Legislature(2015 - 2016)BELTZ 105 (TSBldg)

04/05/2016 03:30 PM SPECIAL CMTE ON ENERGY

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03:35:32 PM Start
03:36:00 PM Presentation: Aidea Interior Energy Project
04:15:17 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Location Change --
+ Interior Energy Project Update TELECONFERENCED
-- Testimony <Invitation Only> --
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
               SENATE SPECIAL COMMITTEE ON ENERGY                                                                             
                         April 5, 2016                                                                                          
                           3:35 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator Click Bishop, Co-Chair                                                                                                  
Senator Peter Micciche, Co-Chair                                                                                                
Senator Dennis Egan                                                                                                             
MEMBERS ABSENT                                                                                                                
Senator Lyman Hoffman                                                                                                           
Senator Bert Stedman                                                                                                            
COMMITTEE CALENDAR                                                                                                            
PRESENTATION: AIDEA INTERIOR ENERGY PROJECT                                                                                     
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
GENE THERRIAULT, Team Leader                                                                                                    
Interior Energy Project (IEP)                                                                                                   
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Provided overview of the IEP.                                                                             
NICK SZYMOIAK, Energy Infrastructure Officer                                                                                    
Alaska Industrial Development and Export Authority (AIDEA)                                                                      
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Addressed questions regarding natural gas                                                                 
proposals for the Interior Energy Project.                                                                                      
DAN BRITTON, President                                                                                                          
Fairbanks Natural Gas (FNG)                                                                                                     
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT: Addressed natural gas transportation for the                                                              
Interior Energy Project.                                                                                                        
ACTION NARRATIVE                                                                                                              
3:35:32 PM                                                                                                                    
CO-CHAIR PETER  MICCICHE called the  Senate Special  Committee on                                                             
Energy  meeting to  order at  3:35 p.m.  Present at  the call  to                                                               
order  were   Senators  Egan,   Co-Chair  Bishop,   and  Co-Chair                                                               
^PRESENTATION: AIDEA INTERIOR ENERGY PROJECT                                                                                    
          PRESENTATION: AIDEA INTERIOR ENERGY PROJECT                                                                       
3:36:00 PM                                                                                                                    
CO-CHAIR  MICCICHE announced  that Alaska  Industrial Development                                                               
and  Export  Authority (AIDEA)  would  provide  the committee  an                                                               
update on the  Interior Energy Project (IEP). He  stated that the                                                               
Legislature had  been intimately involved  with the IEP  over the                                                               
last  four years  and the  committee was  curious about  what the                                                               
featured  plans  were.  He  said  the  committee  was  especially                                                               
interested  in  what  the Interior-area  ratepayers'  costs  were                                                               
expected to be.                                                                                                                 
3:37:15 PM                                                                                                                    
GENE  THERRIAULT, Team  Leader,  Interior  Energy Project  (IEP),                                                               
Alaska  Industrial  Development  and  Export  Authority  (AIDEA),                                                               
Anchorage, Alaska, stated that the IEP goals are as follows:                                                                    
  · Increase natural gas supply to Fairbanks and the Interior.                                                                  
   · Supply natural gas at the lowest possible cost.                                                                            
   · Supply natural gas to as many Interior customers as                                                                        
   · Supply natural gas as soon as possible.                                                                                    
   · Address Fairbanks PM2.5 air quality problem with the use of                                                                
     natural gas.                                                                                                               
He  explained that  IEP's  dynamics  are driven  by  the cost  of                                                               
diesel  fuel.  He conceded  that  the  cost  of diesel  fuel  had                                                               
recently gone down, but prices were expected to go up over time.                                                                
He reviewed the "Legislative History" of the IEP as follows:                                                                    
   · SB 23 was passed in 2013 to provide AIDEA with financing                                                                   
     tools to move IEP forward.                                                                                                 
   · IEP initially focused on natural gas supply from the North                                                                 
     Slope, but a private partner was not identified that                                                                       
     achieved the community's goals.                                                                                            
   · HB 105 was passed in 2015 to broaden natural gas sources                                                                   
     via pipeline, propane delivery, or other ideas.                                                                            
MR. THERRIAULT  explained that AIDEA  put out a  new request-for-                                                               
proposal (RFP). He  said AIDEA received many  proposals and after                                                               
a review  process, the focus  was on  natural gas from  the North                                                               
Slope or the Cook Inlet.                                                                                                        
3:40:24 PM                                                                                                                    
He addressed IEP's supply chain  components where natural gas was                                                               
liquefied, transported via truck or  rail, then re-gassed and put                                                               
