Legislature(2017 - 2018)BUTROVICH 205
01/25/2017 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| Update: Alaska Stand Alone Pipeline Project (asap) | |
| Overview: Alaska Affordable Energy Strategy | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
January 25, 2017
3:30 p.m.
MEMBERS PRESENT
Senator Cathy Giessel, Chair
Senator John Coghill, Vice Chair
Senator Natasha von Imhof
Senator Bert Stedman
Senator Shelley Hughes
Senator Kevin Meyer
Senator Bill Wielechowski
MEMBERS ABSENT
All members present
OTHER LEGISLATORS PRESENT
Senator Tom Begich
COMMITTEE CALENDAR
UPDATE: ALASKA STAND ALONE PIPELINE PROJECT (ASAP)
- HEARD
OVERVIEW: ALASKA AFFORDABLE ENERGY STRATEGY
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
FRANK RICHARDS, Sr. Vice President
Program Management
Alaska Gasline Development Corporation (AGDC)
POSITION STATEMENT: Provided a brief update of activities
associated with the ASAP Project.
MIKE THOMPSON
Environmental, Regulatory, and Land Manager
Alaska Stand Alone Pipeline (ASAP)
Alaska Gasline Development Corporation (AGDC)
Anchorage, Alaska
POSITION STATEMENT: Commented on the ASAP Project.
KATIE CONWAY
Government Relations Manager
Alaska Energy Authority (AEA)
Department of Commerce, Community and Economic Development
(DCCED)
POSITION STATEMENT: Presented overview of the Alaska Affordable
Energy Strategy (AkAES).
CADY LISTER, Chief Economist
Alaska Energy Authority
Department of Commerce, Community and Economic Development
(DCCED)
POSITION STATEMENT: Presented overview of the Alaska Affordable
Energy Strategy (AkAES).
NEIL MCMAHON, Planning Manager
Alaska Energy Authority (AEA)
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding the Alaska
Affordable Energy Strategy (AkAES).
ACTION NARRATIVE
3:30:15 PM
CHAIR CATHY GIESSEL called the Senate Resources Standing
Committee meeting to order at 3:30 p.m. Present at the call to
order were Senators Stedman, Coghill, Meyer, Wielechowski, von
Imhof, and Chair Giessel. Senator Hughes arrived shortly
thereafter.
^Update: Alaska Stand Alone Pipeline Project (ASAP)
Update: Alaska Stand Alone Pipeline Project (ASAP)
3:31:13 PM
CHAIR GIESSEL announced the first order of business would be the
Alaska Stand Alone Pipeline Project (ASAP) update, which was
created with the passage of HB 4 in 2013. She recognized Senator
Begich in the audience and welcomed Mr. Richards to give his
presentation.
FRANK RICHARDS, Sr. Vice President, Program Management, Alaska
Gasline Development Corporation (AGDC), said he would provide a
brief update of activities associated with the ASAP Project. He
said ASAP was initially charged with looking at an in-state
natural gas pipeline to be able to deliver gas for Alaskans.
3:33:28 PM
The work effort that developed was a 36-inch diameter pipeline -
the result of the Alaska Gasline Inducement Act (AGIA) project
under contract with TransCanada. The project was to install a
pipeline and a gas conditioning facility on the North Slope that
would produce utility grade gas. The gas would essentially
provide Southcentral Alaska with both home heating and power
generation. In addition to the 36-inch pipeline was the
requirement to also provide natural gas in a lateral to
Fairbanks.
With the passage of HB 4, the state granted the Alaska Gasline
Development Corporation (AGDC) a right-of-way (ROW) for the
pipeline. The work that ensued through 2014 was the pre-front
end engineering and design (FEED) and FEED level of effort that
looked at engineering but also developed the cost of $10 billion
for constructing this project. A project execution plan was
developed to accomplish the work.
3:35:16 PM
MR. RICHARDS stated that they have been following through with
the Army Corps of Engineers (COE) for completion of a
Supplemental Environmental Impact Statement (Environmental
Impact Statement (SEIS), because of design changes made after
the work effort, because the premise had changed to provide gas
to Alaskans at the lowest possible cost. Therefore, the design
premise was changed from a very high-pressure line for natural
gas liquids to a lower-pressure line with utility grade gas.
This significantly reduced the facilities' footprints in terms
of pressurization and number of compressor stations. The result
would be a record of decision of a federal right-of-way grant to
AGDC, which would give them a continuous right-of-way across
both state and federal lands from Prudhoe Bay into Southcentral
Alaska.
MR. RICHARDS said AGDC is using all the work efforts from the
ASAP and the AKLNG project so that work efforts and costs are
not duplicated.
3:37:14 PM
The Clean Water Act (CWA) Section 404 application essentially
triggers the need for an environmental document under the
National Environmental Policy Act (NEPA). The ASAP final
Environmental Impact Statement (EIS) was completed in 2012, but
no record of decision was published. This is because the design
premise was changed to be able to bring gas to Alaskans at a
lower cost with lower-pressure, utility-grade gas. In the
interim to optimize the project, Mr. Richards said, they worked
collaboratively with former partners on the AKLNG Project to
find common alignment between the two different projects, so
work would not have to be duplicated.
MR. RICHARDS said the Army Corps of Engineers (COE) has a third-
party contractor incorporating agency comments and AGDC
responses into the draft SEIS chapters in preparation for its
publication. The draft SEIS should be out to the public in the
middle of this year with a final publication in December of this
year, and a record of decision on March 15, 2018.
