Legislature(2013 - 2014)BARNES 124
02/28/2014 08:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Power Association | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
February 28, 2014
8:10 a.m.
MEMBERS PRESENT
Representative Doug Isaacson, Co-Chair
Representative Shelley Hughes
MEMBERS ABSENT
Representative Charisse Millett, Co-Chair
Representative Neal Foster
Representative Pete Higgins
Representative Benjamin Nageak
Representative Andy Josephson
COMMITTEE CALENDAR
PRESENTATION: ALASKA POWER ASSOCIATION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CRYSTAL ENKVIST, Director
Member & Public Relations
Alaska Power Association
Anchorage, Alaska
POSITION STATEMENT: Presented the Alaska Power Association's
2014 legislative priorities.
CLAY KOPLIN, CEO
Cordova Electric Cooperative, Inc.
Cordova, Alaska
POSITION STATEMENT: Presented the Alaska Power Association's
Legislative Resolutions for 2014.
JOE GRIFFITH, General Manager
Matanuska Electric Association;
CEO, Alaska Railbelt Cooperative Transmission & Electric Company
Palmer, Alaska
POSITION STATEMENT: Provided the Alaska Power Association's
capital funding requests.
ACTION NARRATIVE
8:10:06 AM
CO-CHAIR DOUG ISAACSON called the House Special Committee on
Energy meeting to order at 8:10 a.m. Representatives Hughes and
Isaacson were present at the call to order.
^PRESENTATION: Alaska Power Association
PRESENTATION: Alaska Power Association
8:10:58 AM
CO-CHAIR ISAACSON announced that the only order of business
would be a presentation by the Alaska Power Association.
8:11:24 AM
CRYSTAL ENKVIST, Director, Member & Public Relations, Alaska
Power Association (APA), directed attention to the PowerPoint
presentation entitled, "Alaska Power Association 2014
Legislative Priorities." Prior to sharing APA's legislative
priorities, she informed the committee that APA is a 62-year old
trade association for the electric utility industry in Alaska.
Its members are electric cooperatives, municipal-owned
utilities, joint action agencies, and investor-owned utilities;
the largest member is Chugach Electric Association, Inc. and the
smallest member is Tanalian Electric Cooperative Inc.
Furthermore, APA members span the state from Barrow to Kodiak,
and from Unalaska down the Inside Passage. Regarding the
development of APA's legislative priorities, Ms. Enkvist noted
that although APA has a diverse electric utility membership, its
members speak with one voice on issues with a statewide and a
Railbelt focus. The resolution process begins with issues that
are brought by APA members to its Resolutions and Government
Affairs Steering Committee, which is comprised of electric
utility managers and directors from rural and urban utilities.
The committee then makes recommendations to the APA board of
directors on legislative positions. Also, the APA Managers'
Forum is a group of electric utility CEOs co-chaired by Clay
Koplin of Cordova Electric Cooperative Inc. (CEC) and Brad Evans
of Chugach Electric Association Inc. (Chugach), which also makes
recommendations to the board. Finally, legislative resolutions
are reviewed by the board and acted upon [slide 6]. Slide 7
listed APA's State Legislative Resolutions, which she
characterized as "a good combination of statewide, rural, and
Railbelt-focused issues." Ms. Enkvist pointed out that because
of the diversity within the membership of APA, the resolutions
are not ranked by priority.
8:16:42 AM
CO-CHAIR ISAACSON recalled there have been questions about
prioritization because the legislature will definitely have to
prioritize projects in light of the budget cuts. He asked
whether APA can determine which projects should go first of the
projects "in motion" this year, or in the future, as this
information from those who develop the state's resources would
be helpful to legislators.
MS. ENKVIST said sure, and added that APA wants to be part of
the process. The association believes the legislature's active
support of its position will strengthen the electric utility
industry's ability to provide safe, reliable, and affordable
power to Alaskans.
