Legislature(2011 - 2012)HOUSE FINANCE 519
05/06/2011 10:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Review of Energy Projects in Cssb 46 Version T, Section 4, P. 98 Line 1 Through P. 101, Line 27 - Alaska Energy Authority Requests Submitted by the Administration | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
JOINT MEETING
HOUSE SPECIAL COMMITTEE ON ENERGY
HOUSE RESOURCES STANDING COMMITTEE
May 6, 2011
10:02 a.m.
MEMBERS PRESENT
HOUSE SPECIAL COMMITTEE ON ENERGY
Representative Neal Foster, Co-Chair
Representative Lance Pruitt, Co-Chair
Representative Bob Lynn
Representative Dan Saddler
Representative Pete Petersen
Representative Chris Tuck
HOUSE RESOURCES
Representative Eric Feige, Co-Chair
Representative Paul Seaton, Co-Chair
Representative Peggy Wilson, Vice Chair
Representative Alan Dick
Representative Neal Foster
Representative Bob Herron
Representative Cathy Engstrom Munoz
Representative Berta Gardner
Representative Scott Kawasaki
MEMBERS ABSENT
HOUSE SPECIAL COMMITTEE ON ENERGY
Representative Kurt Olson
HOUSE RESOURCES
All members present
OTHER LEGISLATORS PRESENT
Representative Carl Gatto
Representative Bryce Edgmon
Representative Mark Neuman
Representative Anna Fairclough
Representative Reggie Joule
Representative Craig Johnson
Representative Tammie Wilson
Senator Charlie Huggins
COMMITTEE CALENDAR
REVIEW OF ENERGY PROJECTS IN CSSB 46 VERSION T, SECTION 4, P. 98
LINE 1 THROUGH P. 101, LINE 27 - ALASKA ENERGY AUTHORITY
REQUESTS SUBMITTED BY THE ADMINISTRATION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
SARA FISHER-GOAD, Executive Director
Alaska Energy Authority (AEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Presented information on five Alaska Energy
Authority (AEA) capital energy projects and answered questions.
BRYAN CAREY, Project Manager
Alaska Energy Authority (AEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Answered questions pertaining to the
proposed Susitna Hydroelectric Project.
MARK DAVIS, Economic Development Officer
Alaska Industrial Development & Export Authority (AIDEA) and
Alaska Energy Authority (AEA)
Department of Commerce, Community, & Economic Development
(DCCED)
Anchorage, Alaska
POSITION STATEMENT: Presented the Alaska Industrial Development
& Export Authority Coal to Liquid Certification project.
IVAN IVAN, Administrator
City of Akiak
Akiak, Alaska
POSITION STATEMENT: Presented the Akiak Community Electrical
Generation System Upgrade.
GENE THERRIAULT, Vice President
Golden Valley Electric Association (GVEA)
North Pole, Alaska
POSITION STATEMENT: Presented the Eva Creek Wind Farm project.
MIKE WRIGHT, Vice President
Transmission and Distribution
Golden Valley Electric Association (GVEA)
Fairbanks, Alaska
POSITION STATEMENT: Answered questions during discussion of the
Eva Creek Wind project.
PETER CRIMP, Deputy Director
Alternative Energy & Energy Efficiency
Alaska Energy Authority (AEA)
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions during discussion of the
Eva Creek Wind project.
WALT WREDE, City Manager
City of Homer
Homer, Alaska
POSITION STATEMENT: Presented the Homer Area Natural Gas
Pipeline project.
BILL SMITH, Member
Kenai Peninsula Borough Assembly
Kenai, Alaska
POSITION STATEMENT: Answered questions during discussion of the
Homer Area Natural Gas Pipeline project.
BRAD JANORSCHKE
General Manager
Homer Electric Association, Inc. (HEA)
Homer, Alaska
POSITION STATEMENT: Presented the Homer Electric Association -
Soldotna to Nikiski Transmission Upgrade.
ROBERT DAY, Manager
Power Production
Homer Electric Association, Inc. (HEA)
Homer, Alaska
POSITION STATEMENT: Answered questions during discussion of the
Homer Electric Association - Soldotna to Nikiski Transmission
Upgrade.
PAUL THOMSEN, Director
Policy and Business Development
Ormat Technologies, Inc.
Reno, Nevada
POSITION STATEMENT: Presented the Mount Spurr Geothermal
Project.
RAHM ORENSTEIN, Director
Business Development
Ormat Technologies, Inc.
Reno, Nevada
POSITION STATEMENT: Answered a question during the presentation
of the Mount Spurr Geothermal Project.
ACTION NARRATIVE
10:02:02 AM
CO-CHAIR LANCE PRUITT called the joint meeting of the House
Special Committee on Energy and the House Resources Standing
Committee to order at 10:02 a.m. Present at the call to order
from the House Special Committee on Energy were Representatives
Pruitt, Foster, Saddler, Lynn, Tuck, and Petersen. Present from
the House Resources Standing Committee were Representatives P.
Wilson, Herron, Munoz, Foster, Gardner, Kawasaki, Feige, and
Seaton. Representative Dick arrived as the meeting was in
progress. Representatives Gatto, T. Wilson, Edgmon, Neuman,
Fairclough, Joule, and Johnson, and Senator Huggins were also
present.
^Review of Energy Projects in CSSB 46 Version T, Section 4, p.
98 line 1 through p. 101, line 27 - Alaska Energy Authority
Requests Submitted by the Administration
Review of Energy Projects in CSSB 46 Version T, Section 4, p. 98
line 1 through p. 101, line 27 - Alaska Energy Authority
Requests Submitted by the Administration
10:03:42 AM
CO-CHAIR PRUITT announced that the only order of business would
be a review of energy projects in CSSB 46 Version T, Section 4,
page 98, line 1, through page 101, line 27: Alaska Energy
Authority Requests Submitted by the Administration.
CO-CHAIR PRUITT explained that 10 questions have been submitted
to spokespersons representing the projects that are under review
in order to inform both committees on the financial and
community support for projects, the benefits to ratepayers, any
vetting that has taken place, whether projects fit in their
local regional energy plan, and whether the intent language of
the state's energy policy affects the project. The review would
be limited to the abovementioned part of Section 4, draft
Version T. He clarified that the committees are not seeking to
eliminate or promote any particular project, but to provide an
objective look at the merits of all of the projects for
legislators and members of the public.
10:07:17 AM
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development
(DCCED), described five AEA capital projects submitted through
the governor's office, beginning with the Southeast Energy Fund.
The Southeast Energy Fund is established as a fund to make
grants to a municipality, a joint action agency (JAA), a member-
owned electric cooperative, or certain other electric utilities,
or for power projects, payments of loans, payments on bonds for
hydroelectric (hydro) projects, electrical transmission lines,
and electrical interties serving Southeast Alaska that are
entirely owned by the grantee. She explained that the fund is a
$10 million request, and is in line with the development of the
SEIRP, and with an expectation that AEA will adopt regulations
to set up grant criteria. Although there are no specific
projects to discuss at this time, Ms. Fisher-Goad said her
expectation is to set up a public and objective ranking process
for the fund similar to that of the Renewable Energy Fund.
10:11:00 AM
REPRESENTATIVE TUCK asked whether AEA was planning to conduct a
study in Southeast similar to the Railbelt Regional Integrated
Resource Plan (RIRP) Study in order to establish a "master
plan."
MS. FISHER-GOAD said there are some similarities; however, the
Southeast process is more complicated due to the distances
between communities that are not connected by transmission
lines. At this time the RIRP is a guideline and an established
process to evaluate projects, but it is premature to say the
Southeast plan would identify and evaluate projects leading to a
fully connected system.
10:13:20 AM
REPRESENTATIVE TUCK clarified that he was referring to the
process that determines the worthiness of a project. He asked
whether the $10 million is for grants to specific projects, or
to establish a plan for energy projects.
MS. FISHER-GOAD said the intent is to maximize the use of the
SEIRP and incorporate it into the grant process.
CO-CHAIR SEATON asked whether there are similar ideas for
Southwest Alaska also.
MS. FISHER-GOAD was unsure of a fund for Southwest Alaska;
however, a provision in the original version of SB 42 repealed
the Railbelt Energy Fund and enacted the Alaska Railbelt Energy
Fund with the intent to have an AEA fund as a source, or
process, to issue grants. This provision was dropped from the
legislation, but the Railbelt Energy Fund with the Susitna money
remains. The Renewable Energy Fund has been established with
statewide criteria.
10:16:31 AM
REPRESENTATIVE MUNOZ asked how the timing of the grant process
affects projects in Southeast that are currently in the
development phase.
MS. FISHER-GOAD replied the SEIRP has a working group that
recognized projects that are licensed and should proceed. The
intent was not to delay scheduled projects, but to ensure that
they can move forward independently.
MS. FISHER-GOAD continued to the Susitna Hydroelectric Energy
Plan (Susitna Hydro) which is a $65.7 million request from the
Railbelt Energy Fund. This appropriation will provide funding
to begin the design process, and to file the preliminary
application with the Federal Energy Regulatory Commission
(FERC). She pointed out there will be adjustments to AEA's
current estimate regarding costs and schedule, particularly for
the environmental work. In fact, further along in the FERC
process, AEA will refine the schedule. The design and licensing
process is expected to take six years, and the total project
cost is estimated to be $4.5 billion dollars. Next year
additional funds for the project will be requested from the
state to complete the design and licensing process. The goal is
for AEA to file the preliminary application document by October,
2011.
10:21:03 AM
MS. FISHER-GOAD turned to the Energy Plan Implementation project
and noted that the project was originally submitted under a
broader title of energy projects. However, Version T of the
capital budget has been split into three parts: Energy Plan
Implementation; Bulk Fuel Upgrades; Rural Power System Upgrades.
Energy Plan Implementation requests $1 million for AEA to help
regions further develop their energy plans. The task of
expanding community plans further into regional plans will be
assigned to the incoming deputy director of Rural Energy. Bulk
Fuel Upgrades is a long-standing capital request to enable AEA
to address the 10-year-old deficiency list. Funding for both
Bulk Fuel Upgrades and Rural Power System Upgrades (RPSU) is
shifting from federal funding through the Denali Commission to
state funding; in fact, the state request for Bulk Fuel Upgrades
is $3 million, and the request for RPSU is $6 million. These
projects are ranked by the deficiency list that allows for the
evaluation of communities and their power systems. For example,
"projects that are in the queue for" funding from Bulk Fuel
Upgrades next year are Aleknagik, Koliganek, and Bettles.
Construction on the Aleknagik project will be delayed without
funding from the state request.
10:24:19 AM
MS. FISHER-GOAD mentioned that the $4 million RPSU project for
Akiak is a priority project that - if not funded - will cause a
delay of Fort Yukon and Atmautluak projects. She opined this is
a unique situation, as this project is "listed under the 50
percent requirement for a project," however, AEA does not have a
match requirement for RPSU projects. The fifth program
discussed was the Electrical Emergencies Program, which is
another long-standing capital appropriation to AEA. Ms. Fisher-
Goad explained that approximately 100 communities have systems
that are being updated, or are still to be ranked on the
priority list, and this funding allows AEA to provide emergency
responses to help communities restore power after electrical
failures, or if failure is imminent.
10:27:34 AM
CO-CHAIR SEATON referred to the 50 percent match requirement and
asked whether AEA influenced the percentage required.
MS. FISHER-GOAD said AEA was not involved in defining that
percentage. She said she pointed out the Akiak project because
it is included in the capital budget and in the RPSU program.
The 50 percent match has been connected with the funding of
energy projects, such as the Bradley Lake Hydroelectric Project
(Bradley Lake Hydro) funding model, and other municipal
projects.
10:29:29 AM
CO-CHAIR SEATON reflected on the state's contributions to
Bradley Lake Hydro and asked if AEA has a particular percentage
that is appropriate for every project, or whether the match is
based on the economics, area, and size of the project.
MS. FISHER-GOAD opined AEA does not have a "magic" percentage
for broad use; in fact, a match requirement is a policy call by
the legislature. Although a match is not required for Renewable
Energy projects, AEA takes any match under consideration in its
evaluation of projects. She said these should be addressed on a
case-by-case basis, under the applicable statutory process.
The Denali Commission does not require a match for Bulk Fuel or
RPSU projects, but does require that the state maintain a
significant level of effort. She offered AEA's assistance to
the legislature in determining match requirements.
10:33:21 AM
The committee took an at-ease from 10:33 a.m. to 11:36 a.m.
11:36:54 AM
CO-CHAIR PRUITT brought the committee back to order.
REPRESENTATIVE SADDLER asked for clarification on the use of the
$65.7 million appropriation to the Susitna Hydro project.
MS. FISHER-GOAD deferred to Mr. Carey.
11:38:14 AM
BRYAN CAREY, Project Manager, Alaska Energy Authority (AEA),
Department of Commerce, Community & Economic Development
(DCCED), stated the $65.7 million appropriation would allow work
during the first three and one-half to four years on
environmental and engineering studies and the draft license
application. Following the license application, additional
studies and the environmental impact statement (EIS) will take
two more years.
REPRESENTATIVE SADDLER asked for a timeline on requests for
additional funding.