3:41:09 PM
Additional analyses and reports are required by the COE on very
specific topical information from design premise for strain-
based pipeline, to cost above ground versus below ground, to
construction methodology. Initially, it wasn't believed that
these additional proposed changes to the design would not
trigger the need of an SEIS> However, it was through answering
these questions that an SEIS was necessary. These questions are
very similar to the ones the AKLNG Project will also be
receiving with the resource reports they talked about Monday.
3:41:29 PM
MR. RICHARDS said the DNR granted ASAP a right-of-way in 2011.
An amendment to it was necessary due to the land exchanges that
were undertaken in the intervening years for the revised
alignment; public comment closed on January 18, 2017 and DNR and
AGDC will sign the amended right-of-way lease in the near
future. In 2016, SB 70 allowed DNR to issue a right-of-way for a
natural gas pipeline across Denali State Park and other
recreation areas along the alignment all the way through to the
proposed liquefaction site in Nikiski. The current right-of-way
amendment will incorporate these provisions.
3:42:53 PM
The Pipeline engineering team continues to assist the
Environmental, Regulatory, and Lands (ERL) team in addressing
Requests for Information (RFIs) and comments from the COE, other
agencies, and the public.
The Project Service group is tracking costs and schedules, but
is also providing a robust electronic document management system
which now acts as the conduit to the library of all the in
information from TransCanada, the Alaska Pipeline Project,
AKLNG, and the ASAP Project.
3:44:11 PM
Construction management and the facilities management groups
have no activity on facilities.
3:44:19 PM
He presented the ASAP Project Schedule as follows:
• Feb. 20, 2017 - Corps of Engineers Prepares Complete Draft
SEIS for Final Review.
• April 3, 2017 - Corps of Engineers initiates NHPA Sec.106
Consultation Meetings.
• May 12, 2017 - Public Notice of Draft SEIS and 404 Clean Water
Act Application.
• May 15 - June 23, 2017 - Public Meetings for Draft SEIS.
• August 25 - December 12, 2017 - Corps of Engineers Prepares
Final SEIS.
• December 15, 2017 - Public Notice of Final SEIS.
• March 15, 2018 - Record of Decision (Permit Decision).
3:45:42 PM
SENATOR WIELECHOWSKI asked if the SEIS and record of decision
can be used, or at least be helpful, for the AKLNG project.
MIKE THOMPSON, Environmental, Regulatory, and Land Manager,
Alaska Stand Alone Pipeline (ASAP), Alaska Gasline Development
Corporation (AGDC), Anchorage, Alaska, answered that the purpose
and need of the two projects are very different, but there might
be a mechanism to pair the information from one project to the
other. The NEPA process will need to be reevaluated.
SENATOR VON IMHOF asked if all the 500 cubic feet (mcf/d) of gas
was for in-state consumption or would some of it be sold and,
building on Senator Wielechowski's question, is there any way to
use any of the ASAP permits for the AKLNG Project.
MR. RICHARDS answered that of the 500 mcf/d approximately 250
mcf/d is projected for in-state use, with the high of 3000 mcf/d
with cold snaps such as the recent weather spell, leaving the
same amount to be sold or to be used by other entities. That
will be determined by the market and the willingness to buy the
gas.
The Bureau of Land Management (BLM) right-of-way will come to
AGDC and with it comes the contiguous right-of-way across state
and federal lands from Prudhoe Bay all the way down to Trapper
Creek and across the Susitna River. That is a "very big prize"
going forward for AGDC.
3:48:42 PM
MR. THOMPSON said another key permit that would be very valuable
to the AKLNG Project if ASAP acquires it is the 404 permit
involving analysis of impacts to wetlands. Determining what
lands fall under the 404 jurisdiction is a very significant,
time-consuming process, and once that evaluation is completed,
the COE would be obligated to use that determination for another
project.
SENATOR STEDMAN said the state has sunk hundreds of millions in
incentives in Cook Inlet already and asked how the two regions
will be worked together so as to not leave those hundreds of
millions of dollars on the table.
MR. RICHARDS answered that the Cook Inlet incentives were
successful and have resulted in some significant finds, but he
didn't know how the existing fields will taper off and how
future investments will replenish that decline. The ASAP project
was started when Cook Inlet was in a steep decline and there was
a projected need to displace that energy source, and it provides
an opportunity to supplement the businesses in and around Cook
Inlet that have been utilizing the additional gas resource:
Agrium for fertilizer and gas liquefaction at the existing
liquefaction plant.
3:52:02 PM
SENATOR STEDMAN said Cook Inlet has years of gas supply in front
of it and it appears there is no shortage in the Anchorage area
now or in the reasonably near future. At some point from a
policy perspective a discussion needs to occur, so a well-
intended project doesn't negatively impact other regions of the
state as markets change.
CHAIR GIESSEL agreed and added that Furie is meeting demand for
Homer electric and BlueCrest has a gas discovery offshore; they
simply need a market to make it economic to develop. She
referred to language on slide 3 and asked why they want to
"quickly advance" the record-of-decision timeline. If this is a
backup project, why the urgency?
3:53:44 PM
MR. RICHARDS answered that they want to conclude the
environmental regulatory process so that they don't spend any
more of their limited funds than necessary.