into a distribution system for  customers. He reiterated that the                                                               
IEP  supply  chain anticipated  potential  Cook  Inlet and  North                                                               
Slope supply.                                                                                                                   
He addressed  the liquid  natural gas  (LNG) supply  progress and                                                               
detailed  that  two  companies  were  identified  from  the  RFP:                                                               
Spectrum off of the North Slope,  and Salix out of Cook Inlet. He                                                               
noted that  Salix is a  division of  Avista, an entity  that also                                                               
owns Alaska Electric Light and Power Company (AEL&P) in Juneau.                                                                 
CO-CHAIR MICCICHE asked why Salix was the chosen partner.                                                                       
MR. THERRIAULT replied that the AIDEA  Board met on March 3 where                                                               
the  RFP  Evaluation  Committee presented  their  selections.  He                                                               
noted  that negotiations  continue with  Salix to  address paying                                                               
for the proposed  deal and bringing the full package  back to the                                                               
AIDEA Board for consideration.                                                                                                  
He  addressed the  progress of  natural gas  distribution in  the                                                               
Fairbanks  North Star  Borough. He  detailed that  AIDEA acquired                                                               
Fairbanks'  natural  gas  distribution  system,  Pentex/Fairbanks                                                               
Natural  Gas  (FNG),  in  2015.   He  revealed  that  AIDEA  used                                                               
financing tools  to expand FNG's existing  system in anticipation                                                               
of a  larger gas  supply to  hook up more  customers in  the core                                                               
Fairbanks  area.  He  added that  AIDEA  provided  a  Sustainable                                                               
Energy Transmission  and Supply  Development Fund (SETS)  loan to                                                               
Interior   Alaska  Natural   Gas  Utility   (IGU)  for   building                                                               
additional  distribution in  anticipation of  a gas  supply being                                                               
3:43:41 PM                                                                                                                    
CO-CHAIR BISHOP  asked if  he would  address natural  gas storage                                                               
during his presentation.                                                                                                        
MR. THERRIAULT  replied yes. He addressed  IEP's Quarterly Report                                                               
to the Legislature  and explained that the  reports were required                                                               
when  HB 105  was  passed.  He noted  that  the  most recent  IEP                                                               
Quarterly Report was distributed to legislators.                                                                                
MR. THERRIAULT called  attention to his memo to  the AIDEA Board,                                                               
dated  March 3.  He  detailed  that the  memo  addressed the  RFP                                                               
Evaluation  Committee's meeting  on  February  4 regarding  which                                                               
candidate recommendations  would move  forward. He  revealed that                                                               
Arcadis,   Inc.  provided   third-party  analysis   to  the   RFP                                                               
Evaluation  Committee.  He  noted  that  Arcadis  also  issued  a                                                               
redacted  report  for   public  distribution  where  confidential                                                               
information was censored.                                                                                                       
3:46:34 PM                                                                                                                    
CO-CHAIR  MICCICHE  asked if  he  was  referring to  the  updated                                                               
report from February 26.                                                                                                        
MR.  THERRIAULT answered  correct.  He continued  to address  the                                                               
February 4  RFP Evaluation Committee  meeting and  explained that                                                               
Salix was unanimously recommended to be the project partner.                                                                    
CO-CHAIR BISHOP asked if the  RFP Evaluation Committee's vote was                                                               
3:48:49 PM                                                                                                                    
MR. THERRIAULT answered yes.                                                                                                    
He pointed out that HB  105 required AIDEA to provide information                                                               
on how a final natural gas  price to the customer was derived. He                                                               
explained  that the  Arcadis Report  detailed the  Salix proposal                                                               
regarding plant size,  operational cost and fee in  putting out a                                                               
unit of LNG.  He specified that Salix's  ultimate delivered price                                                               
to an IEP  customer was $15.74 per thousand cubic  feet (MCF). He                                                               
noted that  IEP's target price was  $15.00 per MCF. He  set forth                                                               
that Salix's  price was believed  to be within range  and further                                                               
negotiations were recommended to  reduce capital expenditures and                                                               
the price of gas.                                                                                                               
CO-CHAIR MICCICHE  pointed out  that $6.50  was missing  from the                                                               
itemization of costs  in the $15.74 delivered  price. He detailed                                                               
that  $6.00  was  the  purchase  price  for  gas  and  $3.24  for                                                               
liquefaction, but $6.50 was unaccounted for.                                                                                    
3:51:25 PM                                                                                                                    
NICK SZYMOIAK,  Energy Infrastructure Officer,  Alaska Industrial                                                               
Development  and  Export  Authority (AIDEA),  Anchorage,  Alaska,                                                               
explained that  the $6.50 was based  on an estimate of  $2.50 per                                                               
MCF for trucking  from the LNG plant to the  Fairbanks North Star                                                               
Borough, and  $4.00 for  gas storage  and distribution.  He noted                                                               
that  internal  analysis  and  modeling  had  verified  that  the                                                               
estimate is still accurate.                                                                                                     
