Legislature(2013 - 2014)BARNES 124

02/01/2013 08:00 AM House ENERGY


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08:04:33 AM Start
08:05:27 AM Overview (s): Interior Electric Supply
10:00:27 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Interior Electric Supply by Cory TELECONFERENCED
Borgeson, CEO, Golden Valley Electric Assoc.
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                        February 1, 2013                                                                                        
                           8:04 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Doug Isaacson, Co-Chair                                                                                          
Representative Charisse Millett, Co-Chair                                                                                       
Representative Neal Foster                                                                                                      
Representative Pete Higgins                                                                                                     
Representative Shelley Hughes                                                                                                   
Representative Benjamin Nageak                                                                                                  
Representative Andrew Josephson                                                                                                 
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
OVERVIEW (S):  INTERIOR ELECTRIC SUPPLY                                                                                         
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
CORY BORGESON, President & CEO                                                                                                  
Golden Valley Electric Association (GVEA)                                                                                       
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint presentation                                                                       
entitled, "Interior Energy Issues," dated 2/1/13.                                                                               
                                                                                                                                
DAVE GARDNER, Vice President                                                                                                    
External Affairs and Membership Services                                                                                        
Golden Valley Electric Association (GVEA)                                                                                       
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during the presentation                                                               
by Golden Valley Electric Association.                                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
8:04:33 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  DOUG ISAACSON  called  the House  Special Committee  on                                                             
Energy meeting  to order at  8:04 a.m.   Representatives Millett,                                                               
Foster,  Higgins, Hughes,  Josephson, Nageak,  and Isaacson  were                                                               
present at the call to order.                                                                                                   
                                                                                                                                
^OVERVIEW (S):  INTERIOR ELECTRIC SUPPLY                                                                                        
            OVERVIEW (S):  INTERIOR ELECTRIC SUPPLY                                                                         
                                                                                                                              
8:05:27 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  ISAACSON  announced that  the  only  order of  business                                                               
would be a  presentation on the current  Interior electric supply                                                               
by Golden Valley Electric Association (GVEA).                                                                                   
                                                                                                                                
8:05:38 AM                                                                                                                    
                                                                                                                                
CORY  BORGESON, President  & CEO,  GVEA,  informed the  committee                                                               
GVEA  serves  the   electrical  needs  of  the   Interior.    The                                                               
association has 34,480  members in its service  territory - which                                                               
covers from  the Cantwell area  to Clear, Nenana,  and Fairbanks,                                                               
and down  to Delta Junction  - and supplies about  44,000 meters.                                                               
All  of the  cooperatives in  the Railbelt  combined serve  about                                                               
250,000  members.   The  association has  developed  a very  good                                                               
reliability standard in spite of  harsh climate conditions.  Peak                                                               
demands are about 220 megawatts  (MW) and occur during periods of                                                               
extreme weather conditions.  Generation  capacity is about 290 MW                                                               
and GVEA generates power from a variety of sources.                                                                             
                                                                                                                                
8:09:00 AM                                                                                                                    
                                                                                                                                
CO-CHAIR ISAACSON asked  for the frequency and  longevity of peak                                                               
demands.                                                                                                                        
                                                                                                                                
MR.  BORGESON answered  that in  the summer  the general  load is                                                               
about  150 MW,  and most  of the  peak loads  are in  winter from                                                               
October through  the end of March.   The Interior needs  a lot of                                                               
energy  in the  winter  months for  space  heaters, engine  block                                                               
heaters, and lights,  but in summer generators often  sit idle so                                                               
summer is  a good time for  maintenance.  He explained  that GVEA                                                               
is  an electric  cooperative owned  by its  members and  does not                                                               
make  a profit;  in  fact, after  a period  of  time margins  are                                                               
returned  to the  members.    This year,  about  $2.5 million  in                                                               
capital  credits collected  from  1987 was  returned to  members.                                                               
Financing arrangements  require GVEA to collect  monies in excess                                                               
of its costs to ensure it can pay  all of its debt.  Debt at this                                                               
time is about  $380 million which is necessary  to support GVEA's                                                               
generation and  distribution system,  and holds about  22 percent                                                               
equity.   Slide  2  illustrated the  percentages  of GVEA's  fuel                                                               
supply  that is  generated by  hydroelectric, coal,  natural gas,                                                               
oil, and  wind sources.   The association  buys as much  power as                                                               
possible  from  Anchorage  Municipal  Light &  Power  (ML&P)  and                                                               
Chugach Electric Association, Inc.  (Chugach Electric).  In 2011,                                                               
31  percent of  GVEA's power  came from  the Anchorage  utilities                                                               
over the electrical interties, but  in 2012 the supply of natural                                                               
gas was curtailed  because there was not enough gas  to allow the                                                               
Anchorage utilities to sell power  to GVEA.  The association also                                                               
produces   electricity  from   coal  and   is  anticipating   new                                                               
production from  the Healy Clean  Coal Plant (HCCP)  beginning in                                                               
2015.                                                                                                                           
                                                                                                                                
8:13:33 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HIGGINS asked  for the reason behind  the delay in                                                               
opening HCCP.                                                                                                                   
                                                                                                                                
