Legislature(2009 - 2010)BARNES 124

03/10/2009 03:00 PM House ENERGY


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03:06:17 PM Start
03:12:32 PM Presentation(s): Southeast Alaska Interties, by Robert Venables, Southeast Conference
03:59:54 PM Presentation(s): Cook Inlet Natural Gas, by Ed Kerr, Armstrong Oil and Gas
04:27:21 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Presentations: TELECONFERENCED
- Southeast Alaska Interties, by Robert
Venables, Southeast Conference
<Dave Carlson Removed from Agenda>
- Cook Inlet Natural Gas, by Ed Kerr,
Armstrong Oil and Gas
               ALASKA STATE LEGISLATURE                                                                                       
           HOUSE SPECIAL COMMITTEE ON ENERGY                                                                                  
                    March 10, 2009                                                                                              
                       3:05 p.m.                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Bryce Edgmon, Co-Chair                                                                                           
Representative Charisse Millett, Co-Chair                                                                                       
Representative Nancy Dahlstrom                                                                                                  
Representative Kyle Johansen                                                                                                    
Representative Pete Petersen                                                                                                    
Representative Chris Tuck                                                                                                       
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Jay Ramras                                                                                                       
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Cathy Engstrom Munoz                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
PRESENTATION(S):  SOUTHEAST ALASKA INTERTIES,                                                                                   
BY ROBERT VENABLES, SOUTHEAST CONFERENCE                                                                                        
                                                                                                                                
    -HEARD                                                                                                                      
                                                                                                                                
PRESENTATION(S):  COOK INLET NATURAL GAS,                                                                                       
BY ED KERR, ARMSTRONG OIL AND GAS COMPANY                                                                                       
                                                                                                                                
    - HEARD                                                                                                                   
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                              
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ROBERT VENABLES, Energy Coordinator                                                                                             
Southeast Conference (SEC)                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Gave a PowerPoint  presentation on                                                                      
Southeast Alaska Interties.                                                                                                     
                                                                                                                                
REPRESENTATIVE CATHY ENGSTROM MUNOZ                                                                                             
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:     Asked  questions  during   the                                                                      
presentation by Mr. Venables.                                                                                                   
                                                                                                                                
ED KERR, Vice President for Land and Development                                                                                
Armstrong Oil & Gas                                                                                                             
Denver, Colorado                                                                                                                
POSITION STATEMENT:  Gave  a presentation regarding Cook                                                                      
Inlet natural gas.                                                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  CHARISSE  MILLETT  called  the  House  Special                                                                      
Committee  on  Energy  meeting  to order  at  3:05  p.m.                                                                        
Present  at  the  call  to  order  were  Representatives                                                                        
Johansen, Petersen, Tuck, and  Millett.  Representatives                                                                        
Dahlstrom  and  Edgmon arrived  as  the meeting  was  in                                                                        
progress.  Representative Munoz was also in attendance.                                                                         
                                                                                                                                
^PRESENTATION(S): SOUTHEAST ALASKA  INTERTIES, BY ROBERT                                                                      
VENABLES, SOUTHEAST CONFERENCE                                                                                                
                                                                                                                                
CO-CHAIR  MILLETT  announced  that the  first  order  of                                                                        
business  would be  a presentation  on Southeast  Alaska                                                                        
Interties  by   Robert  Venables,   Energy  Coordinator,                                                                        
Southeast Conference.                                                                                                           
                                                                                                                                
