SB 99-AIDEA: DEVELOPMENT LOANS  2:03:39 PM CO-CHAIR DUNLEAVY announced the consideration of SB 99."An Act correcting a reference to the Alaska Industrial Development and Export Authority revolving fund; limiting the use of the Alaska Industrial Development and Export Authority sustainable energy transmission and supply development fund for certain loans and loan guarantees and allowing the development fund to be used as security for a bond guarantee; and amending the definition of 'qualified energy development.'" This was the first hearing. 2:03:58 PM JESSE LOGAN, Staff, Senator Lesil McGuire, introduced SB 99 on behalf of the sponsor. He spoke to the following sponsor statement: [Original punctuation provided.] The Sustainable Energy Transmission and Supply (SETS) Development Fund was created in 2012, AS 44.88.650- 44.88.690, as a fund within the Alaska Industrial Development and Export Authority (AIDEA) to promote and provide financing for energy development in the state to alleviate unemployment and contribute to the state's economic welfare, economic diversity, and economic development. Under this statute AIDEA is authorized to use money in the SETS fund to assist in the construction, improvement, rehabilitation, and expansion of qualified energy developments. SB 99 provides technical amendments to the SETS Development Fund within AIDEA. It has been determined that the statutes, as written last year, created an ambiguity in the one third capital cost limit as it relates to loans, loan guarantees and bond guarantees. The ambiguity arises in the current statutes as to whether the $20 million loan limitation worked in conjunction as a one-third limitation on loan guarantees, or was independent of that limitation. Additionally, the statute was vague as it relates to AIDEA's authority to use the fund as a security for a bond guarantee. These amendments clarify these ambiguities. AIDEA has received requests from project components and banks to utilize the fund in which AIDEA needed the authority to issue a bond guarantee for more than one-third of project costs. This bill clarifies the types of financing and limitations for financing for qualified energy developments in the state. 2:07:14 PM MR. LOGAN reviewed the proposed changes to the existing statute. · On page 2, line 3, the word "loan" was deleted to reflect the correct name of the revolving fund. · Page 2, lines 15-17, contains additional language that specifies that this section only applies to the SETS program and not any other within AIDEA. · On page 2, line 17, the words "finance or participate in financing of" was deleted to clarify that paragraphs (1) and (2) of AS 44.88.690(a) found on page 2, lines 18-21, pertain only to loans and loan guarantees, and not general finance participation. The provision in paragraph (1) specifies that AIDEA cannot grant a loan for more than one- third of the cost of a qualified energy development project. The language in paragraph (2) clarifies that the loan guarantee cannot exceed $20,000. · On page 2, line 28, the term "project" was changed to "development" to clarify that "qualified energy development" means a development in the state, rather than a project. · Section 3 on page 2 specifies that the program can be used for a security of a bond guarantee. 2:09:40 PM MARK DAVIS, Deputy Director, Alaska Industrial Development and Export Authority, (AIDEA), stated agreement with Mr. Logan's description of SB 99. He added that the bill was requested by the financial institutions that AIDEA works with. 2:10:33 PM At ease 2:12:02 PM CHAIR DUNLEAVY reconvened the meeting and asked Senator Stedman if he had an amendment to offer. 2:12:14 PM SENATOR STEDMAN moved Amendment 1, labeled 28-LS0741\A.3. CHAIR DUNLEAVY objected for discussion purposes. AMENDMENT 1 OFFERED IN THE SENATE BY SENATOR STEDMAN TO: SB 99 Page 1, line 5, following "guarantee;": Delete "and" Page 1, line 6: Delete "development.'" Insert "development'; and authorizing the Alaska  Industrial Development and Export Authority to issue  bonds to finance the infrastructure and construction  costs of the Bokan-Dotson Ridge rare earth element  project." Page 3, following line 4: Insert a new bill section to read:  "* Sec. 5. The uncodified law of the State of Alaska is amended by adding a new section to read: LEGISLATIVE APPROVAL; BOKAN-DOTSON RIDGE RARE EARTH ELEMENT PROJECT. (a) The Alaska Industrial Development and Export Authority may issue bonds to finance the infrastructure and construction costs of the Bokan-Dotson Ridge rare earth element project. The Bokan-Dotson Ridge rare earth element project shall be owned by the authority and financed under AS 44.88.172 - 44.88.177. The principal amount of the bonds provided by the authority for the Bokan-Dotson Ridge rare earth element project may not exceed $145,000,000 and may include the costs of issuing bonds considered reasonable and appropriate by the Alaska Industrial Development and Export Authority. (b) This section constitutes legislative approval required by AS 44.88.095(g)." SENATOR STEDMAN explained that the amendment authorizes AIDEA to issue bonds to finance the infrastructure and construction of the Bokan-Dotson Ridge Rare Earth Element Project. He read the above amendment. He highlighted the permissive language giving AIDEA discretion in its bonding authority, up to $145 million. He also noted that he had an amendment to clarify some of the language in Amendment 1. 2:15:09 PM SENATOR OLSON asked if AIDEA has an opinion on the amendment. SENATOR STEDMAN replied he worked with AIDEA on the amendment, but would prefer to hear from them directly. MR. DAVIS said AIDEA has no objection to the amendment, but would suggest additional clarification that AIDEA could use the bonds for ownership or financing. SENATOR OLSON asked if the sponsor has an opinion on the amendment. 