MR. CAREY advised the costs for environmental issues are unknown
until after detailed discussions with the resource agencies;
however, AEA estimated a total of $160 million for licensing and
design work.
11:40:05 AM
REPRESENTATIVE P. WILSON referred to page 99, lines 21-23 of the
bill and read:
If during their evaluation of projects, and AEA
determines that ... the appropriation exceeds the 50
percent ... they shall submit to the legislature
recommendations for reductions or reappropriation by
February of next year.
REPRESENTATIVE P. WILSON asked whether AEA will do this.
11:40:51 AM
MS. FISHER-GOAD opined clarity was needed in the language of the
bill. She was not certain whether the 50 percent is determined
by the total project cost, or the cost of a specific portion of
a project. For example, how a match would be determined if the
project is in its preliminary stage - such as the Ormat
Technologies, Inc. project - which is asking for funds for
drilling, although the full project cost is over $400 million.
Additionally, AEA will not be in a position to issue grants
prior to 2/1/12. Regarding AEA's evaluation of projects
through a process similar to that of the Renewable Energy Fund,
she pointed out that the language of the bill gives AEA some
direction, however, AEA's role needs to be better understood.
11:43:54 AM
REPRESENTATIVE P. WILSON relayed the Whitman Lake Hydroelectric
Project in Ketchikan had to renew its FERC permit, and may lose
it with further delay.
MS. FISHER-GOAD said that the SEIRP working group has suggested
that the Whitman Lake project should proceed without waiting for
a resource plan. She deferred to Ketchikan Public Utilities
(KPU).
11:45:23 AM
CO-CHAIR SEATON returned to the subject of funding for Susitna
Hydro and asked for further parameters on the use of the $65.7
million.
MS. FISHER-GOAD deferred to Mr. Carey.
MR. CAREY said the majority of the funding will provide
engineering and environmental-type work on Susitna-Watona.
Although there is a requirement to analyze alternative sites,
the cost of that is low. Currently, AEA has begun gap studies
regarding cultural, fish and wildlife, subsistence, and water
quality issues, which will be submitted to the appropriate
agencies for comments.
11:47:10 AM
CO-CHAIR SEATON directed attention to handouts provided by AEA
with funding requests for Susitna Hydro in the amounts of
$65,731,000 in 2012, $32,600,000 in 2013, and $33,800,000 in
2014. He asked for clarification of these requests.
MR. CAREY explained that the request for $65 million was for
about three years, so additional funding is probably not
required for the next year or two, but with a total of $162
million. The reason the request now is for $65 million is that
funding for a period of time will provide "a little bit of
certainty for funding" during the licensing process with FERC.
Furthermore, AEA needs to hire personnel from Outside, which is
difficult when a project is only funded for one year.
CO-CHAIR SEATON restated his question.
11:49:58 AM
MS. FISHER-GOAD explained that the documentation on the project
contains the budget process and also a cash flow need. The $65
million will not be spent in fiscal year 2012 (FY 12), but is
for multi-years. After looking at the preliminary application
with FERC, more budgetary information will be provided, and the
documentation will be "better than this snapshot two-page
document that's in our budget request."
CO-CHAIR PRUITT pointed out that the total is $162 million, and
asked for the purpose of the $32.6 million in FY 13 and $33.8
million in FY 14, and how those monies relate to the FERC
process.
11:51:41 AM
MS. FISHER-GOAD said the cash flow need and the budgetary need
are slightly different. Alaska Energy Authority will submit
further documentation with better information on cash flow
needs; in fact, AEA is committed to providing more information
on the requirements for the FERC process and its funding needs.
She acknowledged that the agency does not want to end up with a
gap in funding because of the subsequent delay.
11:53:27 AM
REPRESENTATIVE SADDLER asked how much work will be done by
outside contractors and how much by in-house staff.
MS. FISHER-GOAD said most of the work will be done by contract
with the private sector; however, she estimated funding in the
amount of about $1.5 million will be required for staff and
project office space.
REPRESENTATIVE SADDLER observed that the House Special Committee
on Energy heard testimony that residents of Talkeetna and
Southcentral Alaska are concerned about the lack of public
process, and he urged AEA to better inform the community.
MS. FISHER-GOAD noted that AEA has been working with
Representative Neuman to inform residents that the public
hearing on the decision document was not the end of the public
process.
11:55:44 AM
REPRESENTATIVE PETERSEN referred to future Bulk Fuel Upgrades
requests, and asked whether the tank replacements and upgrades
begun in 1997 will be finished by 2016.
MS. FISHER-GOAD said the bulk fuel tank farm upgrades are close
to being done. One of the primary purposes of the Denali
Commission was to address the need for new tank farms in
communities. In the future, she anticipated there will be more
of an emphasis on the RPSU program and less on Bulk Fuel
Upgrades.
11:58:14 AM
CO-CHAIR PRUITT asked about the future of the Bulk Fuel Upgrades
program considering the expected decrease in funding from the
Denali Commission.
MS. FISHER-GOAD restated that the deficiency lists for Bulk Fuel
Upgrades and RPSU were prepared 10 years ago with the intent
that AEA would continue with the projects even as federal
funding declined. She recalled that during peak federal funding
from the Denali Commission, AEA's cash flow to build tank farms
was over $30 million annually.
CO-CHAIR FEIGE observed Bulk Fuel Upgrades are requested for
nine communities at an average cost of $500,000 per community.
He asked which communities will receive the funds and who owns
the facilities.
MS. FISHER-GOAD said local governments own the facilities, with
some exceptions for consolidated tank farms. Next year's
projects include Aleknagik, Bettles, and Koliganek, which are
all in final design. Aleknagik is a $6 million project funded
by the Denali Commission and the state.
12:02:14 PM
CO-CHAIR FEIGE observed that additional state money is being put
into power systems, and asked if there are provisions to sell
the facilities, so they can be run and maintained by the private
sector or by the owners.
MS. FISHER-GOAD explained AEA manages construction of the tank
farms and then turns over the completed projects to the local
owners. The agency works with the community to develop business
and operating and maintenance (O&M) plans in order to ensure
that the community has the capacity to own, manage, and operate
the tank farms and powerhouses, and has reserve funds for
repairs and replacement. A sustainability requirement was
always part of AEA's agreement with the Denali Commission. In
further response to Co-Chair Feige, she advised that tank farms
are successful in general, and powerhouses need continuing
support from AEA for training and maintenance.
12:05:30 PM
REPRESENTATIVE TUCK asked if the governor did not want to
include the Akiak project in the capital budget this year.
MS. FISHER-GOAD expressed her understanding that Akiak became a
line item in the budget; if it were not, it would be funded by
AEA through the RPSU program, but that would prevent the funding
of the Fort Yukon and Atmautluak projects. Furthermore, funds
would be available for conceptual design reports for future RPSU
projects. Akiak is a unique project in that AEA will manage the
project as it would a RPSU project. Regarding AEA's association
with other projects in this section of the legislation, the
Alaska Railbelt Cooperative Transmission & Electric Company
(ARCTEC) had requested AEA to manage these projects, which is an
opportunity for AEA to work with ARCTEC on regional priorities
in the Railbelt. She advised the intent is for AEA to issue
grants on projects it does not own, and work with the grantees.
The agency does own the Battle Creek Diversion Project, which is
an upgrade to Bradley Lake Hydro, and the Alaska Intertie, which
is slated for repairs.
12:08:59 PM
REPRESENTATIVE TUCK understood the Akiak project would be in
addition to the $10 million requested for RSUP, and rephrased
his question as to why the governor did not include Akiak
originally.
MS. FISHER-GOAD acknowledged that Akiak is not specifically
listed; however, projects are not usually listed in the request
for RSUP funds. She opined there was nothing intentional.
12:10:05 PM
REPRESENTATIVE TUCK affirmed that the RSUP process consisted of
the $10 million request, and naming specific projects allows for
the use of the money on other projects. He inquired whether
other projects that are not mentioned specifically have the
governor's support. Representative Tuck noted that the bill
will not come before the House Resources Standing Committee or
the House Special Committee on Energy, and asked whether the
purpose of the hearing was to recommend which projects move
forward, or whether there will be opportunities for communities
to speak about projects as well.
CO-CHAIR PRUITT stated that the intent of the joint meeting was
not to weed out projects, but to ensure that legislators have a
full understanding of them, and to have an opportunity to
disseminate information before a large group of legislators and
members of the public.
12:13:20 PM
REPRESENTATIVE TUCK then asked whether there were any projects
listed that AEA would not support.
[Representative Tuck's reference pertained to a list of projects
provided in the committee packet titled, "Energy projects in
CSSB 46 Version T, Section 4," dated 5/5/11, and prepared by
Christopher Clark, House Special Committee on Energy.]
MS. FISHER-GOAD explained her intent is to advise the committees
on how AEA would serve its management role for the projects and
grants that are funded by the legislative process. The Akiak
project was known to AEA, and if the budget passes with Akiak as
a specific line item, the RPSU funding is freed for other
purposes - such as two powerhouses and conceptual design work.
If not, the Akiak project and conceptual design will be funded
through RPSU. The agency's reactionary role disallows her to
make decisions on the worthiness of projects, although AEA has a
required, statutory evaluation process for Renewable Energy Fund
projects.
12:16:09 PM
CO-CHAIR PRUITT interjected that the concern comes from the fact
that AEA's name is on all of these projects - even those that
have not gone through an evaluation process - leaving some
committee members to ask whether AEA supports each project.
MS. FISHER-GOAD replied that AEA has granting authority and is
listed on these appropriations because it is the manager to work
with the owner and administer the grant. She indicated that AEA
is involved because of a desire to have an energy agency look at
the projects. It is not AEA's role to determine which projects
should be funded in the capital budget, but to administer and
manage grants and provide consistency during construction, and
to follow criteria and appropriate milestones when releasing
funds. For example, she said AEA "can play a technical
assistance role, we can play a role ... where we would be
managing these projects," and provide an opportunity to work
with entities to maintain a state presence - where state money
is being spent - and to meet state priorities.
12:20:55 PM
CO-CHAIR PRUITT asked how AEA sets milestones and prevents
projects from being appropriated without sufficient funding.
MS. FISHER-GOAD said that upcoming testimony from project
proponents will clarify the intent of the projects and the
impact of the 50 percent requirement; in fact, the 50 percent
requirement on construction projects is a significant milestone,
as is the completion of design prior to the release of
construction funds. She provided several examples of "a
stopping point."
12:23:51 PM
REPRESENTATIVE TUCK asked if Ms. Fisher-Goad was familiar with
all of the "AEA-labeled projects."
MS. FISHER-GOAD said AIDEA Coal to Liquid is a project that will
be addressed by the Alaska Industrial Development & Export
Authority (AIDEA), and several other projects have come through
the Renewable Energy Fund process. Her agency has not been
involved with the Homer Area Natural Gas Pipeline.
REPRESENTATIVE TUCK asked if any projects other than Akiak would
normally be part of the $10 million grant program.
MS. FISHER-GOAD said Akiak was the only project falling under
AEA's "traditional Rural Energy Project program."
12:26:22 PM
REPRESENTATIVE MUNOZ asked whether AEA established the amounts
requested for the projects.
MS. FISHER-GOAD said no. Her agency does have some of the
estimated costs on projects that have been evaluated through the
Renewable Energy Fund program and that have received funding for
earlier stages of development. She pointed out that during the
"Rounds" of the Renewable Energy Fund program, the statewide
balance of projects is maintained, partially by the $2 million
cap for Southeast and the Railbelt, and the $4 million cap for
high-cost areas. Some construction projects do not fit with the
Renewable Energy Fund program, although it is hard to make
changes to the process in a fair manner.
12:29:42 PM
REPRESENTATIVE MUNOZ asked who recommended the dollar amounts
for these projects.
MS. FISHER-GOAD opined some of the Capital Project Submission
and Information System (CAPSIS) figures may come from
legislators, and ARCTEC estimated costs for its projects. The
50 percent match can mean that the project is reimbursed by AEA
for every dollar in the system, or that state money is used for
the design portion and local contributions are used later.
12:31:20 PM
CO-CHAIR PRUITT, in response to Representative Munoz, said Round
IV projects were not under discussion, unless there was a local
issue.
REPRESENTATIVE MUNOZ pointed out that the community of Tenakee
passed a resolution opposing the Inside Passage Geothermal Study
in Tenakee Inlet. She asked how the opinion of a community is
weighted when projects are chosen.
MS. FISHER-GOAD said she was recently aware of the reaction from
the local community, and previous local support was part of the
evaluation process. She offered to provide additional
information.
REPRESENTATIVE MUNOZ then asked whether there is adequate AEA
staff to manage its workload.
MS. FISHER-GOAD said AEA is currently assessing staffing needs
and will be contacting the Office of the Governor, Office of
Management & Budget, for authorization of additional personnel.
12:34:31 PM
REPRESENTATIVE P. WILSON asked how many requests remain for Bulk
Fuel Upgrades.
MS. FISHER-GOAD said that the bulk fuel deficiency list was
almost completed, although the list was not created by requests,
but by AEA's evaluation of communities' circumstances, including
sustainability issues and a business plan. She said she would
provide the percentage of completed upgrades.