MR.  BORGESON   responded  the  permitting  caused   some  delay,                                                               
although  the consent  decree for  the air  permits has  now been                                                               
signed.    In addition,  financing  through  the Rural  Utilities                                                               
Service (RUS), U.S. Department of  Agriculture (USDA), requires a                                                               
National  Environmental   Policy  Act  (NEPA)  review   which  is                                                               
expected to be completed by July  2013, and start-up will take 18                                                               
months  after that.   He  returned attention  to slide  2, noting                                                               
that GVEA  has diverse sources  of power which allow  the utility                                                               
leverage with  its suppliers, and  gas from Cook  Inlet increases                                                               
leverage. The association is important  to industries such as the                                                               
Usibelli  Coal  Mine  and  Flint   Hills  Resources'  North  Pole                                                               
Refinery.   Slide 3 listed  Alaska residential electric  rates as                                                               
follows:    Fairbanks (GVEA),  20  cents;  Minto (Alaska  Village                                                               
Electric), 22  cents with  Power Cost  Equalization (PCE)  and 61                                                               
cents  without  PCE;  Glennallen  (Copper  Valley  Electric),  33                                                               
cents;  Homer   (Homer  Electric  Assn.),  16   cents;  Anchorage                                                               
(Chugach Electric), 13 cents.                                                                                                   
                                                                                                                                
8:16:39 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  ISAACSON asked  what has  lowered Fairbanks'  rate from                                                               
its previous rate of 23 cents per kilowatt hour (kWh).                                                                          
                                                                                                                                
MR. BORGESON said in November  GVEA entered into a purchase power                                                               
contract with  Chugach Electric  until March,  2015.   This meant                                                               
GVEA can  rely less on diesel  and drop the rates  almost 3 cents                                                               
per kWh.                                                                                                                        
                                                                                                                                
CO-CHAIR ISAACSON surmised  there will be an  increase in natural                                                               
gas [from Chugach Electric] for 2013.                                                                                           
                                                                                                                                
MR. BORGESON said correct, the  gas from Chugach Electric will be                                                               
a two-year "bridge" to the start-up of HCCP.                                                                                    
                                                                                                                                
8:18:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES asked  how power from HCCP  will affect the                                                               
rates.                                                                                                                          
                                                                                                                                
MR. BORGESON  estimated the  cost of power  from HCCP  will range                                                               
from 12 cents  to 14 cents per  kWh due to a  significant drop in                                                               
the cost of production.   In addition, coal production is steady,                                                               
and GVEA can potentially get a  5- to 10-year contract with HCCP.                                                               
In further  response to Representative Hughes,  he clarified that                                                               
the  overall cost  of power  will stay  in the  20 cents  per kWh                                                               
range, which will be comparable to future Anchorage rates.                                                                      
                                                                                                                                
8:20:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HIGGINS   asked  whether  a  fuel   surcharge  is                                                               
included.                                                                                                                       
                                                                                                                                
MR. BORGESON  said yes.   In  further response  to Representative                                                               
Higgins, he  relayed on December  1, 2012, the rate  dropped from                                                               
23 cents to  20 cents, which was an overall  11 percent reduction                                                               
in the cost  to members, and is based on  the projected gas-fired                                                               
generation from  the Anchorage  contract.   The energy  crisis in                                                               
the  Interior is  driven mostly  by  the cost  of space  heating.                                                               
Slide 4 showed in June 2012, the  cost of oil in Fairbanks was $4                                                               
per gallon, and the cost of  space heating in Anchorage was about                                                               
one-third of  the cost  in the  Interior.   He shared  a personal                                                               
story of the cost  of oil needed to heat his  home.  For example,                                                               
a 3,000 square foot home is  estimated to cost $6,000 per year to                                                               
heat if the  cost of fuel oil  is $4 per gallon, and  the cost of                                                               
electricity is in addition to that.   Similar to the situation in                                                               
the villages, the  cost of energy is causing people  to leave the                                                               
Interior.     Mr.   Borgeson  further   estimated  that   typical                                                               
residential electrical  use is 700 kWh  and results in a  bill of                                                               
about  $150 per  month per  household.   This  is affordable  for                                                               
most, but high electrical costs also  raise the cost of goods and                                                               
services  such as  restaurants.   The recent  drop in  rates will                                                               
save  GVEA customers  $34  million, which  will  have a  positive                                                               
"cascade" effect; in fact, a  community's high electric costs can                                                               
drive even a large and  successful industry out of the community.                                                               
He encouraged  the committee to  consider the  significant impact                                                               
the cost of energy can have on growth and development.                                                                          
                                                                                                                                
8:27:54 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON recalled his  time in rural Alaska where                                                               
diesel  oil was  used  for  space heating.    He observed  diesel                                                               
heating oil is  also used in Fairbanks and asked  for the cost to                                                               
retrofit Fairbanks  to receive  natural gas -  if a  gas pipeline                                                               
were built - and what GVEA's role would be.                                                                                     
                                                                                                                                
MR.  BORGESON referred  to a  study by  the Fairbanks  North Star                                                               
Borough  and  [Northern Economics]  that  estimated  the cost  of                                                               
putting in a gas distribution  system throughout the borough area                                                               
would be  $400 million  to $600  million, although  some disagree                                                               
with the study.  About  1,000 customers in Fairbanks already have                                                               
natural gas  from a  small natural gas  distribution system.   He                                                               
advised the  role of GVEA is  to bring natural gas  to Fairbanks,                                                               
and a borough utility has been  formed to provide the natural gas                                                               
distribution system.                                                                                                            
                                                                                                                                
