Legislature(2015 - 2016)BUTROVICH 205
02/19/2015 01:15 PM Senate SPECIAL CMTE ON ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: "collaborative Approach to Unified System Operation for the Railbelt Region" by Xcel Energy. | |
| "natural Gas Distribution Build-out" Presentation by Enstar | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON ENERGY
February 19, 2015
1:16 p.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Peter Micciche, Co-Chair
Senator Bert Stedman
Senator Dennis Egan
MEMBERS ABSENT
Senator Lyman Hoffman
COMMITTEE CALENDAR
PRESENTATION: "COLLABORATIVE APPROACH TO UNIFIED SYSTEM
OPERATION FOR THE RAILBELT REGION" BY XCEL ENERGY
PRESENTATION: "NATURAL GAS DISTRIBUTION BUILD-OUT" BY ENSTAR
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
TERESA MOGENSEN, Vice President
Transmission
Xcel Energy
Minneapolis, Minnesota
POSITION STATEMENT: Provided an overview of Xcel Energy's
electric transmission system.
DANIEL KLINE, Director
Strategic Transmission Initiatives
Xcel Energy
Minneapolis, Minnesota
POSITION STATEMENT: Provided an overview of Xcel Energy's
electric transmission system.
CHERYL BREDENBECK, Director
Transmission Investment Development
Xcel Energy
Minneapolis, Minnesota
POSITION STATEMENT: Provided an overview of Xcel Energy's
electric transmission system.
JARED GREEN, President
ENSTAR Natural Gas Company
Anchorage, Alaska
POSITION STATEMENT: Provided a natural gas distribution overview
of ENSTAR's operations in Alaska and Heritage Gas' operations in
Nova Scotia.
JOHN SIMS, Vice President
Corporate Resources and Business Development
ENSTAR Natural Gas Company
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of ENSTAR's natural gas
operations for the Anchorage and Cook Inlet area.
ACTION NARRATIVE
1:16:27 PM
CO-CHAIR PETER MICCICHE called the Senate Special Committee on
Energy meeting to order at 1:16 p.m. Present at the call to
order were Senators Egan, Co-Chair Bishop, and Co-Chair
Micciche.
^PRESENTATION: "COLLABORATIVE APPROACH TO UNIFIED SYSTEM
OPERATION FOR THE RAILBELT REGION" BY XCEL ENERGY.
PRESENTATION: "COLLABORATIVE APPROACH TO UNIFIED SYSTEM
OPERATION FOR THE RAILBELT REGION" BY XCEL ENERGY.
1:17:42 PM
CO-CHAIR MICCICHE welcomed Xcel Energy (XE) to the committee
meeting.
1:18:04 PM
TERESA MOGENSEN, Vice President, Transmission, Xcel Energy,
Minneapolis, Minnesota.
1:18:16 PM
DANIEL KLINE, Director, Strategic Transmission Initiatives, Xcel
Energy, Minneapolis, Minnesota.
1:18:19 PM
CHERYL BREDENBECK, Director, Transmission Investment
Development, Xcel Energy, Minneapolis, Minnesota.
MS. MOGENSEN read an overview statement as follows:
We understand that Alaska is on a journey to transform
and better integrate its electrical energy
infrastructure, to be able to extract the full value
out of your past investments and pave the way for
future growth. We believe we have some perspective and
experience in resource that could be helpful to you
and our presentation today will cover a little bit
about Xcel Energy, our understanding of the Alaska
Railbelt situation, our experience in leading
collaborative transmission development, and some
thoughts on possible next steps.
She explained that XE is a major integrated utility in the Lower
48 and detailed the company's operations as follows:
· Four operating companies that operate in eight retail
states.
· Transmission in 10 states.
· Generation, transmission, distribution, and gas services.
· Number one wind energy provider with a strong renewable
energy component.
· Top five in energy efficiency programs and emission
reductions.
1:21:22 PM
She proclaimed that XE is a leader in transmission and detailed
as follows:
· Territory comprises about 19,000 line-miles, 1,200
substations, and assets in 10 states.
· Operate under two Regional Transmission Organizations
(RTO): Mid-Continent Independent System Operator (MISO) and
Southwest Power Pool (SPP).
· Colorado utility does not operate under a RTO.
· Operate under three North American Electric Reliability
Corporation (NERC) regions. NERC is the organization that
governs reliability standards performance.
CO-CHAIR MICCICHE noted that the presentation's title addresses
unified system operations. He referenced a slide in XE's
presentation and asked what the difference is between Unified
System Operations (USO) and Independent System Operations (ISO).
MS. MOGENSEN replied that the concept is essentially the same.
She summarized that regardless of who owns the generators or
transmission, the USO or ISO operator governs the overall
operation.
1:23:40 PM
SENATOR STEDMAN joined the committee meeting.