12:36:42 PM
CO-CHAIR SEATON expressed his concern about the recommendations
for reductions or reappropriation due from AEA by 2/1/12, as
directed on page 99, line 23, of the bill. He noted that
reappropriations are generally approved by district, and he
inquired whether AEA has an influence on funds unused for any
reason; for example, would funds be returned to the district or
to the general fund (GF).
MS. FISHER-GOAD cautioned that AEA's role in the reappropriation
language was unclear.
12:39:32 PM
CO-CHAIR PRUITT asked for an estimate of the cost of additional
AEA staffing.
MS. FISHER-GOAD said the rate for a project manager in the
energy field is about $150,000-$180,000 per year, and would be
paid for by the project capital money.
CO-CHAIR PRUITT asked if the bill would add to AEA's workload
this year.
MS. FISHER-GOAD said yes, although she was not prepared to
quantify the workload at this point.
12:41:43 PM
REPRESENTATIVE P. WILSON asked for further information on the
Electrical Emergency Program allocation on page 99, line 11, of
the bill.
MS. FISHER-GOAD said the money allows AEA or a contractor to
provide an emergency response and technical support to a utility
if it loses power, or the ability to generate and transmit
power. Typically this happens in winter, and there were only
three responses in FY 10, and about 11 responses in FY 11. In
further response to Representative P. Wilson, she said the cost
of responses fluctuates and the allocation is based on an
average.
12:44:44 PM
CO-CHAIR FOSTER asked whether unspent money was rolled-over to
the next year.
MS. FISHER-GOAD explained the money is appropriated as needed.
Furthermore, AEA works in conjunction with "emergency services"
for authority and funding during a major emergency. In further
response to Co-Chair Foster, she said she would confirm whether
AEA responded to the ice damage emergency in Savoonga this year.
CO-CHAIR PRUITT thanked Ms. Fisher-Goad for her participation.
12:49:31 PM
The joint meeting of the House Special Committee on Energy and
the House Resources Standing Committee was recessed at 12:49
p.m., to be continued at 2:00 p.m.
2:09:00 PM
CO-CHAIR NEIL FOSTER reconvened the joint meeting of the House
Special Committee on Energy and the House Resources Standing
Committee at 2:09 p.m. Present at the call back to order from
the House Special Committee on Energy were Representatives
Foster, Pruitt, Saddler, and Petersen. Representatives Tuck and
Lynn arrived as the meeting was in progress. Present at the
call back to order from the House Resources Committee were
Representatives, Seaton, Feige, Gardner, Dick, Foster and P.
Wilson. Representatives Kawasaki and Munoz arrived as the
meeting was in progress. Representatives Gatto, Fairclough, T.
Wilson, and Edgmon were also in attendance.
CO-CHAIR FOSTER announced the continuation of the committees'
review of energy projects. Among documents included in members'
packets was a list of questions witnesses would be asked to
answer. Those questions asked project proponents to quantify
the level of local support for the proposed project, identify
the funding sources, and identify the total project cost and
phases for the proposed project, as well as any anticipated
costs to ratepayers compared to the current rates. He specified
the projects discussed this afternoon are ones in Section 4,
Version T, since the other sections relate to weatherization,
energy rebates, in-state gas, and Renewable Energy Fund projects
which have already been vetted in various other House
committees.
2:12:01 PM
MARK DAVIS, Economic Development Officer, Alaska Industrial
Development & Export Authority (AIDEA) and Alaska Energy
Authority (AEA), Department of Commerce, Community, & Economic
Development (DCCED), stated that his testimony is related to the
single line appropriation for $500,000 for the Coal to Liquid
Certification Project. He explained that AIDEA would be working
on a new process for coal to liquid certification with Accelergy
Corporation (Accelergy) of Houston, Texas. Accelergy is in the
process of developing a new coal to liquid process that is
different from the traditional Fischer-Tropsch process.
Fischer-Tropsch first turns coal into syngas which is then
turned into a liquid. This process is a direct coal
liquefaction based on ExxonMobil patents. Accelergy is working
with the Energy & Environmental Research Center (EERC), a
research, development, demonstration, and commercialization
facility at the University of North Dakota, and Penn State to
develop this process for jet fuel for the U.S. military. The
United States Air Force (USAF) has indicated its desire to use
domestic sources for 50 percent of its fuel needs by 2016.
Additionally, the USAF expects to issue its specifications for
the fuels by 2013. The USAF has identified Alaska coal as a
potential source of synthetic jet fuels. This certification
process would have AIDEA working with Accelergy to certify
whether Alaska coal, particularly Usibelli Coal Mine, Inc.
(Usibelli) coal, could be used for this process.
MR. DAVIS related his understanding the USAF indicated to U.S.
Senator Lisa Murkowski that the USAF wishes to have these fuels
available at Joint Base Elmendorf-Richardson. The entire cost
of the appropriation would be $500,000. Additionally, Accelergy
has committed to $500,000 of its funds towards the project for a
total cost of $1 million. He related that in the event the coal
is certifiable, the next step would be to commercialize it -
which would involve other partners and potential manufacturers.
He emphasized that AIDEA would like to continue its involvement
just as it has done with other developing technologies. He
remarked that if that were to happen AIDEA would use its bonding
capabilities. He offered his belief that this request for
appropriation is the only appropriation necessary that he can
see. The advantage of the Accelergy process is it has a much
smaller carbon footprint than the Fischer-Tropsch process. The
Accelergy process also produces carbon dioxide (CO2) that can be
reinjected into Cook Inlet gas fields to aid in gas production
in Alaska. Jim Hemsath, Deputy Director of Development Finance,
would be managing the project for AIDEA. He offered his belief
that the project would meet with AIDEA's strategic plan to work
with more private companies, as well as researching new
technologies as it has previously done at the legislature's
request.
MR. DAVIS referred to a previous question, which was whether
this project was consistent with AS 44.99.115, the declaration
of state energy policy. He indicated AS 44.99.115 (3)(B) calls
for applied energy research and development of alternative and
emergent technologies. This technology is emergent since it is
a new technology and while it is currently under production, the
technology may be used to develop JP-8 fuel as a primary fuel
for the USAF. The other intriguing aspect is it could be used
for the newer JP-5 fuel, which is used in fighter planes such as
the F-15 Eagle and F-22 Raptor. He commented that Alaska has a
full complement of F-22s. He reiterated that the only phase of
the project would be the certification process, the requested
funds would be matched by Accelergy, and the project is
consistent with AIDEA's mission to support the major economic
sectors of Alaska's economy, such as the military. He reported
that approximately 80 percent of all federal funding in Alaska
relates to the military, Alaska desires to keep a military
presence, and the availability of synthetic coal fuels would be
advantageous to maintain a military presence in Alaska.
2:17:10 PM
REPRESENTATIVE PETERSEN surmised that coal would be tested in
more than one location in Alaska. He asked which areas of coal
would be tested.
MR. DAVIS explained that Usibelli coal would be tested at Healy,
but Accelergy would probably test Chuitna coal and any other
mines that wished to be tested. However, the main interest has
been in Usibelli coal, he stated.
REPRESENTATIVE DICK noted that Pennsylvania just invested $1.6
million to do the exact same project. He asked why it would be
necessary for Alaska to appropriate $500,000.
MR. DAVIS relayed that the USAF has requested that each locality
support the program. He noted that Pennsylvania and North
Dakota are each appropriating funds.
CO-CHAIR FEIGE asked where the plant would be built if the coal
tests out to be usable for synthetic fuel.
MR. DAVIS ventured that it would probably be built near the
source of the coal, since jet fuel is often "piped." He
anticipated a small footprint encompassing 700 acres, which is
much smaller than a Fischer-Tropsch plant.
2:19:15 PM
REPRESENTATIVE SADDLER asked whether the Accelergy process is a
proven commercial process for making synthetic jet fuel, and if
so, where else it is manufactured in the U.S. or the world.
MR. DAVIS responded that the Fischer-Tropsch process is well
known and has been used since 1922. Other processes came out of
research conducted during World War II, including the one used
by Accelergy. Furthermore, ExxonMobil performed substantial
work on this process - including a successful demonstration
plant in Texas in the 1990s. However, ExxonMobil decided not to
move forward with the process. ExxonMobil has licensed the
process to Accelergy and AIDEA has subsequently discussed the
licensing issues with them. Accelergy has also acquired
additional licenses from Raytheon Company, which has developed a
similar technology. He offered his belief that the application
should work and the primary question is whether the coal will
fit the process.
REPRESENTATIVE SADDLER inquired as to whether a British Thermal
Unit (BTU) equivalent per cost unit is available compared to
regular jet fuel.
MR. DAVIS offered his understanding that this fuel could be up
to 20 percent more expensive. The USAF is interested in
domestic supplies. He reported that the 20 percent increase was
based on a lower oil price, and could change due to the price of
oil. More importantly, a "war college report" issued at the
turn of the century that recommended that the USAF develop
domestic fuel supplies is reflected in the 2016 target. He
recalled that Alaska has always been mentioned as a potential
source of these fuels.
2:21:21 PM
CO-CHAIR PRUITT asked what could be expected during the next
five years in terms of funding and the process itself.
MR. DAVIS did not anticipate any additional requests for
legislative funding. He stated that if the USAF found these
fuels to be useful and the commercialization in Pennsylvania and
North Dakota "pan out" then there should be enough private
sector interest. He envisioned that the private sector would
work directly with the USAF to develop a plant using a public-
private-partnership (PPP) structure, and perhaps layering
federal funds, bonding, and a private company. He reiterated
that AIDEA would not request additional funds from the
legislature.
2:22:06 PM
CO-CHAIR FOSTER asked whether this is intended to provide fuel
for the military located in Alaska, or if other elements outside
Alaska could potentially benefit from this.
MR. DAVIS answered that the documents he has reviewed also
mentioned other military uses outside the Alaska command.
Another use of synthetic fuel could be the Ted Stevens Anchorage
International Airport which is now using fuel from Flint Hills
Refinery, but could use other sources of fuel.
2:22:48 PM
REPRESENTATIVE DICK sought clarification regarding the use of
some natural gas from the North Slope that could help "push" an
in-state gas pipeline.
MR. DAVIS answered that may be a little speculative. He agreed
this type of plant would definitely need a fuel source and
natural gas could potentially provide a fuel source. He
suggested the source could be Cook Inlet gas or other natural
gas. In further response to Representative Dick, he answered
that Accelergy has indicated to the USAF that the fuel is
stable, but has not provided a specific shelf life for the
synthetic fuel. He agreed that some synthetic fuels are
unstable, but according to the tests performed in Pennsylvania,
this particular synthetic fuel has proven to be a stable fuel.
2:24:18 PM
CO-CHAIR SEATON asked whether the state would be funding coal
testing for a process that's not yet been determined to be
commercially feasible.
MR. DAVIS acknowledged that this is somewhat speculative.
However, AIDEA would like to certify coal for USAF use in
anticipation for further federal funding in support of projects
in Alaska. The plan therefore, is to "get in the queue." These
funds would determine if the coal could be certified and AIDEA
would work with the Department of Defense (DOD) Energy
Department to see if it would be interested in using Alaska's
coal. He offered his belief that the process works and that the
testing thus far indicates that it would be successful.
However, even if the coal is certified, it would not guarantee a
plant would be built.
2:25:42 PM
CO-CHAIR SEATON said that's somewhat problematic for him since
Alaska would be certifying its coal not knowing whether the coal
is a commercially viable project using this technology. He
asked whether the $500,000 would be used in Alaska, or whether
the coal would be sent to another state for analysis.
MR. DAVIS responded that AIDEA's intent is to have the work
performed in Alaska, although he could not guarantee Alaska has
the necessary technology to do so. He reiterated that the
initial intent is to perform the work in Alaska.
CO-CHAIR SEATON then asked whether the certification process
will analyze coal at the University of Alaska Anchorage (UAA) or
if UAA has the ability to do the work.
MR. DAVIS answered that he was uncertain if Alaska has the
capability to do so. He ventured his understanding that AIDEA
would work with Accelergy on the certification issues related to
the coal. The coal would need to be tested, any coal sources
would need to be identified, and a business plan would need to
be developed. He related that if the coal is certified, a
partial business plan would be to make Alaska's coal attractive
to DOD, and encourage DOD to build a plant in Alaska.
2:27:52 PM
CO-CHAIR SEATON asked whether DOD would require state matching
funds.
MR. DAVIS indicated that the reports from the USAF would require
local government support for the certification process.
CO-CHAIR SEATON related a scenario in which the plant would be
developed in Alaska and DOD contributed funds. He clarified his
interest in whether that process would require local or state
matching funds.
MR. DAVIS acknowledged he has been primarily focused on the
certification process. He offered his belief that building a
local plant would likely just use the typical economic
development systems, such as AIDEA working with the private
sector.
2:28:43 PM
CO-CHAIR FEIGE asked for the potential quantity of a proposed
coal to liquid plant.
MR. DAVIS responded that a proposed plant would produce about
60,000 gallons initially, but would "ramp up" after startup. In
further response to Co-Chair Feige, he related his understanding
that the plant would start small and would then expand.
