Legislature(2015 - 2016)BUTROVICH 205

04/10/2015 03:30 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Public Testimony --
Moved SCS CSHJR 18(RES) Out of Committee
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB  50-AIDEA: BONDS;PROGRAMS;LOANS;LNG PROJECT                                                                     
4:32:38 PM                                                                                                                    
CHAIR  GIESSEL announced  consideration of  SB 50.  [CSSB 50(NRG)                                                               
was before the committee.]                                                                                                      
4:32:59 PM                                                                                                                    
At ease from 4:32 to 4:34 p.m.                                                                                                  
4:34:23 PM                                                                                                                    
FRED  PARADY,   Deputy  Commissioner,  Department   of  Commerce,                                                               
Community  and Economic  Development (DCCED),  Anchorage, Alaska,                                                               
said he had an abbreviated set  of slides to refresh people on SB
NICK  SZYMONIAK,   Energy  Infrastructure   Development  Officer,                                                               
Alaska  Industrial  Development  and  Export  Authority  (AIDEA),                                                               
Anchorage, Alaska, introduced himself.                                                                                          
MR. PARADY  said the goals  of the Interior Energy  Project (IEP)                                                               
are straightforward,  to supply  natural gas  to the  Interior at                                                               
the lowest possible cost to as  many customers as possible and as                                                               
soon as possible.                                                                                                               
Investments in  the IEP  complement the  eventual sources  of gas                                                               
supply  from a  natural gas  pipeline which  everyone hopes  will                                                               
come  forward. A  key  goal,  he said,  is  the  lowering of  the                                                               
particulate matter  (PM) 2.5 in  the non-attainment areas  of the                                                               
Interior,  a  serious  health  issue  that  the  legislature  has                                                               
directed to address through previous SB 23.                                                                                     
MR.  PARADY said  the  current status  of the  IEP  is that  they                                                               
diligently  pursued  development  of   a  North  Slope  liquefied                                                               
natural  gas supply  agreement  through  a concession  agreement.                                                               
That  agreement did  not work  out. AIDEA  and the  Alaska Energy                                                               
Authority  (AEA) are  now  evaluating  infrastructure to  develop                                                               
natural gas from  Cook Inlet and are seeking  authority to source                                                               
gas from Cook Inlet.                                                                                                            
He  said AIDEA  is financing  the build  out of  the natural  gas                                                               
distribution  systems  in  Fairbanks   and  North  Pole.  It  has                                                               
allocated a $15  million loan to Fairbanks Natural  Gas (FNG) and                                                               
a $37.78  million loan  to the Interior  Gas Utilities  (IGU) for                                                               
those distribution systems - a total of $52.78 million.                                                                         
4:38:22 PM                                                                                                                    
MR. PARADY  revisited the  reason the  North Slope  project under                                                               
the concession agreement  did not proceed was because  it did not                                                               
pass AIDEA's  due diligence process  and receive  board approval.                                                               
That is  why they are now  looking at sourcing gas  from the Cook                                                               
CHAIR GIESSEL asked him to explain the chart he was referencing.                                                                
4:38:58 PM                                                                                                                    
MR. PARADY  said AIDEA takes  its loan portfolio  very seriously.                                                               
Phase 1 is the project  suitability assessment which consists of:                                                               
proposal information,  sponsor information, estimated cost  and a                                                               
timeline.  The  AIDEA process  that  would  follow those  project                                                               
sponsor  submittals   answers  the  following:  Is   the  project                                                               
consistent with AIDEA's initiatives? Is  it feasible? What is the                                                               
proponent's  experience  and  capability?  Are  they  capable  of                                                               
delivering  what they  are  proposing? And,  is  AIDEA the  right                                                               
source for financing?                                                                                                           
The  output is  a suitability  report; the  decision-making would                                                               
come from a project evaluation committee.                                                                                       
Phase 2  has the  full-blown feasibility  analysis, which  is the                                                               
business  and financing  plan, the  schedule,  its execution  and                                                               
development plan.  The AIDEA  process is  the asking  whether the                                                               
building  and  financing  plan is  attainable.  Is  there  public                                                               