CHAIR GIESSEL referred to slide 5 and said very soon they will
have a complete right-of-way for this project and asked why all
of it is needed now if it is a backup project.
MR. RICHARDS answered that it is an asset that comes to AGDC
under the auspices of ASAP and it could be used on any project.
3:55:20 PM
SENATOR WIELECHOWSKI said it seems to him that this project has
become somewhat redundant and he wondered how much money was
being spent on it at this point. In years past, and when this
project was created, there were Cook Inlet shortages, but now
the mean estimate of gas in Cook Inlet is 9 trillion cubic feed
(tcf), an enormous reserve, more gas than has been used there in
50 years including historic use of Agrium and shipping LNG. To
him the value is in the permits being transferable, but other
than that, the project appears redundant. He wondered what the
budget was for ASAP.
MR. RICHARDS asked if he wants the current year's authorized
budget and future projections of expenditure for this project.
SENATOR WIELECHOWSKI said yes.
MR. RICHARDS answered that ASAP was given a budget of
approximately $10 million for FY17; $3.7 million is committed to
work contracts and approximately $1.2 million has been expended,
leaving approximately $2.4 million for the remainder of the
fiscal year.
CHAIR GIESSEL thanked Mr. Richards and said she appreciated the
update.
^Overview: Alaska Affordable Energy Strategy
Overview: Alaska Affordable Energy Strategy
CHAIR GIESSEL said the next item on the agenda was an overview
of the Alaska Affordable Energy Strategy (AKAES). When SB 138
passed in 2014 there was a fundamental question of equity
between folks on the Railbelt and folks far from the proposed
pipeline. So, Senate Finance passed Section 75, which required
solutions to be found for the rest of Alaska that would not
directly receive energy from the project. The Alaska Energy
Authority (AEA) was instructed to create this report and that is
what they will hear today.
3:59:19 PM
KATIE CONWAY, Government Relations Manager, Alaska Energy
Authority (AEA), Department of Commerce, Community and Economic
Development (DCCED), introduced herself and said they were very
excited to present the Alaska Affordable Energy Strategy (AkAES)
to the committee. She said the AEA is a public corporation whose
mission is to reduce the cost of energy in Alaska. They could
talk about the work they do to meet that mission, but today they
want to focus on this two-plus year project. The presentation is
in two parts; the first is background, which she would present,
and Ms. Lister would present the actual recommendations. She
said Neil McMahon, AEA Planning Manager, was on the phone and he
was the principle investigator on this project.
4:01:49 PM
She noted a larger concentration of lights along the Railbelt
(slide 2) and said that despite the small size of these
communities and the remote locations, the fact is that they are
isolated grids and are not connected to one another.
MS. CONWAY said it's easy to take for granted the ease with
which people simply flip a switch and light homes and
workplaces, but in reality the energy systems generating and
distributing that power are complicated, require a lot of work
to sustain, and unlike systems along the Railbelt, because they
are not connected to a grid, they lack backup. Power and heat,
is the backbone on which all the communities rely. Energy is not
a luxury; it's a fundamental need.
4:02:43 PM
In much of Alaska, energy infrastructure is made up of bulk fuel
tank farms (heat and electricity), power generation facilities,
and electrical distribution. Energy infrastructure is critical
and needs continuous improvement and replacement as old things
reach the end of their expected useful lives; and Alaska's is
aging.
For a sense of the capital cost associated with this
infrastructure, they used the Rural Power System Upgrade Program
which serves communities of only up to 2,000 people to estimate
that the yearly capital costs to merely replace electrical
generation and bulk fuel storage as they reach the end of their
useful lives (about 30 years) is more than $30 million not
including personnel, operations, and maintenance or the diesel
stored and burned in these facilities.
4:03:52 PM
MS. CONWAY said over the last 15 years, approximately $1 billion
both federal (approximately three-quarters) and state dollars,
has been spent on energy projects in non-Railbelt Alaska. Today
the situation is different. While the need for continuing
investment remains relatively constant, the availability of
public funding to help meet that need is decreasing. So,
communities and utilities have to find other ways to continue to
deliver safe, stable, reliable and affordable energy services in
programs. This transition will be difficult for some
communities, so it is important to ensure a framework is in
place to maximize federal dollars, encourage private sector
investment, prepare communities and utilities for using debt
financing rather than exclusively relying on public funding to
implement projects, ensure proper project selection given the
unique circumstances of any individual community, and provide
technical assistance and consumer protection. This is what the
Alaska Affordable Energy Strategy addresses and to think of the
Alaska Affordable Energy Strategy (AKAES) as a framework for
changing the way critical energy programs and services are
provided, a weight that has been heavily dependent on generous
state and federal grants.
MS. CONWAY said to accommodate the necessary transitions of
Alaska's budgetary reality when making energy decisions, the
whole community needs to be considered in determining which
energy cost solutions make the most sense at that point in time,
and the AkAES framework includes recommendations for doing that.
It is a strategic plan to improve the methods by which the state
works with non-Railbelt communities and utilities to identify,
evaluate, develop, and maintain cost-effective energy solutions.
