Legislature(2011 - 2012)BUTROVICH 205
02/11/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB42 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 42 | TELECONFERENCED | |
SB 42-POWER PROJECT; ALASKA ENERGY AUTHORITY
3:33:33 PM
CO-CHAIR PASKVAN announced the consideration of SB 42.
CO-CHAIR WAGONER moved to bring SB 42 before the committee.
There was no objection.
3:34:59 PM
At ease from 3:34 to 3:37.
3:37:33 PM
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority,
emphasized the need to file for a preliminary permit application
with FERC. This signals intent to build the project; their
consultants, MWH, were on line to answer questions.
CO-CHAIR PASKVAN asked what MWH would do as part of the
permitting process.
BRYAN CAREY, Technical Engineer and Project Manager, Alaska
Energy Authority (AEA), explained that the preliminary permit
process is a long one, but it forces the FERC, that has over 50
applications before it, to take the project seriously. Following
the application they would receive a number; after that MWH
would work with various agencies to move forward and do the
required studies.
CO-CHAIR PASKVAN asked if AEA needs authority to present the
preliminary permit application to FERC.
MR. CAREY replied that FERC won't care what organization
presents the preliminary permit application to it, but Alaska
statutes don't presently give that authority to AEA.
CO-CHAIR PASKVAN asked the estimated time of getting the permit
once the application is submitted.
3:42:35 PM
HOWARD LEE, Engineer, Montgomery Watson Harza (MWH), consultants
to AEA, said they are doing engineering studies and FERC
licensing work on AEA's behalf. He elaborated that from the time
of filing, they would receive the permit in 6-8 months, and that
permit would last 3 years. During that period they would conduct
studies and the work necessary to file a license application,
and that would signal the start of processing for FERC. Then it
could take another 2 years before they issue a license to
construct the project.
3:44:21 PM
CO-CHAIR PASKVAN asked during the three-year period after the
permit is obtained, what substantive studies are required to
submit the license application.
MR. LEE replied that preparing the environmental documentation
and make the filing is an extensive and intensive process of
engineering, onsite geotechnical investigations, and
environmental studies involving hundreds of people.
CO-CHAIR PASKVAN asked what participation MWH would have in that
three-year period.
MR. LEE replied that right now they are under contract to start
work on the engineering conceptual design studies and the site
geotechnical investigation for the project. MWH would support
the AEA with the public outreach program and ultimately
preparation of the application for license that would include
overseeing preparation of the environmental report, which would
ultimately become an Environmental Impact Statement (EIS)
prepared by FERC.
3:46:18 PM
CO-CHAIR PASKVAN asked who would prepare the comparison of
lowest cost power from an alternative power source.
BRIAN SADDEN, Project Manager for AEA, MWH responded that since
FERC requires an applicant to provide alternative options, AEA
would need to show that other sources of power had been
considered and compared to this hydro option. FERC would
determine whether deductions were correct.
CO-CHAIR PASKVAN asked what license contingents FERC might
impose.
3:48:22 PM
MR. CAREY replied that conditions on many licenses in regards to
fish and wildlife will likely specify the minimum and maximum
flows for any one month of the year, recreational opportunities,
and erosion control. Bradley Lake has 50 conditions; Susitna
would have at least that number of conditions.
CO-CHAIR PASKVAN asked what is done in the three-year period
between receipt of the permit and license application and what
is done after it.
MR. CAREY explained that once they have the preliminary permit
they will work with the resource agencies to determine what
study gaps need to be answered in terms of how the project will
affect fish and wildlife, and those will likely require several
years. At the same time, they will do geotechnical and
engineering studies. Everything will go into the license
document that will specify what the effects will be and how the
project is to be built.
3:50:24 PM
CO-CHAIR PASKVAN asked if they were talking potentially 5.5
years for actually receiving the license.
MR. CAREY answered, "That is a possibility."
HOWARD LEE, Montgomery Watson Harza, consultants for AEA, also
responded that the FERC licensing process for large projects
such as this is uncertain at best, so the licensing timeline is
uncertain also. Every project has to go through this prescribed
process that is subject to a great deal of collaboration with
resource agencies, interested parties, and stake holders;
everyone who has an interest in the outcome of the project gets
a chance to weigh in on the plans for studies that are conducted
as well as the outcome of those studies, the negotiation, and
the proposed environmental protection and mitigation measures.
The 5.5 years could be extended after that collaborative
process.
MR. SADDEN added that they will try and use the previous studies
from the 80s as much as possible and do new ones when needed.