REPRESENTATIVE  JOSEPHSON questioned  whether  the  cost of  that                                                               
investment would equal the cost of  continuing to use fuel oil in                                                               
a more efficient fashion.                                                                                                       
                                                                                                                                
8:30:44 AM                                                                                                                    
                                                                                                                                
MR. BORGESON opined the distribution of  fuel oil at this time is                                                               
about  as efficient  as it  can be.     He directed  attention to                                                               
slide  7, which  showed  the Bradley  Lake Hydroelectric  project                                                               
(Bradley Lake  Hydro).   The association has  an interest  in the                                                               
Bradley Lake  Hydro plant  which is capable  of producing  20 MW,                                                               
although constraints of the intertie  restrict transmission to 15                                                               
MW  of power.    The  facility is  maintained  by Homer  Electric                                                               
Association, Inc.  (HEA), and provides  power to GVEA at  about 6                                                               
cents  per kWh.   Line  losses are  associated with  transmission                                                               
over the  intertie, but  the facility  is a  very good  source of                                                               
energy for  the Interior.  Mr.  Borgeson advised that there  is a                                                               
project underway that would divert  Battle Creek and increase the                                                               
flow  into Bradley  Lake.   Bradley Lake  Hydro is  owned by  the                                                               
Alaska Energy  Authority (AEA),  and was  completed in  the early                                                               
1990s  through a  50 percent  grant from  the legislature  and 50                                                               
percent  financing by  the utilities.   Slide  8 showed  two coal                                                               
plants in Healy.  The 28 MW  Healy Power Plant (Unit 1) was built                                                               
in 1967, the  fuel costs are about  6 cents per kWh, and  it is a                                                               
very reliable and  well-maintained plant.  Also  pictured was the                                                               
Healy  Clean Coal  Plant  (HCCP), which  is a  50  MW plant  that                                                               
should  be running  in 2015.   The  two plants  are connected  in                                                               
order for  both to be  run from one  control center.   The Alaska                                                               
Industrial Development  and Export  Authority (AIDEA)  owns HCCP,                                                               
and  GVEA has  an agreement  to  purchase the  plant from  AIDEA.                                                               
Slide 9  showed the Eva Creek  Wind Project which was  built with                                                               
approximately $13 million from a  state grant.  The towers became                                                               
operational  in November  2012, and  the 12  turbines generate  a                                                               
maximum  of about  [24] MW  of power.   During  its operation  in                                                               
2012, the  turbines operated  at a 53  percent capacity  factor -                                                               
which is  a phenomenal capacity  for wind - and  GVEA anticipated                                                               
this high  generation in winter.   Mr. Borgeson  expressed GVEA's                                                               
pride in the  project, saying it was built within  its budget and                                                               
on time.  The construction site  on Eva Creek is located close to                                                               
HCCP, but  all of the workers  and materials needed to  cross the                                                               
Nenana River  for access.   The turbine blades were  delivered on                                                               
the Alaska  Railroad (ARR)  and were  constructed in  Arkansas of                                                               
balsa  wood and  fiberglass.   The  plant was  constructed by  an                                                               
Alaskan  crew of  205 workers,  and other  major components  were                                                               
fabricated in Korea and Germany.                                                                                                
                                                                                                                                
A video  on the construction  of the  Eva Creek Wind  Project was                                                               
viewed from 8:35 a.m. to 8:37 a.m.                                                                                              
                                                                                                                                
8:37:59 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  ISAACSON  asked  how   many  generators  are  currently                                                               
producing.                                                                                                                      
                                                                                                                                
MR. BORGESON  responded all  12 have  been commissioned  and have                                                               
been  working.   In further  response, to  Co-Chair Isaacson,  he                                                               
said each tower produces 2.2  MW; the total output anticipated is                                                               
78,000 MW hours per year.                                                                                                       
                                                                                                                                
8:38:43 AM                                                                                                                    
                                                                                                                                
DAVE  GARDNER, Vice  President, External  Affairs and  Membership                                                               
Services, GVEA, said  the formula used to calculate  output is as                                                               
follows:  25 MW  x  30 days  x  24 hours  x  56 percent  capacity                                                               
factor.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  ISAACSON asked  whether the  performance has  met                                                               
the projections.                                                                                                                
                                                                                                                                
MR.  BORGESON said  the project  is performing  better than  GVEA                                                               
anticipated.                                                                                                                    
                                                                                                                                
CO-CHAIR ISAACSON  asked whether wind generation  will reduce the                                                               
use of heavy atmospheric gas oil (HAGO) plants.                                                                                 
                                                                                                                                
MR. BORGESON  stated there  was a reduction  of over  one million                                                               
gallons  of HAGO  and  naphtha  in 2012;  in  fact,  most of  the                                                               
generation  from the  wind project  will be  used in  conjunction                                                               
with  the  North Pole  Expansion  Power  Plant (expansion  plant)                                                               
which is  operated on naphtha.   In further response  to Co-Chair                                                               
Isaacson, he said  the GVEA wind project is much  bigger than the                                                               
[Pillar Mountain Wind Farm] in  Kodiak and will reduce GVEA's oil                                                               
needs "significantly."                                                                                                          
                                                                                                                                
