a system similar to that of
North Pole.
Mr. Szymoniak answered in the affirmative.
Representative Wilson stressed that the project had great
growth potential outside of Fairbanks.
Representative Gara said that the original HB 4 had been
designed to have one or two extra straddle plants, was made
of thicker pipe, and had the goal of producing propane in
large amounts that could be shipped and that that part of
the project had since been removed. He asserted that the
communities in rural Alaska would end up paying the extra
cost to add the infrastructure on the pipeline to produce
the propane.
Mr. Szymoniak answered that he could not speak to the
makeup or operation of the pipeline discussed in HB 4. He
said that the authority was currently working to better
understand the potential demand for the propane gas that
could come off of a pipeline; the cost of producing propane
off of the pipeline was not being examined.
Representative Gara understood that the pipeline was not
going to be able to handle as much pressure or propane from
the North Slope down to Fairbanks. He wondered if a change
would need to be made in order to ship propane to rural
communities.
9:41:10 AM
Mr. Szymoniak reiterated that he could not speak to HB4.
He reminded the committee that the authority was limited to
understanding the propane demand that could exist in rural
Alaska. He stated that the authority was not dependent upon
AGDC or the propane strip coming off of the pipeline
proposed in HB 4.
Representative Edgmon wondered if the issue was going to be
raised by the AEA during the upcoming rural energy
conference.
Ms. Fisher-Goad replied that she would get back to the
committee on the agenda for the energy conference.
Representative Edgmon believed that it was important that
people in rural Alaska got involved in the conversation
during the early stages of the project.
9:44:05 AM
Co-Chair Stoltze solicited public testimony.
Representative Thompson appreciated the conversation
surrounding HB 74 and SB 23. He noted that the two bills
were separate ideas that stemmed from the same piece of
legislation. He shared that the trucking portion had been
removed from HB 74 and that SB 23 directed the interior
energy problems.
Co-Chair Stoltze CLOSED public testimony on HB 74.
HB 74 was HEARD and HELD in committee for further
consideration.
CSSB 22(FIN) was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
9:47:45 AM
The meeting was adjourned at 9:47 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 74 ABA_H-FIN Letter of Support for HB74_3-29-2013.pdf |
HFIN 4/4/2013 9:00:00 AM |
HB 74 |
| HB 74 - Analysis of Changes.pdf |
HFIN 4/4/2013 9:00:00 AM |
HB 74 |
| HB 74 - Sectional Analysis.pdf |
HFIN 4/4/2013 9:00:00 AM |
HB 74 |
| HB 74 - Supporting Documents - Heatherdale Resources.pdf |
HFIN 4/4/2013 9:00:00 AM |
HB 74 |
| HB 74 - Supporting Documents - SWAMC.pdf |
HFIN 4/4/2013 9:00:00 AM |
HB 74 |
| HB 74 AIDEA Handout.pdf |
HFIN 4/4/2013 9:00:00 AM |
HB 74 |