Legislature(2009 - 2010)HOUSE FINANCE 519

03/29/2010 01:30 PM House FINANCE

Download Mp3. <- Right click and save file as

* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHB 386(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved Out of Committee
<Bill Hearing Rescheduled from 9:00 am>
HOUSE CONCURRENT RESOLUTION NO. 19                                                                                            
     Urging  the Alaska  Industrial  Development and  Export                                                                    
     Authority  to present  a business  case  to the  Alaska                                                                    
     State   Legislature   that   includes  a   method   for                                                                    
     financing,  a plan  to solicit  proposals for  a public                                                                    
     and private  venture, and an  analysis of  the economic                                                                    
     feasibility  of a  state-built  and privately  operated                                                                    
     fuel  storage  facility  that would  serve  the  public                                                                    
     interest by  providing Alaskans with a  reliable source                                                                    
     of  jet  fuel,  diesel,  and  gasoline  at  competitive                                                                    
1:41:54 PM                                                                                                                    
REPRESENTATIVE JAY  RAMRAS presented an overview  of HCR 19,                                                                    
a resolution  to explore an  opportunity for a  third party,                                                                    
who  has  the  capacity   and  balance  sheet,  to  obligate                                                                    
themselves over  a long term cycle  to be an operator  for a                                                                    
lease  of  liquid  storage. A  study  was  commissioned  and                                                                    
completed  on retail  gas prices  in  Alaska that  concluded                                                                    
nothing illegal  had been going  on in gasoline  refining in                                                                    
the state of Alaska. The  refineries charged what the market                                                                    
would bear. Price  regulation and gouging was  rejected as a                                                                    
factor,  therefore  the  study  began  to  look  for  market                                                                    
courses to  make the price  of fuel more affordable.  One of                                                                    
the remedies explored was getting  another refinery into the                                                                    
gasoline business. Representative  Ramras explained the high                                                                    
prices  throughout  Alaska.  He  noted that  85  percent  of                                                                    
gasoline  is  refined in  Flint  Hill,  Nikiski, and  Tesoro                                                                    
refineries.  He explained  how  these  refineries work  with                                                                    
extraordinarily high costs passed  to the consumers. Another                                                                    
option would  be an expansion of  the tank farm at  the port                                                                    
of  Anchorage.  HCR  19  would  expand  this  tank  farm  in                                                                    
Anchorage benefiting Alaskans throughout the state.                                                                             
1:49:13 PM                                                                                                                    
Representative Gara contended that  there are two approaches                                                                    
to  reduce prices  for motor  fuel; the  price gouging  bill                                                                    
which  he  favors,  and   this  non-binding  resolution.  He                                                                    
questioned how  the resolution  will do  anything and  why a                                                                    
resolution was needed.                                                                                                          
Representative Ramras  maintained that it is  not necessary,                                                                    
but argued  that the people  do not  need the heavy  hand of                                                                    
government trying  to set the  price of gasoline  with price                                                                    
regulation. This  resolution is  not essential,  but helpful                                                                    
for  Alaskans  to  look  at  the  variety  of  market  place                                                                    
Representative Gara  clarified that  the price  gouging bill                                                                    
does not set prices. He  maintained that currently there are                                                                    
private entities  trying to move forward  with fuel storage.                                                                    
He  questioned how  sending a  non-binding  resolution to  a                                                                    
state agency moves things forward.                                                                                              
Representative Ramras  expressed that it is  helpful for all                                                                    
Alaskans to  know other  available options.  This resolution                                                                    
would  allow  the   people  of  Alaska  to   know  that  the                                                                    
legislature is a pro-active not  passive body. Those private                                                                    
entities interested  in exploring a private  tank farm would                                                                    
benefit from this legislation.                                                                                                  
1:52:28 PM                                                                                                                    
Vice-Chair Thomas explained that  in the smaller communities                                                                    
of Southeast fuel  is brought in by barges at  high cost and                                                                    
sometimes the fuel storage can work against them.                                                                               
Representative  Ramras agreed  and mentioned  other villages                                                                    