8:40:44 AM                                                                                                                    
                                                                                                                                
MR. BORGESON restated that the  wind generator came online at the                                                               
very  end of  October  and  saved one  million  gallons [of  oil]                                                               
during  two months.   He  explained that  wind generation  coming                                                               
into a system  requires that the system is prepared  for the wind                                                               
to stop.   The dispatch center  monitors the power that  is being                                                               
generated  at  any  time  and  other sources  of  power  must  be                                                               
standing by.   For  GVEA, the  cheapest supplemental  power would                                                               
come from  the expansion plant, thus  there is a limit  as to how                                                               
much of the total power can come  from wind, because it has to be                                                               
"backed up."  Slide 10 showed  the Zehnder Power Plant located in                                                               
downtown Fairbanks  which has two General  Electric (GE) turbines                                                               
of  20 MW  each.   This is  an older  plant which  generates very                                                               
expensive  power  at   53  cents  per  kWh.     It  also  creates                                                               
environmental  issues,  and is  only  run  for small  amounts  of                                                               
power; however,  the Zehnder plant  has the capacity to  start if                                                               
the  system is  completely "blacked  out."   Slide 11  showed the                                                               
North Pole  Power Plant which  was built  in the early  1970s and                                                               
has two  60 MW GE  turbines.  This  plant supplies power  to GVEA                                                               
when power  is not available  from the Anchorage utilities.   The                                                               
turbines  are very  reliable,  but are  not  the most  efficient.                                                               
Also in North  Pole is the 60 MW expansion  plant which was built                                                               
in 2005  and is  basically a  jet engine that  burns naphtha  - a                                                               
lighter fuel that  is better for the environment.   The expansion                                                               
plant is  the base  load plant; it  runs all of  the time  and is                                                               
used to  back up wind generation.    Returning to  wind power, he                                                               
said GVEA  expects wind generation to  cost 12 cents per  kWh and                                                               
federal energy  bonds keep the  financing costs of  wind projects                                                               
low.  Slide  13 showed the Delta Power Plant  which was relocated                                                               
to Delta Junction in 2005.  It is  very expensive to run - $1 per                                                               
kWh - and  is tested for reliability  twice a year in  case it is                                                               
needed.                                                                                                                         
                                                                                                                                
8:47:45 AM                                                                                                                    
                                                                                                                                
MR. BORGESON advised  that GVEA also purchases power  from the 25                                                               
MW Aurora  Energy coal  plant located  on the  Chena River.   The                                                               
Aurora  plant  is  very  reliable and  has  benefited  from  many                                                               
upgrades.                                                                                                                       
                                                                                                                                
CO-CHAIR ISAACSON  asked whether power is  available for purchase                                                               
from U.S.  Army Post Fort  Wainwright (Fort  Wainwright), Eielson                                                               
Air Force Base (AFB), or Clear Air Force Station.                                                                               
                                                                                                                                
MR. BORGESON  said the system  is not designed to  purchase power                                                               
from  Fort  Wainwright  or  Eielson  AFB;  however,  there  is  a                                                               
wheeling tariff that allows for  sharing of electrical lines, and                                                               
GVEA is buying some power from Fort Wainwright at this time.                                                                    
                                                                                                                                
MR.  GARDNER clarified  that the  plants at  Fort Wainwright  and                                                               
Eielson  AFB  are heat-generating  plants  and  electricity is  a                                                               
byproduct.   On  a  cold winter  day they  may  have some  excess                                                               
power, and  should their power  fail GVEA could send  them power,                                                               
but not heat.                                                                                                                   
                                                                                                                                
CO-CHAIR ISAACSON relayed that the  leadership at Eielson AFB has                                                               
recently   expressed   frustration   that  they   must   purchase                                                               
electricity  "but are  only  able to  sell it  back  at a  higher                                                               
amount, so it isn't economic for  them to do it, and they've been                                                               
frustrated because they insist that  their costs could be lowered                                                               
and we  could have lower utility  rates at times ...."   He asked                                                               
Mr.  Borgeson to  "renew that  conversation with  them ...  maybe                                                               
they have more electricity capability  - spin - than we're giving                                                               
them credit in this testimony."                                                                                                 
                                                                                                                                
MR.  GARDNER said  they  would  get back  to  the committee  with                                                               
further information.                                                                                                            
                                                                                                                                
8:50:47 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HIGGINS commented  that Clear  Air Force  Station                                                               
power  plant has  "been dumping  extra  juice in  the ground  for                                                               
years."                                                                                                                         
                                                                                                                                
MR. BORGESON informed the committee  that Clear Air Force Station                                                               
recently expressed interest  in connecting to GVEA's  grid.  They                                                               
also  solicited  requests  for   proposals  to  lease,  sell,  or                                                               
transfer their approximately  20 MW coal plant  because they only                                                               
need 4 MW of power.  This  is very inefficient and GVEA looked at                                                               
the possibility of taking over  the plant, as did Doyon Utilities                                                               
and  Aurora  Energy;  however,  the plant  was  offered  with  no                                                               
environmental  permits  and  experience  shows that  is  a  major                                                               
problem.     Furthermore,  the  stability  of   the  turbines  is                                                               
questionable and  there is  also the question  of how  much power                                                               
"we  could  bring  over the  interties  coming  into  Fairbanks."                                                               
After due consideration,  there was no interest in  the Clear Air                                                               
Force  Station  plant.   In  further  response to  Representative                                                               
Higgins, Mr. Borgeson  said the Alaska Intertie was  built in the                                                               
1980s and the Northern Intertie was built in the 1990s.                                                                         
                                                                                                                                
