HB 74-AIDEA: LNG PROJECT; DIVIDENDS; FINANCING  4:19:10 PM CHAIR OLSON announced that the final order of business would be 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." 4:19:49 PM MICHAEL POLLEN informed the committee that he has served 12 years on the Fairbanks North Star Borough (FNSB) Air Pollution Control Commission. During this past winter Fairbanks has been experiencing what he characterized as Beijing quality air quality with respect to 2.5 particulate matter counts. One of the only truly sustainable answers to the air quality problem is natural gas. He recalled the FNSB mayor, Luke Hopkins, spoke to that problem. He reiterated that this is a very serious health problem in Fairbanks and the proposed LNG and trucking project is a very effective solution. Thus, on the basis of health issues alone the project is worth it; however, this project would have a tremendous economic impact, which many people have highlighted. Additionally, this bill would improve the economics in Fairbanks and would promote industry, bring jobs to the city and to the Railbelt. In particular, he said he is tired of buying his propane from Calgary, Alberta, Canada. Instead, he suggested Alaska should make it in Alaska. In essence, this bill could bring LNG to Fairbanks and provide a short-term solution since it would mesh well with any pipeline project. He reiterated his support for HB 74 and urged members to support the bill. 4:21:58 PM GEORGE BERRY offered his belief that Fairbanks, the Fairbanks area, and those who live on the river system will be positively affected by this bill. He said HB 74 would lower space heating costs in Fairbanks, along the road system, and other areas of the state as this bill has wide ranging impact for residents. He said that natural gas and in particular propane will be able to reach out and lower space heating costs in rural Alaska. He explained that propane is a direct byproduct of the liquefied natural gas (LNG) process, which would be produced on the North Slope. Thus, once LNG is produced, propane will also be produced and become available, which is a positive aspect for those who do not have access to a pipeline. Furthermore, this bill could compliment various pipeline proposals. In conclusion, Mr. Berry expressed hope that residents can encourage the legislature to perform its due diligence and move HB 74 along and allow residents to invest in their families and the future. 4:24:23 PM DAVE MESSIER, Rural Energy Coordinator, Tanana Chiefs Conference (TCC), explained that TCC is a nonprofit tribal consortium that represents 42 communities in Interior Alaska. He then related his support for HB 74 and the Governor's Interior Energy Plan. He offered his belief that more affordable energy in Fairbanks, the hub for most of TCC's communities, generally means cheaper, more affordable energy for its tribes. Specifically, HB 74 has the potential to significantly lower the cost of propane delivered to rural communities in Alaska. Since nearly half of TCC's tribal members live in and around Fairbanks this bill would have a positive impact on TCC's members. He reported that at the TCC's annual convention, the full board passed a resolution supporting HB 74 and the governor's energy plan. He concluded that access to low-cost energy has led to increased economic activity and opportunity in the Lower 48, which the TCC believes would be the case in Fairbanks as well. Therefore, he strongly encouraged members to move HB 74 forward since it helps address the needs of all of Interior Alaska and the state as a whole. He stressed the importance of an energy strategy that includes funding for energy efficiency, weatherization, or renewable energy as a combined approach. He said the TCC greatly appreciates the committee's support for HB 74. 4:25:43 PM KARL GOHLKE, Outside Sales, Frontier Supply Company (FSC), stated that FSC has been in Fairbanks since 1989 and have been long time members of the Alliance, the Resource Development Council (RDC), Alaska Miners Association (AMA), Association of General Contractors (AGC), and the Greater Fairbanks Chamber of Commerce. Originally as Co-Chair and later as the chair of the Transportation Committee for the Greater Fairbanks Chamber of Commerce, he has been involved in the trucking gas project for the past five years when it was first introduced by Fairbanks Natural Gas (FNG). The project, although it had merit when it began, has even more merit today than five years ago. At the time, competing projects, community politics and disagreements regarding the North Slope trucking projects hindered its progress. However, Fairbanks Natural Gas (FNG) stayed focused on the project. Today, FNG, the Golden Valley Electric Association (GVEA), and local politicians are in agreement that the trucking project is a bridge to remove Fairbanks from the national list as the number one city with the highest energy cost. MR. GOHLKE said it has always been a challenge to live and work in Fairbanks, but in the past several years the high cost of energy has made it much more challenging. In fact, many have found it impossible and have moved from Alaska. The cost of providing electricity, heating, and water combined with rent/mortgage and food leaves little discretionary or no discretionary income. He said that this lack of discretionary income places a strain on businesses and families that is felt in the Interior as well as Anchorage. Today's economic situation has many unknowns; however, one thing that is known is that Fairbanks is challenged with the high cost of energy. This makes it hard for businesses to keep people employed and keeps businesses