CO-CHAIR MICCICHE surmised that a USO has a tendency to make the
largest company the strongest and ISO has the ability to put
more controls in place so that smaller companies are not
disadvantaged.
MS. MOGENSEN specified that the ISO's board members are all
independent of the organizations.
She said XE has a significant capability in transmission,
construction, operations, and planning. She asserted that XE has
large capabilities that include in-house as well as outside
materials and services partners. She revealed that XE is
currently executing a $4.5 billion investment program. She
summarized that XE has the economies of scale and capabilities
to bring into play and assist Alaska.
1:25:36 PM
She noted that XE comes from a place of common values and
experiences that Alaska is currently focusing and working on.
She asserted that XE has the experience to assist Alaska as
follows:
· Started up ISO and USO organizations to speed
implementation.
· Executed large build-outs similar to the Railbelt by
getting participating utilities to collaborate while
maintaining autonomy.
· Possesses the ability to integrate renewables.
· Focuses on conservation and community.
MS. MOGENSEN summarized that XE hopes to align with Alaska's
direction and provide some of the benefit from XE's experience.
1:27:20 PM
CO-CHAIR MICCICHE remarked that Alaska is beginning to
investigate whether or not all of the Railbelt entities can work
together collaboratively. He noted that this year he had pulled
back a bill because he believed work is being done. He said he
is encouraging people to get to the table to address generation
and transmission infrastructure in order to operate as
efficiently as possible. He asserted that starting the
discussion depends on everybody coming to the table somewhat
equally and having their own interests protected. He stated that
resistance will occur if the little-guy is not included in the
discussion.
CO-CHAIR BISHOP asked if XE has done some ISO models.
MS. MOGENSEN answered yes, but noted that XE does not run the
ISO.
CO-CHAIR BISHOP asked what the delivery electricity prices were
before and after the ISO was set up.
MS. MOGENSEN answered that she does not have the figures.
CO-CHAIR BISHOP stated that the committee would like to see the
data and noted the importance in value for customers and
electrical utilities.
1:30:08 PM
MR. KLINE remarked that Alaska's Railbelt utility system is
essentially the result of individual planning. He explained that
utilities have the obligation to ensure that customer needs and
demands are met. He asserted that individually planning is not
an indictment of methods or the utilities, but a recognition of
what the utilities needed to do in the absence of a more
coordinated approach.
CO-CHAIR BISHOP pointed out that little independent power
producers were needed 50 years ago. He remarked that today is a
new day.
MR. KLINE said XE is aware that customers have cost concerns. He
noted that some Alaska customers are paying a monthly utility
bill that is higher than their mortgage payment. He pointed out
that the Governor has also cited concerns with the cost of
energy for all Alaskans, citing the Railbelt as well as rural
Alaskans. He asserted that the solution is a reliable,
dependable, regional transmission system with the dispatch of
energy on an economic basis to ensure that the least cost energy
is flowing to Alaska consumers.
MR. KLINE said the utilities seem to have begun the formative
steps toward establishing or making progress toward some sort of
USO approach. He noted that the Alaska Railbelt Cooperative
Transmission & Electric Company (ARTEC), a relatively new
organization, recently made a presentation to the Legislature
regarding a USO approach in the Railbelt. He remarked that ARTEC
presented guiding principles that are sound, reflect the
principles that are consistent with XE's experience elsewhere in
the country, and reflect a necessary foundation to moving
Alaska's energy discussion forward.
1:33:05 PM
He said the USO or ISO approach is a necessary step to ensure
economic benefits are realized. He set forth that another
necessary step is a reliable and dependable electric
transmission system. He noted that study efforts have identified
projects that can help address some of the Railbelt's
transmission needs. One plan that was conducted by the Alaska
Energy Authority (AEA) identified approximately $903 million of
transmission upgrades with an aggregate benefit-cost ratio of
3.4 times benefits to costs. He said the study demonstrates that
targeted strategic upgrades to Alaska's transmission system can
deliver significant benefit to customers.
He addressed support needed from policymakers, legislators,
regulators, and other state leaders. He stated that one
important fact is to ensure that the Regulatory Commission of
Alaska (RCA) is empowered with clear authority to enact the
goals that the Legislature establishes.
He noted that historically, some funding for a lot of major
energy infrastructure projects has come from state resources. He
said considering the state's current budget constraints, new
financing models are necessary from non-traditional approaches.
He stated that Alaska will and can implement something that is
unique to its situation and needs. He asserted that there are
lessons to be learned from elsewhere. He summarized that
solutions can be unique, but finding the right solution based on
other implementations must be found.