8:18:31 AM
CLAY KOPLIN, CEO, CEC, and co-chair of the APA Manager's Forum,
in response to Co-Chair Isaacson, noted that the Alaska Energy
Authority (AEA) Department of Commerce, Community & Economic
Development, carefully measures and communicates the successes,
failures, and implementation of its programs. His intent is to
give the committee a "qualitative feel" for how AEA programs
work for the electric utilities and other end-users, and for
their importance and effectiveness. He directed attention to
the programs that are supported by APA's resolutions and which
are primarily, but not exclusively, rural-focused programs
[slide 9]. The first resolution was in support of the
[Renewable Energy Fund Grant Recommendation Program](renewable
energy fund program), which is a brick and mortar program that
fits together with other programs to address different parts of
the energy problem. Mr. Koplin opined the renewable energy fund
program is effective, well-structured, well-governed,
successful, and follows an effective process. He advised that a
project can be successful in that it stays on schedule and
within its scope; however, if it is not successful on the
business side, such as creating jobs, improving the quality of
life in a community, and supporting the economy, it is not
reaching its goal. On the other hand, reducing the cost of
energy just a little can mean a lot to the economy of a rural
community. The structure of AEA's renewable energy fund program
and its advisory committee allows flexibility. In order for
legislators to prioritize the programs to achieve the best
business value, one must question how the projects and programs
align with business strategies throughout the state; for
example, each successful project in the renewable energy fund
program reduces demand on the Power Cost Equalization (PCE)
program. He cautioned against eliminating programs instead of
shrinking each program somewhat, so as to keep a balance between
brick and mortar projects, research and development, and PCE,
where applicable.
8:22:29 AM
MR. KOPLIN described the first of two renewable energy fund
projects in Cordova: Cordova received $8 million for the
Humpback Creek Hydroelectric Project which is now saving $1
million per year on diesel and thousands of dollars on
operations and maintenance costs, and bringing additional
capacity and lower cost energy for the fishing industry. This
change has resulted in growth for Cordova - in 2010 Cordova
reported the fifth largest dollar value of seafood delivered in
the U.S. - and additional raw fish tax revenues for the state.
CO-CHAIR ISAACSON surmised this is the direct result of having
cheap power.
MR. KOPLIN said yes, the cheaper hydroelectric (hydro) power
used by onshore processing plants turned "an economic corner" in
competition with off-shore floating processors that are
operating on diesel power. Sustainable business success was
achieved at a rate to processors of $0.20 per kilowatt hour.
REPRESENTATIVE HUGHES asked where Cordova ranks when comparing
the cost of power with that of urban and rural areas of the
state.
MR. KOPLIN estimated Cordova's residential rates are getting
closer to those of larger communities because rates in Fairbanks
and Homer are increasing due to the price of gas. Cordova's
residential rates range from $0.35-$0.40 per kilowatt hour. In
further response to Representative Hughes, he said Cordova
cannot store water for its run-of-the-river hydro projects thus
must use diesel by April of each year. He further explained
that the mountain water for the hydro system does not melt until
May or June.
8:27:19 AM
MR. KOPLIN stated that the second hydro project was not
successful; however, the use of a high risk technology is worthy
of notice. The project was organic Rankine cycle heat recovery
on a diesel unit. Although there were no loads to deliver the
heat to, the project is getting 5 percent extra power from a
diesel generator, which is a significant boon to fuel savings.
In addition, construction of the project took longer than
expected and was more expensive, but he credited AEA for its
intelligent use of the lessons learned. He turned to APA's
resolution in support of the Emerging Energy Technology Fund
(EETF), advising EETF is the high-risk piece in APA's energy
portfolio [slide 10]. He said it is appropriate for the
legislature to invest heavily in this fund, as Alaska faces
unique and varied challenges. There was a discovery that
bacteria in thermokarst lakes in the Arctic produce methane at
low temperatures. This is an opportunity for a process that
converts household waste to energy, thus EETF provided a grant
to fund a project in Cordova in partnership with Cordova
Junior/Senior High School, the University of Alaska Fairbanks
(UAF), the Alaska Center for Energy and Power (ACEP), the Denali
Commission, and CEC. The project determined feasibility on a
commercial scale and engaged the senior high school students in
a scientific study.