from coming to Fairbanks. He offered his belief that the Interior remains the place to do business; however, it has been made more difficult by each year that passes without actions for solutions that address the high cost of energy. The consensus for a near-term immediate solution is trucking gas from the North Slope as a bridge to a long-term solution of piped natural gas. He offered that HB 74 is a great start to provide gas to the Interior and the trucking of natural gas from the North Slope is broader than just Fairbanks. He related that GVEA and FNG have received inquiries and have responded with operational plans for the extended plan to truck gas to Southcentral Alaska. This energy project would leverage natural gas from smaller communities and other regions of Alaska to create a backbone for economic expansions to fit in with the pipeline plan and be a catalyst for private sector participation. He asked members to support HB 74 and not lose sight of getting the lowest cost gas to as many Fairbanks, Interior Alaskan residents, and businesses as possible by 2015 and help to make Fairbanks and the Interior a vital place to live and to do business. 4:29:11 PM DAN PORTWINE, noting that he has been in the plumbing and heating business for nearly 40 years, stated that at the end of the Trans-Alaska Pipeline System (TAPS) construction, in 1977, his business did numerous heat conversions from electric to oil since electricity costs had skyrocketed. He recalled that at that time most people wanted to be sure the boiler could be converted to natural gas; however, the community is still waiting for that. With regard to a concern raised at a previous hearing about the cost of conversion, he pointed out that there has been a push in Fairbanks in recent years to replace aged boilers with more efficient boilers. The majority if these boilers can easily be converted to gas for a cost of $1,500 to $2,000, he noted. Mr. Portwine related a conversation with a retiree last year during which the retiree said he couldn't afford the utility costs in Fairbanks and was planning his "exit strategy," which is a term that has bothered Mr. Portwine. He urged the committee to support and pass HB 74. 4:30:49 PM JEREMY HOLAN, Business Representative, Teamsters Local 959, informed the committee that prior to his current job, he worked as a fuel truck driver when heating oil prices rose from $1 per gallon to $4.50 per gallon. The heating oil market continues to remain unstable, he said. In fact, the current price for number one heating oil is $4.23 per gallon and for number two heating fuel at $4.16 per gallon. He personally burns about 1,100 gallons of fuel oil per year, along with coal and wood use. These energy costs are hurting Fairbanks and the rural communities. In 2009, he noticed homes going up for sale or going into foreclosure as he learned that people could no longer afford to live in Fairbanks. He pointed out the choices to heat homes in Fairbanks include electric, oil, wood, or coal. Currently, individuals and organizations are in the process of curbing homeowner use of wood or coal since these fuels create health issues. He offered his support for the LNG project. He concluded that Fairbanks and the rural communities need cheaper costs of living and need HB 74 to pass since it will stimulate the economy and lower fuel costs. 4:32:45 PM BILL ST. PIERRE, speaking as a 30-year Fairbanks resident who has owned and operated many local businesses, including software, media, and others, including an Anchorage business with over 30 employees, said he can vouch for the large number of advertising dollars that come to Fairbanks from Anchorage and other parts of the state. These advertising dollars illustrate the investment in Fairbanks by Anchorage businesses and business owners, including sandwich shops, furniture stores, banks and credit unions, medical facilities, and the contractors who build them. He hoped members would realize HB 74 does not just affect Fairbanks residents, but relates to the hundreds of millions of dollars in Anchorage-owned assets and investments in Fairbanks. He said the high cost of energy is needlessly stripping away value from these businesses and the cost of energy in Fairbanks is simply too high causing many residents and businesses to leave, consider leaving, or to refrain from further investment. This trucking plan is a good plan that will solve problems and create statewide opportunities, as well as provide a foundation for further development of Alaska's gas resources in the longer term, he opined. This bill, he further opined, would protect the millions of dollars that statewide investors have in Fairbanks and would create millions more in development and operational opportunities. He asked members to support this bill since it is in the interest of the entire state. 4:34:46 PM DICK BRICKLEY, Chair, ICE Alaska, noted his appreciation for the funding the legislature and the governor put in the budget. He stated that it is critically important to the Interior and Fairbanks that this bill move forward. Speaking as the Chair of ICE Alaska, he related that HB 74 will save the company over $40,000 in energy costs. He reiterated that it is critically important that this bill moves forward as Fairbanks needs help and it will be a great thing for the entire state of Alaska. 4:35:52 PM MARIA RENSEL asked members to pass HB 74 out of the committee for the reasons already stated, including space heating, air quality, and electricity generation. The high cost of energy doesn't leave people a lot of choice and many families are leaving the Fairbanks area. She concluded that Fairbanks needs to have HB 74 pass out of committee, signed, sealed, and delivered this legislative session. 