SENATE BILL NO. 23 "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." 9:31:17 AM SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, introduced herself. TED LEONARD, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY, introduced himself. Ms. Fisher-Goad explained that there was new information in response to questions that were offered the week prior. She pointed out that the fiscal notes were recently revised. One fiscal note was in respect to the Alaska Industrial Development and Export Authority (AIDEA) operations. She noted that the original fiscal note showed revenues to AIDEA, but it was determined that the revenue should show revenue to the State of Alaska. The new fiscal note showed revenues to the State of Alaska through dividend payments from AIDEA. She pointed out the two-year lag, with respect to how the AIDEA dividend was calculated. She looked at the comprehensive spreadsheet that was attached to the fiscal note, which showed the various pieces of the legislation; the interior energy plan; the other aspects of the legislation that were independent of the interior energy plan; and showed a comprehensive look at the different aspects of the legislation and other issues in the operating and capital budgets. She addressed the new fiscal note which showed the FY 14 governor's request to capitalize the Sustainable Energy Transmission and Supply Development Fund (SETS). She concluded that both fiscal notes reflected the $50 million to AIDEA for the power plant. 9:33:55 AM DAVID MESSIER, TANANA CHIEFS CONFERENCE, FAIRBANKS (via teleconference), spoke in support of SB 23. He remarked that the total economic effect of Natural Gas on the rural communities was unclear; but the hub would result in lower energy costs in Fairbanks and the surrounding communities. He pointed out that roughly half of the Tanana Chiefs Conference members lived in and around Fairbanks, and he believed that the project would have a positive benefit on the local economy. He remarked that access to low-cost energy had led to increased economic activity and opportunity, and believed that access to lower cost energy in Fairbanks would produce similar results. He stressed that the legislation would only augment, but not replace other alternative energy and weatherization funding. 9:36:47 AM DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, explained that the analysis was a way of separating the gas project from other impacts of the fiscal note. He stated that the fiscal notes included use of other financing mechanisms, so the analysis looked at the gas project in isolation to compare the cost to the state versus the benefits to consumers. He pointed out the top of the analysis, which was $50 million in cash from the general fund; $30 million in tax credits; and $125 million from additional state expenditures. The total state contribution to the legislation was $205 million. He stated that the money could earn $8.2 million at 4 percent earnings, if the $205 million were not spent. He stressed that the $8.2 million loss in revenue was the opportunity cost. He pointed out that the $125 million in the SETS fund would be loaned by AIDEA to the participants in the project, and approximately 3 percent interest that would generate $3.5 million interest earnings of which AIDEA could pay back to the state in dividends. He looked at the 7800 customers of AIDEA that would save an average of about $3000 per year in fuel, giving a customer benefit of approximately $3 million, resulting in a benefit-cost ratio of $3.50. He remarked that more sophisticated benefit-cost ratio analysis was required for past energy projects, and many of those projects resulted in a benefit-cost ratio that was less than one dollar. He furthered that consumers would incur some costs, because they needed to pay to convert to a natural gas system. He pointed out that if a consumer borrowed a 4 percent to pay for a $10,000 system, the loan would cost $1200 a year over ten years. He stressed that he did not have a position on the bill, but he was merely sharing his analysis. He pointed out that the analysis did not include secondary impacts like propane, or the potential for the gas to be used by the utilities to lower the cost of electricity. 9:42:22 AM Senator Olson wondered if there the propane availability in rural communities would materialize. Mr. Teal responded that the question was beyond his level of expertise. Senator Olson specifically queried the cost-benefit ratio to the rural communities. Mr. Fisher-Goad responded that AIDEA was examining that issue through the Rural Energy Program. She pointed out that the AEA intended to ensure a positive impact wherever propane would be available. She specifically remarked that the Northwest Arctic Borough had worked extensively on ensuring that propane had a positive impact on rural communities for consumers. She furthered that liquid natural gas (LNG) should also be made available to the rural communities. Senator Olson wondered if there was input from the refiners in Fairbanks regarding