Though the Alaska Affordable Energy Strategy originated as a
part of the gasline legislation in 2014, it has become a
valuable effort that exists entirely independent of the gasline,
Ms. Conway said, and SB 138, asks AEA to develop a plan of
infrastructure that would deliver more affordable energy to
areas of the state that are not expected to have direct access
to a North Slope natural gas pipeline. AEA worked with AGDC to
determine who would directly benefit from a gas pipeline, which
will be consumers along the Railbelt, and the Affordable Energy
Strategy therefore, applies to everywhere else including
Southeast Alaska.
They were also asked to consider existing state energy policy,
such as the 15 percent by 2020 and 50 percent by 2025 renewable
and energy efficiency goals established in 2010.
MS. CONWAY pointed out a few key points about this project:
first that only non-Railbelt regions make up the study area.
This was a data and research-based project conducted over two
years and this presentation is a very high-level summary of that
detailed and dense information. She said some people may expect
to see a list of capital projects, but they didn't do that.
Given the uncertainty of funding a set list of projects, AEA
focused instead on improving the decision-making process and
expanding the availability of financing tools for energy
projects.
4:07:58 PM
The recommendations will come in a linear format for ease of
explanation, but it's better to think of them as a web because
they are all connected to one another. Further, through the
recommendations only target non-Railbelt Alaska and the benefits
of implementing some or all of them could be state-wide, because
every dollar they stretch allows more to be done with less. This
means it's good for everyone no matter where they live.
A wildly variable set of circumstances was found to influence
energy costs among study area communities which ranged from
small, isolated villages relying 100 percent on diesel for power
and heat to larger interconnected cities with nearly 100 percent
renewable electricity generation. The median community size
within the study area is 300 people, and 76 percent of those
communities are not connected by road or marine highway. The
median electric rate is 62 cents Kwh (before PCE) and heating
oil cost is $4.55/gallon (a gallon equivalent of natural gas in
Southcentral costs less than $1/gallon).
4:09:01 PM
MS. CONWAY said whether state dollars or federal, local utility
or utility customer, the AkAES aims to ensure all those dollars
are spent to maximize their value. Implementing these
recommendations will:
1. Improve project selection ensuring the most cost-effective
projects are those done first.
2. Diversify financing options, which removes at least some of
the difficulty currently prohibiting some communities from
developing some projects.
3. Encourage best financial, managerial and technical practices
through requirements and incentives that will lead to stronger
accountability and maximize the useful life of assets.
She said over the last two years, AEA considered more than 150
reports and studies from within and outside Alaska and the
analysis of more than 3,000 potential energy infrastructure
projects in Alaska, including projects from the Renewable Energy
Grant Fund, the Rural Power System Upgrade Program, the Home
Energy Rebate Program, Residential Weatherization, bulk Fuel,
and other publically available feasibility reports. This project
also incorporated the work of the recently completed Regional
Energy Plans, and the community-vetted priorities developed
through an extensive stakeholder engagement process. Finally,
this project commissioned specific studies to fill in gaps of
knowledge related to end-use efficiency, liquefied natural gas,
fuel delivery and storage, utility management structures, and
barriers to private investment in rural Alaska. The Alaska
Affordable Energy Strategy looked at the entire energy system
within the study area and not just specifically at programs AEA
operates.
She said all this information was built into a model called the
"Alaska Affordable Energy Model" to compare different energy
infrastructure options that can be used to help communities or
policy makers better identify the most cost effective next
projects to consider.
4:11:15 PM
For this study and the following recommendations, the term
"affordable" is interchangeable with "cost effective," meaning
essentially the lowest cost option given the unique
circumstances of a specific place at a specific moment in time.
AEA found that it would be difficult to dramatically lower
costs, but there are plenty of opportunities for improving cost
effectiveness. Most noteworthy is energy efficiency for both
residential and non-residential buildings and facilities. This
is most cost common, has the highest expected savings and is
consistently the most cost-effective opportunity across the
study area. Many of the strongest opportunities for more
affordable energy, such as non-residential efficiency, are
difficult to capture within the current system of delivering
energy programs and services and given the variability of cost-
influencing conditions and the circumstantial nature of
affordability there are no one-size-fits-all solutions.
4:12:24 PM
CADY LISTER, Chief Economist, Alaska Energy Authority,
Department of Commerce, Community and Economic Development
(DCCED), introduced herself and continued the presentation. She
said the AkAES proposes an evidence-based management framework
to guide decision-making. The recommendations are built on a
foundation of collaborations, stakeholder engagement, and
comprehensive research and are organized into four categories or
pillars (slide 14). They are:
1. Identification of cost-effective projects
2. Project financing for those cost-effective projects
3. Creating systems of accountability and sustainability
4. Funding of programs
She said these pillars all support the goal of providing safe,
stable, reliable, and affordable energy. Building off the
successes of Alaska's many past and current energy programs, and
recognizing that the levers available to state government to
influence local actions are limited, all the recommendations
employ at least one of the following:
1. Direct financing, such as grants, loans, or incentives
2. Technical assistance, such as the collection, analysis and
sharing of data, information, evaluation, and consultation,
3. Requirements, such as mandates, regulations, and standards.
4:13:56 PM
MS. LISTER said in order to recommend ways to improve the status
quo, they examined the entire energy system to identify "pain
points" where barriers and risks were leading to higher-cost
energy. She explained that historic state and federal funding
for infrastructure has in some communities created an
expectation of grants, which can lead to delayed implementation
of beneficial energy projects and to the under-development of
administrative and financial capacity needed to be able to
access traditional debt financing. Helping energy project
developers, like utilities in communities, to be able to meet
the standards to access debt financing will save the state money
in reduced capital expenditures into the future.