1:35:45 PM
MS. BREDENBECK announced that her presentation will be on XE's
case study of the CapX2020 Project that was organized in
Minnesota, Wisconsin, North Dakota, and South Dakota. She
detailed that CapX2020 predated over 10 years ago where all the
entities that owned transmission in the specified area were
trying to get organized. She specified that the transmission
entities knew projects needed to be built by coming together and
organizing, but there was worry about giving up control while
maintaining their paramount interest in serving their
obligations. She stated that XE sees a similar staging in Alaska
as what was experienced in the Midwest.
MS. BREDENBECK explained that CapX2020 started out as a
collaborative approach with four utilities who tried to figure
out how to build projects together without looking for someone
else to provide a solution. She said CapX2020 ultimately
expanded to 11 and included: electric cooperatives; municipal
generation and transmission owners; and investor owned
utilities. She stated that XE is trying to bring the lessons
learned from CapX2020 forward to Alaska and pointed out that XE
played a lead role in getting CapX2020's four projects
implemented.
1:38:34 PM
She explained that CapX2020's 11 entities invested $2 billion in
700 miles of 345 kilovolt (KV) transmission and 70 miles of 230
KV transmission. She said there was key alignment with
regulators and policymakers to make CapX2020's projects happen.
She stated that CapX2020's projects were very critical as the
foundation for future transmission. She said there was a no-
regrets approach adopted in looking at future scenarios to
ensure that the right amount was being built.
CO-CHAIR BISHOP asked to verify that the CapX2020 investment and
build-out was over a ten year period.
MR. KLINE answered that the construction investments were made
over a five year period and the projects were developed over a
period of about a decade.
CO-CHAIR BISHOP asked who was involved with CapX2020's
permitting.
MR. KLINE replied that the utilities were all involved, but XE
led many of the permitting efforts.
CO-CHAIR BISHOP asked how XE's relationship was with the federal
permit agencies.
MR. KLINE answered that he believed that XE's relationship with
the federal permitting entities was quite strong. He revealed
that one project required a 1.5 mile wide crossing of the
Mississippi River in the middle of an avian flyway, which
required a great deal of coordination with several permitting
authorities in order to accomplish that.
MS. BREDENBECK noted that there was a management committee
structure where all 11 entities participated to establish core
principles and project build-outs. Entities selected to be part
of one or more projects with each project having its own set of
agreements. She noted that there had been ownership of discreet
lines in the past, but CapX2020 projects were built similar to a
pipeline model where line investment correlated with a
percentage of ownership. She specified that there were four
types of agreements: ownership, construction management,
capacity exchange, operation and maintenance.
1:42:43 PM
She reiterated that CapX2020's key success factor occurred with
the 11 entities coming together which smoothed the way with
regulators and policymakers to move on with the construction
process. She remarked that the entity collaboration continues to
pay dividends in the region. She noted that as the projects near
completion, a study revealed that CapX2020's economic impact was
$4 billion. She revealed that one of the big drivers from the
legislative process which helped move CapX2020 along was the
passing of the 2005 Omnibus Energy bill, which allowed:
authorized return for construction work and progress, writer
incentive for the investor-owned utilities, and a forward
looking rate recovery.
MS. MOGENSEN stated that CapX2020's collaborate effort addresses
Co-Chair Bishop's comment about different sized entities having
to come together. She revealed that all of CapX2020's entities
ended up with a seat at the table with an ability to invest in
pieces of the combined infrastructure.
She detailed that the bulk of CapX2020 will be in service this
year and administered under the ISO as part of the regional
tariff, running on a system oversight control by MISO. She
pointed out that MISO is an example of how transmission can get
done in a way that involves all the utilities in the region and
meets the goals that are set by the policymakers.
CO-CHAIR BISHOP asked if excess capacity was built into CapX2020
for expansion.
MS. MOGENSEN answered yes. She explained that XE worked with the
regulators to authorize additional spending for additional
capacity.
1:46:04 PM
MS. MOGENSEN stated that XE has the ability to offer a long term
partnership with the Alaska utilities to transform the
Railbelt's transmission system and overall infrastructure. She
asserted that XE has a lot of experience in developing ISO
organizations and can help speed Alaska's implementation. She
disclosed that XE is willing and able to invest with the Alaska
utilities to construct the study-identified facilities to help
alleviate constraints. She set forth that XE, on an ongoing
basis, is willing to own transmission with the Alaska utilities
along the lines of the CapX2020 model and also facilitate
improvements in system operations.
She said the roadmap to implementation starts with the
Legislature, Alaska's energy policymakers that sets policy
direction for the state. She stated that the roadmap then moves
to a regulatory commission, the RCA, who is the state's policy
implementer. She remarked that should the Legislature choose,
RCA would create the USO/ISO for operational oversight and
control. She summarized that the roadmap also includes the
transmission owners who are investing in the transmission assets
and running the transmission system in addition to the
generation owners who are providing the energy supply options to
the buyers.