3:06:17 PM                                                                                                                    
                                                                                                                                
ROBERT   VENABLES,    Energy   Coordinator,    Southeast                                                                        
Conference  (SEC),  informed   the  committee  Southeast                                                                        
Conference  is a  private  membership organization  that                                                                        
brings  together  the communities,  municipalities,  and                                                                        
businesses  throughout the  region of Southeast  Alaska.                                                                        
It  is   one  of   seven  Alaska  Regional   Development                                                                        
Organizations   (ARDORs),   is    a   Federal   Economic                                                                        
Development  District (EDD),  and is  the USDA  Resource                                                                        
Conservation  and  Development  (RC&D) Council  for  the                                                                        
region.  Southeast Conference's  mission statement is to                                                                        
undertake  and support  activities  that promote  strong                                                                        
economies,   healthy   communities,    and   a   quality                                                                        
environment in  Southeast Alaska.   He noted  the causes                                                                        
embraced  by  SEC include  tourism,  timber,  fisheries,                                                                        
health care,  transportation, and  energy.   The mission                                                                        
statement of  the SEC Energy  Committee is:   To reduce,                                                                        
to the maximum  extent possible, the use of  diesel as a                                                                        
primary fuel  source for the generation  of electricity.                                                                        
He noted  that studies over  the past eighty  years have                                                                        
shown  Southeast   has  a   plethora  of   hydroelectric                                                                        
resources to develop.   Furthermore, these resources can                                                                        
be   connected  through   a  grid   system  and   shared                                                                        
throughout the  region.   The program  goal for  the SEC                                                                        
Energy  Committee  is  to reduce  dependence  on  fossil                                                                        
fuels  and lower  costs to rate  payers.   This will  be                                                                        
accomplished  by  working  with  member  communities  to                                                                        
develop the  infrastructure that  is needed  to complete                                                                        
the regional grid.   Mr. Venables advised  hydropower is                                                                        
the best  resource to be utilized  in this region.   The                                                                        
SEC Energy Committee has been  working on an energy plan                                                                        
for  the region  since 1997-1998.   In  2000, the  Acres                                                                        
Report  was  recognized  by  Congress  and  up  to  $384                                                                        
million  was  authorized for  the  Southeast  interties.                                                                        
Because  of its  standing  with  the state  and  federal                                                                        
governments,  SEC  has been  able  to partner  with  the                                                                        
Denali Commission, USDA Rural  Development, and with the                                                                        
state  legislature   to  tackle  energy  issues.     Mr.                                                                        
Venables  relayed the Kake/Petersburg  intertie  and the                                                                        
Reynolds  Creek  project are  approaching  construction,                                                                        
and the  Swan Lake/Tyee intertie is  nearing completion.                                                                        
He explained the purpose of  each of the interties is to                                                                        
provide  lower   cost  power  to   smaller  communities,                                                                        
especially  those using  100  percent  diesel fuel,  and                                                                        
those  that  are  approaching the  maximum  capacity  of                                                                        
their  existing  hydro  systems.   As  the  grid  system                                                                        
develops,  it allows the  connection  of resources  on a                                                                        
regional basis, so that as  the intertie goes from point                                                                        
to point, power generation from  areas of low population                                                                        
is picked  up.   The production  of surplus  energy will                                                                        
lower  rates,  thereby encouraging  the  development  of                                                                        
economic ventures  such as mining, or  a technical-based                                                                        
industry.   In  addition, there  would be  opportunities                                                                        
along the  grid for the  development of  biomass, tidal,                                                                        
geothermal, and other future sources of energy.                                                                                 
                                                                                                                                
3:12:32 PM                                                                                                                    
                                                                                                                                
MR. VENABLES opined the intertie  will allow Alaskans to                                                                        
maintain  "quality   of  life"  and  will   support  the                                                                        
development of  other renewable  sources of  energy that                                                                        
can then be sold into the line.   He said hydro power is                                                                        
Southeast's "bullet  line."   Slide 7  listed identified                                                                        
hydroelectric  sites   in  the  region  that   have  the                                                                        
potential of producing a total  of over 339 megawatts of                                                                        
power.   Slide 8 was a  map that showed the  location of                                                                        
the existing and potential hydro  plants that are needed                                                                        
to provide  power to the  growing population  centers of                                                                        
Sitka,  Ketchikan,   Wrangell,  and  Petersburg.     Mr.                                                                        
Venables  warned  against  letting  the  opportunity  to                                                                        
develop renewable  resources go  by if oil  prices fall,                                                                        
and praised  the legislature's  commitment to  renewable                                                                        
energy.   He presented  a series  of maps  that pictured                                                                        
the vision of the intertie,  but cautioned that as costs                                                                        
escalate for  certain portions  of the  submarine cable,                                                                        
the  development of  certain legs  may be  delayed.   He                                                                        
stressed  that the  number one  priority for  SEC is  to                                                                        
facilitate the  intertie project  in Kake.   Kake  has a                                                                        
dire  need   for  improvements  in   transportation  and                                                                        
energy;  in fact,  the electricity  rates  there are  63                                                                        
cents per  kilowatt hour.   This high rate  has resulted                                                                        
in the  closing of businesses,  the loss  of population,                                                                        
and  in  social  difficulties.     Southeast  Conference                                                                        
continues  to work  in Kake  with local  municipalities,                                                                        
utilities,   and    multiple   governmental    agencies,                                                                        
including  the  Department of  Transportation  &  Public                                                                        
Facilities  (DOTPF),  on a  northern  route  for a  road                                                                        
between Kake and Petersburg that  will meet the needs of                                                                        
transportation and energy.                                                                                                      
                                                                                                                                