The FERC's interim document, called a "PAD," sets out how this
happens by referencing previous studies and focusing on the gaps
to try and minimize the studies the agencies "sort of hold us
to."
3:54:19 PM
CO-CHAIR PASKVAN asked when the decision would be made on which
type of dam to build relative to the preliminary permit
application as compared to the license application.
MR. CAREY replied during the first couple of years they would
follow both construction methods in parallel to determine which
one is the most cost-effective. This is the ordinary process for
licensees around the US. The lowest cost construction method is
the one they would go with at the time of final application.
CO-CHAIR WAGONER asked Mr. Carey to explain the difference
between the two processes.
MR. CAREY replied an abatement dam is the older more traditional
method and requires a lot of rock or earthen material; Watana
might be around 33 billion yards of material. The roller
compacted concrete (RCC) dam is a method of concrete
construction, which started about 20-30 years ago, and several
hundred dams have been constructed or refurbished using RCC
technology to date. "It is a mature technology," he explained,
that can be built up much narrower and much quicker by using
concrete that can be placed in high lifts and compacted down
with a roller machine, similar to wet sand in the back of a dump
truck.
3:57:44 PM
SENATOR THOMAS asked him to comment on the potential savings
that comes from building an RCC dam as an expandable dam at a
later date as opposed to an embankment dam.
MR. CAREY responded that an embankment dam uses a large amount
of material for each foot in height. In the case of Watana,
going from 700 feet to 885 feet, a quarter increase in height
(what they were looking at in the 1980s), almost doubles the
volume of material. The RCC method would use less material
initially, and increasing the height at a later date would
require about one-tenth or one-twentieth the amount of material
needed for an embankment dam.
SENATOR THOMAS asked if they would look at the potential cost
for expansion and the ability to generate more electricity going
forward as it relates to the two dam designs.
MR. CAREY replied that they would look at expansion in the
initial design period.
CO-CHAIR PASKVAN asked if geopolymer concrete can be used for
the RCC method.
4:00:09 PM
MR. SADDEN said he wasn't that familiar with geopolymer. But
with an RCC mix, one tries to minimize the cement by using other
cementitious materials such as posilan or flyash concrete to
minimize the heat of hydration, which causes problems in large
concrete structures. When that happens, you end up with concrete
that is more difficult to handle. Various polymers are added to
the concrete mix itself to make it more workable in general. In
particular with the upstream and downstream faces, geopolymer
used as a topic - probably no; but polymers as an additive -
definitely yes.
4:01:37 PM
CO-CHAIR PASKVAN asked Ms. Fisher-Goad to comment on how the
proposed Susitna project relates to AEA's proposal in SB 42.
MS. FISHER-GOAD emphasized this legislation is critical to AEA
being able to file the preliminary permit application with the
FERC. AEA needs to have the ability to construct and own
projects in order to move forward. She hoped all their answers
provided the committee some assurance that they are ready to
take this project on.
She said this is not an abandonment of the procurement process,
but AEA needs to have the ability to consolidate its procurement
processes into one concise code that would go through a public
process, which would be through adopting regulations according
to the Administrative Procedures Act.
4:04:30 PM
SENATOR FRENCH asked the cost of filing the FERC application.
MR. CAREY replied that filing the preliminary application would
cost less than $100,000 and a couple of week's time.
CO-CHAIR PASKVAN asked how much it would cost to get it from the
preliminary process to the license application process.
MR. CAREY replied that their timeline is very conceptual at this
point. Until they are able to talk to the resource agencies,
it's hard to know what studies they want. Based on their
estimates from other projects, they are putting about $71
million aside for it.
4:06:21 PM
CHRIS RUTZ, Procurement Officer, AEA, said he wanted to make
three points and add some clarification. One, this would allow
AEA to be treated as other public corporations that have their
own regulations. AEA is not looking to be exempt from the
Procurement Code, but wants to establish regulations through a
public process that will bring it in alignment with the code.
They currently do a substantial amount of procurement that is
outside the code relating to construction on behalf of
communities for a number of years. In fact, over half of AEA's
procurements over the past 10 years have been outside the
Procurement Code.
Passing SB 42 would help eliminate questions about which rules
to follow and whose money is being used when they are partnering
with other entities. For example, they are now a member of the
Bradley Lake Operating Committee, but the funds come from other
sources and often other utilities (that aren't subject to the
Procurement Code) are the ones that carry out some of the
functions. This would allow them to simplify internal processes
and standardize their internal procedures for other procurements
so they could be in compliance with AS 36.30 as well as current
best practices in the procurement world.
