SENATE BILL NO. 99 "An Act relating to a heating fuel energy relief program; and providing for an effective date." 10:12:21 AM Co-Chair Stedman discussed that his intent was to adopt the CS for SB 99. He explained that the bill would be heard and held for future work over the interim. Co-Chair Hoffman MOVED to ADOPT CSSB 99 Work Draft 27- LS0507\M (Kane, 4/11/11) as a working document. Co-Chair Stedman OBJECTED for purpose of discussion. SENATOR JOE PASKVAN, SPONSOR, explained that the CS made two changes to the bill. First, it included both number 1 and number 2 fuels (Page 2, Lines 14 and 15). Second, it eliminated a section in order to include a more broad application. Co-Chair Stedman WITHDREW his OBJECTION, and there being NO further OBJECTION the CS SB 99 Work Draft 27-LS0507\M (Kane, 4/11/11) was ADOPTED. 10:15:08 AM Senator Paskvan discussed that the bill pertained to heating fuel energy relief. He read from the Sponsor Statement (copy on file) and explained that the goal was to present a solution to the serious issue that faced approximately 80,000 Alaskan households that used heating oil as their primary heating source. The program would apply to all retail sales of number 1 and number 2 heating fuels. The program was ambitious and was designed to offer relief to the state's residential consumers. He expounded that Alaskans who relied on heating oil to keep warm during the winters needed a specific and short-term solution that met their needs. He believed that the bill allowed the opportunity for long-term solutions to be considered, adopted, and implemented in the state. During the past several years the discretionary income for many residents in the Interior, Southwest, and Southeast Alaska had ceased to exist. He relayed that the rising cost of heating oil was too expensive for many Alaskans to pay and was "crushing" the average Alaskan. The high price of fuel was occurring during a time that the state was enjoying a surplus due to the high price of crude oil. He expressed that the high price in heating oil had the potential to economically devastate individual Alaskans and their families. The bill would require the State of Alaska to offset the home heating costs when the price of a barrel of crude oil rose to a point where the state was enjoying budget surpluses. He expounded that it was reasonable for residents to pay $2.50 per gallon while the state paid the balance to home heating dealers from budget surpluses if the price of heating oil triggered the measures included in SB 99. The temporary solution would allow residents to work on long-term solutions that would restore optimism about the state's economic future. He expressed that the proposed legislation would allow the state to focus on its number one priority that was renewable and sustainable energy solutions and would protect Alaskan families. Senator Paskvan communicated that the bill was designed to be easily administrated. Currently distributors of home heating oil were required to send the State of Alaska a monthly breakdown of the quantities of the various petroleum products that they sold, including home heating oil. He explained that the quantities of heating oil were easy to verify and were objectively determinable. The bill was intended to be efficient and did not require massive paperwork or government employment to operate. The state would make the payment directly to the heating oil distributors rather than to tens of thousands of individuals. He elaborated that there were approximately eight or nine distributors in Interior Alaska and there were a limited number in Southwest Alaska; therefore, the program would run efficiently. The bill required an increase to the consumer price of heating oil during each of the next three years, which would provide the incentive for Alaskans to maintain the weatherization programs and efficiency in heating costs. The bill used the New York Mercantile Exchange (NYMEX) as a benchmark for triggers; however, with the recent separation in the pricing between West Texas Intermediate (WTI) and Alaska North Slope (ANS) pricing it was possible that an ANS benchmark could be used. He relayed that there could be alternatives such as using the benchmark and if it hit a certain benchmark price the price per gallon could be paid down. He discussed that the average annual consumption in Alaska was between 800 and 1000 gallons. He reiterated the bill aimed to provide protection for the households that heated with heating oil and to keep them from getting crushed by high prices. He looked forward to working with the committee on the legislation during the interim. 10:19:46 AM Co-Chair Stedman wondered whether the the bill would buy down heating fuel at a BTU equivalency. Senator Paskvan replied that the bill currently used the NYMEX benchmark. He referred to benchmarks on Page 6 of the Legislative Research Report dated April 11, 2011 (copy on file) that included the average price per gallon at $2.50 and approximately $70 per barrel. The bill used the benchmark price of a barrel of crude oil to trigger the payment. Co-Chair Stedman asked how the bill would bring parity for the residents that heated with fuel oil and residents that heated with natural gas. He discussed that natural gas available in the Railbelt area was approximately one-third the price of hydro, which on a BTU equivalency was around $3.80 to $4.00 oil. Senator Paskvan responded that alternative heating used throughout the state could be explored during the interim. A benchmark could be established based on electric or BTU in order to determine how to distribute from the surplus to Alaskans in need. 10:22:26 AM Co-Chair Stedman thought it would be helpful to have an energy