Additionally, she said, the way in which state and federal
funding has been granted in the past has in some cases led to
communities making project-development decisions based on
funding availability rather than on what is best for the
community energy system as a whole. The expected performance
and/or economic life of some of the energy projects is not
always realized. Maintenance and operation of energy systems
require a certain level of technical and managerial expertise
that isn't always available at the local level.
MS. LISTER said the team put together a menu of options to
consider for implementation and there are synergies between many
of them, but benefits can be found in each of them individually,
as well. Everyone should be able to find something that
resonates. Not all the forthcoming recommendations will be
relevant in every single community, but collectively the AkAES
offers meaningful, realistic, and achievable solutions for the
entire study area.
4:15:48 PM
CHAIR GIESSEL asked if the slide 14 framework had been proposed
before.
MS. LISTER answered no. The last major effort to develop a state
energy plan created more of a list of available resources by
community and that, as a component, informs the analysis tool.
But this is framework for making decisions and bringing projects
through the evaluation process that result in better and more
sustainable projects at the other end and that has not been
recommended before, to her knowledge.
CHAIR GIESSEL said slide 15 alludes to funding-driven decisions
and asked her to identify specific projects that were driven by
funding that didn't pan out as expected.
MS. CONWAY said she would do that and get back to her.
CHAIR GIESSEL said she is particularly interested in the Watana
Dam project which is part of the state's goal to achieve 50
percent renewable energy by 2025, and of course the
appropriateness of that.
SENATOR COGHILL remarked that outside of the Railbelt there were
a whole range of grant-driven projects meant to help communities
in kind of extreme circumstances as the price went up. So, they
need to know what the fall-out of that is, because some of them
were for five years, some were for eight years, and some were
test projects that were supposed to come with conclusions and
studies from the University. A list of those that are in the
middle of the project is needed, because before moving forward
with this strategy they have to understand who is being left
behind and if they are left hanging, and if they can lend
themselves back into this process to retool.
CHAIR GIESSEL added that meshes with her concern.
MS. LISTER said the Renewable Energy Fund (REF) produces a
status report that will be delivered to the legislature on
January 27 that will provide an update on the performance of the
REF projects that are currently operating and some information
about the projects that applied for funding in round 9.
SENATOR COGHILL said that would be very helpful, but they are
left hanging with how to start this process and where that
leaves them.
4:20:33 PM
SENATOR STEDMAN said it would be nice for the report to break
down the regional distribution of grant awards either by Senate
or House district. That would allow for some regional
comparison, because right now the map highly distorts the
reality by grouping the blocks by multiple Senate districts.
MS. CONWAY said she would need some clarification and then she
would follow up on that since it is not totally related to their
presentation at the moment.
SENATOR COGHILL said he lives in the Railbelt, outside of what
they are trying to do, but they are trying to do the same thing.
He wanted her to be prepared to answer questions about the
Railbelt district, which has a road system (Richardson Highway
and Alaska Highway), which is quite often treated differently
than any other rural area, because of that road system. That
geography deserves a different look, because their grid runs up
to Glennallen down to Delta Junction and sometimes Delta is
included in it and sometimes it is excluded. Valdez to
Glennallen is a very different grid that would love to be able
to measure those projects similarly, and then everything in
between those two are "kind of left to their own."
4:23:23 PM
MS. LISTER said current state energy goals include energy
efficiency and renewable energy targets, in-state gas - using
the Power Project Fund Loan Program as a primary financing tool
in renewable and alternative energy. AEA recommends that state
energy policy be amended to include a goal that formalizes the
commitment the state already works toward every day in
delivering critical energy programs and services to ensure safe,
stable, reliable, and affordable energy to all communities by
2030. The following recommendations outline how to achieve this
goal despite having limited availability to state funding.
She said the first pillar of this goal is identification of
cost-effective projects. The three recommendations under this
pillar support access to better community-level data necessary
to make good decisions about energy projects and programs,
improved data collection and analysis, the sources of which
include the Alaska Energy Data Gateway, the Alaska Retrofit
Information System, data collection from the Power Cost
Equalization Program (PCE) and the Renewable Energy Fund,
performance report from the Alaska Affordable Energy Model, the
on-line, reconnaissance-level, analysis tool that was developed
as a part of this project. Building off these existing efforts,
AkAES recommends formalizing responsibility to collect and have
publically accessible community-level, energy data and to have
publically accessible data for all state energy programs, and to
regularly update the Alaska Affordable Model, which can provide
guidance regarding the cost effectiveness of energy
infrastructure opportunities.
MS. LISTER said the AkAES also recommends codifying and
clarifying the work already done at the Alaska Energy Authority
and other state agencies to help ensure the most cost-effective
energy systems are being identified and built. The state will
work with communities seeking assistance to reduce energy costs,
and help them to identify, plan and finance energy projects and
programs. They will start by targeting high-cost PCE
communities, providing immediate relief to consumers in those
communities, reducing costs to the PCE Program, and provide
assistance with technical scoping for all phases of project
development.
She said this recommendation builds on the work that the state
already performs and aims to clarify responsibility outlined in
HB 306 from 2010 for "working to identify and assist with
development of the most cost-effective, long-term sources of
energy for each community, statewide."