with similar  problems. He maintained that  fuel storage may                                                                    
not work  if it is  possible to deliver cheaper  from Cherry                                                                    
Point. He  related that existing  refineries may  drop their                                                                    
price to  meet bulk storage  prices. He asserted  that there                                                                    
needs  to  be a  third  party  operator with  a  significant                                                                    
balance  sheet involved.  He talked  of the  big box  stores                                                                    
using  unbranded fuel  and if  prices are  lowered then  the                                                                    
third party  operator would be  at risk. AIDEA,  in building                                                                    
their  business case,  will search  for an  operator with  a                                                                    
strong balance sheet.                                                                                                           
1:56:13 PM                                                                                                                    
TED   LEONARD,   EXECUTIVE   DIRECTOR,   ALASKA   INDUSTRIAL                                                                    
DEVELOPMENT AND  EXPORT AUTHORITY (AIDEA) indicated  that he                                                                    
was available to answer questions.  He shared that AIDEA has                                                                    
been  going through  many internal  changes. One  of AIDEA's                                                                    
goals is  to serve as a  central resource in looking  at the                                                                    
feasibility  for  economic  incentives  and  infrastructure.                                                                    
This project  could be a  state or AIDEA  owned or can  be a                                                                    
shared  facility. AIDEA  would develop  a business  case for                                                                    
the legislature.                                                                                                                
1:59:01 PM                                                                                                                    
JAMES HEMSATH, DEPUTY  DIRECTOR, AIDEA (via teleconference),                                                                    
presented a  PowerPoint slide  presentation. He  referred to                                                                    
Slide 2, HCR 19 Fuel Storage Business Case:                                                                                     
     Urging the Alaska Industrial Development and Export                                                                        
     Authority to present a business case to the Alaska                                                                       
     State Legislature that includes a method for                                                                               
     financing, a plan to solicit proposals for a public                                                                        
     and private venture, and an objective analysis of the                                                                      
     economic and business feasibility of a state-built and                                                                     
     privately operated fuel storage facility that would                                                                        
     serve the public interest.                                                                                                 
Slide 3, AIDEA's Role:                                                                                                          
   ‚Provide an objective analysis examining both the                                                                           
     economic development impact and feasibility of a                                                                           
     storage facility as well as the long term viability of                                                                     
     the project.                                                                                                               
   ‚As part of the analysis identify potential private and                                                                     
     public sector users of the facility                                                                                        
   ‚In conjunction with EconOne, look all aspects of the                                                                       
     fuel supply system in the State and the impact                                                                             
     additional storage would have for the different                                                                            
   ‚Examine possible ways of financing this project which                                                                      
     could include AIDEA financing through ownership as a                                                                       
     Development Finance Project (AS 44..88).                                                                                   
   ‚As a possible owner of the storage facility, act as a                                                                      
     consolidator for multiple users and demands assuring                                                                       
     open access to storage.                                                                                                    
2:04:12 PM                                                                                                                    
Mr. Hemsath presented Slide 4, Action Plan:                                                                                     
   ‚Market Analysis                                                                                                            
        ‚Continuation of last years efforts by EconOne                                                                         
        ‚Long term Air Cargo                                                                                                   
        ‚Fuel supply reliability                                                                                               
   ‚Engineering Layout and Cost Estimate                                                                                       
        ‚Space constraints                                                                                                     
        ‚Multiple tanks, vapor recovery, additives, labs                                                                       
   ‚Establish Basic Business Case Model                                                                                        
        ‚Market risks                                                                                                          
        ‚Economic impact                                                                                                       
2:06:03 PM                                                                                                                    