support for  it? What is  the timing  and status of  the project?                                                               
What are  the risks? The output  of that piece of  due diligence,                                                               
which comes  from the Investment Committee,  is the reimbursement                                                               
agreement and term sheet and that goes to the AIDEA board.                                                                      
Phase 3 asks for the  deal's structuring and due diligence, which                                                               
is the final execution plans and final financing plans.                                                                         
Phase 4 is the finalization  and closing. The North Slope project                                                               
did not reach this finalization and closing phase.                                                                              
MR.  PARADY said  the concession  agreement for  the North  Slope                                                               
project  with  MWH,  was  a long  involved  process.  The  equity                                                               
partner  in  that  agreement  offered  $80  million  for  private                                                               
capital  through  North Leaf,  but  the  details surrounding  the                                                               
liquefaction  plant  soared  to $280  million,  the  deliverables                                                               
weren't there in terms of timing and  so it did not reach phase 4                                                               
finalization   and   closing.   The  concession   agreement   was                                                               
terminated prior to phase 4.                                                                                                    
4:41:23 PM                                                                                                                    
MR. PARADY provided a quick  snap shot of project comparisons. He                                                               
said the  natural gas supply for  Cook Inlet is not  certain, but                                                               
indications  are  positive.  On  the North  Slope  there  was  an                                                               
abundant  supply at  low cost  and other  contracts in  place for                                                               
some  of it,  but designing  and  constructing an  LNG plant  for                                                               
North Slope conditions is expensive.  That will be cheaper coming                                                               
from  the south  as that  has lower  trucking costs  and a  large                                                               
trailer potential. He  noted the declaration of  emergency on the                                                               
Dalton Highway and if the project  were connected to an LNG plant                                                               
on the  North Slope, not one  single truck would be  moving for a                                                               
substantial period of days. If that  were to occur in deep winter                                                               
conditions in  Fairbanks, an ultimate  storage facility  would be                                                               
needed to assure reliable supply.                                                                                               
4:42:43 PM                                                                                                                    
Trucking  is more  expensive  from  the North  Slope,  but it  is                                                               
feasible. He  said the  Dalton Highway risk  which is  a somewhat                                                               
new development and that storage  and distribution is essentially                                                               
the same in either project.                                                                                                     
4:43:32 PM                                                                                                                    
MR.  SZYMONIAK took  over  the presentation.  He  noted that  the                                                               
supply of natural  gas is not certain and  being explored through                                                               
a  competitive  commercial process.  He  exhibited  a slide  that                                                               
indicated an  80 bcf of  Interior gas  demand for 10  years. That                                                               
compares with  about 1 tcf  of existing natural gas  reserves not                                                               
including undiscovered fields or  recently discovered fields like                                                               
Kitchen  Lights   or  Cosmo,  which   are  anticipated   to  have                                                               
significant,  producible commercial  volumes  of  natural gas.  A                                                               
scale  of  the   last  10  years  of  LNG  exports   out  of  the                                                               
ConocoPhillips LNG  plant indicated  exports approaching  400 bcf                                                               
in  the last  10  years, which  is vastly  greater  than what  is                                                               
expected to go to Interior Alaska  over the next 10 years. If the                                                               
Agrium Plant were restarted, it  would mean about 30 bcf/year. At                                                               
full build  out the Interior demand  is expected to be  about 9.5                                                               
bcf. This includes  both natural gas utilities as  well as Golden                                                               
Valley Electric Association  (GVEA) - and it would  take a number                                                               
of  years  to complete  very  ambitious  customer conversions  to                                                               
natural gas.                                                                                                                    
4:45:14 PM                                                                                                                    
SENATOR COGHILL  said he couldn't  anticipate this  project going                                                               
forward more, but  there was the question of gas  supply a couple                                                               
of years ago and asked why this gas concept is different now.                                                                   
MR. SZYMONIAK explained that AIDEA  is a market driven authority;                                                               