CO-CHAIR FEIGE asked for an estimate of the number of gallons of
synthetic fuel per day the military would use.
MR. DAVIS stated he was unsure. He stated that 10 percent of
the fuel used in the U.S. each day is used by the USAF.
CO-CHAIR FEIGE pointed out that the materials included in
members' packets indicated that a coal to liquid facility may be
based at Tyonek, with testing of the Department of Natural
Resources (DNR) and Mental Health Trust coals in and around
Tyonek. He stated that the materials do not mention any testing
at Usibelli near Healy.
MR. DAVIS surmised that the village of Tyonek has an agreement
with Accelergy, although he is not privy to the agreement.
Thus, Tyonek coal would be tested if support for it exists.
However, AIDEA believes that the readily available coal at
Usibelli should also be tested. In further response to Co-Chair
Feige, he opined the agreement is probably a memorandum of
understanding. He reiterated he had not seen it.
CO-CHAIR FEIGE asked how Alaska would benefit from testing the
coal. He pointed out the state has leased coals to PacRim Coal,
LLC (PacRim) and Usibelli, and he did not think the state would
see any additional monies since the coal would be diverted from
Korea to a proposed Accelergy plant.
2:31:16 PM
MR. DAVIS answered that the long-term plan would be to export
coal to other plants. Another aspect would be to hopefully
build a plant in Alaska to create local employment. Another
long-term goal would be to have fuel developed from Alaska
sources to enable Alaska to become a strategic location for the
USAF.
CO CHAIR FEIGE asked for the reason that AIDEA would be involved
except for the USAF to see local buy-in. He anticipated that
the coal would be sold by Usibelli or PacRim from their lease
blocks. He inquired as to whether it would be more appropriate
for the coal companies to invest $500,000 more, instead of the
state.
MR. DAVIS answered he was not sure why the USAF has asked for
state contribution, but it has done so. He characterized AIDEA
as an appropriate choice since it has engineers on staff that
can work with the process. Further, AIDEA would prefer to
develop value-added manufacturing in the state, rather than
exporting raw materials.
REPRESENTATIVE DICK offered his understanding that the analysis
would stay with the coal since it does not belong to Accelergy
or any other company. Thus, Accelergy could be viewed as
providing half the cost and that investment could be viewed as
an advantage to the project.
2:34:15 PM
IVAN IVAN, Administrator, City of Akiak, relayed that Akiak
submitted the capital budget request for the Akiak Community
Electrical Generation System Upgrade since the community has had
problems with its generator. Last year AEA staff winterized the
generator and changed some of the transformers. However, a
three-day-outage shut down the power - including cell phone
usage - so it was necessary for him to go as far as Kwethluk in
order to call for help.
MR. IVAN relayed that currently the generator building is small
and houses two under-200 kilowatt (kW) generators. Alaska
Energy Authority assisted Akiak by installing a rebuilt
generator that kept the city going through the winter. He
stated that Akiak also provides power to the schools. Thus, he
has had nightmares and the ongoing concern over the reliability
of the city's generator and was fearful of recurrences of the
power issues. Therefore, the City of Akiak submitted a capital
budget request to Representative Herron and Senator Hoffman to
upgrade the electrical generation system. At the same time, he
has continued to work with AEA on Akiak's generator issues.
MR. IVAN related that everyone in the community supports the
capital budget request for $4 million, including the school
system, and the early childhood programs concerned about
students. Additionally, the airport administration has had
concerns about power for its medical evacuation process. He
stated that since 1990 the community of Akiak has been strongly
affected by the issues of power. He expressed concern about
elders in the community not having power for their homes. He
offered his belief that the upgrades will lower the cost of
electricity to customers and will result in fuel cost savings.
Under the proposed funding, the conceptual design would support
what has already been done by AEA. The next step would be
construction of the project. He thanked AEA for its help and
for the committees' assistance in getting this project completed
as soon as possible.
CO-CHAIR FOSTER recognized Representative Craig Johnson.
2:42:14 PM
REPRESENTATIVE PETERSEN asked for clarification on how many
gallons of diesel fuel would be displaced by operating the new
equipment.
MR. IVAN related his belief that the generators are of age.
Alaska Energy Authority rebuilt one engine last winter, but
since the generators are old he has assumed they also use more
fuel. He stated that this fall and winter the City of Akiak
used a lot of fuel. He recalled the generators are a 180 kW and
a smaller 60-70 kW generator that was necessary to provide power
to the high school. The city will also review adaptability of
the upgraded system in hopes that wind-generation technology and
perhaps hydroelectric power will be compatible to the upgraded
generator system.
2:44:25 PM
CO-CHAIR PRUITT noted that another point to consider is not just
the amount of fuel, but how this would reduce the total cost of
energy to consumers.
MR. IVAN offered that one generator could provide power to the
entire community instead of running the old generator with a
smaller one as is currently done. This should "save" the
community.
CO-CHAIR PRUITT pointed out to testifiers that the committees
are interested in any cost savings to the state and consumers as
they consider the projects to fund.
2:46:20 PM
CO-CHAIR FEIGE noted that he has flown to Akiak several times.
He asked what other types of alternative energy were researched
besides more efficient diesel generation. He inquired as to
whether hydrokinetic or other types of alternatives have been
considered since the Kuskokwim River is nearby.
MR. IVAN answered that the City of Akiak has worked with AEA on
the potential for wind generation and will continue to research
that issue further. He noted that last fall someone in the
community considered the river current, but didn't have the
technology to properly assess it. He acknowledged the need to
assess alternative energy sources. He stated that currently the
cost per kW hour is 63 cents and he anticipated that the new
generator will further reduce the cost. He hoped the City of
Akiak would be able to develop an overall community energy plan.
2:48:54 PM
GENE THERRIAULT, Vice President, Golden Valley Electric
Association (GVEA), referred to a PowerPoint presentation,
titled "Alaska Legislature Presentation." He stated that GVEA
has adopted a mantra within the cooperative, "Kick Our Oil
Habit!." He related the graph "Residential Bills" illustrated
the cost from $75 per month for electricity in 2004 to a high of
$152 per month in 2008, and down to $138 per month in 2010
[slide 3]. This represents the segment of GVEA's oil-fired
generation. Golden Valley Electric Association continues to
work to move away from oil-fired generation, he said, and has
taken steps to diversify its portfolio, including the SNAP
project, which allows for small distributive generation to come
into the GVEA grid. Additionally, GVEA now offers SNAP-Plus, in
which people install smaller generators to bring in power from
renewable sources. Golden Valley Electric Association also taps
into the Bradley Lake Hydroelectric Project (Bradley Lake
hydro). The Eva Creek Wind Project is pending and ultimately
GVEA would like to avail itself of power from Mount Spurr and
the proposed Susitna Hydroelectric dam. He referred to page 3
[slides 5 and 6] which showed a map and photograph depicting the
location of Eva Creek, just north of the coal mine in Healy. A
red line depicted the Parks Highway and the Alaska Railroad,
which run alongside the highway. He pointed out that the Eva
Creek Wind Project site is about six or seven miles across the
Nenana River. Little vegetation exists in the area which
consists primarily of scrub brush.
2:52:22 PM
MR. THERRIAULT referred to page 4 of the PowerPoint [slides 7-8]
which provided flow analysis results. His company used a
previous state grant to place towers at the exact height of the
proposed turbines and the wind has been mapped over a number of
years to obtain a flow analysis in order to determine the
optimum sites to place the turbines. He pointed out that the
closer to the color red on the map indicated the better wind
regime. The goal is to capture the strongest wind regime, he
said. The historical data indicates peaks - not a steady flow
- so generation would need to augment the turbines during times
when the wind is not blowing or slacks off [slide 8].
MR. THERRIAULT referred to a photo of the location adjacent to
the Northern Intertie and project financing on page 5 [slides 9-
10]. He stated that a drilling rig indicated the site of the
proposed substation. He offered one reason GVEA focused its
attention on the Eva Creek site is because the Northern Intertie
cuts directly across the property. He commented that wind
generation is found where people do not want to live, so costs
to connect to the grid are greatly reduced. Golden Valley
Electric Association is able to bring in the project since it
has Clean Renewable Energy Bonds (CREB) and a $2 million
renewable energy grant from the state that allowed it to perform
pre-engineering work.
MR. THERRIAULT advised that page 6 outlined the cost to the
ratepayers at 2.1 percent interest, which is far below the cost
of most other projects [slides 11-12]. He reported the total
anticipated cost of the project at $90 million, which would
result in an annual debt service of approximately $6 million.
He related that the operating cost is expected to be $1.5
million, and would result in power being produced just under 10
cents per kWh, exclusive of regulation cost. He indicated that
GVEA believes it will be able to bring generation into the
system and not cause customers' rates to increase. He offered
his belief that the rate would drop by about 10 percent if the
state funds the capital appropriation. This could result in a
slight reduction in customer rates in Interior Alaska. He
pointed out some costs associated with wind energy, and that
GVEA must nominate for its power needs a day in advance for any
power from the Northern Intertie. Additionally, it must notify
a day in advance for any gas-fired generation purchased from
Southcentral Alaska. However, any power not used must still be
purchased, although these sources of power may be less expensive
than the wind power. The sources of power that typically are
cheaper for GVEA's customers come from coal plants, but if GVEA
throttles back on its coal plant it would get to a point in
which the plant must be shut down. At that point it loses its
thermal mass and takes considerable energy to bring it back
online. This illustrates some of the difficulty in bringing on
a variable, renewable wind source. However, he projected that
GVEA believes with its existing blend of generation, it will
have the capability of bringing on an additional 25-27 megawatts
(MW) of power generation. This amount makes it cost effective
to "chase that wind regime" in a manner that makes economic
sense for GVEA's ratepayers.
2:58:19 PM
MR. THERRIAULT referred to page 7 of the PowerPoint Presentation
[slides 13-14]. The information on the slides showed the blend
of power [slide 13]. He explained some terms, including that AE
refers to Aurora Energy, a coal-fired plant in downtown
Fairbanks. The maximum output is 24 MW and GVEA purchases all
the power from that plant daily. The Healy plant ranges from 18
to 28 MW and is generally run at full power. He referred to
North Pole (NP) 3&4, which is a combined heat plant with gas and
steam. The "Econ" and "Bradley Lake (BLH)" are resources
purchased over the Northern Intertie. He explained the
variables listed on the Spilled Wind chart, which illustrated
that when the demand is down, GVEA is buying all of the energy
from the coal-fired plants, and some from the NP plant as well
as 63 MW from the Intertie. In autumn, as the temperatures
drop, GVEA runs the coal-fired plants, purchases from the
Intertie and adds capacity from NP generation. During the
winter months, GVEA purchases as much coal as it can, is near
maximum output for its NP plants 3&4, and begins to use the NP 2
plant, which is liquid fuel generation that is more expensive
than generation from NP 3&4. Additionally, GVEA continues to
purchase as much as it can from the Intertie. That blend of
generation allows GVEA to throttle back on the NP 3&4 plants and
use 25 MW of wind power. The second slide on page 7 indicated
the comparison between a 25 MW wind farm and a 50 MW wind farm
[slide 14]. Using historical data, it shows how much MW power
could be incorporated on a monthly basis. He explained that
during the winter months, GVEA could incorporate all of the
wind, since liquid-fired generation could be throttled up or
down. During the summer months it generally wouldn't make
economic sense to use all of the wind generation since cheaper
sources are available. He explained the term "spilled" as a
term that comes from hydroelectric days in which a source of
energy exists, but other cheaper sources exist so the water is
"spilled" or in this case, the wind is "spilled." Thus, on an
annual basis GVEA would be spilling 1,183 MWhs of wind from a 25
MW farm, but from a 50 MW farm, would spill 20,630 MWhs. He
concluded that this illustrated that the plant is sized
correctly for the capacity GVEA could use in its existing blend
of generation.
3:02:17 PM
MR. THERRIAULT referred to the Eva Creek Wind Project handout.
He briefly reviewed some "Fast Facts." He said that GVEA
estimates the completion date for the project as the last
quarter of 2012, which means the plant could be brought into
production fairly quickly. The Eva Creek Wind Project would
produce 24-25 MW depending on the turbine generators selected.
It would consist of 12-16 wind turbines located near Healy, cost
$90 million to build, and $1.5 million annually to operate. In
addition, GVEA does not anticipate the Eva Creek Wind Project
would increase its customers' rates and actually could lower the
energy rates slightly. The Eva Creek Wind Project is located
near the Northern Intertie, so it would not cost much to bring
the additional power into the grid.
MR. THERRIAULT said the Denali Borough and the Greater Fairbanks
Chamber of Commerce have passed resolutions indicating their
support for the Eva Creek Wind Project. He pointed out a survey
of GVEA members demonstrated the change in attitude of its
members from 2000 to 2003, and motivated the GVEA's Board of
Directors to begin to study wind power. The board has asked for
final estimates by June or July, so it can make a final
decision. He mentioned that this project has been vetted by the
AEA; in fact, the project is also included in the renewable
energy appropriation request of $1.4 million. He reiterated
that AEA has vetted this project and deemed it to be worthy of
progressing.