8:55:12 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HIGGINS understood  there are  problems with  the                                                               
interties and asked  if that is because of the  technology at the                                                               
time.                                                                                                                           
                                                                                                                                
MR.  BORGESON   opined  the  Northern   Intertie  was   built  to                                                               
accommodate HCCP  and it  has sufficient capacity  for that.   In                                                               
fact, when  HCCP comes online  there will be  sufficient capacity                                                               
for power generation in the Interior,  but much of it is based on                                                               
oil-fired generation.   If oil  were $10 per barrel,  there would                                                               
be very  cheap power.  Furthermore,  it is important to  have the                                                               
capacity for  generation within  the system  in case  an intertie                                                               
fails.    He returned  attention  to  slide 16,  emphasizing  the                                                               
importance of power purchases, and  reiterating the contract with                                                               
Chugach Electric will save members  $32 million to $34 million in                                                               
2013,  and possibly  more in  2014, although  future savings  are                                                               
always relative to the price of oil.                                                                                            
                                                                                                                                
CO-CHAIR ISAACSON  asked for  more information  on the  limits of                                                               
the intertie.                                                                                                                   
                                                                                                                                
MR. BORGESON  explained GVEA is limited  to about 77 MW  of power                                                               
transmission over the intertie.   An additional constraint on the                                                               
Alaska  Intertie is  that it  is  operated at  138 kilovolt  (KV)                                                               
which means  "we [have] got  a big power  cord but in  the middle                                                               
there  is a  smaller extension  cord that  just can't  bring that                                                               
much  power over  it."   The  power from  Bradley  Lake Hydro  to                                                               
Fairbanks is  15 MW to  20 MW, which  limits the amount  of power                                                               
that can  be purchased  from Chugach  Electric/Matanuska Electric                                                               
Association, Inc. (MEA)  to 60 MW, thus additional  power must be                                                               
purchased  from the  south.   Slide 16  showed the  Aurora Energy                                                               
coal  plant which  dispatches power  at 5.8  cents per  kWh under                                                               
contract.                                                                                                                       
                                                                                                                                
9:00:05 AM                                                                                                                    
                                                                                                                                
A video  on dispatching power was  viewed from 9:00 a.m.  to 9:04                                                               
a.m.                                                                                                                            
                                                                                                                                
9:04:10 AM                                                                                                                    
                                                                                                                                
MR. BORGESON pointed  out dispatching power is  an important part                                                               
of  GVEA's responsibilities.   In  hindsight, building  more coal                                                               
power plants  and a  bigger intertie may  have been  prudent, but                                                               
GVEA must use  the facilities it has as  efficiently as possible.                                                               
Slide 18  explained GVEA's electric bills  have three components:                                                               
the fuel and  purchase power charge of 10.802 cents  per kWh; the                                                               
utility charge  of 9.597 cents  per kWh; and the  customer charge                                                               
of $17.50 per month.                                                                                                            
                                                                                                                                
MR. GARDNER clarified  that the major components  of the customer                                                               
charge  are  the fixed  costs  of  reading meters  and  providing                                                               
customer service that are not affected  by the cost or the amount                                                               
of fuel used.                                                                                                                   
                                                                                                                                
MR.  BORGESON  added that  these  charges  are regulated  by  the                                                               
Regulatory  Commission of  Alaska (RCA)  and utility  charges are                                                               
filed  for review  every six  months.   The association  seeks to                                                               
reduce  the  utility charge  cost,  but  resisting reductions  in                                                               
training cost  ensures that GVEA follows  best business practices                                                               
and maintains reliability and customer service.                                                                                 
                                                                                                                                
REPRESENTATIVE  HIGGINS asked  whether  the  [fuel and  purchased                                                               
power]  cost is  the  cost  to generate  energy  and the  utility                                                               
charge is the cost of personnel.                                                                                                
                                                                                                                                
MR. BORGESON  clarified that the  fuel and purchase  power charge                                                               
is the  cost of  fuel, whether  it is coal,  fuel oil,  or energy                                                               
over the intertie.   The utility charge is the  cost of operating                                                               
the plant,  personnel, salaries, depreciation, and  interest.  In                                                               
further response to Representative  Higgins, he said the customer                                                               
charge is applied to the cost of "being hooked to our system."                                                                  
                                                                                                                                
9:09:46 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HIGGINS observed these are one-time expenses.                                                                    
                                                                                                                                
MR.  GARDNER  added that  the  customer  charge includes  routine                                                               
maintenance  on  the  line such  as  replacing  transformers  and                                                               
lines, and upgrades.                                                                                                            
                                                                                                                                
MR. BORGESON further explained that  RCA looks at the rate design                                                               
and allocates the  right charges.  The customer  charge of $17.50                                                               
is  the  residential  charge  and   small  businesses  and  large                                                               
industrial customers pay more because  it is based on the concept                                                               
of "cost causer-cost payer."                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT  asked for the  average percentage of  line loss                                                               
through transmission.                                                                                                           
                                                                                                                                
MR. BORGESON estimated  a 12 percent line loss,  depending on the                                                               
source of the power.                                                                                                            
                                                                                                                                