CO-CHAIR MICCICHE asked if any  of RFP respondents submitted unit                                                               
pricing for  liquefaction, storage, re-gas, and  distribution. He                                                               
inquired if there  was interest in an all-in  in combination with                                                               
MR.  SZYMOIAK  answered  no.  He  specified  that  no  respondent                                                               
proposed  anything beyond  trucking to  Fairbanks. He  noted that                                                               
one respondent  proposed providing gas supply,  liquefaction, and                                                               
transportation  to Fairbanks;  however,  no respondents  proposed                                                               
actually owning  or pricing in  the cost of Interior  storage and                                                               
3:53:57 PM                                                                                                                    
CO-CHAIR BISHOP noted  that a new trailer designed  to carry more                                                               
gas to  Fairbanks was  tested. He  asked if  transportation costs                                                               
might come down if the trial is successful.                                                                                     
MR.  THERRIAULT replied  the trial  with the  larger trailer  was                                                               
successful,  but  the  maximum  capacity  was  not  attained.  He                                                               
explained that  a trailer was  sent roundtrip with full  loads to                                                               
the  North  Slope and  AIDEA  determined  that  it does  help  in                                                               
bringing the per-unit  cost down. He deferred  further comment to                                                               
Mr. Britton.                                                                                                                    
3:55:26 PM                                                                                                                    
DAN BRITTON,  President, Fairbanks Natural Gas  (FNG), Fairbanks,                                                               
Alaska, stated  that the new  trailer operated close to  what was                                                               
expected, with  over 20 roundtrips  completed. He  specified that                                                               
approximately 12,300  gallons per unit was  hauled, which equates                                                               
to 25 to 50 cents per  thousand cubic feet savings from the $2.50                                                               
range noted  by Mr.  Szymoiak, depending  on the  amortization of                                                               
the capital cost of the trailers.                                                                                               
CO-CHAIR BISHOP asked if the trailer  sent to the North Slope was                                                               
loaded in both directions.                                                                                                      
MR. BRITTON  replied that the  trailer was tested full  and empty                                                               
in both directions. He noted that  Prudhoe Bay does not have off-                                                               
loading capabilities. He revealed  that the driver indicated that                                                               
the new trailer  performance was comparable to  the fuel trailers                                                               
that haul every day.                                                                                                            
3:57:35 PM                                                                                                                    
CO-CHAIR MICCICHE asked what new trailer's capacity is.                                                                         
MR. BRITTON answered 12,300 gallons per trip.                                                                                   
CO-CHAIR MICCICHE asked what the original capacity rating was.                                                                  
MR. BRITTON answered 13,000 gallons.                                                                                            
CO-CHAIR MICCICHE asked what the current trailer capacity is.                                                                   
MR.  BRITTON  replied  9,500  gallons  for  a  standard  two-axle                                                               
CO-CHAIR  MICCICHE   addressed  the  choice  between   Salix  and                                                               
Spectrum.  He  noted that  Salix  looked  like they  were  all-in                                                               
considering  the  $39.73 million  across  20  years and  the  $10                                                               
million required investment  for a total of $49  million. He said                                                               
Spectrum was about $10 million more  with $54 million plus the $5                                                               
million investment.                                                                                                             
MR. SZYMOIAK  agreed. He  pointed out  that Salix's  figures were                                                               
fluid as  commercial and technical  discussions advance.  He said                                                               
Salix's figures were  likely to change downwards  for the benefit                                                               
of Interior customers.                                                                                                          
CO-CHAIR  MICCICHE remarked  that  the choice  was fairly  simple                                                               
considering the risk associated with  the North Slope option, the                                                               
term sheets, and then the plan's  ownership at the end of the 30-                                                               
year term. He  asked if the simple choice was  the reason for the                                                               
unanimous vote by the AIDEA Board.                                                                                              
4:00:14 PM                                                                                                                    
MR. THERRIAULT  answered yes.  He detailed that  the cost  of the                                                               
competing   fuel  has   come  down   and  will   impact  customer                                                               
conversions. He opined that the  Salix plants seemed to be better                                                               
sized to  compete with the  lowered competing fuel cost  in order                                                               
to get conversions.                                                                                                             
CO-CHAIR BISHOP  noted that Fairbanks' announcement  the previous                                                               
day was historic, [F-35 fighter  aircraft assigned to Eielson Air                                                               
Force  Base].  He   asked  if  IGU  had  the   capacity  for  the                                                               
anticipated residential  buildout in  the North  Pole/Eielson Air                                                               
Force Base area.                                                                                                                
MR. THERRIAULT answered yes. He  admitted that demand numbers may                                                               
have to be updated.                                                                                                             
4:02:46 PM                                                                                                                    
MR. BRITTON  noted that during  the previous year,  IGU installed                                                               