8:32:43 AM
REPRESENTATIVE HUGHES asked whether fish waste was utilized in
the project.
MR. KOPLIN observed that Copper River salmon are high in oil
content and Cordova has a fish oil plant to produce
pharmaceutical grade fish oil and organic fish fertilizer from
fish waste. He credited the lower cost of electricity in
Cordova for the plant's success. Mr. Koplin stressed EETF
brings a collaboration of the science community and private
partnerships, and also brings technical expertise to rural
areas, and recommended that the legislature fund the program at
the level requested by AEA. The next resolution was in support
of PCE, which he characterized as a survival program for
communities and many rural utilities [slide 11]. He recognized
the legislature's funding of PCE last year and urged for funding
this year, acknowledging that CEC seeks to eliminate its
dependence on the program in the future through new alternatives
and solutions. Cordova Electric has reduced its use of PCE by
one-half of the dollar value, even though fuel costs are six
times higher, and it is producing more energy.
CO-CHAIR ISAACSON questioned whether CEC continues to meet its
fixed-costs demand because of efficiencies and lower cost
operations.
MR. KOPLIN explained that CEC has kept its rates from rising in
accordance with the agreement for a state grant that funds will
benefit consumers when possible. In some areas, rates are up
because of investments in infrastructure that were needed to
keep up with the growth in the processing industry, but for the
most part, CEC is using less diesel fuel. Furthermore, the PCE
formula is such that CEC now qualifies for less funding.
CO-CHAIR ISAACSON related that some APA members have a harder
time meeting their fixed-cost obligations as a result of the
reductions in PCE.
8:37:18 AM
MR. KOPLIN agreed the reduction in PCE puts pressure on utility
rates. The goal of AEA and its programs is to reduce the cost
of energy, and PCE is part, but not all, of the solution.
CO-CHAIR ISAACSON asked how the more successful utilities help
out other members of APA that are less successful.
MR. KOPLIN responded that APA uses key networks such as AEA, the
Denali Commission, and the Alaska Village Electric Cooperative
(AVEC) to share information with rural communities that do not
have the expertise to own and operate their electric systems in
the most efficient manner. In addition, these umbrella
organizations spread information statewide.
MS. ENKVIST interjected that the APA Manager's Forum, which is
composed of member utilities' managers from around the state,
meets frequently and shares information, support, and sometimes
equipment.
MR. KOPLIN turned attention to the resolution in support of the
state funding match for the Denali Commission [slide 12]. The
Denali Commission is an entity with a focus on building rural
infrastructure such as improvements to tank farms to prevent
further site contamination. A high level of federal funding
from previous years is no longer available, but priority
projects needing over $400 million have been identified. As
cost-saving measures, the Denali Commission, AEA, and AVEC have
shared administrative and other resources, and he urged for the
state to demonstrate its commitment to the program by providing
funds matching the remaining federal funding.
8:43:16 AM
REPRESENTATIVE HUGHES inquired as to the amount of federal
funding the Denali Commission has received over the years.
8:43:24 AM
MR. KOPLIN answered that the Denali Commission has received $500
million to date; this year's federal funding is $13 million thus
a [200 percent] match is $26 million from the state. He
restated that the administration process is complete on the
identified projects. In response to Representative Hughes, he
said the state has contributed very little, but he was unsure of
the amount.
CO-CHAIR ISAACSON pointed out the resolution seeks a match of
200 percent.
MR. KOPLIN related APA's view that unless the state provides
matching funds, the federal funding will continue to shrink.