4:26:48 PM
SENATOR COGHILL inserted that the first two points go closely
together and asked if she is asking for statutory provision that
outlines responsibilities. He wanted to know if they were going
to ask agencies to do a lateral or horizontal sharing of
responsibility along with the communities and if they had worked
on language to that effect.
MS. LISTER said they had not developed statutory language around
any of these recommendations.
MS. LISTER said recommendation A-3 is to establish building
energy codes for new residential and non-residential
construction and major renovations. Building to an efficient
standard is cost effective, saves energy and money throughout
the life of the building, and is less expensive than retro-
fitting later. It just makes sense that new buildings should be
built with lower operating costs in mind. This recommendation
also builds on extensive research done by the Alaska Housing
Finance Corporation (AHFC) and will provide savings to the PCE
Program and the Alaska Heating Assistance Program should it be
refunded, as well as potential benefits to public health,
safety, and the environment.
4:28:40 PM
She said the financing cost-effective projects pillar (slide 23)
includes five recommendations that aim to improve access to and
expand the types of financing tools available to communities to
better leverage non-state dollars and to connect potential
investors and lenders to bankable projects. Additionally,
because new financial instruments don't work by themselves, they
need to make sure that projects and entities are bankable and
have a skilled workforce to both build and maintain those
projects.
4:29:01 PM
The next recommendation relates to the Bulk Fuel Loan Program,
which is currently administered by the Division of Community and
Regional Affairs in the Department of Commerce, Community and
Economic Development (DCCED). It offers communities an easy-to-
use, low-cost financing tool to purchase large quantities of
petroleum product, thereby reducing the per-unit cost and
reducing the risk to distributors of non-payment. As bio-mass
projects become more frequent and larger in number throughout
the state, the same mechanism to purchase non-petroleum bulk
fuels, such as cord wood or pellets, would be a benefit to many
communities.
She said the AkAES found that many communities and utilities are
in a position to take on more debt for cost effective projects,
but the communities need more flexibility in their funding
options and they need assistance in accessing those
opportunities. In some circumstances, administrative capacity
can be the limiting factor in successfully securing existing
financing options. What is needed is a way to make it easier for
utilities and communities to access financing in the form of
both grants and loans.
MS. LISTER said they have already seen the ability of dynamic
capital stacks to bring energy projects to fruition. A good
example is the Water Fall Creek hydroelectric project that is
just about to come on line in King Cove, Alaska. That project
first used the Renewable Energy Fund grant funds and then the
Power Project Fund loan program through the State of Alaska.
Then it bonded through the Alaska Municipal Bond Bank and had
local cash match. Putting that funding stack together was
complex and difficult. Not every community has that kind of
capacity and access to a one-stop shop financing assistance
would play an important role for them. They are calling this
one-stop shop the Community Energy Fund for Alaska (CEFA).
The CEFA would act as both a funding source and a match maker
with other financers. It would be accessible to utilities,
municipalities, boroughs, cities, tribes, and non-residential
facilities. It would be available for generation, distribution,
transmission, and demand-side efficiency projects. She said the
use of CEFA funds would require that the state decide that the
project is a cost-effective strategy for meeting community
energy needs and thus is improving the quality of projects that
are developed.
MS. LISTER said access to financing assistance is important,
particularly now. It maximizes leveraging of state dollars; it
can provide financial flexibility to serve the actual needs of
communities; it reduces the transaction costs for both the
borrower and the lender; and it helps with the transition from
grants to loans.
4:32:00 PM
Another recommendation creates a loan offering with refund
provisions that rewards project performance. Portions of a loan
for energy infrastructure would be refunded if the borrower
meets objective standards for performance and reporting.
Standards are set to help maintain that asset for its economic
life. Project type, phase, and applicant attributes can be used
to determine what percentage of state loans are eligible for
reimbursement or forgiveness. This loan would be an alternative
to straight grant funding creating a mechanism for stretching
dollars farther and providing an incentive for communities to
maintain infrastructure and project performance.
4:32:47 PM
Another recommendation is to statutorily allow voluntary on-bill
financing. Commercial Property Assessed Clean Energy (C-PACE)
has been re-introduced this session as SB 39 and HB 80. It is a
financing mechanism that allows a voluntary tax assessment to
finance energy efficiency in building level, renewable projects.
C-PACE programs exist throughout the U.S. and provide a number
of benefits: the debt stays with the building not the borrower,
which allows for long terms in financing (up to 20 years) thus
reducing impacts on cash flow, and C-PACE debts are off-books,
so there are no negative impacts on the borrowers' balance
sheet.
MS. LISTER said on-bill financing works in much the same way;
the repayment is through the utility. Both mechanisms allow for
less risk to the lender and more attractive terms to the
borrower. These tools can save energy and money and create
business opportunities in both the construction trades and the
financing industry, great tools for economic development. Within
the study area, C-PACE would be particularly valuable in the
more urban Southeast communities, larger hub communities or
boroughs with property tax. On-bill financing could work
throughout the study area.
4:34:09 PM
The next recommendation has two parts; the first is to stabilize
funding for low-income, weatherization-assistance programs. Of
all government programs, she said residential weatherization
generally has the best return on investment for energy savings
to consumers.
MS. LISTER said AkAES recommends maintaining a baseline funding
level of $10 million per year, enabling the continuation of this
important program and capitalizing on the trained workforce that
has been built up since funding for this program increased in
2008.