2:16:08 PM SENATOR LESIL MCGUIRE, sponsor of SB 99, stated support for Amendment 1. SENATOR MICCICHE asked the total in the SETS fund. MR. DAVIS replied the SETS fund total is $67.5 million. Responding to a further question, he explained that this authorizes the AIDEA Board, in its discretion, to issue SETS bonds that would be sold on the private market. SENATOR MICCICHE referenced AS 44.88.095(g) and highlighted that this project wouldn't come back before the legislature. It gives AIDEA the authority to bond up to $145 million. MR. DAVIS agreed; this is asking for legislative approval for an upper limit. SENATOR MICCICHE asked if it's typical that bonding authority at this level wouldn't come back to the legislature. MR. DAVIS confirmed this is the process, and explained that the Skagway ore terminal was a similar project. AIDEA asked for and received authorization to issue up to $80 million in bonds for that project, although the full bonding has not been used. 2:18:21 PM CHAIR DUNLEAVY removed his objection. Finding no further objection, Amendment 1 was adopted. 2:18:35 PM SENATOR STEDMAN moved [conceptual] Amendment 2. He explained that it amends Amendment 1. CO-CHAIR DUNLEAVY objected for discussion purposes. AMENDMENT 2 OFFERED IN THE SENATE BY SENATOR STEDMAN TO: Amendment 1, 28-LS0741\A.3, for SB 99 Page 1, line 17: Following: "Bokan-Dotson Ridge rare earth element" Delete: "project shall be owned" Insert: projects surface complex shall be owned or financed" SENATOR STEDMAN described the above amendment. 2:19:36 PM SENATOR OLSON asked if other projects would be affected by the amendment. MR. DAVIS replied that this authority is specific to the Bokan project. Amendment 2 clarifies that AIDEA has determined that it can only lend on the surface and could not use bonding for working capital or underground equipment that might be used in the mine. He noted that the idea of financing to ownership was his suggestion. SENATOR OLSON asked for assurance this wouldn't encumber the Red Dog Mine and the connecting road. MR. DAVIS replied this would not affect that mine; it only gives authorization for the Bokan project. SENATOR MICCICHE asked if it's unlikely that a state agency would operate this project, although it's authorized under AS 44.88.172 - 44.88.177. MR. DAVIS confirmed that those statutes, particularly AS 44.88.172(a), permit AIDEA to own or partially own or finance a project. However, AIDEA usually contracts projects out or seeks private partners so another entity operates the project. 2:23:26 PM CHAIR DUNLEAVY removed his objection and Amendment 2 was adopted. 2:24:04 PM KEN COLLISON, Chief Operating Officer, Ucore Rare Metals, introduced himself. SENATOR STEDMAN asked Mr. Collison to describe the Bokan-Dotson Ridge Rare Earth Project. MR. COLLISON explained that there are about 16 elements in the periodic table that are classified as light and heavy rare earth elements (REEs), but only the heavy REEs are rare and critical to both green energy and the military. Right now more than 95 percent of the heavy rare earths originate in China, so there is impetus to create a "Made in the USA" supply of rare earths. Ucore is part of that effort and has contracts with both the Department of Defense and the Department of Energy to further that goal. MR. COLLISON said that a preliminary economic assessment of the Bokan-Dotson Ridge Rare Earth Project ("Project") predicts capital costs of $221 million. Upon review with AIDEA, it was determined that $191 million could be bonded, but AIDEA is only authorized to bond 75 percent of that. Thus, the $145 million provided in Amendment 1. He explained that the Project is a 1,500 ton/day underground mine that uses new technology so there will be no tailings left on the surface when the mine closes. The timeline calls for permitting to begin late in the first quarter of this year or soon thereafter. He expressed hope that the mine would be permitted more quickly than others since it's underground, has a very small footprint, and will have no tailings on the surface at closure. The feasibility study and the engineering for some of the major equipment will run concurrently and should be finished by year end. Down payments on the major equipment will be due shortly thereafter so that it doesn't hold up the project. MR. COLLISON said this legislation will be a big help in developing the Project, and it will show the financial markets and the rest of the mining industry that Alaska is open for business. The state will also benefit from additional jobs. During the estimated 1.5 year construction, the onsite workforce will peak at about 300 employees, which will create about 125 indirect jobs. During operations there will be about 190 employees and that should create about 150 indirect jobs. Current estimates indicate that about 340 new jobs will be created in the state. In Alaska, the average income for somebody in mining is between $80,000 and $100,000 so these are very good, year around jobs. CO-CHAIR DUNLEAVY asked the predicted life of the mine. MR. COLLISON replied it's 11 years but if mines like Greens Creek and Red Dog are indicative, it will last several times longer than that. It's promising that the ore body is open at depth and on strike and that the property has numerous other rare earth showings. 2:29:30 PM SENATOR MICCICHE referenced a handout in the packets that specifically identifies Dy, Tb, and Y as heavy rare earth elements available at Bokan Mountain. He requested an expanded discussion of REEs. MR. COLLISON identified the three REEs as dysprosium, terbium, and neodymium. He explained that one of their uses is to reduce the size of magnets, which is critical for things like hybrid cars and aviation engines. The Department of Energy has identified these three rare earths and inyttrium as the most critical for [military equipment]. The Department of Defense has identified them as "subject to interruption of supply, based on actions or events outside the control of the government of the United States." SENATOR MICCICHE asked if the mine is economically feasible at the indicated resource quantities or if inferred resources have to be included. MR. COLLISON replied the preliminary economic assessment was done on inferred resources, as is common. Ucore has since done more drilling and now has both indicated and inferred resources. Another drill program this coming summer will move the balance of inferred resources to indicated resources, and add some. It's necessary to have at least an indicated resource in order to do a feasibility study, so that's the intent this coming summer, he said. CO-CHAIR DUNLEAVY stated that public testimony would remain open and he would hold SB 99 in committee for further consideration.