comparison between the BTU equivalencies for different energy sources that included wood, natural gas, hydro and diesel fuel, and coal. He discussed a Forest Service study that compared what it cost to heat a 1,800 to 2,000 square foot house in Southeast and also compared different areas such as Sitka, which was relatively warm and Fairbanks, which was cold. Senator Paskvan agreed. He explained that there had been an ongoing discussion related to the BTU equivalency basis between the regions and looking at the various cost structures such as hydroelectric power, natural gas, and number 1 or number 2 fuels. He stressed that many Alaskans in the Interior had to supplement or displace their oil with wood furnaces, which had resulted in serious and negative health effects through a process related to air quality called PM2.5. He relayed that in the Interior oil distributors made deliveries in 100 gallon increments and at $4.00 per gallon many people could not afford the cost for one delivery. He knew people that had been forced to fill five gallon jugs with two or three gallons of diesel fuel at the gas station in order to get through one night. The problem was very real throughout Alaska and needed to be addressed. He discussed that when the price of crude reached $120 to $130 to $140 a barrel in 2008 it resulted in prices of $4.00 to $4.50 per gallon in Interior Alaska that were triple the amount from a decade earlier. He opined that it was a serious economic problem that challenged the economic sustainability of the entire community. 10:26:12 AM Senator Olson asked what the bill was modeled after and whether there were national or international models that were aimed at alleviating energy problems. He appreciated the bill and explained that communities on the North Slope came from the "breadbasket" of Alaska but paid the highest price for fuel. He stressed that the bill was not the answer to all energy problems in the state, but that it would take the edge off for some residents. Senator Paskvan replied that he had seen the problem and worked to move forward towards a solution. The bill had not been based on a specific model, but he hoped there was a national or international model that was based on a sovereign that had a surplus created by the high cost of crude oil that could benefit its residents. Senator Olson had been informed that there was a model for Middle Eastern countries, Russia, and Mexico that provided individuals within each sovereign the ability to have a less expensive price than the price that was charged for exported fuel. Senator Thomas appreciated the bill. He referred to other discussions that had centered on similar concepts related to other heating sources. He discussed that the Interior, Southwest, and Northwestern areas of the state experienced oil prices of $4.00 to $10.00 per gallon. There was no telling what the impact would be if oil reached $150 per barrel in the next few years. He stressed that major concerns focused on the PM2.5 air pollutant issue combined with the high fuel cost that drove up the price of everything including wood. He expounded that residents who had transferred to other heating methods had created a large issue that could impact federal transportation funds and had forced some schools to limit students from going outdoors. He explained a previous attempt at pacifying the entire state had resulted in a $1,200 addition to the Permanent Fund due to the inability to agree on how the formula would have worked with the various types of fuel. 10:30:48 AM LUKE HOPKINS, FAIRBANKS NORTH STAR BOROUGH, MAYOR (via teleconference), spoke in support of SB 99. He explained that the community had been looking at how it could lower energy costs. Individuals and businesses in Fairbanks had switched to wood heat in response to high oil prices in 2008. As a result there were many health issues in the community that had a 250 square mile non-attainment area. He relayed that thousands of structures in the community were heated with the most expensive natural gas. He stressed that the bill would provide relief from the cost of energy for most of his community. He explained that approximately three percent of the Fairbanks households had been able to reduce their energy consumption by almost 30 percent as a result of the home energy retrofit program. He had heard from residents that were spending $800 a month on fuel. He stressed that relief from the cost of heating fuel was imperative and urged the committee to consider ways to help residents with the rising costs of energy immediately. 10:34:31 AM PAUL D. KENDALL, SELF (via teleconference), pointed out that Alaska faced problems with energy costs and that some of the remedies did not make sense. He urged committee members to visit the Anchorage/Mat-Su area to host a conversation on how to help reconstruct energy for Alaskan homes. He believed that Alaska could act as an example for the rest of the world. 10:37:27 AM Senator Olson wondered what plans were in place for the interim to ensure that the bill would be polished and ready to bring to the Senate Floor the following year. Senator Paskvan responded that he would continue to speak with other senators, would look for models to help design the program, and would look at the BTU equivalency around regions throughout the state. He reiterated that the goal was to find a solution that was right for Alaska. Co-Chair Stedman communicated that the U.S. Forest Service Sitka Wood Utilization Center would be a good resource and had done a significant amount of work on BTU equivalency and price comparisons on alternative fuels. 10:38:49 AM AT EASE 10:39:17 AM RECONVENED SB 99 was HEARD and HELD in committee for further consideration.