MR. RUTZ added that a question arose regarding the use of Davis
Bacon funds and Alaska bidder preferences. Checks and balances
would be in place for approvals of single sources, and that
would either be at the executive director or board level
depending on the nature of the request. Davis Bacon would
continue to be used on all public works projects (as it
currently is), and as the statute is proposed, they would also
be adopting all the Alaska bidder preferences.
4:09:13 PM
SENATOR WIELECHOWSKI noted that a 2008-legislative audit was
very critical of AEA's procurement process, and they had just
heard testimony there has been a lot of procurement outside of
state policies. That is exactly what AEA was criticized for. In
fact, the first two recommendations talk about how procurements
should be made in accordance with the required policies and
procedures, and that the executive director of the AEA should
undertake revisions to the rural energy group procurement
policies and procedures to more closely align with state-
developed policies and procedures. It seems like this bill does
the opposite from this legislative audit report, and he said he
had grave concerns about it.
4:11:08 PM
MR. RUTZ responded that he came to AEA in 2004 and prior to his
arrival he had spent about 20 years as the procurement officer
for the Alaska Department of Natural Resources (DNR), and he
welcomed Legislative Audit coming in and providing
recommendations to AEA. He said AEA has been moving in exactly
the direction the audit requested in terms of adopting AS 36.30
guidelines within their policies and procedures. He explained
the issue is not that AEA does not want to follow AS 36.30. It
is that these guidelines are only in policies and procedures,
and they believe having them in regulation would be better,
particularly in areas where AS 36.30 doesn't apply, like when
AEA is spending grant money on behalf of a community or other
entities.
4:12:47 PM
SENATOR WIELECHOWSKI said he would provide a copy of the audit
to distribute to the committee.
MS. FISHER-GOAD said on Wednesday Senator French asked about the
inclusion of "person" in the powers of authority to issue bonds,
and explained that AEA has already exercised its power in the
past to issue revenue bonds for the City of Sitka's Blue Lake
project on behalf of a person.
She noted a side-by-side comparison of the RCA versus FERC
oversight process that was prepared by Mr. Bjorkquist,
Department of Law (DOL). He and MWH could answer some of the
practical questions that come up with respect to FERC oversight
and its lack of jurisdiction related to project development
costs and, ultimately, power rates.
4:14:27 PM
BRIAN BJORKQUIST, Assistant Attorney General, Alaska Department
of Law (DOL), said that FERC oversight in at least one component
of what it analyzes in the licensing processes looks at the
projected cost of power of the proposed project and compares it
to the lowest cost reasonable alternative source of power. But
FERC's focus is much broader than just impacts to the
ratepayers. It looks at the broader public interest from
environmental to navigation issues and all of those in the
context of the licensing process. The license itself will have
conditions that deal with some of the broader public interests
and some of those conditions will necessarily increase the cost
of the power. In the post-licensing activities, FERC is focused
mainly on insuring compliance with the license and dealing with
amendments to it. The expectation is that AEA will own the
project and sell power to the utilities on a wholesale basis.
Therefore, RCA's involvement will be in approving those
wholesale power sales agreements.
He said the RCA may not invalidate a power sales agreement under
an approved contract, and it generally doesn't do any economic
regulation of the operations under the contract. But if a
utility's rates are found to be unjust or unreasonable based on
a contract, the RCA can order renegotiation or dispute
resolution amongst the parties. But this goes back to the
beginning point that RCA cannot invalidate power sales
agreements; so the power sales continue.
MR. BJORKQUIST explained that the RCA does have certain powers
to do investigations to look at non-economic regulation of
activities of services and facilities of public utilities to
assure that they are safe, reasonable, adequate, and non-
discriminatory. Under economic regulation, RCA's primary job is
to look at rates (for retail customers) to ensure they are just
and reasonable and non-discriminatory. This doesn't apply to
wholesale power sales agreements.
The other thing that RCA has the ability to do under economic
regulation is potentially to investigate utility management for
inefficient or unreasonable practices. This is a statutory
requirement that is necessary for the state in this context with
the RCA to be able to have some influence (or oversight) over
what management is doing.
In contrast, the AEA is a public corporation of the state. There
are ways the legislature or the state can deal with the AEA in
that context without having to have the RCA involved. It's one
state agency looking at a public corporation of the state, and
the AEA has the statutory obligation to make sure the management
is done efficiently and can do that through its own statutory
direction.
4:20:57 PM
MR. BJORKQUIST went to the second page that had comments on rate
regulation and the ability to obtain financing. Someone
suggested relief for ratepayers for cost overruns, but the
concern there is you have to find somebody else to pay for those
cost overruns, and putting the risk on the lenders or
bondholders is not a good idea because that the project would
either never get financing or the financing costs would increase
and be passed on to ratepayers anyhow.