1:48:46 PM
She explained the Legislature's role as follows:
From a legislature perspective, you set the policy to
define the model that you want to have for Alaska; in
this case, the Railbelt electric system. There is a
report that will be coming out from the RCA, which is
validating whether the savings that were calculated,
and the original Railbelt report that came out in
2013, whether those are solid. You would then clarify
the RCA's authority to implement the model that you
choose and set the utility participation; it would be
important for all of the utilities to participate to
make that common tariff and common system approach
work.
She explained the RCA's role as follows:
From the RCA perspective, it would be defining the
specific attributes and implementing that USO,
validating and adopting the Railbelt Plan. You would
set resource planning requirements if you chose to go
that route and set reliability standards; these two
are often tasks, in our experience, that commissions
sets.
MS. MOGENSEN explained the USO's role as follows:
The USO would then perform the economic generation
dispatch basically on a hour-by-hour basis,
determining which is the set of generators that are
going to, together, generate the least expensive power
to meet the demand at any given time in consideration
of the constraints on the grid for moving power
around; that's economic generation dispatch. The
unified transmission tariff would be a single cost for
moving generation, moving power anywhere on that grid.
The USO would also administer the revenue requirements
associated with that tariff, so compensating all of
the owners for their assets utilization, administer a
generator interconnection process, and ultimately an
ongoing regional transmission planning process.
1:50:58 PM
She specified the transmission owners' role as follows:
The transmission owners would construct, operate, and
maintain the grid in accordance with whatever
requirements were set from a reliability perspective.
In the model that we have worked with, all the
utilities have an ownership in the assets and have a
role in the future transmission ownership.
She explained the generator owners' role as follows:
The generator owners negotiate power purchase
agreements with the buyers and they become a network
resource, meaning agree to be dispatched by that USO;
they would utilize the grid, pay that single
transmission tariff, and respond to the real-time
dispatch instructions. From an Xcel Energy
perspective, we would be able to provide some of that
experience to speed your implementation and also lead
the collaborative investment approach to implement the
Railbelt Plan with the Alaskan utilities.
SENATOR EGAN asked if the RCA or utilities would be responsible
for the transmission build-out requirements. He inquired if the
RCA would either be responsible or set the parameters.
MS. MOGENSEN asked if Senator Egan was saying the standards for
how the lines are constructed or for which lines are
constructed.
SENATOR EGAN inquired if the RCA or utilities would be
responsible for all of the applicable transmission requirements.
MS. MOGENSEN answered that usually the RCA would address the
transmission line specifics: what line is used, how the line
should be built, and then establish that there is a need and
direct the utilities to build them. She explained that the
utilities would come up with, in general, a standard for how the
line should be done to meet whatever capacity that the lines are
supposed to meet. She noted that a soon to be released study
will identify transmission line specifics that shows potential
savings.
SENATOR EGAN noted that the RCA had final approval in the past
and asked if the same would apply to the transmission lines.
MS. MOGENSEN answered yes.
CO-CHAIR BISHOP asked for a recap on his request for CapX2020
information that would apply to Alaska. He asked for examples
that address power rates before and after the CapX2020
implementation. He conceded that the variables between the
Midwest and Alaska will differ, but noted that his intent is to
see if Alaska is in the "ballpark" for possible savings.
MS. MOGENSEN replied that XE will supply the information. She
noted that savings after CapX2020 are an ongoing value
calculation.
1:54:59 PM
CO-CHAIR MICCICHE summarized that he will study the presentation
and contact XE. He asserted that he has to see a demonstration
for reduction in what ends up going to a ratepayer and not a
convenience for utilities. He pointed out that the Railbelt has
far too many utilities operating in an area that serves the size
of a medium sized, Lower 48 city. He remarked that one day he
would like to see one utility operate the system. He said XE's
proposal might be a first step. He noted that XE referenced
policymakers first in the process and asserted that utilities
need to be working together first to see if they can come up
with a collaborative path forward where the Legislature helps
with policy if needed. He opined that the Legislature has a
tendency to move in a direction that is counterproductive to
what is best for the ratepayers. He suggested that XE work with
the utilities and bring the Legislature a plan. He pointed out
that Alaska is different in almost every way, but in some ways
it's not. He summarized that he is looking forward to see what
XE can provide and asserted that their approach is the right way
to go if it brings the right players in the room, keeps the
state out of court, and keeps everybody working.
1:57:15 PM
CO-CHAIR MICCICHE announced that the committee will stand at
ease.
^"NATURAL GAS DISTRIBUTION BUILD-OUT" PRESENTATION BY ENSTAR
"NATURAL GAS DISTRIBUTION BUILD-OUT" PRESENTATION BY ENSTAR
2:00:05 PM
CO-CHAIR MICCICHE called the committee meeting back to order. He
announced that the next order of business is a presentation by
ENSTAR. He explained that the committee's interest is to
understand how natural gas delivery efforts start with ENSTAR.