CO-CHAIR ISAACSON raised the possibility that PCE may have $56
million in its endowment, but only need $44 million. If that is
so, he asked whether the excess should be placed toward
inflation-proofing PCE, or toward [the Denali Commission match].
MR. KOPLIN referred to the situation with the Alaska Public
Employees' Retirement System and the Alaska Teachers' Retirement
System: skimming the earnings from a fund does not assure the
long-term viability of that fund.
CO-CHAIR ISAACSON suggested the answer is to move all of the
communities to success.
REPRESENTATIVE HUGHES inquired as to why Mr. Koplin believes the
federal money will stop coming eventually.
MR. KOPLIN said he has heard this anecdotally within the APA
network. The Denali Commission funding is discretionary.
REPRESENTATIVE HUGHES sought confirmation on the federal funding
situation, perhaps from the Alaska Congressional Delegation.
CO-CHAIR ISAACSON will confirm and report to the committee.
8:47:36 AM
JOE GRIFFITH, General Manager, Matanuska Electric Association
(MEA); CEO, Alaska Railbelt Cooperative Transmission & Electric
Company (ARCTEC), first responded to Co-Chair Isaacson's earlier
question, confirming for the committee that the Railbelt has a
mutual aid system through ARCTEC; in fact, ARCTEC is creating a
listing of the material and equipment available at the various
utilities. He then directed attention to the resolution to
create an energy policy [implementation plan] for the state
[slide 13]. The closest the state has to an energy policy
implementation plan is the renewable standard [passed in the
26th Alaska State Legislature]. Mr. Griffith said MEA believes
an energy policy implementation plan follows the policy,
although "one would hope those operate in lock-step." He
stressed that the industry needs financial support, beginning
with transmission in the Railbelt and statewide, because it is
hard to show a profit on a transmission facility, with the
exception of the Bradley Lake Hydroelectric Project, where
inexpensive power is delivered to big users. On the generation
side, the Railbelt utilities have invested over $1 billion, and
state funds for the transmission system are now needed.
CO-CHAIR ISAACSON mentioned that there is related proposed
legislation [HB 340] sponsored by Co-Chair Millett that is
scheduled for a hearing 3/19/14.
8:51:53 AM
MR. GRIFFITH added that the proposed legislation addresses the
independent system operator (ISO) concept for the Railbelt.
Returning to the resolution, he said it also urges funding for
fuel development and storage which is in response to the recent
near-crisis shortage in the natural gas supply to the Railbelt.
He explained that 80 percent of natural gas is generated and
there was insufficient storage to carry the Railbelt load. The
Railbelt utilities were nearly at the point of importing
liquefied natural gas (LNG) from Canada when Hilcorp LLC was
able to produce more gas from Cook Inlet - at a realistic price
- at least through March, 2018. There was also a legal question
that was resolved by the Attorney General of Alaska. The supply
situation was further supported by the Cook Inlet Natural Gas
Storage Alaska (CINGSA) facility which is owned by ENSTAR
Natural Gas Company and supplies gas to the utilities when
needed. Mr. Griffith reiterated that the PCE [formula] is based
partially on costs in the Railbelt, and increasing costs there
will affect utilities all over the state. He turned to the
resolution supporting capital funding for energy projects and
informed the committee that ARCTEC has requested state funding
for major energy projects because utilities large and small are
in need of capital [slide 14]. He acknowledged that the Power
Project Loan Fund through AEA provides some funding, and the
Sustainable Energy Transmission System and Supply (SETS)
Development Program through the Alaska Industrial Development
and Export Authority (AIDEA) was funded with $250 million;
however, the most recent estimate to fix the Railbelt
Transmission System was $900 million, the MEA natural gas power
plant under construction at Eklutna is costing $315 million, and
the costs are overtaxing to the industry. Mr. Griffith opined
it is easy for the state to back up the utilities' debt which
would allow the industry to achieve better terms and access to
funding.