With respect to utilities, arguably you would be shifting the
cost from the same people but in different contexts. For
municipalities it would be ratepayers to the taxpayers and for
cooperatives it would be from the ratepayers to the members of
the utilities, because the utility is the member or the
municipality is ultimately the taxpayers that pay. Future
legislatures could choose to appropriate money if there are cost
overruns to maintain the costs or reduce the costs of a project
so that those cost overruns would not pass through to
ratepayers.
Finally, he said RCA statutes are set up in recognition of these
issues dealing with financing to protect the lenders and
bondholders, particularly of municipal and cooperative
utilities. RCA statutes provide that if there are rate covenants
made in the context of municipalities issuing bonds or
cooperatives obtaining debt that RCA must, in setting rates,
provide for adequate rates to pay those debts. So assurance is
given to the lenders and bondholders, which makes it easier for
the municipal and cooperative utilities to obtain financing on
the best possible rates.
4:23:44 PM
SENATOR GIESSEL asked if one of the alternative power
comparisons would be nuclear.
4:24:44 PM
MR. SADDEN responded that it has been so long since a nuclear
power plant had been designed and built in the US, that he
couldn't recall using nuclear as an alternative. Gas turbines
and that sort of project are used. For this license application
he couldn't see a condition under which they would have to use
nuclear power as a comparison.
MS. FISHER-GOAD said AEA is ready to work with the committee on
addressing appropriate legislative oversight of expenditures of
the new Alaska Railbelt Energy Fund that is the subject of the
legislation.
She said that Senator French had expressed a desire to limit
AEA's ability to create a subsidiary corporation to perhaps have
it be specific to a Susitna project, and she said they are happy
to work with them on that language. But she emphasized that it's
very important for AEA to have the power to acquire and
construct new projects. She said that AEA has become a key
agency in the planning of energy infrastructure and financing,
and having to receive project-specific authority if they were to
pursue another preliminary permit application would cause delay
in the development of potentially needed energy projects. The
issue with respect to that is once they do start this
preliminary permit application they need additional information
through the FERC process from the resource agencies to determine
what needs to be done on the studies to then be able refine the
schedule on how long a project will take to build or go through
a licensing process and also what the cost specifications would
be and any type of design limits, which both AEA engineers and
consultants have discussed today.
4:29:17 PM
JOE GRIFFITH, General Manager, Matanuska Electric and President,
ARCTEC (the recently formed group of five Railbelt utilities),
said while the discussion on Susitna was interesting, this bill
doesn't say anything about Susitna. That doesn't mean he is not
a strong supporter of it, but he said his comments would
concentrate on the bill that is before them.
He said the fun part of the business is building something like
Susitna and then watching them work, and AEA in the past did
those kinds of things. It built Bradley Lake on schedule and on
budget with the help of the utilities in the Railbelt. They put
together the body that governs it today. They also built the
Alaska Intertie which connected Willow with Fairbanks and that
has benefited Southcentral Alaska and Fairbanks by keeping the
power costs controlled for 25 years. He said the old AEA
provided energy policy and leadership in the business; but since
1993 when the legislature "disestablished" them for all
practical purposes, the industry hasn't accomplished anything.
He said the state is at a crossroads; first on the economy,
because it is electricity that greases the economy. And if that
doesn't work, the economy doesn't work.
4:32:03 PM
He said AEA did a regional integrated resource plan that
mentioned the utilities face about a $15-billion problem between
now and 2025 (timeframe for meeting 50 percent renewable energy
set by the former governor). He remarked, "There's no way on
God's green earth that we're going to be able to come up with
that kind of money to build the generation and transmission we
have to have."
He related how the five Railbelt utilities recently formed
ARCTEC and that he is the sole staff member. ARCTEC marches in
lock step with AEA in supporting this bill and figure the ball
is now in the state's court. They have done what has been asked
of them for 20 years by pulling together into a single entity,
but they need some help to make projects like Susitna happen
along with $1 billion-worth of transmission projects in various
spots. SB 42 will help AEA rise from the ashes to help ensure
that the state's electrical energy future is sound.
4:34:17 PM
GARVIN BUCARIA, representing himself, Mat-Su Valley, recalled
past AIDEA projects that spent a lot of state money with
"disastrous results," particularly with the grain depots in
Valdez and elsewhere. Thus he was particularly concerned that
with large projects like Susitna, that the consultant might have
underrated the significance of the flows, temperatures, nutrient
reductions and such, and that may influence the Susitna River
based on completion of this project. He was surprised that no
one has mentioned reregulating reservoirs or temperature
regimes. And while this bill is about providing the mechanisms
to spend the money, he didn't think they knew what this project
would really cost. In addition there are legitimate questions
about oversight - and there is no doubt that a project like this
needs to have maximum oversight.