Mr. Hemsath continued with Slide 5, AIDEA Business Case:                                                                        
   ‚Open access                                                                                                                
   ‚AIDEA owned - contracted operator                                                                                          
   ‚Generate revenue                                                                                                           
   ‚Market and market risk                                                                                                     
   ‚Economic development                                                                                                       
        ‚Job creation/diversification                                                                                          
   ‚Open Season                                                                                                                
Slide 6  showed the different transportation  routes of fuel                                                                    
supply in the state: marine,  river, air, road and rail. Mr.                                                                    
Hemsath moved  to Slide 9  Moving Forward, with  a statement                                                                    
of  AIDEA's mission:  The mission  of the  Alaska Industrial                                                                    
Development and Export Authority  is to promote, develop and                                                                    
advance  economic growth  and diversification  in Alaska  by                                                                    
providing  various means  of financing  and investment.  Mr.                                                                    
Hemsath  continued   with  Slide  10,   Development  Finance                                                                    
Program  with  exerts  of  program  statute  which  has  the                                                                    
ability to acquire:                                                                                                             
   ‚An interest in a project as necessary or appropriate                                                                       
     to provide financing for the project                                                                                       
   ‚Manage and operate projects as the authority considers                                                                     
    necessary or appropriate to serve a public purpose                                                                          
   ‚Equip, operate, maintain, construct, or install                                                                            
     facilities that will enhance the competitiveness of                                                                        
     the international airports (AS 44.88.080)                                                                                  
2:08:42 PM                                                                                                                    
Mr. Hemsath moved to Slide 11, Development Finance Program:                                                                     
   ‚Under AS 44.88, the project must be endorsed by the                                                                      
     local government                                                                                                           
   ‚The project and its development must be economically                                                                       
     advantageous to the state and to the general public                                                                      
     welfare and will contribute to the economic growth of                                                                      
     the state;                                                                                                                 
   ‚The project applicant is financially responsible                                                                           
   ‚The project is economically and financially feasible                                                                       
     and able to produce revenue adequate to repay the                                                                        
     bonds or loans with which it is financed.                                                                                  
Mr. Hemsath  indicated that Slide  12 reflected some  of the                                                                    
current Development Projects:                                                                                                   
   ‚DeLong Mt. Transportation System                                                                                           
   ‚FedEx Maintenance Facility                                                                                                 
   ‚Snettisham Hydroelectric Project                                                                                           
   ‚Ketchikan Shipyard                                                                                                         
   ‚Skagway Ore Terminal                                                                                                       
     Healy Clean Coal Project                                                                                                   
Slide 13 Port  of Anchorage Fuel Terminal shows  that if the                                                                    
project  is  viable and  if  no  private entities  would  be                                                                    
willing  to take  up this  role and  it was  appropriate for                                                                    
AIDEA, then:                                                                                                                    
  ‚500,000 to 1,000,000 barrels of fuel storage capacity                                                                       
   ‚Open access                                                                                                                
   ‚Product transferred by pipeline, barge, truck and                                                                          
   ‚Enhance the statewide fuel system                                                                                          
   ‚AIDEA contract with operator                                                                                               
   ‚Open season for storage commitment                                                                                         
   ‚Estimated cost $75 - 100 million                                                                                           
2:10:15 PM                                                                                                                    
Representative  Austerman  commented  that  AIDEA  would  be                                                                    
using  AIDEA   receipts  for   this  project.   Mr.  Leonard                                                                    
commented  that there  is money  in their  budget to  do the                                                                    
feasibility studies that would  benefit the state and AIDEA.                                                                    