4:36:44 PM TIMOTHY GUNDERSON related that he came to Alaska with his family in 1971 and has raised three children, who have also married and raised families here. He now has married grandchildren who want to raise their families here as well. However, one child moved away last year due to the percentage of income the family spent for heating and electricity and in order to have better economic opportunities. He asked to add his voice to those in favor of LNG; however, he would like to focus on the propane issue since that reaches a large group of people that have not been discussed and certainly reaches far beyond the Fairbanks area. He explained that propane is a byproduct of creating LNG, which is created when natural gas is reduced to 261 degrees below zero in order to liquefy the gas. However, propane must be removed from the LNG since the propane will turn solid. He said that Cook Inlet natural gas contains propane in the amount of about 1 percent, whereas Prudhoe Bay gas contains propane in the amount of 12-15 percent. In short, when GVEA begins its [North Slope] production, it will produce 30,000 gallons per day of propane byproduct, which could be trucked and barged up the Yukon River. Additionally, the infrastructure necessary for using propane is considerably smaller since it does not require a piped distribution system, a storage facility, or need to be kept at below zero temperatures. Currently, all propane used in Alaska is imported from Canada, which is shipped by rail to Prince Rupert, then barged to Whittier, shipped by rail to Fairbanks and Anchorage, and trucked to other points. Currently, propane costs, he reported, are $4 per gallon in Fairbanks. He related that the Anchorage Port Authority and FNG have estimated the price would be reduced from $1.20-$1.50 per gallon for Prudhoe Bay produced natural gas. He concluded that this could be a huge consideration for energy for Bush Alaska and Fairbanks, as well as for those who will not be served by pipeline for years to come. He shared his background, including that he worked for the Teamsters Training Center, has been involved in the trucking industry for 40 years, and teaches commercial drivers how to drive the Dalton Highway. He mentioned that he has five students from TCC who will likely benefit from this as commercial drivers. CHAIR OLSON remarked that he has hit on a point, which is how to reach people outside the core areas, noting that propane and other liquids may be the way to do so. 4:40:51 PM ANDREW REIMHERR said he wanted to speak to this issue since he is very concerned with the economy in Fairbanks, particularly since he learned from the boss of his wife, a real estate appraiser, that Fairbanks has had a phenomenal number of foreclosures this year, which were attributed to energy costs. In fact, many people just packed up and left similar to what happened in the 1980s. He offered his belief that the solution to the heating energy and air quality issues is gas and the necessary infrastructure. 4:42:20 PM JIM LAITI began by relating that four generations of his family actively live in Fairbanks as well as numerous friends and neighbors. A common topic of conversation among them is a lack of optimism, especially among young people. The obvious solution, he opined, is natural gas for Fairbanks and the LNG project is the perfect jump start to build the project. In hindsight, bringing natural gas at that the time TAPS was constructed by extending the pipeline to Fairbanks would have been a benefit to the Interior. Although people are often concerned about starting a project, good benefits result from projects such as this one, he opined. He acknowledged that pipeline discussions have occurred for 50 years, but he offered his belief that this LNG project could be symbiotic with a pipeline in that infrastructure and a consumer base would be in place in Fairbanks and in large areas of rural Alaska as well. He urged members to move HB 74 forward. 4:45:11 PM JIM DODSON, President, Fairbanks Economic Development Corporation (FEDC) stated he has seen first-hand the problems created by the high cost of energy in Alaska, in particular, in Fairbanks. Currently, the Fairbanks community is spending over $600 million on energy costs, of which 68 percent or approximately $400 million is being spent on space heating. These costs are stifling the economy's ability to grow and opportunities for children to live and enjoy Alaska. This bill, HB 74, is the right legislation for the Fairbanks community at this time, as well as being the right type of legislation for other communities to build their energy portfolio around and start to diversify Alaska's economy by creating jobs and opportunities around the development of Alaska resources. He urged members to support HB 74. 4:46:46 PM RENE STALEY stated that she works for Birchwood Homes and is also a city council member for the City of Fairbanks. She read a prepared statement in support of HB 74. She said this bill is imperative to Alaskans to take a closer look at increasing energy costs. At Birchwood homes, the company provides heat to 400 homes on 76 acres of property. Each home is heated by a dual boiler system, which helps keep the home quiet and energy efficient for space heating requirements. However, with increasing costs, the area's future and energy needs are of utmost importance. Trucking LNG from the North Slope to the Interior as a means to replace fuel oil needs to be addressed. The stated goal of securing project financing by the Alaska Industrial Development and Export Authority (AIDEA) will help provide public interest in promoting the prosperity of new housing development, new employment, and new business development. She the related support for resolution number 4566 from the Fairbanks City Council. She closed her testimony by thanking members for their service to the state. 