3:17:34 PM                                                                                                                    
                                                                                                                                
MR. VENABLES said there will  soon be a determination of                                                                        
the best  route; in  fact, the  reason to  co-locate the                                                                        
road  and  the  intertie   is  to  reduce  environmental                                                                        
impact,  the  cost  of  development,  and  the  cost  of                                                                        
maintenance.   Slide 12  was of  Prince of  Wales Island                                                                        
and illustrated  an intertie system with a  sub [marine]                                                                        
unit.   The island  will have a  full build-up  when the                                                                        
system  continues  to  Naukati  and  Coffman  Cove;  all                                                                        
communities  will be  connected except  for Whale  Pass.                                                                        
Slide 13 showed the northern  end of Lynn Canal with the                                                                        
connections between the communities  of Skagway, Haines,                                                                        
and  Klukwan.    In this  instance,  two  utilities  are                                                                        
working  together  with  an interconnected  grid.    Mr.                                                                        
Venables turned to the future  and indicated SEC will be                                                                        
looking for construction funds  for the Kake project and                                                                        
will be  working with Haida  Corporation to  advance the                                                                        
Reynolds Creek  project.   In addition,  every community                                                                        
has a project, whether it  is municipal or regional, and                                                                        
SEC will continue  to advance each project  in its time.                                                                        
Studies of alternative energy  sources will continue, as                                                                        
will the  consideration of  short-term "band-aids"  such                                                                        
as  expansion   of  the   PCE  program,   and  long-term                                                                        
solutions such as  hydro and interties.   Also, SEC will                                                                        
watch the proposed  unification of the utilities  in the                                                                        
Railbelt for  ideas that can  be used in Southeast.   He                                                                        
thanked   the  legislature   for   funding  the   Alaska                                                                        
Renewable   Energy  Fund,   that  provided  grants   for                                                                        
Southeast in  the amount of $16,956,187;  however, there                                                                        
is  much  left to  be  done  to complete  the  Southeast                                                                        
interties.                                                                                                                      
                                                                                                                                
3:24:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN  asked  whether the  newest  in                                                                        
"smart technology"  was being  used in  the construction                                                                        
of the interties.                                                                                                               
                                                                                                                                
3:25:02 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  observed  a   lot  of  the  equipment  in                                                                        
Southeast  Alaska is antiquated,  especially  the diesel                                                                        
generated infrastructure;  however, the upgrades  are in                                                                        
step with  new technology  as much  as possible  and, in                                                                        
the future,  delivery  systems will  be cheaper  for the                                                                        
intertie.                                                                                                                       
                                                                                                                                
3:25:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CATHY   ENGSTROM  MUNOZ,   Alaska  State                                                                        
Legislature,       asked  whether  any  funds   will  be                                                                        
available  to match  the Alaska  Energy Authority  (AEA)                                                                        
authorization in the amount of $380,000,000.                                                                                    
                                                                                                                                
3:26:08 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  advised state  funds  can  be used  as  a                                                                        
match,  as well  as  the considerable  local  investment                                                                        
that is made by private utilities.                                                                                              
                                                                                                                                
3:26:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  asked whether  the SEC  is working                                                                        
with the Congressional delegation on this issue.                                                                                
                                                                                                                                
3:26:56 PM                                                                                                                    
                                                                                                                                
MR. VENABLES  said yes.   The SEC communicates  with the                                                                        
Congressional  delegation  so  they  are  aware  of  its                                                                        
program,  community needs,  and the resources  available                                                                        
to  assist  the delegation.    As  a federal  agency  of                                                                        
standing,  SEC  is  prepared  to  receive  guidance  and                                                                        
advocate for the region.                                                                                                        
                                                                                                                                
3:27:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ  further asked  whether any  of the                                                                        
money   that  has   been   authorized   has  also   been                                                                        
appropriated.                                                                                                                   
                                                                                                                                
3:28:07 PM                                                                                                                    
                                                                                                                                
MR. VENABLE  confirmed some appropriations have  gone to                                                                        
Greens Creek Mining Company;  however, about $60 million                                                                        
is  still available  to  be  appropriated for  Southeast                                                                        
intertie development.                                                                                                           
                                                                                                                                
3:28:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   MUNOZ   referred  to   the   "Southeast                                                                        
governance model" and asked  whether SEC is working with                                                                        
other  entities, such  as Tlingit  and  Haida and  other                                                                        
private developers, to promote intertie connections.                                                                            
                                                                                                                                
3:28:55 PM                                                                                                                    
                                                                                                                                
MR. VENABLES  explained  the governance  model is  a new                                                                        
item to SEC; in fact, it  will be introduced by AEA next                                                                        
week.   However, there is  already a similar  model that                                                                        
covered a portion of the  region in the Southeast Alaska                                                                        
Power Agency (SEPA)  - formerly the Four  Dam Pool Power                                                                        
Agency.                                                                                                                         
                                                                                                                                
3:30:04 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK asked who  will manage the Southeast                                                                        
intertie after completion.                                                                                                      
                                                                                                                                
3:30:26 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  advised  the   utilities  currently  have                                                                        
ownership;  for example,  a portion  of Greens Creek  is                                                                        
under   the   Kwaan   Electric   Transmission   Intertie                                                                        
Cooperative, Inc.  He remarked:                                                                                                 
                                                                                                                                