Representative  Austerman  suggested  that  natural  gas  be                                                                    
considered in this resolution.                                                                                                  
Representative  Gara remarked  that  AIDEA normally  decides                                                                    
what the  most promising projects  are and does  not usually                                                                    
wait for  the legislature to  decide which projects  to work                                                                    
on. Mr. Leonard replied that in  the past usually there is a                                                                    
reactive mode or  a business will come in  before looking at                                                                    
a project. Through  this strategic plan AIDEA  would take on                                                                    
an advisory  role. This  has not gone  through AIDEA  yet to                                                                    
see  if AIDEA  is  interested. If  the legislature  believes                                                                    
there  is a  need  for an  economic infrastructure  project,                                                                    
then AIDEA would advise them.                                                                                                   
2:12:43 PM                                                                                                                    
Representative Gara  asked, under AIDEA's current  rules, if                                                                    
they thought a  project was worthy then  AIDEA would proceed                                                                    
without  the  legislature.  Mr.  Leonard  replied  that  was                                                                    
correct.  Representative Gara  asked  if AIDEA  has been  in                                                                    
contact  with   interested  private  parties.   Mr.  Leonard                                                                    
replied there have  been some parties who  have expressed an                                                                    
interest.  Representative  Gara  inquired if  these  private                                                                    
parities presented a  promising case would AIDEA  work on it                                                                    
without waiting  for a  legislative resolution.  Mr. Leonard                                                                    
explained that  in the  normal course  of things  they would                                                                    
look  at  the feasibility,  but  maybe  not on  a  stateside                                                                    
basis.   This    resolution   looks   across    the   state.                                                                    
Representative  Gara   asked  if  a  private   entity  comes                                                                    
forward,  AIDEA would  look at  the  proposal and  if it  is                                                                    
viable then would work on it  no matter if the resolution is                                                                    
passed or not. Mr. Leonard replied that was correct.                                                                            
2:15:47 PM                                                                                                                    
Representative Doogan remarked  that the idea is  there is a                                                                    
possibility  that someone  can  make money  by building  and                                                                    
maintaining a storage facility which  could hold lower price                                                                    
gas that  is able  to roll out  and complete  against others                                                                    
without  this facility.  Mr. Leonard  responded  that it  is                                                                    
about more than  just gasoline; there is  jet fuel, security                                                                    
and aviation fuel, and military fuel.                                                                                           
2:18:06 PM                                                                                                                    
Representative   Doogan  noted   that   there  are   already                                                                    
companies  that  supply these  fuels  and  inquired if  this                                                                    
would  negatively  affect   their  operations.  Mr.  Leonard                                                                    
observed that  is part of  what a study  would substantiate.                                                                    
There needs to be a  verification of the capacity needed for                                                                    
all sorts of fuel storage.                                                                                                      
Mr.  Hemsath answered  that the  short answer  was yes,  but                                                                    
also not entirely sure. The  demand of fuel and supply needs                                                                    
to be  better understood.  There are  some who  believe that                                                                    
the  ability to  share liquid  products on  the open  market                                                                    
would  make the  price  more competitive.  In addition,  the                                                                    
security of  jet fuel  is important in  the state.  There is                                                                    
also the  aspect of  peak demands. The  question is  if this                                                                    
storage would add  sufficient security to the  state and how                                                                    
would  that  impact  other  businesses  in  state  that  are                                                                    
already producing.                                                                                                              
Mr. Leonard  interjected that  AIDEA is  not a  proponent of                                                                    
this project  at this time,  but only providing  an economic                                                                    
impact analysis. He  added that AIDEA would  return to House                                                                    
Finance  to ask  for  bonding capability  in  order to  move                                                                    
2:22:46 PM                                                                                                                    
Representative  Doogan  mentioned  that this  seems  like  a                                                                    