2:00:54 PM
JARED GREEN, President, ENSTAR Natural Gas Company, Anchorage,
Alaska.
2:00:58 PM
JOHN SIMS, Vice President, Corporate Resources and Business
Development, ENSTAR Natural Gas Company, Anchorage, Alaska,
MR. GREEN revealed that ENSTAR is an indirect, wholly owned
subsidiary of AltaGas LTD. He said AltaGas is a diversified
energy infrastructure company with assets focused on natural gas
processing, power generation, and natural gas distribution. The
company has five different distribution utilities across Canada
and the United States. One of the utilities, Heritage Gas, is
located in Nova Scotia on Canada's east coast. He said his
presentation will address the experiences from the Nova Scotia
build-out. He conceded that there will be many differences
between Heritage Gas and what Alaska is facing with its Interior
energy project, but added that there will be a number of
similarities as well. He said the hope is that the presentation
can be of assistance and help out the Interior energy project as
it proceeds forward.
2:02:37 PM
MR. GREEN stated that he will review the basic economic
principles for a rate regulated utility, principles that frame
the discussion for the utility economics. He detailed that the
utility economics are fundamental for the encouragement of
investment into utility assets and in the cost of service
determination for the utility's toll.
He said generally, a public utility is a natural monopoly that
is subject to rate regulation. He explained that rate regulation
prevents a monopolistic control over the relationship between
the utility and their customers. The relationship between the
utility and customers has a regulatory body which limits the
revenue a utility can charge to what is deemed to be a just-and-
reasonable rate. He specified that the regulatory body has a
goal to provide incentives for investment as well as trying to
not unduly provide preferential, arbitrary, or unjust
discrimination. He stated that the goal is for tariffs that are
just-and-reasonable. He pointed out that "reasonable" is defined
as a rate commensurate with the service being received.
2:04:21 PM
CO-CHAIR MICCICHE asked if there is a typical rate of return
range and how the rate is determined. He inquired if rates of
return are different in Nova Scotia or southern California
versus southcentral or Interior Alaska.
MR. GREEN answered yes. He said there is a large range that ends
up being fairly involved with the cost of capital and risk. He
detailed that the risk a specific utility faces in their
operating environment really drives what is considered to be a
fair return on investment. He pointed out that Heritage Gas is
still in its "green field" stage where there is a fair amount of
risk. He specified that Heritage Gas' return on equity (ROE)
during its initial 8 years of operation was 13 percent, a return
deemed to be commensurate to the risk of a new utility build-
out. He added that 3 years ago, Heritage Gas' ROE dropped by 200
basis points by attracting more customers and reducing its
overall business risk as it becomes a more viable entity. He
stated that ROE examples for ENSTAR and its utility, Cook Inlet
Natural Gas Storage (CINGSA), are commensurate to operating in a
northern environment with a larger weather risk and being
farther from supply chains.
2:07:12 PM
CO-CHAIR MICCICHE asked if Heritage Gas has a similar regulating
agency.
MR. GREEN replied yes. He explained that the Nova Scotia Utility
and Review Board is a very similar regulating body to the RCA.
He detailed that utilities can be privately or publically owned.
Publically owned utilities include cooperative, municipal, or
government owned utilities. He noted that cooperative utilities
are owned by its customers. Private utilities are also
considered to be investor owned utilities and that is where
ENSTAR's role is.
2:08:59 PM
He explained that the regulatory process for an investor-owned
utility to determine just-and-reasonable rates is a very
involved and transparent process where the commission, in a very
public forum, gets to look at almost all of a utility's
financial and operating information. He detailed that the
regulatory process is a two phase process. The first phase
determines the allowable return for an investor-owned utility
from a holistic prospective. He revealed that the first phase is
very backwards from a traditional private business approach
where returns are determined from revenue minus expenses. For
rate-regulated utilities, total return is a bottom up approach
where an opportunity to earn a fair return on investment is
afforded. He noted that how an investment is capitalized, the
split between debt and equity, is also taken into consideration.
He revealed that ENSTAR's capitalization is 51 percent equity
and 49 percent debt, a split that gets looked at very heavily
through the regulatory process. He detailed that the
capitalization split is compared to entities with similar risk
profiles that prevents entities from taking on too much leverage
and having over earning capabilities on the equity component.
He said the second phase looks at the customer's perspective. He
explained that costs are allocated to the different types of
customers and the result is a toll to each of the customer
types. He specified that high volume industrial customers
require large transmission assets where residential customers
utilize service lines and mains. He summarized that fair
allocation is based on who is driving the largest cost.