they respond  to the market  and support the private  sector. One                                                               
of the  big indications that  Cook Inlet  may be a  viable source                                                               
was  that the  private sector  -  Hilcorp and  Westpac -  started                                                               
proposing solutions to bring natural  gas for LNG from there into                                                               
the  Interior market.  In addition,  Cook  Inlet gas  discoveries                                                               
that were in large part due to  the tax incentives as well as the                                                               
two  jack  up  rigs,  one  of which  AIDEA  participated  in  the                                                               
financing of, are  significant. So they have  been in preliminary                                                               
discussions  with producers  and Cook  Inlet utilities  to get  a                                                               
sense  of where  the market  is heading.  There is  reason to  be                                                               
optimistic that  gas could  be available.  Before they  commit to                                                               
Cook  Inlet  that  will  all   be  vetted  through  a  commercial                                                               
solicitation  to determine  what  gas is  available  and if  it's                                                               
available at  a level of  security that is adequate  for Interior                                                               
MR. PARADY offered that the gas  supply team - DCCED, AIDEA, AEA,                                                               
and DNR  - is developing  the best information to  understand the                                                               
Cook Inlet gas  situation.  The question they have  been asked is                                                               
how they can  be confident with the gas supply  today in relation                                                               
to the  brown-outs people worried  about three years ago  and the                                                               
answer is  a function  of Cook Inlet  Natural Gas  Storage Alaska                                                               
(CINGSA) that has improved gas  storage, a function of incentives                                                               
that have been operating in Cook  Inlet. It is also a function of                                                               
the success  of independent  operators that  have come  into play                                                               
beginning  with  Hilcorp,  which acquired  Marathon  and  Chevron                                                               
assets.  There have  been  75  new oil  and  gas exploration  and                                                               
development wells drilled  since 2009; 36 have  been completed as                                                               
gas wells,  an average of  7.2 new wells  a year. The  Kenai Loop                                                               
gas field was  discovered in June 2011  with sustained production                                                               
beginning in January  2012. Gas reserve additions  have come from                                                               
production enhancements,  compression additions,  new completions                                                               
of  high  probability  pay  intervals,  and  new  completions  of                                                               
potential pay intervals. And then  the DNR analysis to this point                                                               
has   excluded   the   Kitchen  Lights   and   Cosmopolitan   gas                                                               
discoveries, both  of which  are in development  but are  not yet                                                               
So, one  of the  questions to  be ascertained  in the  gas supply                                                               
agreement will  be essentially the  deliverability of gas  to the                                                               
pipe  for the  Fairbanks  demand and  sustainability  of the  gas                                                               
reserves.  Mr. Parady  said  the major  utility  operator in  the                                                               
Anchorage  area, Enstar,  has gas  supply under  contract through                                                               
2018 and is looking to  place contracts for their forward demand.                                                               
Gas supply will  be put under contract for  Fairbanks through the                                                               
utilities - FNG,  IGU, and GVEA -  for a 5-10 year  period. It is                                                               
worth contemplating that this project is  viewed as a bridge to a                                                               
future gas line, but as  the uncertainties are weighed, decisions                                                               
will have to be made about  the longevity of terms they seek from                                                               
the  market  in placing  the  contracts.  Those will  be  private                                                               
sector decisions rather than AIDEA decisions.                                                                                   
SENATOR COGHILL said IGU is not private sector.                                                                                 
MR. PARADY clarified  that a better way to say  that is that they                                                               
are non-AIDEA.                                                                                                                  
4:51:04 PM                                                                                                                    
MR. SZYMONIAK  said slides 7  & 8 show  the project plan  for the                                                               
North Slope that has been pursued  for the last two years and the                                                               
one after  showed the  Cook Inlet  alternative. He  next reviewed                                                               
the  value chain  to describe  AIDEA's approach  to allowing  the                                                               
private parties to put together the financing.                                                                                  
For the  North Slope LNG  project, two of the  Interior utilities                                                               
came to  the project with  executed natural gas  supply contracts                                                               