solution looking for a problem.  If the problem is not being                                                                    
able to  get the  fuel, then  there may be  a need  for more                                                                    
storage, but  it could  be a  pricing problem.  He expressed                                                                    
confusion on what  problem is trying to be solved  and why a                                                                    
study would solve it.                                                                                                           
2:24:54 PM                                                                                                                    
MARGARET DOWLING,  STAFF, REPRESENTATIVE RAMRAS,  noted that                                                                    
Pat  Carter, representing  Delta Western,  was available  to                                                                    
speak and answer questions.                                                                                                     
Representative  Joule  asked what  would  be  the impact  on                                                                    
local refineries in  the state. Mr. Leonard  stated that the                                                                    
state would not  build this facility without  being paid for                                                                    
it. He  stressed that there would  be a price over  20 years                                                                    
that whoever used the tank farm  would pay for the full cost                                                                    
of the facility plus a rate of return.                                                                                          
2:26:25 PM                                                                                                                    
PAT CARTER,  CONSULTANT, DELTA WESTERN, observed  that there                                                                    
has  been  a steady  demand  for  fuel,  but a  decrease  in                                                                    
production  of in-state  refined materials.  There has  also                                                                    
been a  steady decrease  in Jet-A fuel.  The concept  of the                                                                    
fuel  storage  is  to  bring  in  large  volume  tankers  to                                                                    
Anchorage to obtain better prices.                                                                                              
Representative Gara inquired if  Mr. Carter's prime goal was                                                                    
to use  the storage  for Jet-A fuel.  Mr. Carter  replied it                                                                    
would be for all fuels sold.                                                                                                    
2:28:55 PM                                                                                                                    
Representative   Kelly  inquired   about  what   the  volume                                                                    
discount would be. Mr. Carter  replied that he did not know.                                                                    
He  explained  that  there   are  different  purchases  from                                                                    
different locations that vary daily.                                                                                            
Representative Kelly  asked Mr. Leonard what  the cost would                                                                    
be for  the agency  to get  to the  first milestone  in this                                                                    
project. He  also wondered if  a resolution would  be looked                                                                    
at as  a suggestion  or a  definite decision  to do  it. Mr.                                                                    
Leonard responded  that if  there is  a resolution  from the                                                                    
House, then the study would be done.                                                                                            
Mr.  Hemsath interjected  that AIDEA's  cost would  be about                                                                    
$30,000  for  an engineering  study.  He  remarked that  the                                                                    
potential  exists that  there could  be a  20 cent  discount                                                                    
with a larger tanker load.                                                                                                      
2:32:23 PM                                                                                                                    
Representative Gara  asked Mr.  Carter if Delta  Western was                                                                    
already looking at this project.  Mr. Carter said that Delta                                                                    
Western  had initiated  this in  response to  questions from                                                                    
the legislature regarding the high  price of fuel around the                                                                    
state.  One of  the primary  points listed  was the  lack of                                                                    
fuel storage. Delta Western met  with AIDEA, former governor                                                                    
Sheffield, Representative Ramras and the port of Anchorage.                                                                     
Representative  Gara  asked  if   this  project  could  move                                                                    
forward  without the  $30,000 study  from AIDEA.  Mr. Carter                                                                    
responded  that if  Delta  Western built  it,  it would  not                                                                    
solve the  problem. Historically there  has been a 10  to 15                                                                    
cent price difference between Alaska  and Seattle; now it is                                                                    
one  dollar.  There  is  eight-five   cents  on  the  table,                                                                    
therefore if  Delta Western became the  proprietary storage,                                                                    
they would take the eighty-five  cents. If it is third party                                                                    
storage  with independent  operation, then  the money  would                                                                    
trend down to lower price.                                                                                                      
2:35:31 PM                                                                                                                    
Representative Kelly  questioned how many barrels  arrive in                                                                    
Anchorage and the  amount that would be placed  in this tank                                                                    