LNG. Ms. Fisher-Goad replied that there AIDEA had conversations with LNG refiners. She stated that the Golden Valley Electric Association in Flint Hills had partnered to potentially develop the mechanism that the bill would contain. She furthered that the association was no longer a partner as a project proponent, but felt that Flint Hills was expected to be a viable customer. She stressed that the LNG availability to rural areas would benefit Flint Hills' operational costs. She added that the LNG proposal was a part of the due diligence process that the AIDEA technical team was examining to ensure that there would be customers to fulfill the industrial load. 9:48:13 AM Senator Olson wondered what efforts were being made to ensure that the refineries remained viable. Ms. Fisher-Goad replied that this issue was currently under examination. She pointed out that the high cost of diesel fuel had eroded the market share and customers. She stressed that the purpose of SB 23 was to impact as many people as possible. She felt that the alternative-doing nothing-would impact the overall economics in Alaska, including the LNG refineries and customers. Senator Olson specifically looked at the heating oil distributors, and wondered how the administration would deal with out of work, skilled employees being unemployed due to a competitive product. Ms. Fisher-Goad responded that the package addressed the operational cost of the refiners. She stressed that the intention of the refiner to be a customer would lower their costs. She felt that the erosion of the heating oil industry in interior Alaska was a concern, regardless of LNG availability. 9:52:17 AM Senator Olson stressed that he was not opposed to making energy prices more economical in interior Alaska, but felt that there were many people who could not have access to the LNG. He wondered if there was a consideration for those individuals and businesses that could not access LNG, and would potentially suffer as a result. Ms. Fisher-Goad responded that legislation addressed the current individuals and businesses that did not have access to LNG. She stated that the rural energy programs would address those that could not have access to lower heating options. Senator Olson commented that he had not seen any effort form the administration to mitigate the circumstances of the unintended consequences of the bill. BOB SHEFCHIK, CHAIR, FAIRBANKS ENERGY COUNCIL, FAIRBANKS (via teleconference), stated that the Flint Hills refinery's main product was jet fuel. He stressed that the bill would benefit them, more than harming them. He explained that the Petro Star refinery was more complicated, because they provided jet fuel to Eielson Air Force Base and heating fuel in Fairbanks; but the availability of LNG should assist the economics of their refineries. He shared that Petro Star had not indicated a position saying that the bill would harm their business. He shared that the gas utility was currently working toward a wide LNG distribution network. He concluded that the perception that there would be a negative impact on delivery jobs and distribution was accurate, but would be offset by a large number of trucking jobs bringing trucks to and from town. 9:57:44 AM AT EASE 9:59:37 AM RECONVENED Vice-Chair Fairclough wondered how the dividend was affected inside the bill, and would change in description net income. Ms. Fisher-Goad replied that it was a technical change, and the dividend calculation would not change. Mr. Leonard explained reiterated Ms. Fisher-Goad's statement. Vice-Chair Fairclough commented that there was no conversation regarding capital costs related to transportation costs, and wondered if there was anticipation to increase capital maintenance of the road from the North Slope. Mr. Leonard responded that the initial projection was approximately 20 to 25 trucks per day, and the capitalization was built into cost of the trucks. He furthered that there was work with the Department of Transportation and Public Facilities (DOT/PF), and DOT/PF felt that the proposal would not have a significant impact on the capital. Senator Bishop shared that he had conversations with distributors that felt that LNG could "save Fairbanks." He stressed that many distributors had large sums on their books that had still not been collected from consumers, because the consumers were unable to pay the cost of fuel. He wondered if there would be due-diligence to determine if the bill was economical. Mr. Leonard agreed, and furthered that it was important for the bill to be economically viable to the community and would pay for the investment from AIDEA. 10:06:56 AM Senator Bishop commented that one of his constituents had and $8000 a week fuel bill, others were desperate for lower heating costs. Vice-Chair Fairclough MOVED to REPORT CS SB 23 (FIN) out of committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. SB 23 was REPORTED out of committee with a "do pass" recommendation and with two new fiscal impact notes from the Department of Commerce, Community and Economic Development.