in hand. AIDEA  anticipated using one of  those contracts through                                                               
project  development. For  LNG production,  AIDEA's  plan was  to                                                               
partner  with   the  private  developer.  They   went  through  a                                                               
competitive   process  and   selected  MWH   and  then   spent  a                                                               
significant  period  of  time  advancing  the  project  with  it.                                                               
Legally, that resulted  in a concession agreement  on which AIDEA                                                               
would own the  LNG plant and MWH's private  investor they brought                                                               
to  the project  would  finance, operate  and  construct the  LNG                                                               
plant.  MWH   would  lead  the   process  under   the  concession                                                               
agreement;  they were  responsible for  getting the  construction                                                               
contract,  the  operating  contract,   and  signing  the  offtake                                                               
agreements with the utilities. Once  the concession agreement was                                                               
signed,  AIDEA  took  the  backseat   and  hoped  to  assist  and                                                               
facilitate.  Ultimately  the costs  came  in  too high  for  this                                                               
project and the contracts with  the utilities were not signed and                                                               
it did not make it through AIDEA's due diligence process.                                                                       
4:52:43 PM                                                                                                                    
AIDEA explored  the trucking component and  discussed owning some                                                               
trailers with the  utilities, but at no point did  AIDEA have any                                                               
interest in operating the trucking  operation. They expected that                                                               
component to be resolved through a competitive private market.                                                                  
The three  Interior Utilities -  Fairbanks Natural  Gas, Interior                                                               
Gas  Utility  and Golden  Valley  Electric  - cooperated  on  LNG                                                               
storage  and  regasification  and  worked together  to  plan  the                                                               
entire value chain.                                                                                                             
4:53:37 PM                                                                                                                    
MR. SZYMONIAK  said the  Cook Inlet  LNG alternative  is visually                                                               
much  the same  project with  the big  difference being  that the                                                               
Cook  Inlet alternative  has a  gas  supply in  hand. AIDEA  will                                                               
evaluate the proposed  projects and determine which  ones are the                                                               
most  promising,  move  through   the  competitive  process  into                                                               
negotiation and then  determine which one is the  best partner to                                                               
The utilities  will be engaged  the entire way through,  he said.                                                               
While  AIDEA is  working with  DCCED  to explore  and secure  gas                                                               
supply and  go through  the RFP process  for liquefaction,  it is                                                               
known that  all the way through  that it's not going  to be AIDEA                                                               
that  owns  or   even  signs  the  contracts   with  the  private                                                               
developers.  It  will  be  the  utilities.  AIDEA  is  playing  a                                                               
facilitating role  to aggregate  and rationalize the  demand from                                                               
the  three Interior  utilities and  come up  with one  commercial                                                               
approach as opposed  to forcing the private developers  to try to                                                               
negotiate   three  individual   gas  supply   and  LNG   capacity                                                               
agreements with three different utilities.                                                                                      
4:55:25 PM                                                                                                                    
MR.  SZYMONIAK  moved to  the  transportation  pieces saying  the                                                               
options were  trucking or railroad  and at this point  their plan                                                               
is to  use trucks.  Just like  the North  Slope, they  expect the                                                               
trucking cost  to be  much lower  than off  the North  Slope, but                                                               
they are  working with  the Railroad  to determine  if rail  is a                                                               
cost  effective  alternative.  He   noted  that  SB  50  includes                                                               
provision  for AIDEA  to finance  a small  diameter pipeline.  If                                                               
that is  the case it will  replace the LNG production  as well as                                                               
the transportation.  The mechanism  for that  to happen  would be                                                               
through this competitive RFP process  that is exclusively open to                                                               
pipeline developers.  If a developer  can demonstrate that  it is                                                               
the preferred means to transport  natural gas to Fairbanks, AIDEA                                                               
will work  with them  and try  to come  to a  financing agreement                                                               
where  the private  developer builds  and  operates the  pipeline                                                               