4:48:13 PM JACK WILBUR, President, Design Alaska, informed the committee that Design Alaska is a small local business that employs 60 Fairbanks residents. He spoke in support of HB 74 and explained how getting natural gas to Fairbanks will help his business. Obviously, one reason would be to decrease utility, heating and electricity costs; however, more importantly, this bill would also decrease the cost for the 60 families he supports. He stated that with the high cost of energy, his employees look to him to increase their wages in order for them to be able to pay their bills. He said he essentially not only pays the high cost of energy for his own business, but he also pays for the high cost of energy for his employees' homes. He encouraged support for HB 74 because he is concerned about Fairbanks's economy, particularly as the president of an architectural engineering company that depends heavily on the economic health of the community. Unless the community can grow and be healthy, Mr. Wilbur said his business cannot continue to grow and be healthy, either. He concluded by saying it is very important to him as a businessman in Fairbanks that HB 74 be supported and bring gas to Fairbanks in a timely fashion. 4:50:12 PM CAM CARLSON related that her electric heating bills run $1,100 to $1,200 in the winter. If GVEA can benefit from this and decrease her heating bills, she would be elated. She echoed earlier comments regarding conversations about people who have to leave due to the percentage of their income that is used for energy costs. Although the aforementioned might be hard for Anchorage residents to believe since their costs are so low, it is tough in Fairbanks and she appreciated the opportunity to express this. 4:51:49 PM BOB SHEFCHIK, Chair, Fairbanks Chamber of Commerce Energy Committee; Chair, Interior Gas Utility Board, related he would not make repetitive comments since many of his comments have already been made. He informed the committee that the groups he represents have consistently supported HB 74 and SB 23; this support has been conveyed during the legislative session in writing and in public testimony. He said that the leadership of Governor Parnell on energy issues Alaskans face is truly appreciated. This bill, HB 74, would provide authorization to AIDEA to participate in the development of a gas trucking project designed to lower the space heating and other energy costs in Fairbanks. The governor's goal of low cost gas to as many residents as quickly as possible in Interior Alaska is broadly supported. The combined effects of the high cost of energy on homeowners, small business, and industry and the impending consequences of non-attainment to community growth, state highway funding, and community health threaten the economic viability of Fairbanks. All of these impacts are real and immediate. He stated that the provision of low-cost LNG trucking via the North Slope has combined the lowest capital cost and the quickest delivery schedule of any energy project on the horizon. He highlighted that although gas trucking is considered a near-term solution, it will also provide a bridge to a long-term pipeline, building the demand and capacity that helps the economic future of any future pipeline project. This bill would provide a means for the state to create infrastructure critical to the Interior and would bring benefits to FNSB residents, the highway system across the Interior, and over time to the more difficult areas to reach. He urged committee members to support HB 74. 4:54:08 PM JOMO STEWART, Energy Project Manager, Fairbanks Economic Development Corporation (FEDC), stated that he also sits on the Fairbanks Chamber of Commerce's energy committee. He said that sometimes there is a tendency to let the perfect stand in opposition to good projects by delaying them while waiting for projects farther down the horizon. Although this is no different, he opined that it is an opportunity for the state to begin to take good steps on the way to a better future, which he hoped the legislature would agree with and help the community move forward. He acknowledged that the LNG trucking option is not the perfect solution, nor is it the most efficient or cheapest way to move gas; however it is a good option. Every analysis that has been done has shown that it will make an appreciable savings in the cost of energy to the community. Furthermore, the LNG trucking project would open the gateway off the North Slope, which are good things. He also acknowledged that the funding package isn't perfect, but it is good since it will create a more sustainable funding mechanism to allow the state to participate in projects and advance them. He said that [the community] may not be able to participate in large scale grants in the future, but the state can make an investment and the target investment will allow those projects to move forward. In essence, instead of allowing the perfect to stand in opposition to the good, he reiterated this is a very good step on the way to a brighter future using sustainable funding mechanisms. Moreover, the LNG trucking option offers a short- term solution that brings real benefits to the community and sets up Fairbanks and other communities statewide to tap into larger, better, cheaper solutions. He asked members for their support. 