9:12:38 AM                                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT relayed that AEA  said the average loss is about                                                               
27 percent,  which points out  the need to  upgrade transmission,                                                               
especially  to accommodate  sources of  renewable energy  such as                                                               
wind  power.   She  then  asked what  GVEA  has  done for  energy                                                               
efficiency within its commercial and residential base.                                                                          
                                                                                                                                
MR. BORGESON  relayed that energy conservation  programs are very                                                               
important to  GVEA and  its members.   The association  has spent                                                               
$300,000 to  deliver energy conservation programs  to its members                                                               
and available grants  through AEA are used  to maximize benefits.                                                               
A new  campaign, "the Power  to Use Less," encourages  members to                                                               
be more  efficient and  upgrade appliances.   Other  programs are                                                               
"Energy$ense,"  "Home$ense,"  and "Business$ense"  energy  audits                                                               
which use demand-side management.   He assured the committee that                                                               
GVEA  does  not raise  rates  if  energy consumption  goes  down.                                                               
Also,  GVEA has  begun  to track  members'  savings after  energy                                                               
audits.                                                                                                                         
                                                                                                                                
9:16:20 AM                                                                                                                    
                                                                                                                                
CO-CHAIR MILLETT  asked whether  GVEA has recommendations  to the                                                               
legislature on transmission upgrades and,  if so, who should bear                                                               
the cost.                                                                                                                       
                                                                                                                                
MR.  BORGESON advised  the Railbelt  transmission  lines are  not                                                               
robust enough  to be reliable.   A study commissioned by  AEA and                                                               
issued  11/12/12,  known  as the  "Burlingame"  study,  estimated                                                               
upgrading the  lines in order to  meet the needs of  the Railbelt                                                               
will cost  from $800  million to  $1 billion.   In  addition, the                                                               
current condition of the intertie  constrains the amount of power                                                               
that can be transmitted from Bradley  Lake Hydro.  A group of the                                                               
Railbelt utilities, the  Alaska Railbelt Cooperative Transmission                                                               
and  Electric  Company  (ARCTEC)   will  make  proposals  to  the                                                               
legislature on  the work that  is needed, however,  the utilities                                                               
do not feel all  of the cost can be passed  on to the ratepayers.                                                               
He  recalled that  the  state  paid 50  percent  of  the cost  of                                                               
Bradley  Lake Hydro.   The  cost of  energy will  affect economic                                                               
growth in  Fairbanks and Anchorage  as it  has been doing  in the                                                               
villages for a  long time, and the state must  decide whether the                                                               
investment is  worthy.  The  Railbelt utilities are  now speaking                                                               
with a united voice through ARCTEC.                                                                                             
                                                                                                                                
9:19:44 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MILLETT asked  whether it  is reasonable,  or best  for                                                               
consumers, to have  six utilities in a small state  that are each                                                               
planning different  generation projects, especially if  the state                                                               
is obligated  to pay  for the  transmission power.   Each  of the                                                               
utilities wants  support from the legislature,  and she suggested                                                               
that one  large cooperative utility  company would  better manage                                                               
generation and transmission than six independent utilities.                                                                     
                                                                                                                                
MR.  BORGESON   relayed  that   combining  generation   has  been                                                               
discussed by ARCTEC, especially since  AEA is now owning projects                                                               
and  "acting like  another  utility."   In  fact,  the number  of                                                               
utilities  in  the  Railbelt  is growing.    Although  there  are                                                               
economic  models that  would save  money by  consolidating, there                                                               
are concerns  about locating all  of the power generation  in one                                                               
geographic area.   He expressed his belief  that competition will                                                               
lead to  lower prices, but that  the utilities should be  open to                                                               
the model that best serves the Railbelt.                                                                                        
                                                                                                                                
CO-CHAIR MILLETT  observed the  situation also  creates conflicts                                                               
between  legislative  districts  when  utilities  are  requesting                                                               
upgrades  or subsidies.    It is  important  that ARCTEC  address                                                               
transmission line power loss, but  generation "drives the cost of                                                               
energy  in the  Railbelt,  and if  we could  get  to a  consensus                                                               
through the utilities on a master  plan for generation ... and do                                                               
what's best  for the Railbelt as  a whole ...."   She appealed to                                                               
ARCTEC for unity.                                                                                                               
                                                                                                                                
9:25:10 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON asked  Mr.  Borgeson to  explain why  a                                                               
utility would charge more when a customer uses less energy.                                                                     
                                                                                                                                
MR. BORGESON  said the utility charge  is about 10 cents  per kWh                                                               
and is  spread over one  billion kWh.   If there are  less hourly                                                               
charges, but the  same overhead cost, the utility  charge must go                                                               
up, thus when  members use less electricity GVEA must  find a way                                                               
to cut fixed costs.                                                                                                             
                                                                                                                                
REPRESENTATIVE FOSTER inquired how  the cost of transmission line                                                               
upgrades would affect rates to customers.                                                                                       
                                                                                                                                
MR. BORGESON did not know.   He offered to provide an estimate at                                                               
a later time.                                                                                                                   
                                                                                                                                