    Right  now, like the  build outs, AP&T,  they've                                                                            
    all   been  split   in  their   own  system   in                                                                            
    certificated  areas,  so   we  really  have  not                                                                            
    joined  a regional ...  grid development  that's                                                                            
    become an  issue yet.   And I think  that's what                                                                            
    is  going  to be  brought  to  the table  as  we                                                                            
    develop  the intertie, especially over to  Kake,                                                                            
    because  that's  going to  have to  be  decided,                                                                            
    how's that line going to  be owned and operated.                                                                            
    Right  now we've  got the Kwaan  agency that  is                                                                            
    capable,  but  it could  very  well be  SEPA  as                                                                            
    well.                                                                                                                       
                                                                                                                                
3:31:43 PM                                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT asked about the importance of co-                                                                              
locating roads  [and interties]  and whether  there have                                                                        
been problems.                                                                                                                  
                                                                                                                                
3:32:04 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  acknowledged  the  difficulty  DOTPF  has                                                                        
building roads  in the region.   Although there  is full                                                                        
support for  the Kake  intertie, there  are reservations                                                                        
about road  development.   Construction of a  roadbed to                                                                        
open  a corridor  for  utility  work allows  for  easier                                                                        
construction and  maintenance of  the intertie  and also                                                                        
encourages economic  development and  commerce; however,                                                                        
there are  not many successful  examples except  for the                                                                        
logging  roads on  Prince of  Wales Island.   He  opined                                                                        
that  the existence  of  successful  logging "opened  up                                                                        
some roads  which then allowed  for the interties  to be                                                                        
built.   ...   So Prince  of Wales  Island would  be the                                                                        
closest answer  to your  question to  see how  you could                                                                        
both develop roads and energy  corridors ... and let the                                                                        
communities  build  and  develop   in  their  own  areas                                                                        
instead of just urban."                                                                                                         
                                                                                                                                
3:33:35 PM                                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT  asked whether there are  estimates for                                                                        
each  project  on  the  additional   cost  to  build  an                                                                        
intertie where there is no access by road.                                                                                      
                                                                                                                                
3:33:47 PM                                                                                                                    
                                                                                                                                
MR. VENABLES said he was  unsure; however, the Swan-Tyee                                                                        
intertie project  encountered very  challenging terrain.                                                                        
He deferred the question to Mr. Carlson.                                                                                        
                                                                                                                                
3:34:37 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE MUNOZ asked whether the power rights-of-                                                                         
way have been designated in  the Tongass National Forest                                                                        
Land Management Plan (TLMP).                                                                                                    
                                                                                                                                
3:34:56 PM                                                                                                                    
                                                                                                                                
MR. VENABLES  advised  most of the  corridors have  been                                                                        
identified in  the Southeast Alaska  Transportation Plan                                                                        
(SATP).    The SEC  is  meeting  with DOTPF  to  discuss                                                                        
integrated  corridor  development   for  Kake,  Pelican,                                                                        
Hoonah,  and  Baranof  Island.   Although  most  primary                                                                        
utility corridors  have been identified,  more "corridor                                                                        
work" is being pursued by tribal governments.                                                                                   
                                                                                                                                
3:35:36 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ asked  whether  the corridors  are                                                                        
only on state land.                                                                                                             
                                                                                                                                
3:35:48 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES explained  the Tongass  forest is  federal                                                                        
land,  but the  state  has obtained  the  rights-of-way.                                                                        
Federal agencies  such as  the USDA Forest  Service, the                                                                        
Environmental  Protection  Agency  (EPA), and  the  U.S.                                                                        
Army Corps of  Engineers (USACE) are also  involved when                                                                        
projects are proposed for this land.                                                                                            
                                                                                                                                
3:36:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ expressed  her understanding  that                                                                        
rights-of-way  for  the  development   of  "lines"  were                                                                        
required to be designated in the TLMP.                                                                                          
                                                                                                                                
MR.  VENABLES  said  he  would   confirm  that  for  the                                                                        
committee.                                                                                                                      
                                                                                                                                
3:36:44 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN  asked  whether  there  may  be                                                                        
money available through the [federal] stimulus package.                                                                         
                                                                                                                                
3:36:57 PM                                                                                                                    
                                                                                                                                
MR. VENABLES said  the stimulus package has  very little                                                                        
application  to the  development of  hydro interties  in                                                                        
Alaska.  Part of that will  depend on how the Department                                                                        
of Energy  (DOE) interprets  the law;  however,  at this                                                                        
time the  grids seem  to apply  to the  grid across  the                                                                        
contiguous states.   Furthermore, the funds  directed to                                                                        
the development  of renewable  energy are  not available                                                                        
for hydro.                                                                                                                      
                                                                                                                                