3:05:22 PM
CO-CHAIR PRUITT referred to the $90 million total cost, noting
the $10 million capital budget request currently under
consideration. He asked whether GVEA's intent is that bonds
would cover the remaining costs, or whether GVEA will come back
to the legislature for further funding.
MR. THERRIAULT explained that the combination of past
legislative appropriations, this request for $10 million, and
the ability for the cooperative to access CREB bonds will bring
GVEA to total funding of the project. He reiterated that the
project could be brought up to production fairly rapidly, so
there would not be any need for GVEA to request additional state
funding. Even though GVEA has mapped a wind regime that could
be expanded in the future, the current power generation blend
seems ideally suited to bring on the project as it is currently
envisioned. He said circumstances would need to change before
GVEA would consider any wind turbine expansion, since it does
not make economic sense to expand beyond the scope of this
project.
3:07:14 PM
CO-CHAIR PRUITT asked whether there were other sites considered
and why the Eva Creek site was chosen.
MR. THERRIAULT explained that there were two other sources under
consideration by the board: Cook Inlet Region Inc. (CIRI) Fire
Island and Delta Wind. At that time the estimated cost for Fire
Island wind power was projected at 11 cents per kWh and the
Delta project was estimated at 14 cents per kWh. Therefore, the
Eva Creek Wind Project - at an estimated cost of 10 cents per
kWh - ended up to be the less expensive project. He pointed out
that the projects all would have the same cost of integration
for the operation costs. Because the engineers at GVEA were
able to "levelize" the cost of generation, the board decided to
move forward with the lowest cost project.
CO-CHAIR PRUITT commented that the committees received a list of
several projects identified as priorities of the Alaska Railbelt
Cooperative Transmission & Electric Company (ARCTEC), but this
project was not included.
3:09:48 Pm
MR. THERRIAULT offered his understanding that ARCTEC projects
are primarily comprised of distribution projects, and although
GVEA is very supportive of the project, it decided not to push
for inclusion on ARCTEC'S list. He offered his belief that
GVEA's project does not run counter to anything ARCTEC has
suggested. He clarified that the cost comparison given at GVEA's
February meeting for the cost of power generated from the Eva
Creek Wind Project was without any of the additional state
monies that have been requested. Thus, the Eva Creek Project
represented the project with the lowest cost even without the
state's capital budget request currently before the committee.
CO-CHAIR PRUITT questioned whether any connection transmission
costs are included.
MR. THERRIAULT answered the proposed costs include transmission
costs.
3:11:35 PM
CO-CHAIR SEATON referred to page 4 of the PowerPoint
presentation. He asked whether the project would be able to tap
the total 8.54 MW.
MR. THERRIAULT acknowledged that 8-9 MW represents an average
based on the annual energy produced, which also takes into
consideration wind fluctuations. He stated that GVEA can
accommodate 25 MW, but can also "ramp down" for lower levels.
CO-CHAIR SEATON questioned whether this would be generated power
and not power available from wind. He clarified that this
relates to wind generated and not energy to be tapped.
MR. THERRIAULT agreed the estimate related solely to generation
from the wind turbines. In further response to Co-Chair Seaton,
he answered that the integrated costs for the Eva Creek Wind
Project would be right around 4 cents per kWh.
CO-CHAIR SEATON referred to the Ormat Technologies Project, Inc.
(Ormat) project which he identified as a renewable power
project. He related his understanding that the project has not
moved forward due to a lack of a power sales agreement. He
recalled the estimate was based on 12-13 cents per kWh, but it
may drop to 10 cents per kWh with state involvement. He pointed
out that the proposed Ormat project cost is estimated at 10
cents per kWh without any integration, and would generate 50 MW
of constant power. He asked for the reason that GVEA would opt
for a wind source that requires integration instead of
purchasing commercially available power. He further asked for
clarification on any discussions.
3:15:47 PM
MR. THERRIAULT understood that Ormat is trying to prove-up its
geothermal resource. He said that GVEA is certainly interested
in any source of non-oil-fired generation that would allow it to
move away from oil. However, with respect to power generation
in Southcentral Alaska, GVEA would need to be certain it would
make economic sense and other sources of less expensive power
were not available. He offered his belief that Ormat could beat
oil-fired power costs, but he was unsure whether it could beat
existing coal-fired power, or the Eva Creek wind-generated power
costs after factoring in seven percent line-loss from
Southcentral to the Interior. He assured Co-Chair Seaton that
GVEA would research the numbers to determine if it makes
economic sense for a future power generation blend.
3:17:08 PM
REPRESENTATIVE SADDLER asked for the general prevailing cost per
kWhs from North Pole and Aurora power.
MR. THERRIAULT estimated that it would be 20-21 cents per kWh.
3:17:32 PM
MIKE WRIGHT, Vice President, Transmission and Distribution,
Golden Valley Electric Association (GVEA), added that the cost
for oil-fired generation from the North Pole Expansion Plant is
about 16 cents, and for the older oil-fired generation, the cost
ranges from 20-21 cents per kWh. He recalled that for Aurora -
a coal-fired plant - costs run approximately 5 cents per kWh.
Additionally, some smaller oil-fired generation reaches into the
30 cents per kWh range, so it is used sparingly, he said.
REPRESENTATIVE SADDLER surmised that the Eva Creek Wind Project
would be a cost advantage. He asked whether the $10 million
requested for this project is critical to obtaining the CREB
monies or if GVEA would buy-down the amount of bonds necessary.
MR. THERRIAULT answered that the capital budget request would
lower the amount that GVEA would need to borrow.
REPRESENTATIVE SADDLER asked how GVEA would use the $10 million
requested.
MR. THERRIAULT explained that GVEA will use the funds for
infrastructure, noting that a substation will be needed to get
the power into the grid. The drill rig shown in one of the
photos has been used for geotechnical work to identify the
location of the proposed substation. He identified that some
additional work is needed on the road leading to the site. He
said he anticipated the $10 million would cover the supporting
infrastructure for the plant, though not necessarily the
turbines themselves. The $1.4 million that was part of the
Renewable Energy Fund grant will be used to support the turbine
purchase. In further response to Representative Saddler, he
indicated that the board presented the request to the
legislature. He said the capital budget request was based on
the legislature's support for wind power, and on the size of the
proposed Eva Creek Wind Project.
3:20:31 PM
REPRESENTATIVE TUCK referred to GVEA's daily purchase of power
generation, and asked what occurs if GVEA under-forecasts its
needs.
MR. THERRIAULT answered that GVEA would need to make up the
power with its generation in the Interior. He related that
GVEA's goal is to obtain as much power from the Northern
Intertie that it can, noting that power varies from day-to-day
and month-to-month.
REPRESENTATIVE TUCK asked whether this project would still be
financially feasible if the state offered a low-interest loan,
or if the $10 million block grant is required in order to move
forward.
MR. THERRIAULT responded that the project would still be
feasible without the state funding, although GVEA is attempting
to reduce costs for its ratepayers, he said. He related that
the CREB bonds are 2.1 percent interest bonds, so the interest
rate on a loan from the state would need to come in below that.
3:22:25 PM
CO-CHAIR FEIGE asked what the plan is for replacing the wind
turbines, and how that is figured into the project cost.
MR. WRIGHT relayed that the projected life of the turbines is 20
years. At that time, the turbines would be evaluated for
replacement. He clarified that the $90 million project cost is
to finance the total cost at 2.1 percent over the 20-year life.
He reiterated the life of the wind farm itself is estimated at
20 years.
3:23:41 PM
CO-CHAIR FEIGE asked how horizontal access windmills avoid
uneven icing on the blades, and whether there are other designs
less prone to icing.
MR. WRIGHT explained when studies were first done in 2003-2005,
GVEA considered the Murphy Dome location near Fairbanks.
However, that area had a severe icing problem. Although very
little icing has occurred during the wind study at Eva Creek
near Healy, the turbines would shut down during heavy icing.
Furthermore, a lot of research is underway regarding deicing
methodologies, he said. He acknowledged that icing could cause
the turbines to be shut down.
REPRESENTATIVE TUCK related that AEA procedures to administer
grants are incremental in order to make sure that the projects
meet certain criteria as they advance. According to the
PowerPoint presentation, $2 million has been granted to the Eva
Creek Wind Project. He inquired as to whether this project has
met all the requirements required by AEA up to this point.
3:27:43 PM
PETER CRIMP, Deputy Director, Alternative Energy & Energy
Efficiency, AEA, stated the Eva Creek Wind Project has done
quite well. The project has been reviewed by AEA, and AEA
recommends full funding following GVEA's board's decision to
proceed. At this point, AEA is prepared to fund turbine
procurement, which reflects a project that has been moving along
smoothly.
REPRESENTATIVE TUCK asked whether AEA would ordinarily make its
own recommendation on a project such as this.
3:29:29 PM
MS. FISHER-GOAD clarified that when Mr. Crimp said AEA
recommended full funding, the approval was based on a request
for the project through the Renewable Energy Fund "under the cap
program." She said this project is considered a viable project
and the project proponent has simply been seeking sources of
funding. She related that because of the cap, AEA would not be
able to recommend a $10 million funding request. However, this
capital budget request is an avenue for project proponents to
seek other funding for their projects.
REPRESENTATIVE TUCK inquired as to whether she could outline the
conditions in which AEA would want to move a project forward
that is not in CAPSIS.
MS. FISHER-GOAD advised that through the Renewable Energy Grant
program, AEA has compiled a list of potential projects that
could be constructed regardless of funding. A project like this
could move into a Renewable Energy Fund process if AEA solicited
specific projects for funding from a pool of several hundred
million dollars. The Renewable Energy Fund has statutory
limitations, plus "regional spreading" so AEA placed "caps" on
projects. She recalled stating earlier that AEA would like a
broader solicitation for larger projects in Round V of the
Renewable Energy Fund process. She offered her belief that the
Eva Creek Wind Project is a viable project. She predicted that
if the legislature appropriates this grant, AEA will manage the
project according to the AEA processes previously mentioned.
She clarified that the Eva Creek Wind Project was not denied via
the Renewable Energy Fund, but it did not fit into the
application criteria. She remarked that for several of these
projects, the requests are for greater dollars than are
typically issued for that program.
REPRESENTATIVE TUCK then understood that $2 million is the most
that the project could have received via the Renewable Energy
Fund process. He apologized as he thought she was referring to
the CAPSIS system, not a cap on the amount of funding through
the Renewable Energy Fund.
REPRESENTATIVE FOSTER introduced presenters of the Homer Area
Natural Gas Pipeline.
3:33:40 PM
WALT WREDE, City Manager, City of Homer, stated that Homer is
located within the ENSTAR Natural Gas Company (ENSTAR) service
area and is close to productive wells. Wells drilled on the
North Fork Road less than 20 miles from Homer have gone into
production, and the gas is flowing to Anchor Point and north to
Ninilchik. Homer has literally been attempting to get natural
gas service for decades; however, the Homer area is spread out
and populations have not been large enough to warrant
transporting gas to Homer. He opined the City of Homer believes
this project, the Homer Area Natural Gas Pipeline, would be a
huge benefit to the community and to the state.
MR. WREDE related that Phase I of Homer Area Natural Gas
Pipeline was approved by the legislature last year and Phase I
construction is now complete. The project was initially
envisioned as a smaller project which has since grown.
Legislative intent language was attached to the capital budget
asking the City of Homer to make provisions for the gas pipeline
to extend beyond Homer - to the east into Kachemak City.
Additionally, the pipeline route has changed from the original
plan, and has been extended seven to eight miles to serve the
neighboring community, which has also increased the overall
project cost. The completed Phase I project was construction of
3,200 feet of pipeline and cost $525,000, which included a
pressure reducing station in Anchor Point. The pressure
reducing station was necessary in order to handle highly
pressurized gas from the oil fields.
MR. WREDE continued to explain that the capital budget request
now before the legislature would be to fund Phase II of this
project. Phase II would bring the natural gas line from Anchor
Point through the Homer city limits and on to Kachemak City. He
emphasized the request is for the state to fund the main
transmission line to transport the natural gas to Homer. He
said, "After that, local residents will take it from there." In
response to an earlier question, he indicated the project was
listed in the AEA programs. The City of Homer will be providing
more than 50 percent matching funds if the total cost of the
project is considered. He reiterated this $10,053,000 request
would fund the large transmission line that would bring the
natural gas to Homer; however, ENSTAR estimated that at least
110 miles of 2-inch main line will have to be constructed for
each street within the Homer city limits at an additional cost
of approximately $10 million. Construction cost for these main
lines will be paid for from local sources, he said. He added
that a number of residences between Anchor Point and Homer would
also need to pay for their distribution systems.
3:37:55 PM
MR. WREDE said despite the project's title, it is actually a
regional project because it will benefit the entire southern
Kenai Peninsula. The Homer Area Natural Gas Pipeline is ranked
number two on both the City of Homer and the Kenai Peninsula
Borough's (KPB) capital improvements list. The only reason the
project is not the number one priority was due to mandates that
ranked the Department of Environmental Conservation (DEC)
projects higher. Additionally, the Kenai Peninsula School
District, the Kenai Peninsula Borough Economic Development
District, Inc., Kachemak City, the South Peninsula Hospital, the
Chamber of Commerce, and the Board of Realtors have all
expressed support for project.