REPRESENTATIVE  FOSTER  acknowledged  that  would  be  a  complex                                                               
calculation.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  NAGEAK concurred  with  the  suggestion that  the                                                               
Railbelt utilities could  be combined.  He  recalled residents in                                                               
Barrow at one time were members  of GVEA, and utilities can reach                                                               
far if they wish  to do so.  There are many  sources of power and                                                               
super utilities could link three or four regions of the state.                                                                  
                                                                                                                                
9:30:29 AM                                                                                                                    
                                                                                                                                
MR.  BORGESON  pointed  out  that  the  Alaska  Village  Electric                                                               
Cooperative  Inc. (AVEC)  is one  organization that  successfully                                                               
serves 53  villages.   One issue  to be  discussed by  a combined                                                               
utility is whether there would be a postage stamp cost rate.                                                                    
                                                                                                                                
CO-CHAIR MILLETT understood there is a new utility in Fairbanks.                                                                
                                                                                                                                
MR.  BORGESON  advised  that the  Fairbanks  North  Star  Borough                                                               
(FNSB) formed the Interior Alaska  Natural Gas Utility (IANGU) to                                                               
act as a gas distribution system  only.  He directed attention to                                                               
slide 19,  which listed some  "solutions" and to slide  20, which                                                               
was  a  map  listing  the  sources of  generation  by  region  as                                                               
follows: in Southeast, hydro and fuel  oil; in the Bush, fuel oil                                                               
and  wind; and  in the  Railbelt, natural  gas, hydro,  fuel oil,                                                               
coal, and wind.   Slide 21 was an overview  of the Railbelt's six                                                               
distribution  utilities,  and  he  noted that  GVEA  and  Chugach                                                               
Electric  are  unique  in  that   they  generate,  transmit,  and                                                               
distribute  power.    A  few   cooperatives  are  generation  and                                                               
transmission (G&T) utilities, but  most electric cooperatives are                                                               
distribution    cooperatives   only.        The   Railbelt    has                                                               
interconnection  from  Homer  to   Fairbanks  and  three  primary                                                               
generating utilities at  this time; however in  January 2014, HEA                                                               
will  begin  generation  and  in January  2015,  MEA  will  begin                                                               
generation.  Slide 22 was a  map of the Alaska Intertie which was                                                               
built in the 1980s and  connected the Interior to Southcentral by                                                               
a line 177 miles long from Willow  to Healy.  It is owned by AEA,                                                               
and sections  are operated and  maintained by  GVEA and MEA.   In                                                               
the 1990s Bradley  Lake Hydro and the  Bradley transmission lines                                                               
were added,  and in  the 2000s the  Northern Intertie  from Healy                                                               
and  a  battery  energy  storage  system  (BESS)  were  added  in                                                               
Fairbanks.   The storage system is  the size of a  football field                                                               
and is capable of providing 37  MW of power for 12 minutes, which                                                               
is enough time  to take a load  when a unit goes  down.  Although                                                               
the  batteries  are not  designed  to  back up  wind  generation,                                                               
feasibility studies  are underway to  do so.   Today, there  is a                                                               
dual  line from  the  Healy  Unit 1  power  plant which  provides                                                               
reliability  and is  also capable  of carrying  future generation                                                               
from  HCCP  to  Fairbanks.    Mr.  Borgeson  advised  the  Alaska                                                               
Intertie  illustrated on  slide 25  needs  to be  upgraded.   The                                                               
Burlingame study estimated building a  second line will cost $200                                                               
million  and  is  necessary  to carry  power  from  the  proposed                                                               
Susitna-Watana  Hydroelectric   Project  (Susitna-Watana  Hydro),                                                               
which  is projected  to  generate  600 MW.    He cautioned,  "The                                                               
problem is, there  is going to have to be  [a] significant amount                                                               
of intertie  upgrades to make Susitna  work.  So, it's  tied to a                                                               
big  hydro project  like  that, and  it's tied  to  a sharing  of                                                               
utilities and resources across the  Railbelt - that the interties                                                               
[must] be upgraded."                                                                                                            
                                                                                                                                
9:37:44 AM                                                                                                                    
                                                                                                                                
CO-CHAIR ISAACSON  asked for the  location of the section  of the                                                               
intertie that is the limiting factor.                                                                                           
                                                                                                                                
MR. BORGESON  said there  are parts  of the  line near  Homer and                                                               
Bradley Lake  that are not  robust.  The largest  problem section                                                               
is the Alaska Intertie, but  to handle growth and generation from                                                               
Susitna-Watana Hydro,  sections going  south need to  be upgraded                                                               
as well.                                                                                                                        
                                                                                                                                
CO-CHAIR  ISAACSON  surmised  there  are   70  MW  to  80  MW  of                                                               
transmission capacity on the Alaska  Intertie, 170 MW capacity on                                                               
the line to  Fairbanks, and then to Anchorage and  Kenai there is                                                               
"a mixture of 200 MW capacity down to 70 MW."                                                                                   
                                                                                                                                
MR. GARDNER  explained that actually  there is less than  170 MW,                                                               
but the  two lines were built  to accommodate power from  HCCP to                                                               
Fairbanks.   In further  response to  Co-Chair Isaacson,  he said                                                               
there  are  sections of  the  line  from  Bradley Lake  that  are                                                               
"robust enough, and there are certain  areas that are ... in need                                                               
of some  upgrading," as referenced  by the Burlingame study.   He                                                               
pointed out that certain sections  of the second intertie between                                                               
Healy and North  Pole were built to 230 KV  capacity which - with                                                               
the installation  of new transformers  and instrumentation  - can                                                               
be increased.                                                                                                                   
                                                                                                                                