3:38:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR EDGMON  observed the total planned  capacity of                                                                        
all of the  hydro sites is 339 megawatts  (MW) and asked                                                                        
whether there is enough demand for that much power.                                                                             
                                                                                                                                
3:38:22 PM                                                                                                                    
                                                                                                                                
MR. VENABLES noted that not  all of the projects will be                                                                        
developed.   An updated  integrated resource  plan (IRP)                                                                        
is needed  to "point the  way" to the  most economically                                                                        
viable projects.  He opined  the projects closest to the                                                                        
grid will  be developed first  such as Whitman  Lake and                                                                        
Mahoney  Lake   in  Ketchikan,  and  Triangle   Lake  in                                                                        
Metlakatla.  All  of the projects listed on  Slide 7 are                                                                        
far in excess of the demand  for electricity in the near                                                                        
future.                                                                                                                         
                                                                                                                                
3:39:42 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  EDGMON  asked  what   the  present  electrical                                                                        
demand is for Southeast communities.                                                                                            
                                                                                                                                
3:40:09 PM                                                                                                                    
                                                                                                                                
MR. VENABLE  advised the combined  Southeast communities                                                                        
are  now  "in  the  100,   120  megawatt  range."    The                                                                        
legislation proposed  by Senator Stedman  highlights the                                                                        
projects that are necessary.   Slide 7 merely identifies                                                                        
the  location  of  all  of  the  potential  sources  for                                                                        
hydroelectric power.                                                                                                            
                                                                                                                                
3:41:13 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHANSEN  asked Mr. Venables  to describe                                                                        
the responsibilities of the energy coordinator.                                                                                 
                                                                                                                                
3:41:52 PM                                                                                                                    
                                                                                                                                
MR. VENABLES said  each of the utilities  throughout the                                                                        
region is generating  power to the best  of its ability.                                                                        
As  the energy  coordinator, he  works with  all of  the                                                                        
utilities  as  a  group  and   has  formed  a  technical                                                                        
advisory group within the energy  committee.  The energy                                                                        
committee meets  regularly with a core working  group of                                                                        
the Southeast  utilities, and with  tribal organizations                                                                        
and  private  power  producers  to "network  on  a  very                                                                        
extensive basis."                                                                                                               
                                                                                                                                
3:42:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHANSEN  observed there  are  estimates                                                                        
for  the Swan-Tyee  project  on the  difference in  cost                                                                        
when  there  is  a  road;  in  fact,  there  is  a  huge                                                                        
difference   when   road   access   is   available   for                                                                        
maintenance  and operation.   He referred  to [slide  8]                                                                        
that showed Kake's  location in the center  of Southeast                                                                        
and asked  how important  the connection  to Kake  is in                                                                        
the  overall  incremental  build-out   of  the  intertie                                                                        
system connecting power from north to south.                                                                                    
                                                                                                                                
3:43:57 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES   acknowledged   the  importance   of  the                                                                        
connection, although the immediate  goal of the intertie                                                                        
is  to  service the  needs  of  the community  of  Kake.                                                                        
Southeast  Conference has  instructed the contractor  to                                                                        
construct the line to the  capacity that can be utilized                                                                        
as part of  the overall intertie, even  though it likely                                                                        
will be energized  at half of that capacity.   This plan                                                                        
is mindful of  the overall system, but  strives to build                                                                        
and operate the line at an "effective" cost.                                                                                    
                                                                                                                                
3:44:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHANSEN asked whether  an entity such as                                                                        
Central Council Tlingit & Haida  Indian Tribes of Alaska                                                                        
(CCTHITA) could manage the operation of the intertie.                                                                           
                                                                                                                                
3:45:26 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  opined  that question  will  be  answered                                                                        
through  public  process and  deliberation;  however,  a                                                                        
model in Southeast does exist  in the Kwaan power agency                                                                        
that  is set  up with  partners and  participants as  an                                                                        
oversight body.   He suggested that the  Alaska Railbelt                                                                        
Electrical  Grid  Authority  (REGA) report  may  provide                                                                        
guidance  for  Southeast  Alaska on  how  utilities  can                                                                        
decide how assets should be developed and operated.                                                                             
                                                                                                                                
3:46:07 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE     JOHANSEN     asked    whether     the                                                                        
aforementioned  is  a  preferable model  to  [using]  an                                                                        
organization with other interests and duties.                                                                                   
                                                                                                                                
3:46:22 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  assured the  committee  that  SEC is  not                                                                        
looking to create  more governing agencies,  but to find                                                                        
the best and  most efficient manner [of  governance] for                                                                        
the public benefit.                                                                                                             
                                                                                                                                