2:14:44 PM
CO-CHAIR MICCICHE noted that someone famous to the capitol
building once said, "It's not fish companies that went into the
fish business, it's can companies; they just stick a little bit
of oil and some fish to sell you the cans." He stated that he
was asking a similar question pertaining to natural gas. He said
natural gas has a nice return, but noted that the industry does
have risks. He explained that understanding the many risks of
natural gas might be a way for folks to understand why the
potential companies are involved with the state in moving in a
direction that includes the Interior and relative compact
utilities like Seward. He asserted that ENSTAR's current return
does not really capture a lot of the operational risk.
MR. GREEN explained that a utility's shareholders take into
account the risks involved versus the return on equity. He
pointed out that risks include attracting additional customers,
having an outage in the middle of the winter, and an increase in
gas prices where fuel oil becomes a better value. He set forth
that a utility does have an economic obligation to serve once
the utility franchise is accepted in exchange for a fair return.
2:19:04 PM
He addressed Heritage Gas and explained that AltaGas was an
investor since 2002 and sole owner since 2009. He stated that
Heritage Gas was a greenfield-distribution utility that occurred
when the Maritime Northeast Pipeline was constructed to bring
offshore gas from Sable Island to the Boston market. He
specified that a lateral line was built to feed Halifax's Nova
Scotia Power's Tufts Cove 400 megawatt power plant. He asserted
that Heritage Gas would not have started without the pipeline
infrastructure that supplied secure and reliable gas.
2:21:45 PM
He revealed that Heritage Gas has invested over $220 million
during the past ten years with an annual 6.5 billion cubic feet
of natural gas flowing to 5,000 customers. He said Heritage Gas
has had decent success on the penetration for industrial and
commercial customers, but residential customer penetration has
been slower than what was originally expected.
CO-CHAIR MICCICHE asked what the price of heating oil is, were
there other options outside of heating oil, and is there an
entity that is willing to help with the cost of conversion. He
noted that Alaska has the Alaska Energy Authority (AEA) that
offers low cost financing for conversion.
MR. GREEN replied that there are some funds from an energy
conservation program that are aimed at lowering greenhouse gas
usage for homeowner and commercial entities. He conceded that
there has not been any government contribution for Heritage Gas'
build-out and funding has purely been from investment and tolls
paid by customers. He pointed out that AltaGas' Alberta utility
build-out in the 1960s and 1970s received significant government
contribution for a rural network build-out.
MR. GREEN specified that Nova Scotia's fuel source market
consists of: No. 2 fuel oil, electricity, propane, wood, and
natural gas. He noted that in 2013, Heritage Gas' 5,000
customers had $73 million worth of savings versus their costs
prior to conversion. He conceded that the natural gas conversion
cost for residential customers remains as a difficult hurdle. He
noted that Heritage Gas' large commercial customers such as
hospitals and schools have realized significant savings.
2:26:13 PM
CO-CHAIR MICCICHE pointed out Fairbanks' challenge with
emissions and noted that Heritage Gas' conversion saved 220,000
tons of greenhouse gas emissions.
SENATOR EGAN asked if Nova Scotia Power's electricity generation
is through natural gas or hydropower.
MR. GREEN answered that the main power generation through Nova
Scotia Power is a mix of natural gas, coal, and No. 2 fuel oil.
CO-CHAIR MICCICHE asked if the Maritime Northeast production
ever came on as expected.
MR. GREEN answered that Sable Island was producing as expected
early on, but production has significantly declined in recent
years. He noted that there is some new gas coming into the
pipeline from another offshore platform. He conceded that gas
may end up having to go south to north instead of its
traditional north to south. He explained that Heritage Gas does
have supply security by being connected to the North American
grid. He conceded that getting gas past the Boston market is
extremely expensive.
CO-CHAIR MICCICHE asserted that demand creates a market for
exploration and production. He noted that there are some folks
in the Cook Inlet that worry about future supply even though the
supply outlook improved dramatically in the last couple of
years. He pointed out that Fairbanks' dense population and heavy
industrial areas are a very attractive market. He asserted that
natural gas distribution expansion increases the motivation for
exploration and production.
2:29:33 PM
MR. GREEN replied that he agreed. He explained that Heritage
Gas' residential rate is $19.24 per 1,000 cubic feet (MCF) of
natural gas. He added that a fixed monthly toll charge makes the
total residential rate just under $21.00 MCF. He noted that the
toll covers the system build-out costs. He explained that the
Heritage Gas' toll is higher than what ENSTAR would have due to
pipeline build-out that occurred in the 1960s and 1970s versus
the 2000s.
CO-CHAIR MICCICHE stated that Heritage Gas' distribution charges
and gas costs are relatively high. He asked to verify that the
residential rate is $21.87 MCF and that the commercial or
industrial rates are higher.