MR. WREDE referred to potential savings listed in the "City of
Homer State Legislative Request - FY 2012, Homer Area Natural
Gas Pipeline." He pointed out a comparison of the monthly costs
for an average household using natural gas, number one fuel oil,
propane, and electricity. He called attention to a document
titled "Summary Comparison of Natural Gas and Fuel Oil Costs in
Homer Area Public Facilities" which indicated the Kenai
Peninsula School District would save $367,000 per year by
converting to natural gas. Additionally, the City of Homer
would save $105,000 per year, and the total savings for the cost
of heating public buildings after converting to natural gas,
would be well over $1 million per year. He noted that many of
the buildings on the chart are state buildings so the project
could provide significant savings to the state.
3:40:50 PM
MR. WREDE reiterated the capital budget request of approximately
$10 million would be to construct a natural gas pipeline to the
City of Homer, and the remaining costs for constructing main
lines to serve businesses and residences would be funded
entirely from local sources. He related that the Homer City
Council has assigned a task force to determine ways to finance
the local costs, and will consider local improvement districts
or special service areas funded by property taxes.
Additionally, ENSTAR has a process to finance these types of
projects through the RCA. He estimated that the build-out time
would be 10 years, but he anticipated a considerably shorter
timeframe to service the core area of Homer. He referred
members to a large map in members' packets titled "Public
Facilities Within Homer City Limits to Benefit from the Homer
Area Natural Gas Pipeline." Numbers on the map identified
public facilities, which are the facilities most likely to
initially convert to natural gas. In fact, the City Hall will
convert to natural gas during a remodel, and the City of Homer
will quickly convert many of its other facilities to natural
gas, including the police station and fire hall. He
acknowledged that main lines would need to be constructed in
order to connect these facilities but he envisioned the "domino"
effect the natural gas line could have in neighborhoods. He
reiterated that the downtown core would be hooked up to natural
gas very quickly.
3:42:55 PM
REPRESENTATIVE FOSTER recognized Senator Huggins.
REPRESENTATIVE TUCK asked whether the entire Homer natural gas
project would include distribution lines into homes and
facilities. He asked for the total cost of the project.
MR. WREDE responded that the total cost would be over $20
million for City of Homer to install the main lines.
REPRESENTATIVE TUCK expressed interest in the project scope and
offered his belief that the transmission lines could be a "stand
alone project" and if so, the project would be 100 percent
state-funded.
MR. WREDE agreed the transmission lines could be a "stand-alone
project." According to ENSTAR the project could be completed
within a year, he stated. He said he did not have an exact
timetable for the build-out since the City Council has not yet
settled on a financing mechanism. However, he anticipated the
downtown core would be completed within five years.
REPRESENTATIVE TUCK asked who would own the project.
MR. WREDE answered ENSTAR would own the project. He said the
City of Homer "is not getting into the gas utility business."
REPRESENTATIVE TUCK asked why ENSTAR is not promoting the
project.
MR. WREDE answered that he was uncertain. He suggested that
ENSTAR may have felt it would be better to be neutral on the
project.
REPRESENTATIVE TUCK asked what would happen if once the natural
gas line is completed, the City of Homer could not get its main
distribution lines completed.
MR. WREDE said, "That's hard to imagine."
3:46:23 PM
REPRESENTATIVE TUCK assumed that the customers would pay for the
main distribution lines.
MR. WREDE answered it is likely that the customers would pay one
way or another, unless the Homer City Council fronts money to
make it happen more quickly. He reported that Kachemak City's
city council has already voted to raise the mill rate in order
to construct the natural gas main lines. However, the Homer
City Council has not yet made that decision. In further
response to Representative Tuck, he offered his belief that
Homer would likely obtain the up-front money. However, the
funding is not guaranteed since the Homer City Council has not
yet taken any action. In the event the Homer City Council
decided not to finance the remaining project costs via a local
improvement district, raising the mill rate, or selling bonds,
then consumers would use the existing process through RCA
sanctions to fund the distribution lines. He reiterated his
belief distribution mains would be constructed right away given
that institutions in downtown Homer are clustered in close
proximity to one another. He thought it would be very
beneficial for neighborhoods to "just jump right in there."
REPRESENTATIVE TUCK commented that he hoped Homer residents
would be able to get natural gas to their homes.
3:47:39 PM
CO-CHAIR FEIGE said he has been grappling with how the state
would obtain a return on its $10 million investment for this
project. He assumed that if gas prices stayed reasonable, the
annual savings would be about $50,000 on a 20-year rate of
return. He inquired as to whether ENSTAR should build the
natural gas line and add it into the ratepayers' costs. He
reiterated his question on why the state would invest in this
project.
MR. WREDE related that the project is consistent with the
state's energy plan. The energy plan identifies the state's
goal to reduce costs to consumers and to seek a reliable energy
source. This project has also been consistent with the City of
Homer's climate action plan to reduce carbon dioxide (CO2)
emissions. He indentified natural gas as a cleaner-burning
fuel. While there may not be an immediate return to the state,
it would still be in the state's best interest. He was not sure
he could adequately answer why ENSTAR does not just construct
the natural gas line and pass through the cost to its
ratepayers. He recalled that previously the project was not
viable due to the small population in Homer and the lengthy
payback period on the costs. It has been frustrating to
residents due to the proximity of natural gas. He related that
people really want gas, yet the natural gas line has not been
built. That's why the City of Homer has requested state
assistance to "just get the gas to Homer" and the local
residents will do the rest.
3:50:05 PM
CO-CHAIR FEIGE related that the Cook Inlet gas supply is
diminishing. He cautioned building this project would place
additional demand on the gas supply. He asked whether Homer
would allow gas drilling within its city limits in order to
increase the natural gas supply.
MR. WREDE answered no oil and gas leases applications fall
within the city limits. In further response to Co-Chair Feige,
he responded that drilling has not currently been restricted,
but he was not aware of anyone who has applied for a lease.
CO-CHAIR FEIGE surmised it would potentially provide a way for
the state to recover its investment in the natural gas line.
MR. WREDE recognized Cook Inlet diminishing gas supplies were of
concern during the last legislative session. He recalled the
legislature discussed rolling blackouts due to natural gas
shortages. He suggested that the situation has changed a little
bit since the legislature approved additional incentives for
drilling in Cook Inlet. He said it looks "like that is starting
to bear fruit. We're starting to see some jack-up rigs move ...
in. In fact, we're going to be hosting one of them at a dock in
Homer." He indicated that new wells have been drilled on the
North Fork Road and other companies are drilling. Furthermore,
the legislature approved a storage facility in Kenai which will
also help during "those tough times." He pointed out that
ENSTAR has signed some new contracts for natural gas. He
remarked that Homer is heartened to see $200 million is in the
state's capital budget for the bullet line. He did not think
Homer considers this to be a short-term solution. He emphasized
Homer wants to be connected to the distribution grid, so when
more gas is discovered or a bullet line is built that Homer will
be part of the system.
3:52:47 PM
REPRESENTATIVE SADDLER asked for the amount of the reserves at
the Anchor Point producing wells. He expressed the same concern
about the supply of Cook Inlet natural gas. He requested
information on the geological estimate on the amount of
available gas in this area and North Fork Road.
MR. WREDE agreed to provide that information to the committee.
REPRESENTATIVE SADDLER recalled $20 million in costs were
mentioned for this project. He asked what other costs would be
involved in order to hook up to the natural gas.
MR. WREDE restated that the $10 million in costs would only
cover mainlines in the streets. He stated that some customers
would need to convert from oil, propane, or electric, as well as
the cost associated with installation of the service line to the
house. He estimated that the cost would be substantially more.
3:54:27 PM
BILL SMITH, Member, Kenai Peninsula Borough Assembly, stated
that there are 3,462 residential units, 280 commercial units,
and 33 public facilities that would benefit from natural gas.
He estimated that bringing service lines from the main street to
the buildings, supplying them with a meter, and installing gas
pipes and conversions would cost roughly $13 million. He
offered to provide more details.
3:55:05 PM
REPRESENTATIVE SADDLER related his understanding that Homer is
Alaska's only Nuclear Free Zone. He inquired as to whether
there is any active organized resistance against using fossil
fuel in Homer.
MR. WREDE has sensed strong support for natural gas in Homer.
He opined that there will always be some individuals who are
opposed to development.
3:55:49 PM
REPRESENTATIVE PETERSEN recalled that Armstrong Cook Inlet, LCC
(Armstrong) has been drilling in the Anchor Point area and
projected production of four to five times over the Homer area
residents' needs. Therefore he offered his belief that this
project would not likely cause any immediate shortage in natural
gas.
3:56:34 PM
REPRESENTATIVE GARDNER observed that the state will fund the
full cost of the major part of the pipeline, yet the line would
be owned by ENSTAR and regulated by the RCA. She asked whether
the tariff would be reduced since the state "put up the money."
MR. WREDE answered that ENSTAR cannot benefit directly from a
state legislative grant, thus consumers would benefit, if anyone
benefits from the project.
CO-CHAIR PRUITT asked how a typical consumer would benefit from
this project.
MR. SMITH said that a typical home using 1,200 gallons of fuel
oil for heating and hot water would save 70 percent of the
energy costs, which would be about $3,300 per year. The average
cost for a residential conversion for a service line, a meter,
and gas piping would be about $3,700 per household. Therefore,
the customer would almost break even during the first year of
converting to natural gas, he said.
CO-CHAIR SEATON pointed out that ENSTAR - which is the sole
regulated utility for the Matanuska-Susitna, Anchorage, Kenai,
and Homer areas - estimated that adding service to the Homer
area would have an insignificant effect on the availability of
gas for the entire service area. In addition, he noted that the
estimated monthly charge of $120 for natural gas represents $279
in monthly residential savings. Co-Chair Seaton acknowledged
that ENSTAR is a private company; however, the RCA granted it a
certificate of public convenience and necessity, thus ENSTAR
will be operating and owning the system as a regulated utility.
Last year's grant for this project was a grant to municipalities
through DCCED, which is appropriate, and he expressed his hope
that the grant would continue as it did in the past.
4:03:17 PM
MR. SMITH offered to answer some questions raised earlier. In
his discussions with Kevin Banks, Director, Division of Oil and
Gas (DOG), Department of Natural Resources (DNR), he learned
that the state does not own many subsurface rights in the Homer
area because much of the area was homesteaded prior to statehood
and the subsurface rights are split up among individuals. Mr.
Banks indicated a syncline may be under the Homer Spit, although
it is more likely to exist in the Diamond Creek area. Three of
the City Council members have expressed a willingness to support
a resolution for drilling for natural gas, but not with
hydraulic fracking or coalbed methane. He noted that Homer is a
small geographic area with few possibilities for oil and gas
wells. He pointed out that ENSTAR has approximately 130,000
customers and this extension would add about 3,500 customers,
which is not a significant increase to ENSTAR's customer base.
He suggested that if Homer were restricted from being added to
the customer base, it would also be fair to not hook-up anyone
else.
MR. SMITH referred to an earlier summary and reported switching
from fuel oil to natural gas would save over 433,000 gallons of
fuel oil annually just to convert the public facilities. The
Homer Chamber of Commerce and Board of Realtors strongly support
this project as they view this as fostering economic development
and business opportunities for the area. He referred to
language in the energy bill which indicated the state's goal is
to create the most cost effective long-term source of energy.
He could not think of anything that fits better with this goal
than the natural gas line to the City of Homer. He concluded by
saying this project is in the state's interest as well as in
local interest.
REPRESENTATIVE TUCK agreed that this project is economic
development and he recognized the importance of reducing energy
costs to all areas of Alaska. He inquired as to who would
oversee the procurement and how the contracting would be
performed.
4:06:48 PM
MR. WREDE reiterated that Phase I funding was a state grant to
the municipality passed through to ENSTAR. The City of Homer
had a separate contract with ENSTAR that required it to follow
any provisions of the state grant agreement. ENSTAR is treated
like a contractor and the city reviews the work.
REPRESENTATIVE TUCK then asked for clarification on the type of
bid for the transmission line and whether it was an open bid,
design-build bid, or a time and materials bid.
MR. WREDE surmised that ENSTAR would proceed with Phase II in a
manner similar to Phase I. He recalled that the City of Homer
did not let a request for proposal (RFP). ENSTAR went through
its normal process conducting a substantial part of the work in-
house, but contracting out the rest.
4:08:28 PM
CO-CHAIR FOSTER announced that the committee would next take up
the Homer Electric Association - Soldotna to Nikiski
transmission upgrade.