3:46:50 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHANSEN   asked  whether  SEC   has  an                                                                        
official  position  on  whether   the  Southeast  Alaska                                                                        
interties  and facilities  should  be  built before  the                                                                        
construction of  a connection to British  Colombia (AKBC                                                                        
Intertie)  that  would result  in  the sale  of  surplus                                                                        
energy on the national grid.                                                                                                    
                                                                                                                                
3:47:26 PM                                                                                                                    
                                                                                                                                
MR. VENABLES indicated  SEC supports the concept  of the                                                                        
AKBC Intertie  and its benefits; however,  the immediate                                                                        
need is in  Southeast communities such as  Kake, Angoon,                                                                        
and Hoonah.   A line  to Canada  will not help  them, in                                                                        
addition to the fact that  the infrastructure in British                                                                        
Columbia does not exist.   He stressed SEC's efforts are                                                                        
focused totally on Alaska communities.                                                                                          
                                                                                                                                
3:49:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOHANSEN   observed  mines   in  British                                                                        
Columbia may  be the future  industrial users  of excess                                                                        
power from  Southeast.   He then asked  for a  matrix of                                                                        
the  PCE  funding   that  would  be  displaced   by  the                                                                        
[state's]   investment  in   the  construction   of  the                                                                        
intertie.                                                                                                                       
                                                                                                                                
3:50:38 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  gave a  PowerPoint  presentation  showing                                                                        
slides from the construction  of the Swan-Tyee intertie.                                                                        
The slides  showed the  construction corridor,  the Tyee                                                                        
Lake powerhouse, and a housing  camp on a barge 70 miles                                                                        
north of Ketchikan.   Mr. Venables noted  the project is                                                                        
on schedule  and fully funded;  in fact, the  project is                                                                        
scheduled to be energized in November.                                                                                          
                                                                                                                                
3:56:33 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DAHLSTROM  asked  how much  revenue  was                                                                        
earned from assembling barges for the project.                                                                                  
                                                                                                                                
3:57:08 PM                                                                                                                    
                                                                                                                                
MR. VENABLES said  he was unsure and  would provide that                                                                        
information to the committee.                                                                                                   
                                                                                                                                
3:57:22 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOHANSEN  expressed his  appreciation for                                                                        
the work Mr. Venables has done.   He opined energy plans                                                                        
are  most  successful  if developed  regionally  as  the                                                                        
state  is  large  and  very  different.    In  addition,                                                                        
Haines,  Skagway, and  Klukwan  are an  example for  the                                                                        
rest  of the  state  of  communities that  have  jointly                                                                        
developed and shared a source of energy.                                                                                        
                                                                                                                                
3:58:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN  asked  whether there  was  the                                                                        
potential to export excess power from these projects.                                                                           
                                                                                                                                
3:59:15 PM                                                                                                                    
                                                                                                                                
MR.  VENABLES  affirmed  that  the  possibility  exists;                                                                        
however, if there were excess  power, the first priority                                                                        
would  be to  support local  industry  and create  local                                                                        
jobs and revenue.                                                                                                               
                                                                                                                                
^PRESENTATION(S): COOK  INLET NATURAL  GAS, BY  ED KERR,                                                                      
ARMSTRONG OIL AND GAS                                                                                                         
                                                                                                                                