He referred to terms on page 2 where "shall" is in two locations
in terms of adopting regulations, and then the regulations
"must" reflect competitive bidding and "must" include
procurement methods to meet emergency and extraordinary
circumstances. He thought "shall" should be used in those "must"
cases, because oversight is the major issue.
MR. BUCARIA said that he worked as a biologist at the Federal
Power Commission many years ago, had participated in field
studies at Chakachamna Lake in 1961, and he has a Master's
degree from a sockeye salmon project at Auke Lake. He taught
school in the central Oregon area around the Deschutes River and
knows the failure of some of the fisheries because of the
reservoirs on that system. He learned about mercury
contamination which prevent pregnant women from consuming fish
from a North Carolina reservoir and about the danger of
consuming more than minimal amounts of fish because of the
mercury contamination from cinnabar they exposed to during the
felling of trees and removal of other debris in that
impoundment. He said, "There are surprises, which many of us
don't expect which often times are exposed many years after."
So, there is a need for oversight and managing this project with
great care and concern for the future. He added that the salmon
runs on the Susitna River are more than significant.
4:39:42 PM
GENE THERRIAULT, Vice President, Resource Development, Golden
Valley Electric Association (GVEA), spoke in support of SB 42,
because it will enhance AEA's ability to work with utilities in
a manner similar to the working relationship that resulted in
the completion of the Bradley Lake project and Railbelt Intertie
that were both on time, on budget, and beneficial to ratepayers.
He said when Bradley Lake was first brought on line it was not
the cheapest source of power in Interior Alaska, but since the
residents of Southcentral were included the cost of the
generation can be spread over a larger user base.
He said completion of a large scale hydro electric project will
be very beneficial to ratepayers, but one like Susitna is too
large for any of the Railbelt utilities to take on separately or
collectively or by working with the state as was done with
Bradley Lake. But they believe the project can be constructed in
a manner that would provide an increased degree of affordability
and stability to their cooperative members in the future.
MR. THERRIAULT said GVEA supports the restoration of AEA's
ability to bond for energy projects as they were able to do
prior to 1993 and the language to allow establishment of
subsidiary corporations. They agree that the projects
constructed by AEA or its subsidiary should be exempt from RCA
rate regulation. This would mirror the current operation
structure for Bradley Lake, which is currently one of the
cheapest sources of electric generation for Interior residents.
They believe the appropriate place for RCA oversight is when the
individual utilities enter into power purchase agreements on
behalf of their consumers. He said while they initially had
concerns with wording of Section 8 dealing with AEA subsidiary
corporations operating power projects, this concern was
partially mitigated by the wording of AS 44.83.396 that requires
AEA to enter into contracts with a utility purchasing power from
the AEA project for the actual operation of the project. The
language goes on to mandate a process for selecting an operator
when there are more than one wholesale power consumers to be
served by a power project. He asked them to make sure this
section of law will be applicable to the new subsidiaries that
AEA would be able to form.
4:44:44 PM
STEVEN BOYD, Manager, Alaska Chapter, National Electrical
Contractors Association, said they opposed the bill last year
based on the 2008 and 2009 Legislative Budget and Audit reports
(specifically the procurement processes), and they continue to
have the same concerns with the SB 42. He said he met with Mr.
Rutz today and he understands their concerns. At the current
time they oppose movement of the bill, and support a thorough
vetting of the procurement process within AEA. Other than that,
they support the legislature and AEA in the development and
delivery of power supply and transmission distribution projects.
CO-CHAIR PASKVAN said he would not close public testimony, but
he asked Ms. Fisher-Goad for concluding comments.
4:47:48 PM
MS. FISHER-GOAD said she hoped the committee found that AEA has
helped develop this legislation carefully and that their
engineering consultants are qualified to make this project a
reality. This bill is about more than the Susitna project; it is
also about the AEA getting power back that it had prior to 1993.
AEA needs to be an authority that is separate and distinct from
AIDEA. AEA wants to be the agency that is key for energy
planning.
4:51:58 PM
CO-CHAIR PASKVAN said the committee appreciates AEA's
responsiveness. Finding no further business to come before the
committee, he adjourned the meeting at 4:51 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 42_2-11-11 FERC RCA Oversight.pdf |
SRES 2/11/2011 3:30:00 PM |
SB 42 |