MR. GREEN answered yes. He explained that the fixed charge is
heavily negotiated and takes into account costs, risks, and
demand.
2:32:38 PM
CO-CHAIR MICCICHE opined that Heritage Gas' high rate might be
part of the problem for conversion.
MR. GREEN agreed that conversion is impacted by the rates, but
noted that natural gas has offered significant discounts versus
fuel oil and propane. He conceded that the recent drop in oil
prices will make conversion more challenging.
SENATOR EGAN asked what the price per gallon for Diesel #2 is.
MR. SIMS answered that he did not know what the price is in
Halifax.
CO-CHAIR MICCICHE pointed out that a fair comparison would be to
covert to one thousand British Thermal Units (MBTU). He surmised
that Diesel #2 is right around $22 or $23 per MBTU.
MR. SIMS replied that he agreed.
2:34:32 PM
MR. GREEN noted that Heritage Gas has looked to expand to
communities that are not directly accessible by the normal
transmission pipe, communities that are too far away to make a
pipeline an economical investment to attach to. Heritage Gas
built out a Compressed Natural Gas (CNG) portion of the
business. He stated that CNG has been a nice little investment
for Heritage Gas to access some of the small communities that do
have a core anchor-load. He specified that an anchor-industrial
customer is required to warrant the CNG equipment investment. He
said the CNG program has been a successful side to the business
and its ability to grow out a bit more of the customer base and
bring some more natural gas to more people. He noted that CNG
does come with additional cost because of the added facilities
and transportation. He stated that applying CNG methodology has
been addressed for Alaska. He remarked that ENSTAR may very well
look at expanding out to some areas in Alaska where CNG would
make sense. He specified that CNG has a limited range because
there is not that much energy content per trailer, but it still
could be a value proposition to the customer base. He said using
CNG comes down to transport and distribution build-out costs.
2:37:28 PM
CO-CHAIR BISHOP asked what the kilometer make-or-break point is
for CNG delivery.
MR. GREEN answered 180 kilometers. He noted that the CNG range
has recently grown due to advances in tube technology, steel
versus composite. He explained that composite tubes are lighter
and allow more CNG to be shipped on the roads.
SENATOR EGAN asked what Mr. Green considered to be a small
community. He inquired if Juneau would be considered a small
community at 35,000.
MR. GREEN opined that he would not consider Juneau to be a small
community. He stated that Seward would be an example of a small
community, but one that is large enough to warrant facilities
and pipelines.
SENATOR EGAN asked if CNG trailers can be transported by barge.
He surmised that barge service would allow for CNG to be
delivered at greater distances.
MR. GREEN answered yes. He explained that there has been some
old gas supply discussions where barged CNG on a larger scale
was looked at as a potential supply alternative.
SENATOR EGAN opined that savings could be realized where tugs
could be propelled by LNG or CNG.
2:41:06 PM
CO-CHAIR MICCICHE noted that the Legislature has a tendency to
pick the wrong direction and throw a lot of money at the same
decision for years and get further off base every time. He
stated that the committee's hope is for people to pullback and
figure out what works best economically for various communities:
propane, CNG, LNG, or a pipeline. He asserted that the
Legislature gets in the way of energy decisions. He remarked
that the Fairbanks market is probably at the point where someone
is probably willing to take on the market if the Legislature
would get out of the way and allow for an entity to evaluate the
cost and move forward. He said in other communities the
Legislature may have to be involved in some subsidies that bring
down the cost of energy. He noted that the state has a goal of
25 percent renewable by 2025 and the state was currently in the
low 20 percent range. He remarked that discussions that address
what works best for communities needs to happen statewide. He
explained that his intent in the meeting is to look at a build-
out in hypothetical communities that are similar to Fairbanks
and the other like Seward. He said the Fairbanks example
addresses the Interior and Seward might look a lot like Juneau,
Sitka, or other coastal communities that might have coastal
deliveries of propane, CNG, or LNG one day.
SENATOR EGAN asked what the average price per kilowatt is.
MR. SIMS replied that the price range is $0.10, but continues to
go up.
SENATOR EGAN asked if the average price is the commercial rate.
MR. SIMS answered that the price is the residential rate. He
noted that Chugach may be less.
2:43:37 PM
MR. SIMS said Homer was a good example of state and local
governments working together with the utilities to serve a
community. He explained that in 2009, Anchor Point Energy found
a commercial amount of gas in the North Fork Unit. ENSTAR
extended its transmission system 21 miles from Ninilchik down to
Anchor Point to access the natural gas and make the pipeline to
Homer a possibility. Homer and Kachemak City contacted ENSTAR
and asked for an estimate to get gas down to the Homer area,
which was $10 million. Homer was granted $8.15 million by the
state to help go towards a trunk-line. He detailed that ENSTAR
estimated that the complete distribution main build out was 70
miles and $15 million for Homer, 9 miles and $1.5 million for
Kachemak. Homer voters approved the Homer Special Assessment
District (HSAD) where individual property owners are assessed a
certain percentage of the project cost. The assessment was
estimated to be $3,200 per lot, allowing Homer to obtain a loan
from the Kenai Peninsula Borough to pay ENSTAR for the
distribution system installation.