70 miles  of distribution mains  with access for  2,000 customers                                                               
in the North Pole area.  He revealed that Cook Inlet liquefaction                                                               
with a large storage facility  could serve 4.5 billion cubic feet                                                               
(BCF) of  customer demand. He  disclosed that  Fairbanks' current                                                               
demand is less than 1 BCF.                                                                                                      
CO-CHAIR  MICCICHE   asked  him   to  verify  that   the  capital                                                               
expenditures  (CAPEX)  for the  LNG  plant  is $70  million  with                                                               
operating  expenses (OPEX)  at $7.7  million. He  noted that  the                                                               
OPEX will  be $4.6 million when  the energy cost is  taken out of                                                               
the equation.                                                                                                                   
MR. BRITTON replied  the referenced CAPEX and  OPEX numbers where                                                               
a little high.                                                                                                                  
CO-CHAIR  MICCICHE asked  how the  Interior's  lowered price  for                                                               
home  heating's  traditional  source would  influence  the  final                                                               
investment decision (FID).                                                                                                      
4:05:37 PM                                                                                                                    
MR. THERRIAULT said the delivered price  of fuel oil to a home is                                                               
under $2  which is comparable to  the natural gas target  of $15.                                                               
He  noted that  the air  quality  issue should  be considered  as                                                               
well. He said with no  local government requirement for a natural                                                               
gas hookup,  they are trying to  incent people to use  a cleaner-                                                               
fuel  alternative.  He  pointed  out  that  AIDEA  is  trying  to                                                               
identify non-state  general fund sources to  assist with consumer                                                               
conversions.  He said  AIDEA looked  at  the current  stage as  a                                                               
bridge-step for  the community  preparing itself  for the  use of                                                               
natural gas over the long term.                                                                                                 
4:08:19 PM                                                                                                                    
CO-CHAIR MICCICHE  asked if there  were federal  grants available                                                               
for the project that address the air quality issue.                                                                             
MR. THERRIAULT  answered that federal  dollars are  available. He                                                               
pointed out  that U.S. Senator  Lisa Murkowski was  successful in                                                               
increasing  an existing  EPA  grant that  typically  was used  in                                                               
California for ozone problems that  might be useful for Fairbanks                                                               
and other communities in Alaska.                                                                                                
CO-CHAIR MICCICHE  remarked that the  EPA grant was not  an anti-                                                               
fossil fuel program.                                                                                                            
MR. THERRIAULT answered correct. He  added that AIDEA was looking                                                               
at another federal loan program  that specifically addressed more                                                               
efficient and cleaner fuel source conversions.                                                                                  
4:10:55 PM                                                                                                                    
CO-CHAIR   MICCICHE   commented   that  estimating   a   customer                                                               
conversion  rate  is tough,  especially  when  diesel prices  are                                                               
down. He  admitted that  people take into  account how  long they                                                               
will be  living in their homes  when deciding on a  conversion to                                                               
natural gas.                                                                                                                    
MR.  THERRIAULT  pointed  out   that  House  and  Senate  finance                                                               
committees  were looking  at legislation  that targeted  business                                                               
conversions  through the  federal property-assessed  clean energy                                                               
(PACE)  financing. He  noted that  the legislation  was based  on                                                               
Texas's PACE  model. He  detailed that  the PACE  mechanism would                                                               
attach a repayment obligation to  a business's property tax bill.                                                               
He pointed out that a buyer  of a business with a PACE obligation                                                               
would  pick up  the remaining  portion of  a more  fuel efficient                                                               
SENATOR EGAN asked if municipalities  would be involved with PACE                                                               
MR. THERRIAULT explained that a  local government would work with                                                               
a utility in order  to issue a tax bill that  takes the PACE loan                                                               
into account. He specified that  repayment would come back though                                                               
a  voluntary  assessment on  the  individual  property where  the                                                               
government would pledge the monies for paying back the loan.                                                                    
4:13:36 PM                                                                                                                    
CO-CHAIR  MICCICHE expressed  hope that  Mr. Therriault  would be                                                               
successful. He remarked that the  FID is challenging, largely due                                                               
to a commodity price issue. He  said he hoped that the Cook Inlet                                                               
continued  to have  adequate natural  gas output  to maintain  or                                                               
lower prices.                                                                                                                   
4:15:17 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Co-Chair  Micciche  adjourned  the Senate  Special  Committee  on                                                               
Energy at 4:15 p.m.                                                                                                             

Document Name Date/Time Subjects
Interior Energy Update - AIDEA 4-5-16.pdf SNRG 4/5/2016 3:30:00 PM
IEP supply RFP Memo and Board Packet for 04-05-16.pdf SNRG 4/5/2016 3:30:00 PM
IEP Quarterly Report to Legislature 04 05 16.pdf SNRG 4/5/2016 3:30:00 PM