9:41:21 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON observed  the governor  has recommended                                                               
tens of millions of dollars  more for the Susitna-Watana Project,                                                               
the interties  are insufficient,  and a natural  gas distribution                                                               
system in  Fairbanks will  cost over $1  billion.   He questioned                                                               
the   wisdom  of   constructing   a  dam,   when  the   necessary                                                               
infrastructure is so costly.                                                                                                    
                                                                                                                                
MR. BORGESON  opined the  complexity of  the situation  has meant                                                               
that  utilities and  legislators "don't  know which  way to  go."                                                               
Adding  to that  complexity is  the proposed  Alaska Stand  Alone                                                               
Pipeline  (ASAP) which  could  deliver power  to  rural areas  as                                                               
well.   New technology  and fuel costs  make the  future unknown.                                                               
He has  heard that Susitna-Watana  Hydro is important  because it                                                               
will be  a resource long  into the  future, whereas the  cost and                                                               
availability of oil  and gas from the North  Slope are uncertain.                                                               
Mr. Borgeson said he is unsure,  but assured the committee he and                                                               
the board at GVEA are  listening, planning, and strategizing, and                                                               
are making investments as best they can.                                                                                        
                                                                                                                                
9:45:05 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  MILLETT  recalled   the  legislature  commissioned  the                                                               
Alaska Railbelt  Electrical Grid  (REGA) study published  in 2008                                                               
that  recommended   four  options,   none  of  which   have  been                                                               
implemented by the  utilities.  She asked  whether legislative or                                                               
gubernatorial action  is needed to  find solutions and  force the                                                               
utilities to agree.                                                                                                             
                                                                                                                                
MR. BORGESON observed  that no other state has taken  on the role                                                               
of  a utility,  although  no  other state  is  like  Alaska.   He                                                               
acknowledged that  this is the time  for action, decision-making,                                                               
and consensus-building.                                                                                                         
                                                                                                                                
9:47:27 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  ISAACSON recognized  that  capacity  restraints on  the                                                               
interties  affect  the ability  to  generate  low-cost fuel,  and                                                               
short-term,   system-wide  improvements   are  expensive.     The                                                               
legislature  must  set  priorities  and decide  whether  to  fund                                                               
projects on a regional basis or on a statewide utility basis.                                                                   
                                                                                                                                
MR.  BORGESON  turned  to  one  of the  solutions  on  slide  19:                                                               
trucking natural gas to Fairbanks  through the LNG process.  This                                                               
proposal  would  benefit GVEA  and  would  save money  for  space                                                               
heating costs.  In  fact, if the cost could be  kept in the range                                                               
of $13 to $14 per million  cubic feet (MMcf) of natural gas, GVEA                                                               
will save $26  million per year.  Although the  plan is expensive                                                               
and  holds many  assumptions and  risks, GVEA  is working  on the                                                               
project and has  secured a gas contract and a  site in North Pole                                                               
at which to locate a  regasification facility in partnership with                                                               
AIDEA.     He then  restated GVEA's  efforts to  restart HCCP  by                                                               
2015:  entered in a  negotiated settlement with EPA regarding the                                                               
air quality permit; expects to have  workers in the plant in July                                                               
or  August 2013;  and  will build  a warehouse  this  year.   The                                                               
Alaska  Industrial Development  and  Export  Authority will  sell                                                               
GVEA the  plant for $50  million and  will loan GVEA  $45 million                                                               
for  the   restart.    The   air  quality  permit   requires  the                                                               
installation of  a selective catalytic reduction  (SCR) system at                                                               
a  cost of  $40  million, and  the  cost of  the  restart is  $26                                                               
million.   Improvements to Unit  1 are also required,  which will                                                               
result  in the  best environmental  technology possible,  and the                                                               
costs  of  the  improvements  are still  cheaper  than  oil-fired                                                               
generation.   As  an aside,  Mr. Borgeson  relayed that  HCCP was                                                               
built with  $117 million in  federal funds and $130  million from                                                               
AIDEA, for a total cost approaching $300 million.                                                                               
                                                                                                                                
9:54:29 AM                                                                                                                    
                                                                                                                                
A video on HCCP was viewed from 9:54 a.m. to 9:57 a.m.                                                                          
                                                                                                                                
9:58:08 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HIGGINS   stated  Fairbanks  proper   has  32,000                                                               
residents  and 110,000  residents live  in the  surrounding area.                                                               
Within that area,  there are 10 power plants, which  leads to the                                                               
perception  that  GVEA  and  the  other  utilities  do  not  work                                                               
together toward  the common  goal of reducing  energy costs.   He                                                               
suggested that the power plant  at Clear Air Force Station should                                                               
have been connected  to the electrical grid 10 years  ago, and he                                                               
encouraged  GVEA to  work with  every  entity that  wants to  put                                                               
energy on the grid to correct this public perception.                                                                           
                                                                                                                                
10:00:27 AM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special Committee on Energy meeting was adjourned at 10:00 a.m.                                                                 

Document Name Date/Time Subjects
Energy Committee Agenda.pdf HENE 2/1/2013 8:00:00 AM
InteriorEnergyIssues_Feb1GVEA.pdf HENE 2/1/2013 8:00:00 AM