Legislature(2015 - 2016)BELTZ 105 (TSBldg)
04/05/2016 03:30 PM Senate SPECIAL CMTE ON ENERGY
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| Presentation: Aidea Interior Energy Project | |
| Adjourn |
* first hearing in first committee of referral
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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
Micciche.
^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
possible.
· 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
available.
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
unanimous.
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
liquefaction.
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
distribution.
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
trailer.
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
operation.
SENATOR EGAN asked if municipalities would be involved with PACE
loans.
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 |