4:08:43 PM
BRAD JANORSCHKE, General Manager, Homer Electric Association,
Inc. (HEA), explained that the project is a $25 million project
to upgrade the existing 69 kilovolt (kV) transmission line
between Nikiski and Soldotna. For background, he explained that
HEA has implemented its own power supply plan as its current
wholesale agreement expires in 2013. Part of that plan includes
significant investments in transmission and generation, adjacent
to and on, the section of transmission line upgraded by the
proposed project. The power supply plan aligns with the
Railbelt Integrated Resource Plan (RIRP). Mr. Janorschke
described other power supply projects undertaken by HEA; in
fact, one of the projects utilizes waste heat that was
previously sold to the Agrium, Inc. fertilizer plant, but that
will now increase power output by about 45 percent. Other
projects were to upgrade substations and rebuild transmission
lines for a total investment by HEA of almost $200 million. He
pointed out that the utilities from Homer to Fairbanks are
connected, thus difficulties and improvements affect each one.
MR. JANORSCHKE said that this project does fall within the RIRP,
including the expectation that the current transmission grid
will encompass new generation resources and the growth of
renewable energy such as geothermal or wind energy.
Additionally, HEA has signed a memorandum of understanding (MOU)
with a tidal firm from Maine in an attempt to develop tidal
power near Nikiski. He referred to letters of support in
members' packets including community support from the City of
Soldotna, City of Kenai, Tesoro Alaska Company, and Chevron.
4:13:01 PM
ROBERT DAY, Manager, Power Production, Homer Electric
Association, stated he is a professional engineer and has spent
his career spanning 34 years in Alaska, building and operating
electrical systems throughout the Railbelt. He related that he
has toured various facilities across the state, including
Snettisham Hydroelectric dam and the Red Dog Mine. He
acknowledged the many challenges residents of the state face.
He pointed out that the electrical system in the Railbelt is
interconnected and interdependent - what happens in the north
affects the south, and vice-versa. He said he manages the
Bradley Lake Hydroelectric (Bradley Lake hydro) installation on
a day-to-day basis, and its construction was an example of state
funding making a project possible. The utilities operate
Bradley Lake hydro, and it benefits a huge number of Railbelt
consumers, although it was considered a controversial project at
the time it was built. Today, it quite likely produces the
lowest cost power at about 4.2 cents per kWh. Bradley Lake
hydro is a source of clean, renewable energy with a low
environment impact that supports the economy and quality of life
for Alaskans.
MR. DAY related that getting the power from Bradley Lake hydro
and off the Kenai Peninsula to the northern utilities requires a
robust transmission line. During a possible gas curtailment in
Anchorage, or further north, Bradley Lake hydro is called upon
to fill the gap. Furthermore, connecting the grid makes the
system operate as one - sharing resources - instead of as a
collection of tiny systems. He observed that the state has
stepped in over many years to fund transmission projects such as
the Northern Intertie, the Anchorage-Fairbanks Intertie, the
Lake Lorraine upgrade, and the Eklutna line transmission
upgrade, all of which are helping to build a robust transmission
line from Seward and Seldovia to Fairbanks and Big Delta.
However, only one transmission line brings power from the Kenai
Peninsula to Anchorage. Mr. Day advised that 88 percent of
Bradley Lake hydro power heads north on one transmission line,
while 12 percent goes to HEA, and cautioned that the
transmission line is seriously degraded when generation at
Nikiski or Bernice Lake is out of service or not available.
4:17:26 PM
MR. DAY noted that HEA owns a generation plant at Nikiski and
CEA has a generation plant at Bernice Lake, both of which depend
on the existing transmission line. The proposed project would
take the existing sub-transmission line and upgrade the voltage,
install a larger conductor, and establish a loop, or two lines,
out of the Bernice Lake/Nikiski area. As a result, the
generating plants will provide the inertia that enables the
transfer of power from Bradley Lake hydro to Anchorage. Mr. Day
further explained that without this inertia, the transfer ratio
is lower by almost a third. Furthermore, if the project to
divert Battle Creek into Bradley Lake moves forward, the energy
output from Bradley Lake hydro will be increased, but the power
will be stranded on the Kenai Peninsula. He predicted that the
two paths connecting this critical generation will allow
dispatchers to fully maximize the transfer and use of the
Bradley Lake hydropower.
MR. DAY advised that power from Bradley Lake hydro reduces gas
demand and use, helps to integrate other renewable energy,
reduces cost, and is an important alternative energy source
during emergencies and gas curtailments. He pointed out that
hydro power is basically clean. Further, this project supports
the Bradley Lake hydro transfer by ensuring the availability of
high inertia units in the Nikiski/Bernice Lake area. Mr. Day
noted the late U.S. Senator Ted Stevens often remarked that
Alaska is a young state with small populations, separated by
very large distances. He concluded that under these
circumstances, help is required from governmental agencies to
build the necessary infrastructure to support Alaska's economy
and ensure its future.
4:19:59 PM
REPRESENTATIVE PETERSEN asked whether any savings of power would
result by upgrading the transmission lines.
MR. DAY answered yes; although, he clarified the amount is still
up for debate as to whether it would be significant. The real
problem comes from an absence of a robust line, which means that
in the case of a failure, massive transfers are not possible.
He acknowledged that this particular project will not solve
everything, but it represents "a piece of the pie." He restated
the proposed project's inclusion in the RIRP as one of the
important components to ensure that the state has a robust
transmission line able to efficiently move blocks of power.
CO-CHAIR PRUITT asked for clarification, noting several projects
were ARCTEC priorities. He stated this project was not on the
list that the committee received.
MR. JANORSCHKE answered that HEA is an active participant in
ARCTEC and he is a vice chair on the ARCTEC's board. When
ARCTEC compiled its list, this project came in late and HEA was
making an effort to limit its capital project requests. At the
time none of the utilities disagreed on this project and they
recognized the merits of the project. He offered his belief
that it wasn't realistic to expect other utilities to remove a
project from their region to make way for this one.
REPRESENTATIVE SADDLER asked whether this project would replace
an existing line or double the transmission line.
MR. DAY answered that the existing transmission line is much
smaller and lower voltage. It would be dangerous to run another
line parallel to it since a problem could cause the smaller line
to melt. The upgrade would replace the existing line using the
current path.
4:24:06 PM
REPRESENTATIVE SADDLER asked whether the $25 million would cover
the entire cost of the transmission line upgrade.
MR. JANORSCHKE responded the $25 million represents the entire
upgrade. The transmission line would be augmented by the $200
million that HEA is committed to put into the project, as well
as the transmission upgrade completed last year on this project.
also included is removal of the old transmission line.
REPRESENTATIVE SADDLER understood the reliability, redundancy,
and safety benefits. He inquired as to whether customers would
receive any reduction in per unit costs.
MR. JANORSCHKE indicated "it would depend." Several areas of
the system there have been upgraded over recent years; in fact,
HEA built a transmission distribution substation in Homer which
allows them to shut down a substation for maintenance that had
not been shut down for 20 years. He noted that if for any
reason the existing 115 kV is out, then the 4.2 cent Bradley
Lake hydropower wouldn't flow north due to the transfer limits
of 75 MW down to 29 MW.
4:26:13 PM
REPRESENTATIVE TUCK heard that nationwide there have been
increases in power generation and consumption, but the
transmission line infrastructure is lacking. He appreciated
this project being brought forward to help ensure that Alaska
has sufficient capacity and redundancy. He then asked whether
the structures that support the existing 69 kV transmission line
will be replaced.
MR. JANORSCHKE answered that most of the poles will need to be
replaced since the larger connectors will be heavier.
CO-CHAIR FEIGE asked whether sufficient Alaskan contractors are
available to do the work.
MR. JANORSCHKE relayed that several contractors and most of the
Railbelt utilities could complete such a project. In further
response to Co-Chair Feige, he said HEA has sufficient employees
and equipment to build the transmission line, and it already
replaced one segment last year.
MR. DAY, in response to Co-Chair Feige, said that typically work
of this size is done under contract since it ties up the crews
for a long period of time. He cautioned that if HEA replaces
the line, and an issue arises - such as a storm - its crew may
not be available. Determining whether to contract or do the
work in-house is a "balancing act." He said it generally
depends on a lot of factors, but it likely would take a whole
year to complete this transmission line.
CO-CHAIR FEIGE asked what percentage of available contractors
would be necessary to complete this project.
MR. DAY relayed that there are at least 10 qualified electrical
contractors in the state who could complete a job of this size.
4:30:12 PM
CO-CHAIR FOSTER announced that the committee would next consider
the Mount Spurr Geothermal Project Development.
4:30:26 PM
PAUL THOMSEN, Director, Policy and Business Development, Ormat
Technologies, Inc. (Ormat), called attention to a PowerPoint
presentation in members' packets titled, "Mount Spurr Geothermal
Project," containing answers to the committees' previously
submitted questions. He related that Ormat is a publicly
traded company and provided a disclaimer for "forward-looking
statements." He stated that Ormat is a leader in geothermal
power, and operates 553 MW worldwide [slide 4]. Ormat has
supplied over 1,300 MW in 24 countries, as well as being
vertically integrated. Ormat explores, develops, engineers,
manufactures and constructs projects throughout the world and
the U.S. Additionally, Ormat employs approximately 500 people
in the U.S. and 1,100 worldwide, and is publicly traded on the
New York Stock Exchange under "ORA."
MR. THOMSEN relayed that slide 6 illustrated Ormat's commitment
to Alaska. Ormat initially got its start by providing 100
remote power units along the Trans-Alaska Pipeline System (TAPS)
in 1975. Following that, Ormat had a demonstration project in
1979 with the University of Alaska Fairbanks, and to date has
invested $5 million in the Mount Spurr project. In general,
geothermal energy has key attributes, such as base-load
generation, it is cost-competitive, is highly reliable with
approximately 95 percent availability, and is a proven
technology with over 11,000 MW deployed worldwide [slide 7].
Geothermal power from Mount Spurr would carry no fuel cost risk,
would provide fixed, long-term pricing to the Railbelt and
utilities that use it, is sustainable, and environmentally
friendly. He further explained that Ormat uses a closed-loop
system which reinjects the geothermal fluid, thus does not
consume water - since the facility is air-cooled - and has
minimal surface impact. A development of this kind also creates
long-term high-quality jobs. Geothermal development inhibitors
include scarce resources in an isolated location, and that a
high upfront capital expenditure (CAPEX) is necessary to develop
a resource with a baseload or 24-hour delivery characteristics
[slide 8].
MR. THOMSEN continued to explain that worldwide geothermal
development today has excelled in places that have established
incentives for the development of geothermal energy [slide 9].
He pointed out that Ormat worked with the legislature last year
to consider the royalty structure to enhance geothermal
development.
4:34:27 PM
MR. THOMSENH identified the proposed project site as located 75
miles west of Anchorage and about 40 miles from the Beluga Power
Plant [slide 10]. At this time, Ormat has leased 36,000 acres
of state lands from DNR in October 2008 [slides 11 and 12].
Non-intrusive exploration began in the summers of 2009 and 2010,
and two exploration core holes were drilled in September 2010.
He reported that all of the necessary permits were obtained from
DNR, the Alaska Oil and Gas Conservation Commission (AOGCC), the
Alaska Department of Environmental Conservation (DEC), and the
Alaska Department of Fish & Game (ADF&G). Turning to funding
sources, he said the land position was won with a competitive
bid bonus payment of $3.5 million from Ormat Technologies, and
$90,000 is paid annually in rent for those leases. The non-
intrusive exploration cost of $2.5 million was paid for by Ormat
and $2 million from AEA in Round III grant funding. He pointed
out this represents a little over 100 percent matching funds for
the AEA contribution.
MR. THOMSEN stated that this summer, geologists will drill core
holes up to 4,000 feet deep [slide 14]. The next step will be
to drill at least three full-size resource confirmation wells
during 2012-2013, to provide third-party confirmation of a
viable resource, or to prove it is not viable. This is
necessary prior to bringing the project forward for additional
financing. Mount Spurr Geothermal project capacity is estimated
at 50-100 MW net, and the target is to have 50 MW online by
2016. Mr. Thomsen said his company views this project as a
near-term solution that could bridge the gap to longer-term
mega-solutions, such as the proposed Susitna/Watana
hydroelectric dam, and the proposed natural gas pipeline. At a
95 percent availability factor, the Mount Spurr project would
produce about 416 gigawatt hours per year (GWh) at 50 MW, and
would produce 832 GWh per year at 100 MW.
4:37:09 PM
MR. THOMSEN estimated the cost of power at approximately 12
cents per kWh if the project receives the appropriation from the
state. He pointed out that the cost is a fixed price because it
is not coupled with fossil fuels. Further, geothermal energy
provides a baseload "24/7" resource, thus utilities would not
incur any integration costs. He stated that the price is higher
than current avoided costs which are 5-10 cents per kWh;
however, the cost would be comparable to other alternatives, and
the Railbelt utilities' avoided costs are likely to increase in
the future.
MR. THOMSEN explained that the funding request is for a direct
appropriation of $18 million coupled with an AEA Round IV grant
of $2 million [slide 17]. He indicated that Ormat would invest
$5 million for a total of $25 million. This funding would allow
Ormat to move to the resource confirmation phase, despite not
having a power purchase agreement with a local utility. He
emphasized that this project is considered a high risk
development, and the state's investment would allow Ormat to
expedite the development of the project while it continues to
work during interim sessions to lock in a long-term power
purchase agreement. The scope of work would be to build an ice
road to the site and drill up to three full-size production
wells, including a flow test. The state's funding of this work
would begin the period of the construction of this facility "in
the eyes of the U.S. Treasury."