storage facility. Mr. Carter replied  that new tankers could                                                                    
hold about  1/2 to  1 million barrels.  Representative Kelly                                                                    
asked  if that  would be  a  tank sizing  thing. Mr.  Carter                                                                    
responded  that the  storage  would have  to  have the  open                                                                    
seasons  prior  to  construction.  Therefore  based  on  the                                                                    
success of  the open season,  that would drive the  new fuel                                                                    
storage. Representative Kelly judged  that there would be no                                                                    
way  of knowing  before the  study what  the barrels  in and                                                                    
barrels out would  be. Mr. Carter thought  many other groups                                                                    
might want  to buy  storage, but it  was impossible  to know                                                                    
until the study was completed.                                                                                                  
2:38:38 PM                                                                                                                    
Co-Chair Stoltze  reiterated that the fiscal  note was zero,                                                                    
but $30,000 was  budgeted to generate the  study and report.                                                                    
Mr. Leonard reported  that he did not know  how much EconOne                                                                    
would be paying, but $30,000 would be AIDEA's share.                                                                            
Co-Chair Stoltze asked for public testimony.                                                                                    
Co-Chair Stoltze closed public testimony.                                                                                       
Representative Fairclough disclosed  that she was supportive                                                                    
of resolution,  but voiced concern  that Anchorage  has been                                                                    
moving  storage outside  the  Government  Hill location  and                                                                    
that  the community  and neighborhood  have been  opposed to                                                                    
increases  in tank  farm  storage in  that  area. She  noted                                                                    
adding  storage would  be a  reverse  of the  past trend  to                                                                    
remove storage fuel facilities.  She inquired if there would                                                                    
be  any  land  use  issues   overriding  local  law  in  the                                                                    
placement of storage  in the community. She  remarked that a                                                                    
local  community has  had  an adverse  impact  in regard  to                                                                    
storage tanks close to their homes.                                                                                             
Mr. Hemsath returned to Slide 8  with a map of the Anchorage                                                                    
port  showing  the location  of  the  new tank  storage.  He                                                                    
indicated that  the yellow area  was completed with  the red                                                                    
area  indicating water.  The storage  tank and  fuel loading                                                                    
facilities would be away from the Government Hill area.                                                                         
Representative  Fairclough agreed  that appeared  to address                                                                    
some of  the immediate  neighborhood concerns,  but wondered                                                                    
if the land being developed  could hold some of the existing                                                                    
storage facilities or is the  placement determined by tanker                                                                    
Mr. Hemsath  stated that  this is space  where the  port has                                                                    
available space and  where they want the  fuel loading ships                                                                    
brought in.  He emphasized that  there has been no  study on                                                                    
reconfiguring  the  existing storage  tanks.  Representative                                                                    
Fairclough asked for  some help on Slide 8  in finding where                                                                    
the tankers  would come  in. Mr.  Hemsath indicated  that it                                                                    
would be  to the right  of three large white  storage tanks.                                                                    
This area could hold five storage tanks.                                                                                        
2:45:11 PM                                                                                                                    
Co-Chair  Hawker MOVED  to report  HCR 19  out of  Committee                                                                    
with individual recommendations  and the accompanying fiscal                                                                    
note. There being NO OBJECTION, it was so ordered.                                                                              
HCR   19  was   REPORTED  out   of  Committee   with  a   no                                                                    
recommendation  and with  previously published  fiscal note:                                                                    
FN1 (HL+C CMT)                                                                                                                  
2:46:00 PM     AT EASE                                                                                                        
2:50:38 PM     RECONVENED                                                                                                     
2:50:53 PM                                                                                                                    

Document Name Date/Time Subjects
AIDEA Port of Anchorage Liquid Storage Facility - Wh paper.pdf HFIN 3/29/2010 1:30:00 PM
HCR 19
Sponsor statement HCR 19.pdf HFIN 3/29/2010 1:30:00 PM
HCR 19
01 HB386 Sponsor Statement[1].pdf HFIN 3/29/2010 1:30:00 PM
HB 386
HB386 Overview.pdf HFIN 3/29/2010 1:30:00 PM
HB 386
HB 386 CS WORKDRAFT 26-LS1525 E 0327.pdf HFIN 3/29/2010 1:30:00 PM
HB 386
AIDEA HCR 19 Testimony 3-29-10 PowerPoint HCR 19.ppt HFIN 3/29/2010 1:30:00 PM
HCR 19
HCR 19 AIDEA fact sheet 3-29-10.doc HFIN 3/29/2010 1:30:00 PM
HB 386 Summary of Changes HFC.pdf HFIN 3/29/2010 1:30:00 PM
HB 386