The second part of the recommendation is to modify the rules of
the Home Energy Rebate Program so that should this program
receive funding in the future it is better able to serve rural
areas of the state as well as those households that may exceed
the limit for low income weatherization, but aren't high enough
that they have the cash on hand necessary to participate in the
Home Energy Rebate Program as it's currently structured.
4:35:13 PM
The six recommendations in the accountability and sustainability
pillar are focused on creating a system of requirements and
incentives that maximize the operational life of infrastructure
and provide for financial and management standards that will
increase ability to access debt financing.
The first recommendation under this pillar is to strengthen
business and financial management assistance to PCE-eligible
utilities. Reducing the non-fuel cost of power through efficient
business operations could save millions of dollars per year for
both consumers and the state, Ms. Lister explained. In PCE
communities, non-fuel costs make up a little bit less than half
of the total cost per kilowatt hour and that varies from year to
year given the cost of fuel in any given year. But creating more
efficient business and management practices will translate into
direct savings through reduced PCE expenditures. Good business
management also includes the operational practices that ensure
equipment is properly maintained such as the scheduling and
budgeting for operations and maintenance.
Improved financial management will also assist communities to
better access financing and secure it at more attractive terms.
AEA already does some of this work through the PCE Program and
through Community Assistance, but there is a much greater need
than can currently be met. Codifying this commitment is what is
being recommended.
4:36:53 PM
MS. LISTER said the second recommendation builds off successful
existing regional activity and recognizes that the state cannot
and should not do everything, and that regional entities often
know community needs better and are quicker to respond. Non-
state, regional, and statewide entities, such as Tanana Chiefs
Conference and Alaska Native Tribal Health Consortium are two
good examples of organizations that are already doing this work.
They are creating economies of scale for service provision and
providing technical assistance to communities to meet their
needs in certain geographic areas and/or disciplines. Some
examples of the types of assistance that might be provided where
appropriate include management of utility finances and
accounting, expansion of regional utility cooperatives and fuel
purchasing cooperatives, management of building efficiency
programs or projects, operations and maintenance of both
buildings and generation systems, and electrical emergency
response.
Under the current system an entity must meet the standards of
being fit, willing, and able in order to obtain or be issued a
Certificate of Public Convenience and Necessity (CPCN) that
allows it to serve a defined service area. Once it has been
issued, a utility does not have to provide evidence at any
future time that they are still fit, willing, and able to
provide the services that are required by the CPCN.
4:38:02 PM
Requiring that PCE-eligible utilities continue to demonstrate
their financial, managerial, and technical fitness will help
ensure that assets are maintained for their entire economic life
and ensure the financial and managerial health of utilities,
minimizing non-fuel costs and improving access to debt
financing.
4:39:05 PM
Another recommendation is that all community buildings that
receive the PCE subsidy and are greater than 5,000 square feet
be required to have an energy audit and to implement the
findings of that audit and to perform a retrofit that provides
net savings within 10 years. Having efficient community
facilities allows communities to spread their allocation of PCE-
subsidized community facility kilowatt hours over a larger
number of buildings. It lowers community facility operating
costs freeing up funds to perform their core service and it
helps to ensure that the PCE Program is not subsidizing more
kilowatt hours than are necessary.
4:39:40 PM
Currently, Ms. Lister said, the Regulatory Commission of Alaska
(RCA) makes a determination on the eligibility of new energy
infrastructure development after it has been built. Research
performed by the AkAES found that this is a barrier to private
investors as it is the source of uncertainty. Siting authority
could reduce this uncertainty and at the same time add a layer
of consumer protection.
4:40:01 PM
SENATOR COGHILL commented that smaller communities with island-
type grids are outside of RCA regulation and asked how many
would fall into that category in her target areas.
4:40:26 PM
NEIL MCMAHON, Planning Manager* Alaska Energy Authority*
Anchorage, Alaska, replied that generally, all utilities must
have a CPCN. So, they all are technically regulated by the RCA
even if they are not economically regulated, which would be the
distinction that Senator Coghill is making. He would have to do
a little bit of research to determine the exact number.
SENATOR COGHILL said if this is going to find its way into
statutory language they need to know that number.
CHAIR GIESSEL instructed Mr. McMahon to send that information to
her office and she would distribute it to committee members.
4:41:41 PM
MS. LISTER explained that the next recommendation [enact a 1
percent per year fuel reduction target for electric utilities
until cost effective gains have been realized] is designed to
provide a requirement for utilities to do continuous quality
improvement - seeking out and implementing cost effective
opportunities to reduce fuel consumption. Having a fuel
reduction target allows for a wider range of program or project
possibilities than an efficiency or renewable target, though
both, if cost effective, could contribute. Other types of
projects that might contribute are diesel generation efficiency
and the lowering of line loss.
This recommendation supports the 2010 state energy policy of 50
percent renewable and 15 percent improvement in energy
efficiency in Alaska statute pertaining to cost minimization,
which requires that PCE-eligible utilities to "cooperate with
appropriate state agencies to implement cost effective energy
conservation measures and to plan for and implement feasible
alternatives to diesel generation." The cost-effective portion
of this recommendation is important; they are not recommending
that any utility move forward with a project or program that
would increase cost to consumers.
SENATOR COGHILL commented that the cost-effective part of this
caught his attention. For example, the regulation for stack
emissions on a lot of those communities drove their costs way
up, and yet ways were found ways to do things that were cost
effective like cogeneration water heating.