8:56:15 AM
CO-CHAIR ISAACSON asked for the particulars of the Power Project
Loan Fund.
MR. GRIFFITH explained the Power Project Loan Fund only funds
projects costing less than $5 million; a loan amount above that
requires legislative approval. The program will fund
feasibility studies with good terms, but it is underfunded.
MR. KOPLIN expressed his belief that the fund has a $2 million-
$3 million balance.
MR. GRIFFITH, in further response to Co-Chair Isaacson, said for
projects over $5 million, it can be easier to get a grant than
to get multiple loans. The existing Power Project Loan Fund
works when funding direct loans to villages for small projects,
but that was not the original intent.
CO-CHAIR ISAACSON surmised if the program were capitalized at a
higher level, the loan fund would be useful since the state is
unable to fund all of the requested grants. Loan funds are
preferable because the pool of money will be replaced and
available for other projects - the day of grants has passed, yet
the infrastructure is needed.
REPRESENTATIVE HUGHES asked whether there is an annual deposit
made to the Power Project Loan Fund.
9:00:01 AM
MR. GRIFFITH recalled the capitalization was from a single
deposit. He agreed loans make sense, but if a loan program is
undercapitalized the first project uses the balance; originally
the SETS revolving fund was intended to hold $1 billion thus at
$250 million it is underutilized as well. The state's ability
to guarantee loans, such as was done for Bradley Lake
Hydroelectric, is sufficient for investment bankers to respond.
Mr. Griffith opined capitalization of the loan funds, and how
and who uses the funds, would fall under the state's energy
policy. He directed attention to the resolution supporting
construction of a natural gas pipeline, saying that electric
generation for half of the [population] is from of natural gas
[slide 15]. On the other hand, the state's energy policy must
also address the cost of fuel in rural areas. Bringing North
Slope gas to market will begin to solve the problem; however,
there must be a market bigger than the Railbelt utilities for
gas coming from a pipeline. If there is not an export market
for reasonable quantities of natural gas, the gas needs to be
processed into LNG in a plant that is currently "locked up" by
ConocoPhillips Alaska, Inc. Finally, the resolution supports
the use of Alaska royalty natural gas in communities along the
pipeline route, and he referred to a ruling from the Attorney
General of Alaska that this would qualify as "the highest and
best use for the state."
9:05:49 AM
CO-CHAIR ISAACSON provided his interpretation of Article 8 of
the Alaska State Constitution, and said the law states there can
be a negotiated contract with gas utilities to purchase gas at a
subsidized rate. As a result, there would be less money going
to the state treasury but the [savings from the lower cost of
energy] going to the community would allow the economy to grow
and wealth to be created by private investment rather than by
the state's "bankrupt philosophy, and that's bankrupting us to
this day."
MR. GRIFFITH turned to a resolution supporting utility efforts
to create a unified transmission system for the Railbelt [slide
16]. He explained that APA supports the efforts by the
utilities to follow an independent system operator (ISO) [which
manages transmission and coordinates the spot market] and
Transco [which owns the transmission and controls the system]
concept for the Railbelt. At this time the two biggest
utilities in the state, Chugach and MEA, are seeking the means
to make this happen. Anchorage Municipal Light and Power (ML&P)
has been invited to participate. He remarked:
And in that case then you would define the independent
system operator that ran the whole transmission
system, and you would define custody transfer points
somewhere on the Kenai and probably Healy, up north,
so north of the range does their own load balancing
and dispatching - south of some point on Kenai, either
Quartz Creek or Soldotna, Homer does its own, the rest
of us all fall under one Transco/ISO concept. And ...
the bill dropped in by Senator Micciche and by
Representative Millet does that, and it brings a study
forward that would answer the questions that many of
the agencies, most particularly the Regulatory
Commission of Alaska, who has no real idea how they
might be tasked to support that at this point.