4:56:53 PM WES MADDEN, Owner, Madden Estate, said as a real estate broker, he has been able to help people buy, sell, and manage their property. He offered his belief that no single threat is greater than the high cost of energy in Interior Alaska. He said that families are struggling to heat their homes, make ends meet, and with their confidence in the state's ability to what is right for Alaska's sustainable future. He recalled earlier testimony by the homebuilders on behalf of HB 74. The homebuilding profession has been all but decimated in Interior Alaska due to the lower demand for housing and lack of profits due to slowly declining property values and the increasing cost to build. Additionally, new construction home sales have dropped 71 percent, from 157 in 2007 to 45 last year. He reiterated that the high cost of energy affects everyone and everything. For instance, rental costs are at an all-time high, which is solely due to cost of energy that is passed through to the tenants who struggle to make rent payments. MR. MADDEN said that his property management firm manages several multi-family apartments and homeowner associations and he does not know how his company can get through another winter let alone this one due to fuel cost increases. In Fairbanks an abundance of commercial property sits vacant while investors spend money in other states. Last year, he said his company lost a sale on an apartment complex to an out-of-state investor, mostly due to Alaska Housing Finance Corporation's assessment of the Fairbanks market. Calls from property owners in rural communities in Interior Alaska come through his office; however, their property is unsellable since there are not any buyers. He related that the communities are losing long time generational Alaskan families, some with names that appear on street signs; these families aren't just leaving the Interior, they are leaving the state. He said that HB 74 is the good news that will ignite the spirit of the Interior Alaskan since it represents hope and will provide the much needed confidence in [the state's] leadership and decision making. "However, we need action and we need action this session," he said. He concluded by echoing that there's no such thing as a perfect plan, and a good plan executed now is better than a perfect plan executed next week. He expressed hope that his business will grow as he does not want to plan his own exit strategy and be able to confidently suggest to high school students that Interior Alaska is a great place to start a career. He also would like his community to develop, keep Alaskans in Alaska, and raise his family in this great state. He urged members to support HB 74. 5:00:04 PM LISA HERBERT, Executive Director, Fairbanks Chamber of Commerce, stated that the Fairbanks Chamber of Commerce's critical priority this year is reducing the high cost of energy since space heating and electricity is driving away business. She related comments from one of her members, Auto Trim Alaska. Steve Vincent, General Manager, Auto Trim Design, has a 2,000 square foot house and his friend in Kenai has a 1,900 square foot home. The natural gas cost to heat the Kenai home is $1,080, but the cost to heat Mr. Vincent's home in Fairbanks is $5,040 and is supplemented by oil heat with a wood stove. Mr. Vincent's 13,000 square foot store has heating costs of $70,000 annually, just three years ago after investing $40,000 in better roofing and insulation. To offset his utility costs, his entire staff of 34 employees had to take a 10 percent pay cut and loose some benefits in order for them to keep their jobs. He foresees probable layoffs without changes on the horizon. As the committee has heard, and has continued to hear, the Fairbanks community has mobilized and stands before the committee this afternoon offering its wholehearted support for HB 74. She said the Fairbanks Chamber of Commerce continues to advocate that the target goal of $15 per thousand thousand British thermal units (MMBtu) for delivered natural gas will effectively act at conversion by cutting space heating bills in half, bringing in $200 million of disposable income to the Fairbanks and statewide economy. The Fairbanks Chamber of Commerce looks forward to continuing to be the legislature's partner in what the governor has referred to as a persistent unrelenting effort to bring low cost energy to Interior Alaska. 5:02:38 PM LISA PEGER stated that such a project would give residents relief year after year. She urged members to move forward with HB 74. She suggested savings will result in the social welfare arena from this proposal. Drawing from her experience as a landlord, she informed the committee that she has fielded phone calls from families living on top one another since they cannot afford two or three bedrooms. She then related her support for the bullet line since having an open season will give proprietary information and encourage movement since the producers will know the state can build its own gasline for several hundred million dollars. She suggested these projects complement one another since having the trucking will give a larger bid for gas on the open market of a gasline since the area will have a larger consumer base. She could not see any downside to the plan except [the need] to fix the Dalton Highway from time to time. The LNG plant will be on skids and can be sold, moved, or repurposed. Ms. Peger expressed interest in having some good movement on some good projects. 5:05:53 PM CHAIR OLSON, after first determining no one else wished to testify, closed public testimony on HB 74. [HB 74 was held over.]