3:59:54 PM                                                                                                                    
                                                                                                                                
ED  KERR,  Vice  President  for  Land  and  Development,                                                                        
Armstrong Oil  & Gas,  informed the  committee Armstrong                                                                        
Oil & Gas  is a privately held, independent  oil and gas                                                                        
company that  has been  in business in  a large  part of                                                                        
the U. S.  for 23 years.  The company's  initial work in                                                                        
Alaska  began ten  years ago  with  a feasibility  study                                                                        
that was  followed by the  acquisition of  360,000 acres                                                                        
and  the drilling  of  eleven  "wildcats"  on the  North                                                                        
Slope.  The wells showed  some success at Ooguruk Island                                                                        
and at  the Nikaitchuq  project, both  of which  are now                                                                        
being  further  developed  by other  companies.    About                                                                        
three years  ago, his company studied  the possibilities                                                                        
and challenges of doing business  in the Cook Inlet.  In                                                                        
spite  of   the  significant   issues  associated   with                                                                        
developing  a "reasonable" gas  supply, Armstrong  began                                                                        
work on  the North Fork Unit.   The North Fork  Unit was                                                                        
originally  drilled by  Unocal Oil Company  in 1965  and                                                                        
then sat  idle for 40  years because, although  some gas                                                                        
was  found,  Unocal  was  looking for  oil.    Mr.  Kerr                                                                        
advised Armstrong  acquired all of the rights,  and then                                                                        
drilled a second  well in the North Fork  Unit and found                                                                        
gas.   He opined  the gas from  this well  could provide                                                                        
part of  the solution  to the  shortage  of gas in  Cook                                                                        
Inlet.    At  this  point,   the  company  has  begun  a                                                                        
preliminary dialog  with various  utilities about  a gas                                                                        
contract  and  is  also   meeting  with  the  Regulatory                                                                        
Commission  of Alaska  (RCA).   Mr.  Kerr described  the                                                                        
Cook Inlet  as an oil basin  and pointed out  almost all                                                                        
of the  production has  been from oil  and gas  that was                                                                        
found in  the '60s  and '70s, when  there was  no market                                                                        
for  gas.   Over  time, the  wells  have  fallen into  a                                                                        
overall   decline  of   15   percent   to  24   percent,                                                                        
predominately due  to a  lack of  drilling.   To explain                                                                        
the lack of drilling, he  noted Armstrong has found that                                                                        
the  cost of  drilling  a comparable  well  in the  Cook                                                                        
Inlet  is substantially  higher  than in  some Lower  48                                                                        
basins.   Unfortunately,  the service  companies do  not                                                                        
have  a  huge  infrastructure located  within  the  Cook                                                                        
Inlet  and  there  are  a  limited  number  of  services                                                                        
available.  "When  you have that type  of limited number                                                                        
of  people,  it  doesn't foster  competition  ...  [and]                                                                        
ultimately the  costs go up,"  he said.   Therefore, the                                                                        
cost to drill and complete  the work associated with the                                                                        
wells  is  higher  when   compared  to  other  Armstrong                                                                        
operations.     He  compared  the  San  Juan   basin  in                                                                        
northwest  New  Mexico,  and   the  Big  Horn  basin  in                                                                        
northwest   Wyoming,   that   are  basins   of   similar                                                                        
geographic size  to Cook  Inlet.   Mr. Kerr  pointed out                                                                        
that  the  Cook  Inlet  productivity   to  date  is  7.6                                                                        
trillion  cubic feet (tcf)  and 1.3  billion barrels  of                                                                        
oil; the  Big Horn productivity  to date is 2.4  tcf and                                                                        
3.1 billion  barrels of oil;  the San  Juan productivity                                                                        
to date is 41.5 tcf and 380  million barrels of oil.  In                                                                        
further  comparison,  in the  San  Juan there  were  984                                                                        
wells drilled  in 2007; in the  Big Horn there  were 100                                                                        
wells drilled in 2007; and in  the Cook Inlet there were                                                                        
7 to  14 wells drilled.   He concluded that  because the                                                                        
Cook  Inlet does  not have  as  much drilling  activity,                                                                        
costs  remain  high.   In  addition,  the San  Juan  has                                                                        
44,744  completed   wells,  the  Big  Horn   has  12,878                                                                        
completed  wells, and  Cook Inlet  has 13,012  completed                                                                        
wells.   He opined the Cook  Inlet is under  drilled and                                                                        
advised there  are unknown  opportunities there.   Wells                                                                        
have not  been drilled there  because the  "majors" held                                                                        
the leases  and controlled  the level  of activity.   In                                                                        
addition,  there are  few  independents  working in  the                                                                        
Cook Inlet  and the vast  majority of wells  are drilled                                                                        
by independents.   Mr.  Kerr stated  Armstrong feels  it                                                                        
can make  a difference  in the Cook  Inlet; in  fact, it                                                                        
will present the  successes and challenges  of its plans                                                                        
to the  RCA.   The potential to  develop this  field can                                                                        
make a difference  in the gas supply in  the Cook Inlet.                                                                        
Armstrong can also  make a difference in  the economy of                                                                        
the region as  in the course of drilling  the North Fork                                                                        
Unit  well,  the  company   employed  about  250  people                                                                        
working for 80 different Alaskan  vendors.  If granted a                                                                        
gas contract and a pipeline,  there is the potential for                                                                        
his company  to drill many wells.   He then  pointed out                                                                        
that newer  technology, such as horizontal  drilling, is                                                                        
being utilized in  the Lower 48, but is  not being fully                                                                        
utilized in Cook Inlet.                                                                                                         
                                                                                                                                
4:13:07 PM                                                                                                                    
                                                                                                                                
MR. KERR  further explained that other  independents are                                                                        
not  willing  to come  to  the  Cook  Inlet due  to  the                                                                        
concern that  they will not  get a reasonable  return on                                                                        
their  investment;  however,  Armstrong   feels  it  can                                                                        
overcome  this  challenge.    If  its  negotiations  are                                                                        
successful it will drill  additional wells; however, the                                                                        
contracts must  insure the "reasonable chance  of making                                                                        
a return  on investment."   He  advised his  company has                                                                        
already  taken  some  risks  in drilling  one  well  and                                                                        
acquiring the  asset and,  from a business  perspective,                                                                        
it  needs  an   opportunity  to  begin  to   recoup  its                                                                        
investment.   Mr. Kerr said  he wanted the  committee to                                                                        
know Armstrong's intent on being  a part of the solution                                                                        
in Cook  Inlet, as long as  it can enter into  a prudent                                                                        
business agreement.                                                                                                             
                                                                                                                                