MR. GRIFFITH stressed that the Railbelt does not have a robust
grid; in fact, $250 million will be saved each year if upgrades
are made so that the transmission system can use economic
dispatch. Even a "small fix" results in substantial savings to
members and fosters economic development, such as happened in
Cordova.
9:09:54 AM
CO-CHAIR ISAACSON asked whether a $250 million per annum savings
on a $904 million investment is "bankable" through private
financing.
MR. GRIFFITH cautioned that the limiting factors are the balance
sheets of the utilities; at this time, each utility has reached
its debt limits due to the construction of generation upgrades
which have cost $1.2 billion. Without the ability to shoulder
additional debt the utilities are "hamstrung." In response to
Co-Chair Isaacson, he said the hope is that with a large grant
the ISO/Transco entity can take care of the system and build the
improvements. Although AEA has reported that the utilities can
obtain financing with their [future] savings, he opined that is
"hopeless" without the ability to take on extra debt. Mr.
Griffith then turned to the resolution in support of using the
Bradley Lake [Hydroelectric] Model for financing state-owned
hydroelectric projects [slide 17]. Originally, the project at
Bradley Lake began with a 50 percent equity contribution from
the state and 50 percent debt to the utilities through state-
issued bonds. Throughout the lifetime of the project, the
utilities pay the same amount for power: approximately $50 per
megawatt hour. He characterized the project at Bradley Lake as
a "screaming success," and urged for the use of this financing
model again. Although hampered by extremely high project costs,
the public-private partnership concept works.
9:13:18 AM
MR. GRIFFITH directed attention to the resolution in support of
legislation to address metals theft. Because the cost of copper
is high, copper theft has increased and the losses and damages
are passed on to members. The Associated General Contractors
organization is also in support of this legislation. In
response to Representative Hughes, he said the copper is sold
through scrap dealers; the legislation under consideration
allows for the tracking of copper or other unique metals that
are marketed through scrap dealers.
MR. KOPLIN pointed out that underground cable cost $3 per foot
or $7,500 per reel.
MR. GRIFFITH said he was aware of five or six thefts this past
year; at MEA, there were three instances. In response to Co-
Chair Isaacson, he explained that the proposed legislation will
require a track on the affected metals.
9:19:00 AM
CO-CHAIR ISAACSON reviewed the following APA resolutions that
request full state funding: the Renewable Energy Fund; the
Emerging Energy Technology Fund; Power Cost Equalization; 200
percent state matching funds to the Denali Commission;
transmission lines; metal theft; the Power Project Loan Fund;
and the Sustainable Energy Transmission System and Supply.
MR. GRIFFITH added the University of Alaska Fairbanks (UAF)
power plant.
CO-CHAIR ISAACSON related a constraint on the UAF power plant is
that the federal government will not allow coal plants to exceed
their current permit, although there is pending legislation
encouraging the governor to examine this situation. As a matter
of fact, if the UAF coal plant were built at a sufficient size,
it would displace diesel fuel and would also provide excess
generation for other purposes. He confirmed that the
legislature seeks to fund the project, which is a combined heat
and power plant. Co-Chair Isaacson urged for long-term
solutions to the search for electricity because with enough
inexpensive electricity, Alaska can attract domestic businesses
such as the computer industry. He closed, "When we own the
resource, we set the price; therefore, we set the market
conditions, and we must start thinking that way, and that'll
help us to figure out how we fund all of these different funds
that have been created."
9:25:26 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 9:25 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| ENE - PRESENTATION - APA Resolutions 02282014.pdf |
HENE 2/28/2014 8:00:00 AM |
(H) ENE APA Resolutions 02282014 |
| ENE - PRESENTATION - APA Resolutions 2014.pdf |
HENE 2/28/2014 8:00:00 AM |
(H) ENE APA PowerPoint |
| Agenda - APA (02-28-14).pdf |
HENE 2/28/2014 8:00:00 AM |