2:46:49 PM
SENATOR EGAN asked if HSAD was a Local Improvement District
(LID).
MR. SIMS answered yes. He detailed that ENSTAR installed 70
miles of distribution main in two years, total project cost was
$12.1 million. He explained that the City of Kachemak decided to
pay themselves for the installation of the distribution system:
9 miles, total cost $1.2 million. He added that to drive the
conversion rate, Kachemak's residents were paid $500 for service
line and meter setup. He revealed that Kachemak's conversion
rate was nearly 100 percent. He explained that Homer's
conversion rate was very good for a two year time frame, a rate
similar to a year-five projection. Approximately 1,300 customers
converted out of 2,500. He noted that a number of customers have
paid for their service line and meters, but have not converted
yet, possibly due to the conversion cost or a shortage of
plumbers in the area. He said ENSTAR is anticipating a 60 to 70
percent conversion rate in Homer.
CO-CHAIR BISHOP asked what the burner-tip price in Homer is.
MR. SIMS replied that the rates for Homer are postage-stamp
rates, just like anywhere else on ENSTAR's system. He noted that
Homer pays for a $1.00 per MCF surcharge that goes to pay off
the project's remaining cost. He said Homer is paying about $11
per MCF.
CO-CHAIR MICCICHE asked if the $11 MCF includes the $1.00
surcharge.
MR. SIMS answered yes.
2:49:57 PM
CO-CHAIR MICCICHE noted that Homer's expansion essentially took
place in one year.
MR. SIMS specified that Homer's expansion was two years: the
city core in the first year, the outer areas and the spit in
year two. He said Kachemak City was done in year one.
CO-CHAIR MICCICHE specified that the trunk-line was a one year
project that connected Homer with the rest of the system. He
asked what the diameter is for the trunk-line.
MR. SIMS answered that the trunk-line's diameter started at
eight inches and went down to six inches in Homer down to
Kachemak.
CO-CHAIR MICCICHE confirmed that people have reduced their
heating bills and the conversion will continue. He asserted that
an accelerated conversion to make the project work will depend
on natural gas' price being at a point where even senior
citizens see the benefit of conversion. He remarked that only
converting 30 year olds will make the project's math upside
down. He said his intent was to get people to think about all of
the little pieces that go into conversion and take into account
the costs that make the project mathematically work. He noted
that Mr. Green talked about an important fact that industrial
users generally pay the bulk of initial service and everyone
after that essentially gets a better deal.
2:52:38 PM
MR. GREEN agreed that having a large anchor customer is the
underpinning of expansion. He specified that customers coming on
are not getting a discount or deal, but they are getting the
benefit of the scale that a large customer brings in cost
sharing.
CO-CHAIR BISHOP remarked that a project might not even happen
without the anchor tenant.
MR. GREEN answered correct.
MR. SIMS added that high schools and shopping malls are looked
at in smaller communities that don't have industrial load. He
explained that a large customer on the end of an extended main
brings service to the other folks.
CO-CHAIR MICCICHE pointed out that bringing the costs down for
municipal structures benefits everyone. He noted that during the
two years when the project's funds were being secured, the Kenai
Peninsula Borough would have saved $2 million just on municipal
building fuel costs.
2:54:23 PM
CO-CHAIR MICCICHE remarked that he may have ENSTAR come back to
the committee. He stated that his intent is to get all of the
players that might take a role in getting a reliable source of
natural gas to the Interior. He said he thinks there is an
interim way of getting natural gas to the Interior that is
permanent and reliable. He stated that he has been pushing
pipeline transmission to Fairbanks and the Interior. He
reiterated that he may have ENSTAR back to talk about how the
pieces might need to come together in the future if pipeline
transmission is going to happen in the Interior. He added that
the future discussion will bring some smaller coastal
communities and remote places to the table to address conversion
to CNG or LNG. He asserted that $3.00 No. 2 fuel oil is not
going to stay forever when previous prices ranged from $5.00 to
$8.00. He summarized that a reliable and long term solution is
needed.
2:56:15 PM
There being no further business to come before the committee,
Co-Chair Micciche adjourned the Senate Special Committee on
Energy hearing at 2:56 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Xcel Energy Collaborative Approach to Unified System Operations ver 2.pdf |
SNRG 2/19/2015 1:15:00 PM |
|
| ENSTAR Development of a Natural Gas Distribution Utility.pdf |
SNRG 2/19/2015 1:15:00 PM |