MR. THOMSEN identified reasons the funding is required:
Railbelt utilities are not yet willing to sign a power purchase
agreement; current funding for this project from Ormat will be
exhausted by the end of 2011. This appropriation, together with
the AEA Round IV grant, would allow the project to move forward
towards resource confirmation. He cautioned that without this
appropriation the project most likely will not be able to move
forward until a later date when Ormat secures a power purchase
agreement. He stressed that Ormat would like to keep the
timeline to bring the project online by 2016.
MR. THOMSEN reviewed future funding for the project [slide 19].
He stated that once the high risk resource confirmation is
completed, Ormat would be willing to spend $220 million to $270
million to develop the process. He offered his belief Ormat
would use equity or debt financing at that time and he did not
anticipate any additional state funding would be required.
4:40:30 PM
MR. THOMSEN indicated that if Ormat were to pursue this project
with a long-term power purchase agreement it would expect to
request additional funding for a transmission line and
infrastructure. He estimated those costs are estimated at
approximately $65 million.
MR. THOMSEN discussed an overview of the total estimated funding
for the geothermal project [slide 20]. He related that in 2008,
Ormat spent $3.5 million to obtain state leases, and spent $2.5
million in 2009-2011 for exploration and drilling, which was
matched by an AEA Renewable Energy Fund Grant - Round III, in
the amount of $2 million. To proceed further, he explained that
Ormat would invest $5 million to the state's $20 million. Mr.
Thomsen opined the risk would be gone at that point, and Ormat
would invest the $220 million to $270 million to bring the
project through the Field Development Plant Construction phase
[slide 20]. He pointed out that from 2013-2016, the state would
need to invest an additional $65 million for infrastructure,
including a transmission line and an access road. The end
result would be that Ormat will have invested from $231 million
to $281 million, and the state would have invested up to $87
million, he said. He calculated that the split would be a 25
percent to 75 percent split between the state's interest in the
project and Ormat's contribution.
MR. THOMSEN stated that Ormat is working with the communities
nearest the project and has a cooperative agreement with the
Tyonek Native Corporation, and letters of support from the Kenai
Peninsula Borough (KPB), and the mayor of Anchorage [slide 21].
Ormat has also been working with environmental organizations
such as the Cook InletKeeper and the Renewable Energy Alaska
Project (REAP), which both support this project. All six
Railbelt utilities support this project, separately and via
ARCTEC. He mentioned his belief that ARCTEC supports this
project as a potentially viable near-term solution to meet the
state's energy needs. Additionally, RIRP has identified this
project as a beneficial component in the Railbelt's generation
portfolio, and Ormat was selected by AEA to receive Renewable
Energy Fund Grant (REFG) - Round III funding, and has been
recommended to receive Round IV funding as well.
4:43:20 PM
MR. THOMSEN turned to the economic impact of this project [slide
23]. He said that Alaska's 100 MW of geothermal power could
provide 50 long-term high paying jobs and more than 100
construction jobs. The Geothermal Energy Association has
considered indirect and induced employment opportunities based
with geothermal development. He estimated that geothermal would
impact more than 200 local vendors. It would also fuel the
local economy with more than $850 million of economic impact
over 30 years. He reiterated that the royalty with 50 MW would
range from $1.5 million to $3 million annually paid to the state
for leases on state land.
4:44:32 PM
MR. THOMSEN referred to the environmental impact of the
geothermal project [slide 24]. He stated that 100 MW of
geothermal power could annually save 6 million BTUs of depleting
Cook Inlet natural gas. In fact, this project would offset
roughly the equivalent of Anchorage's heating consumption and
would free up the energy for other purposes. A closed-loop
system such as this would also avoid the emission of about
320,000 tons of CO2. He summarized the benefits of the Mount
Spurr project: provide clean, reliable, field-proven, baseload
power to the Railbelt; provide significant relief in Cook Inlet
natural gas consumption; contribute towards reaching the goal
of 50 percent renewable energy by 2025; provide long-term price
stability; provide a near-term solution by bridging the gap to
long-term mega-solutions; provide high quality long-term green
jobs. Mr. Thomsen then pointed out that every state dollar
invested in the project will be conveyed to ratepayers through
lower power prices, which would be controlled and verified by
AEA or the RCA. Also, the state would continue to enjoy co-
ownership of all geological data for this project. Finally, he
emphasized that the funds will be spent wisely and gradually; in
fact, investment will stop if geological data is not
encouraging, and the data can be monitored and verified by AEA
and DNR.
REPRESENTATIVE FOSTER noted that in addition to the $1.5 million
to $3 million in state royalty payments, Ormat would also be
paying state corporate income taxes.
REPRESENTATIVE SADDLER referred to the cost of power [slide 16].
He asked if 12 cents per kWh includes transmission line costs.
MR. THOMSEN answered that the figure does not include
transmission line costs.
REPRESENTATIVE SADDLER heard the cost of the transmission lines
would be $70 million. He asked for further clarification on the
cost, and how it would reflect into the per kWh cost.
MR. THOMSEN responded that the cost was evaluated by HDR Inc.,
and the estimated cost for the transmission line and the road
totaled $65 million. In further response to Representative
Saddler, he stated that it would add about 2 cents per kWh.
CO-CHAIR FEIGE asked whether the road is from Beluga to the
site.
4:48:20 PM
RAHM ORENSTEIN, Director, Business Development, Ormat
Technologies, Inc. stated that HDR, Inc., recommended two
possible routes: Tyonek to the leases or Shirleyville to the
leases. Although there is an existing road, a significant part
needs to be upgraded or built.
CO-CHAIR FEIGE asked whether a route through the existing right-
of-way from the Point MacKenzie area and Beluga was considered.
MR. THOMSEN offered to review the HDR report for the answer.
CO-CHAIR SEATON pointed out that the utilities seem to be
willing to spend significant amounts on a wind farm. He
recalled the cost for the Eva Creek Wind Farm project penciled
in at 9.8 cents per kWh plus an additional 4 percent in costs
for regulatory fees. He asked why the utilities are willing to
pay more for power from a wind farm, but are reluctant to sign a
power purchase agreement with Ormat for the geothermal project.
MR. THOMSEN opined a large-scale independent power produced
product under long-term contract to the Railbelt utilities
brings with it some hesitation to enter into these new
contracts. He informed members that Ormat has been meeting with
Railbelt utilities to educate them on why it is not necessary to
provide self-generation. He emphasized that during the
legislative interim, Ormat will also bring in investor-owned
utility executives and others who are familiar with these
contracts in order "to provide the confidence to enter into
these contracts moving forward." Another problem is the
investment necessary to bring the project to resource
confirmation; for example, at this time Ormat cannot confirm -
with 100 percent accuracy - that the resource will provide a
certain amount of power. This is the risk component that is
inherent to renewable energy development with the exception of
natural gas or wind projects. He reiterated that this
appropriation will get Ormat to the point at which third-party
independent engineers can confirm the resource exists, and
predicted that Railbelt utilities will move forward with
confidence.
4:52:52 PM
MR. THOMSEN, in response to further questions about the purpose
of the funding request, indicated that the investment by the
state would lead to resource confirmation. He envisioned
drilling three production wells allowing Ormat to produce from
one well, reinject to another well, and monitor the production
from the third well, in order to give the utilities the
confidence to move forward. He anticipated the three wells
would be drilled in the summer of 2012, and in the summer of
2013, if necessary.
CO-CHAIR SEATON surmised that the Ormat project would be
operational in 2016 or early 2017.
MR. THOMSEN concurred.
4:54:13 PM
CO-CHAIR PRUITT referred to the $65 million estimate for the
transmission line and access road. He recalled the expectation
has been funding for that would come from the state, and asked
for the anticipated timeline.
MR. THOMSEN restated that Ormat is a vertically integrated
company, thus the beginning of the project process is the
resource development phase. As the geothermal project moves
towards the phase of entering into a power purchase agreement,
Ormat would be able to identify the cost and whether the project
will move forward as a joint venture. He explained that as
Ormat moves forward with executing a power purchase agreement,
Ormat will know the transmission and infrastructure demand. He
characterized this as "kind of a moving target for us" as Ormat
works to negotiate an agreement. He pointed out that perhaps it
is possible to reduce some of the transmission cost by
committing some of Ormat's funding but it would depend on the
overall agreement. He emphasized that the HDR, Inc. report is
accurate; however, Ormat will also support a review of the
report since many variables have been identified as specifically
Alaska issues. He indicated that CEA has also been studying the
transmission and infrastructure costs; in fact, Ormat could
commit to combining those efforts to ensure "they pass the
sanity check" for estimates.
4:56:45 PM
REPRESENTATIVE PETERSEN asked whether the proposed transmission
lines would be capable of carrying 100 MW, or would only be 50
MW lines that would have to be upgraded later.
MR. THOMSEN responded that the transmission lines would be built
to carry the full potential load of the project, which is a 230
kV power line.
4:57:26 PM
CO-CHAIR PRUITT paraphrased from slide 26:
Every state dollar invested in the project will be
conveyed to ratepayers through lower power prices,
verified by AEA. Funds will be spent wisely and
gradually, can be monitored and verified by AEA.
CO-CHAIR PRUITT asked what AEA's role is in this project and
others, and opined the above statement is beyond the "flow-
through" funds AEA usually manages.
4:58:36 PM
MS. FISHER-GOAD confirmed that this project has gone through the
Renewable Energy Fund grant process and has been selected as one
of the Round IV projects for funding in the amount of
approximately $2 million. She indicated that Ormat is looking
to the state to share in the risk of proving-up the resources
for this project. Her agency would manage this grant, if
funded, as described in the two-page report that is prepared on
all Round IV grants. Further, AEA would be working with DNR's
Division of Geological and Geophysical Survey (DGGS) to approve
work before it commences. As with any grant, AEA would ensure
that state money going into the project does not go to the
investors' pockets, but helps to defray and reduce the cost of
power to ratepayers. On another level, Ormat has been
considering various ways of working with the utilities on the
timing of the power sales agreements, and AEA can have a role in
working with the utilities. In fact, she reported that every
conversation she has had with the utilities has been supportive
of Ormat's efforts, and geothermal energy is appealing as
another source in the state's energy portfolio. She offered her
belief that Ormat has established credibility with the projects
it has completed, and would like to hold conversations with the
utilities on the power purchase agreements and on Ormat's
process.
5:01:39 PM
MR. THOMSEN, in response Representative Seaton, assured the
committee that there has been no change in the plant design. He
briefly explained the process as follows: geothermal fluid is
pumped up through a heat exchanger and then is reinjected back
into the ground; after heating, the working fluid vaporizes,
builds pressure, and moves across a turbine blade - turning the
thermal energy into mechanical energy; the working fluid needs
to be cooled, either by water or air, to turn it into a liquid
state so it vaporizes again. This specific project would use
the air-cooled process, thus other water is not vaporized in the
cooling process. He said, "The air-cooled option has always
been part of this project, and it simply cools the working fluid
back into a liquid which is contained, 100 percent, in the
second loop."
MR. THOMSEN, in response to a previous question, understood that
by accepting the AEA grant funds, Ormat is agreeing to allow AEA
to bring in a third-party economist to review the economics of
the project if AEA chooses to do so. Ormat has accepted that
stipulation and has been willing to fully cooperate with an
economist at AEA to ensure that any state funds would help
reduce the power cost to Alaskan ratepayers. In response to a
further question, he indicated that the Raft River plant in
Idaho is not an Ormat project. However, Ormat has projects in
Reno, Nevada, and in California, and this project "should look
exactly like them in the same scale."
5:04:08 PM
REPRESENTATIVE SADDLER asked how he would compare the Mount
Spurr project with other Ormat projects around the globe. He
asked for the odds on whether this project will "play out."
MR. THOMSEN pointed out that Ormat has other projects on
volcanic resources, for example, on the Big Island of Hawaii.
Due to its initial findings and geochemistry at this site, Ormat
has become more and more optimistic on the viability of this
project, particularly given that volcanic resources tend to be
prolific geothermal resources. He said he hoped that this
project would have permeability and water, along with the great
heat, typically found in volcanic resources. He predicted
success at 6.5 on a scale of 1-10.
REPRESENTATIVE SADDLER asked how much acreage has been leased
and whether this site represents the best of several
possibilities, or if only one site will be considered.
MR. THOMSEN responded that Ormat has leased 36,000 acres and
this project represents one of many viable geothermal projects
in Alaska. After reviewing the site's proximity to energy
consumers and transmission needs, Mount Spurr moves to the top
of the list. Ormat hopes this project will set the stage for
future exploration and development of other geothermal
resources. In further response to Representative Saddler, he
said Ormat is not considering any another location within the
36,000 acres besides Mount Spurr, because this acreage
represents a large hydrothermal reservoir Ormat would like to
develop at this time.
5:07:18 PM
ADJOURNMENT
There being no further business, the joint meeting of the House
Special Committee on Energy and the House Resources Standing
Committee was adjourned at 5:07 p.m.