HOUSE BILL NO. 512  An Act establishing the Hydrogen Energy Partnership in the Department of Community and Economic Development; requiring the commissioner of community and economic development to seek public and private funding for the partnership; providing for the contingent repeal of an effective date; and providing for an effective date. JAY HARDENBROOK, STAFF TO REPRESENTATIVE CRAWFORD, testified in support of HB 512. He observed that hydrogen does not occur naturally on earth in its pure form, and it is a means of containing energy rather than an energy source. The potential sources for hydrogen are water, oil, natural gas, coal, geothermal and wind, all of which occur in Alaska. Mr. Hardenbrook noted that the bill provides a structure to allow the State to accept grants from both private and public sources. He referred to the fiscal note reflecting $71,000 for the Department of Community & Economic Development. Representative Stoltze asked if the local energy task force discussed fuel cells. Mr. Hardenbrook observed that the State of Alaska has one of the largest operational fuel cells in the United States, located at the Anchorage Airport. He noted that it is relatively cost effective given the high costs for fuel oil, natural gas and electricity. Alaska is unique in the hydrogen market because its power costs are high and it has a great supply of potential energy for hydrogen. He concluded that by establishing this partnership, Alaska could be a test project for the rest of the U.S. In response to a question by Representative Hawker, Mr. Hardenbrook explained that if there are not sufficient funds through grants the partnership provision would be removed. Representative Hawker asked the time that is needed to secure funding. Mr. Hardenbrook replied that the partnership would be dissolved in 2009. He felt that there would be sufficient grants to continue beyond next year. CARYL MCCONKIE, TOURISM DEVELOPMENT, DIVISION OF TRADE AND DEVELOPMENT, DEPARTMENT OF COMMUNITY & ECONOMIC DEVELOPMENT, explained that the fiscal note would only support the first year while the funding is being secured. The Department would work with the University of Alaska, which has completed some research, and with the Energy Task Force and the Energy Authority. Representative Hawker noted the repealer clause of 2009 to secure stand-alone funding, and he asked if the State would be required to continue support if the funding is insufficient. Ms. McConkie explained the Department's assumption that if funding were not available, the project would be discontinued. Representative Fate questioned if the viability of the partnerships had been researched. Mr. Hardenbrook noted that California has been successful with fewer resources and lower energy costs than Alaska. The conclusion was reached that the State of Alaska would be successful. Representative Fate questioned if "the cart is before the horse" since the gas pipeline is not yet a reality. Hardenbrook responded that hydrogen could be made from other technologies, including hydrogen from coal. Alaska has more coal reserves than the rest of the United States combined. Representative Fate acknowledged that the technology exists but pointed out that it is currently expensive. Representative Hawker questioned what would happen if outside revenue sources fail. Mr. Hardenbrook noted that the sunsets are the repealers in Section 6 that would allow reevaluation by the Legislature in 2009. Representative Hawker suggested that additional language be used to clarify what would happen to the agency if outside funding is not secured or ceases to be available. Mr. Hardenbrook deferred to the bill drafter. Representative Croft referred to Section 5, which would prevent the provisions to take effect without funding. He pointed out that if the funding never takes place, the provisions would be repealed in 2009. In response to a question by Representative Croft, Mr. Hardenbrook noted that hydrogen is more stable than gasoline and can be transported by pipeline or tanker, or liquefied. Alaska has an abundance of zeolites [secondary minerals] with a honeycomb structure used to trap hydrogen. In response to a question by Representative Hawker, Ms. McConkie stated that the Department has not taken a position on the bill. ERIC YOULD, EXECUTIVE DIRECTOR, ALASKA POWER ASSOCIATION (APA), stated that he represents the electric utility industry in Alaska. He spoke in support of the legislation and stressed that new energy resources are needed. Hydrogen can be produced through fossil fuels or water. TAPE HFC 04 - 83, Side A  Mr. Yould noted that there has not been sufficient economic incentive to further the technology. The State of Alaska possesses a number of renewable resources in large quantities that represent an indigenous resource that could be developed. While hydrogen would not be developed in the near future, the fuel cell industry is an emergent technology. He noted that hydrogen could also be burned in internal combustion engines. He concluded that the APA supports the bill. If the partnership were not put in place, it would fall to the individual interests to back the technology. Mr. Yould recommended minor changes to the bill. On page 2, lines 2-3, after "including sufficient geothermal energy" he suggested adding "hydropower, tidal power, wind and other." Around line 21, page 2, he would include "the electric utility industry," which would have vested interest in seeing the technology move forward. He noted that the Alaska Energy Task Force has also taken a strong stand in support of hydrogen technology. Representative Fate asked if Mr. Yould had projected when the hydrogen industry would benefit the electrical companies. Mr. Yould replied that hydrogen technology is not on the immediate horizon and it has been emerging for 30 years. Fuel cells are the technology of the future and hydrogen will fuel the world technology in the distant future. He provided statistics, and discussed Cook Inlet reserves. Representative Hawker questioned if the industry could fund a fellowship grant to the University to provide the needed leadership. Mr. Yould thought the various groups, including the task force, could do it in partnership. Representative Hawker commented that he would like to change Fiscal Note #2 to reflect indeterminate numbers. He asked if the Department would consider changing the source from the General Fund to Receipt supported services. Representative Hawker proposed a conceptual amendment to change Fiscal Note #2, DCED dated 2/24/04 to reflect indeterminate numbers for FY06, FY07, FY08 and FY09. He also proposed that the funding source for FY 05 be under receipt-supported services, with funding contingent on finding third-party funding. Vice-Chair Meyer OBJECTED for purposes of discussion. Ms. McKonkie agreed that she would work with the Department to revise the fiscal note as proposed by Representative Hawker. She stated that it would require finding outside funding for the first year. An additional staff position to secure that funding would be needed. Representative Hawker commented that the fiscal note lacks clarity regarding future needs. He doubted that soliciting industry would require a lot of effort on the Department's part. Ms. McKonkie replied that it wasn't likely the program could be up and running in a year's time, with the current staff "maxed out" in the existing grant programs. She expressed that the Department would need guaranteed first year funding in the current fiscal note. Vice-Chair Meyer asked what would happen to the staff if the program were discontinued after the first year. Ms. McKonkie said that some programs are only funded for a year at a time. The proposed program would require an expertise not currently in the Department, and it must at least estimate a portion of the staff time. In response to a question by Vice-Chair Meyer, Ms. McKonkie explained that recruitment would be tied to a person's experience in industry. Regarding extended year funding, Ms. McKonkie stated that if the funding were there, the activities would continue. The Department did not estimate beyond the first year. Representative Hawker reiterated doubt that the current Department staff in various programs would not have time to solicit public funding. Ms. McKonkie explained that there is expertise in those areas, but this fiscal note reflects the DCED implementing the bill. Representative Hawker expressed hesitation in creating additional staffing when the Legislature is on verge of stabilizing fiscal policies. Vice-Chair Meyer removed his objection to the conceptual amendment. Representative Hawker explained that FY06, FY07, FY08 and FY09 are really indeterminate numbers rather than zero, because of potential federal receipts. Rather than pure General Fund in 2005, he proposed to set it up as receipt- supported services so that it is not a General Fund appropriation. Representative Fate asked Representative Hawker if his first conceptual amendment also included third party funding. Representative Hawker affirmed. Representative Chenault suggested allowing the DCED to provide a revised fiscal note and a response to the Committee's concerns. Representative Hawker withdrew his amendment. HB 512 was heard and HELD in Committee for further consideration.