4:15:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DAHLSTROM asked  whether Armstrong  used                                                                        
its own rig on the well that was drilled.                                                                                       
                                                                                                                                
4:16:19 PM                                                                                                                    
                                                                                                                                
MR. KERR said his company used  a leased Aurora rig that                                                                        
was in  Alaska.  In  further response  to Representative                                                                        
Dahlstrom, he  said for subsequent drilling  the company                                                                        
would first  "try to look  within rigs that  are located                                                                        
in the  Cook Inlet."   This  is a  dynamic business  and                                                                        
rigs in the Cook Inlet can be taken up quickly.                                                                                 
                                                                                                                                
4:17:34 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   DAHLSTROM    described   the   existing                                                                        
situation with drilling rigs.                                                                                                   
                                                                                                                                
4:18:12 PM                                                                                                                    
                                                                                                                                
MR. KERR added  that the Cook Inlet well  was drilled at                                                                        
9,100 feet.  A comparable well  in west Texas would cost                                                                        
between 400  percent and  600 percent less:     A bigger                                                                        
infrastructure  and drilling  more  wells will  mitigate                                                                        
costs.                                                                                                                          
                                                                                                                                
4:19:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN asked  how long  a pipeline  is                                                                        
needed  to  connect  the  North Fork  Unit  to  existing                                                                        
facilities.                                                                                                                     
                                                                                                                                
4:20:10 PM                                                                                                                    
                                                                                                                                
MR. KERR said the North  Fork Unit is approximately nine                                                                        
miles due east of Anchor  Point; depending on the route,                                                                        
eighteen  to  twenty-nine  miles of  pipeline  would  be                                                                        
needed.                                                                                                                         
                                                                                                                                
CO-CHAIR  MILLETT asked  whether  Armstrong has  applied                                                                        
for exploration credits on the drilling in Cook Inlet.                                                                          
                                                                                                                                
4:21:19 PM                                                                                                                    
                                                                                                                                
MR. KERR  said the company  applied for credits  but has                                                                        
yet to receive them.                                                                                                            
                                                                                                                                
4:21:26 PM                                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT  restated the challenges to  Cook Inlet                                                                        
gas  development and  asked  what is  Alaska's role  "in                                                                        
easing   some  of   those   [challenges]   ...  in   the                                                                        
marketplace like that?"                                                                                                         
                                                                                                                                
4:21:48 PM                                                                                                                    
                                                                                                                                
MR.  KERR   suggested  that  independent  oil   and  gas                                                                        
companies must  have an opportunity  to get a  return on                                                                        
investment;   in fact, the  challenge in the  Cook Inlet                                                                        
is to get  a gas contract that recognizes  the potential                                                                        
costs  and   overruns.     This  situation   is  keeping                                                                        
independents  out  of  the Cook  Inlet.    Historically,                                                                        
drilling companies  have pulled  out and not  many wells                                                                        
have  been  drilled.   He  advised  the success  of  one                                                                        
company will  encourage others  to explore,  as happened                                                                        
in the Haynesville shale area of Louisiana.                                                                                     
                                                                                                                                
4:24:45 PM                                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT  observed shale  oil development  is in                                                                        
competition with  Alaska.  She  asked for the  amount of                                                                        
Armstrong's investment in the first well.                                                                                       
                                                                                                                                
4:25:11 PM                                                                                                                    
                                                                                                                                
MR. KERR estimated  a gross investment of  $8 million to                                                                        
$10  million for  the  first  well, without  exploration                                                                        
credits.                                                                                                                        
                                                                                                                                
4:25:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE TUCK referred to the geological "de-                                                                             
risk"  in Louisiana  and  asked  whether an  independent                                                                        
made a discovery or if there was another factor.                                                                                
                                                                                                                                
4:26:07 PM                                                                                                                    
                                                                                                                                
MR. KERR stated Chesapeake Energy Corporation, an                                                                               
independent oil company, utilized horizontal technology                                                                         
and developed a very successful well.                                                                                           
                                                                                                                                
4:26:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT thanked the presenters.                                                                                        
                                                                                                                                
4:27:21 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee,                                                                           
the House Special Committee on Energy meeting was                                                                               
adjourned at 4:27 p.m.                                                                                                          

Document Name Date/Time Subjects
House Energy Presentation_March_2009.pdf HENE 3/10/2009 3:00:00 PM
Legislative_Energy_Report_2009.pdf HENE 3/10/2009 3:00:00 PM
SEC Legislative Priorities 03102009.pdf HENE 3/10/2009 3:00:00 PM