HOUSE SPECIAL COMMITTEE ON OIL AND GAS March 21, 2000 5:16 p.m. COMMITTEE CALENDAR PRESENTATION BY ALASKA INTRASTATE GAS COMPANY TAPE 00-19, SIDES A AND B CALL TO ORDER Representative Jim Whitaker, Chairman, convened the House Special Committee on Oil and Gas meeting at 5:16 p.m. PRESENT Members present were Representatives Whitaker, Porter, Kemplen, Brice and Smalley. Representative Green joined the meeting while it was in progress. SUMMARY OF INFORMATION CHAIRMAN WHITAKER introduced Frank Avezac, Paul Rusanowski and John Henry Dale of the Alaska Intrastate Gas Company. FRANK AVEZAC briefly described the company's Southeast and Gulf of Alaska (SEAGA) project. PAUL RUSANOWSKI began the presentation by stating that except for in the Anchorage Bowl and South Central Alaska, there has been no development or use of natural gas with the exception of some use on the North Slope. The SEAGA project has been in the works for about nine years; through it, the Alaska Intrastate Gas Company hopes to bring gas to communities that have not yet been served. The intent is to provide gas as propane and liquefied natural gas (LNG). In liquid form, the gas can be transported and stored in communities, then re-gasified for use there. MR. RUSANOWSKI discussed the Alaska Intrastate Gas Company, an Alaskan corporation formed in 1992 that filed an application to operate as a gas utility in 1995; that application was approved on December 31, 1998, and on June 30, 1999, the company was issued certificates of public convenience for 17 communities. As a utility operating in those 17 communities, the company will be involved in the marketing and related support services and the long term maintenance and operation of local gas distribution systems. The company also intends to contract for marine transport of those gas supplies to the 17 communities. Initially, they would be bringing gas to Prince Rupert from Alberta and British Columbia as propane, then transporting it by rail. They are focusing first on using a mixture of propane and air that mimics natural gas. They will us a similar configuration to other communities that use propane for "peak shaving". REPRESENTATIVE GREEN asked whether they would be using "mercaptains" to reduce smell. MR. RUSANOWSKI said yes. He continued, stating that while the SEAGA project will begin with gas from Canada, it may also be possible to obtain gas from Alaska. The communities to be served initially include 4 on the Gulf of Alaska and 13 in Southeast Alaska. The project anticipates a market load of 26 billion cubic feet (BCF) annually, averaged over the first 10 years. Residential loads are very important, with industrial, mining and electrical following. The project anticipates providing around 100 megawatts of electrical load as electric power plants currently powered by oil retrofit to use gas. MR. RUSANOWSKI said plans call for using barges of the typical size, 300 feet long by 63 feet wide, with a draft of 11 feet. They would be moved by "push tugs" on inland waters. There also are existing hydro-train barges that can carry 6 to 24 rail cars, allowing LNG to be transported with the existing infrastructure. MR. RUSANOWSKI said phase 1 of the project would bring gas to Juneau, Ketchikan and Sitka, which together account for about 64 percent of the projected load. The annual load in the first five years is expected to be 4.6 BCF for residential use and 3.5 BCF for industrial use. Phases 2 and 3 will take gas to the remaining communities. Phase 1 is scheduled to begin service in the fall of 2001. Phases 2 and 3 will be staggered over a six- year period, beginning service no sooner than 2003. MR. RUSANOWSKI said the LNG component is based upon peak shaving LNG plants supporting 10-36 million gallons per year, with a feed stock rate of 10 million standard cubic feet per day. If the demand exceeds three BCF per year, the company will consider building its own LNG facility, and using both LNG and propane as feed stocks. To a question by Representative Smalley, Mr. Rusanowski stated that the cost of an LNG plant would be somewhere in the $20-50 million range. In response to Representative Porter, Mr. Rusanowski said the plan is to locate it in Prince Rupert, but that notion could change in the future. If, in fact, there were a gas pipeline project [in Alaska], the company wouldn't have to build an LNG facility at all, but could just purchase it from the pipeline. MR. RUSANOWSKI said the cost of the propane air system for phase 1 is estimated at $34 million for the pipe in the street, $11 million for the propane air and dock systems, and about $8 million for miscellaneous startup costs. The cost for residential service will be $7.25 per thousand cubic feet of gas, plus a $7.95 utility fee. There will be discounted service for industrial and electrical service customers. After providing a comparison to prices of heating oil, electrical service and residential gas service by state, Mr. Rusanowski closed by stating that they are competitive with fuel oil in rural Alaska communities, and economically viable to a distance of 1,000 miles (transportation), and can serve communities with as few as 400- 500 residents. MR. RUSANOWSKI, in answer to questions by Chairman Whitaker, stated that the project is moving ahead incrementally. He said they will be looking at many different methods of long-term financing and may come back to the legislature to help out some time in the future. He added that some of the communities may need some assistance with building LNG facilities. CHAIRMAN WHITAKER asked whether they would obtaining gas from Prince Rupert or from Cook Inlet. MR. RUSANOWSKI said that they will depend on gas from Canada, that they initially pursued gas contracts in the state, but there were problems with getting contractual commitments that they could provide to the Regulatory Commission of Alaska (RCA). The RCA requested the opportunity to oversee their supply contracts, even though they are from Canada, to be certain the price is not inflated at any step along the way. MR. RUSANOWSKI, in response to a question by Representative Smalley, described the cost structure to connect a house to gas service. If the house is within 75 feet of the service, the hookup is free. If it is beyond that distance, there will be a prorated cost. He also went on to discuss the need to build up a reserve of gas supply to help meet increased demand in the winter. In response to a question by Representative Porter, Mr. Rusanowski stated that the economics of a gas-based economy would be beneficial to the communities for a long time in relation to solving environmental problems and reducing their costs of doing business. The price of service will be averaged among the communities rather than differing from one community to the next. COMMITTEE ACTION The committee took no action. ADJOURNMENT CHAIRMAN WHITAKER adjourned the meeting at approximately 6 p.m. NOTE: The meeting was recorded and handwritten log notes were taken. A copy of the tape(s) and log notes may be obtained by contacting the House Records Office at 129 6th Street, Suite 229, Juneau, Alaska 99801-2197, (907) 465-2214, and after adjournment of the second session of the Twenty-first Alaska State Legislature this information may be obtained by contacting the Legislative Reference Library at 129 6th Street, Suite 102, (907) 465-3808.