with some  AIDEA financing to achieve  the goals of the  IEP. The                                                               
limit of that pipeline is 12 inches or less.                                                                                    
SENATOR MICCICHE  said it  not only cuts  out the  LNG production                                                               
and transportation, but  it also cuts out the  storage and re-gas                                                               
facilities  unless  there  was a  supplemental  system  with  the                                                               
existing liquefaction capacity.                                                                                                 
MR. SZYMONIAK said that was correct.                                                                                            
CHAIR GIESSEL said AIDEA and  DCCED are state government and were                                                               
also working  together in competitive solicitation  for contracts                                                               
and  she  was  uncomfortable  with   government  stepping  in  to                                                               
contract negotiations that should be done by the utilities.                                                                     
MR. PARADY said  that AIDEA's role is to  facilitate that ongoing                                                               
process  with the  utilities. Looking  at the  history of  energy                                                               
supply issues  in the Interior,  it is arguable that  the private                                                               
market has not succeeded in  supplying what amounts to relatively                                                               
small levels  of demand. One  of AIDEA's successes to  this point                                                               
with this project  is the Pentax acquisition, which  is under due                                                               
diligence review  now, where there  is an opportunity  to combine                                                               
the  two utilities  - FNG  and IGU  - and  not have  two separate                                                               
entities   operating,  not   have  two   separate  administrative                                                               
structures,  two different  metering systems,  and two  different                                                               
warehouse  systems. The  market, itself,  is small  and combining                                                               
the two entities is a success.                                                                                                  
CHAIR GIESSEL noted  that the state gives  credits and incentives                                                               
to develop  the gas supply in  Cook Inlet and now  it is stepping                                                               
in and  negotiating contracts with  those same folks.  It doesn't                                                               
sound too free "market-ish."                                                                                                    
MR. PARADY responded  that, however it sounds to  her, that AIDEA                                                               
is applying  its analytical  skills and  its investment  tools to                                                               
support  the market.  It  is  not trying  to  bypass the  private                                                               
sector;  it  is  trying  to  find   a  way  to  help  the  system                                                               
rationalize itself.                                                                                                             
4:59:28 PM                                                                                                                    
SENATOR STOLTZE  said he was  wrapped around the HB  132 argument                                                               
and asked how a competing gas line fits in.                                                                                     
CHAIR GIESSEL  said time  has run  out and  others still  want to                                                               
testify so she would continue the  discussion of SB 50 at a later                                                               

Document Name Date/Time Subjects
HJR18 Ver. H.PDF SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Ver. E.PDF SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Explaination of Changes.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Sponsor Statement.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Fiscal Note.PDF SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents -NPCA National Monuments List.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents-ADN Article.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents-Deseret News Editorial.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents-KUCB News Article.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents-Legislation and Policy Article.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents-NPS Antiquities Act 1906.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents-S. 437.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
HJR18 Supporting Documents-S.437 News Release.pdf SRES 4/10/2015 3:30:00 PM
HJR 18
SB 101.pdf SRES 4/10/2015 3:30:00 PM
SB 101
SB 101 Transmittal Letter.pdf SRES 4/10/2015 3:30:00 PM
SB 101
SB 101 Fiscal Note.pdf SRES 4/10/2015 3:30:00 PM
SB 101
SB 101 Briefing Paper.pdf SRES 4/10/2015 3:30:00 PM
SB 101
SB50 Transmittal Letter.pdf SRES 4/10/2015 3:30:00 PM
STRA 3/10/2015 3:30:00 PM
SB 50
SB50 Fact Sheet.pdf SRES 4/10/2015 3:30:00 PM
STRA 3/10/2015 3:30:00 PM
SB 50
SB50 Fiscal Note-DCCED-AIDEA-Zero-2-11-15.pdf SRES 4/10/2015 3:30:00 PM
STRA 3/10/2015 3:30:00 PM
SB 50
SB50 Sectional Analysis.pdf SRES 4/10/2015 3:30:00 PM
STRA 3/10/2015 3:30:00 PM
SB 50
FBX North Star Borough R2015-08.pdf SNRG 3/10/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
SB 50
Fairbanks Chamber Letter of Support for HB 105 & SB 50.pdf SNRG 3/10/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
HB 105
SB 50
SB50 ver A.pdf SNRG 3/10/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
SB 50
SB50 Fact Sheet.pdf SNRG 3/10/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
SB 50
SB 50 CS NRG version W dated 3-26-15.PDF SNRG 3/26/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
SB 50
SB50 Summary of Changes ver A to ver W.pdf SRES 3/30/2015 3:30:00 PM
SRES 4/3/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
SB 50
SB50 Supporting Documents-Furie LLC letter 3-2015.pdf SRES 3/30/2015 3:30:00 PM
SRES 4/3/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
SB 50
SB 50 Letter of Support Merrick Peirce.pdf SRES 3/30/2015 3:30:00 PM
SRES 4/3/2015 3:30:00 PM
SRES 4/10/2015 3:30:00 PM
SB 50
SB50-AIDEA PowerPoint.pdf SRES 4/10/2015 3:30:00 PM
SB 50
CSHJR18 Explanation of Changes Version E to N.pdf SRES 4/10/2015 3:30:00 PM
SB 50 - Coghill Amendment 29-GS1019 W.2.pdf SRES 4/10/2015 3:30:00 PM
SB 50
CSHJR18-Version N.pdf SRES 4/10/2015 3:30:00 PM
HJR 18