MS. LISTER continued that the statute that created the
affordable energy strategy had two distinct requirements for
program funding recommendations; the first was to suggest
potential revenue sources for funding state energy programs and
projects recommended by the study, and the second was to
recommend a means of directly underwriting energy costs or
providing a direct subsidy.
4:44:21 PM
The first funding option is to use the Alaska Affordable Energy
Fund (AS 37.05.610) when it becomes available. The same
legislation that created the mandate for this study effort
included creation of the Affordable Energy Fund, which was to
take 20 percent of royalties off a future gasline and use them
to build projects and programs to create energy affordability in
the study area. At the time it was passed, this fund was
estimated to generate $80 - $160 million annually. However, with
completion of the gasline project at least a decade out and the
need for continued investment in energy infrastructure present
today, alternative revenue sources will need to be identified
for different projects and programs should they be implemented.
4:45:03 PM
One potential revenue source for a very small subsection of
energy programs and services is the PCE Fund. She emphasized the
importance of maintaining the endowment in perpetuity and was
only suggesting a small increase in the allocation from earnings
to administer it and the directly related critical support
services. For many years, Ms. Lister said, the full
administrative cost of the PCE Program has been subsidized with
General Fund (GF) dollars, and lacking these GF dollars, they
recommend using existing statutory authority to fully cover the
cost of administering the program.
In addition, Ms. Lister said, some energy programs have a
logical critical connection to the effectiveness and success of
PCE-community utilities. These programs could potentially be
paid for with earnings from the endowment. These programs are:
Circuit Rider, Operator Training, and Community Assistance.
These three programs contribute directly to the energy, safety,
stability, and reliability, and without which some small
utilities may see increased costs or increased risk of failure.
4:46:21 PM
Ms. LISTER said a number of energy policy reports done in Alaska
over the years have identified a per-unit energy surcharge
generally referred to as a systems benefit charge (when talking
about the electric industry) or a universal service charge if
you're talking about the telecom industry. These charges which
are common in Lower 48 utilities help create revenue streams to
fund cost-effective, energy projects and programs.
4:46:50 PM
She said that AEA was required to come up with a way to directly
underwrite the cost of energy in communities without cost
effective infrastructure options. They recommend the
continuation of the PCE Program and to revive the Alaska Heating
Assistance Program, which was unfunded last year.
The PCE Program is the largest and most broad-based consistent
source of energy funding in the study area. There are two
significant points related to the PCE Program that she wanted to
emphasize. First, the opportunities presented in the AkAES are
expected to reduce costs, but not enough to eliminate the need
for the PCE Program. And secondly, it is extremely important to
maintain the integrity of the PCE Endowment Fund to ensure the
sustainability of the PCE benefit to rural Alaskans.
4:47:50 PM
Finally, one additional idea for consideration: a state entity
with the authority to consolidate and manage consumer energy to
the extent that is reasonable would increase efficiency of
delivering state energy programs to communities. This is not a
new idea, but one that perhaps merits renewed consideration.
Consumer energy is such an important issue in Alaska that it is
imperative that efforts to address those challenges be
coordinated at a high level to be both efficient and effective.
Implementation of the previous recommendations could potentially
spread those services across a half-dozen agencies. This would
be further complicated by institutional gaps in competing agency
mandates. Developing a coordinated strategic plan to best assist
communities may become problematic without a consolidated
authority. This state entity would coordinate all aspects of
these recommendations except for the RCA, which would remain
independent.
4:48:56 PM
She concluded that keeping the lights on and buildings heated
requires investing in energy infrastructure and ensuring that
those investments are protected over the long term. Despite the
state's current budgetary challenges, it can act to encourage
stronger and more affordable community energy systems through
policy, regulatory, and statutory change and AkAES provides
guidance for that change.
SENATOR MEYER directed his question to Senator Coghill and asked
if the Healy Clean Coal-Burning Plant up by Fairbanks is running
yet.
SENATOR COGHILL answered yes; it had a failure and now is under
restart. He understands that the rates are going to go up
because of it. It is a work in progress and has been a painful
project from its outset.
SENATOR MEYER asked if it was correct that the state had spent
over $1 billion in the last decade on energy projects.
MS. LISTER answered yes; though three-quarters of that $1
billion spent was federal funding.
SENATOR MEYER asked if they keep track of any efficiencies that
have been gained or energy costs lowered by spending that amount
of money.
MS. LISTER answered that different programs report in different
ways, but the short answer is yes. The Renewable Energy Fund
reports on performance of projects and all utilities that are
part of the PCE Program (most of rural Alaska) report their
generation, costs, efficiencies and line loss in an annual
report.
SENATOR MEYER asked if they know in total how much money was
saved.
MS. LISTER said some of that money was spent on infrastructure
that doesn't necessarily provide a measurable savings on an
ongoing basis. For example, bulk fuel facilities cost a certain
amount of money to build and the cost could be amortized over
the life of the project; operations and maintenance of the
facility are added to get to a dollar per gallon figure. Then
through modeling they would know how much that community is
saving through the availability of grants to pay for that asset.
That's one part of it and then there are the types of programs
that are easier to measure where, for example, a community was
100 percent diesel and they built a renewable energy project and
its performance is being tracked. So, the cost per kilowatt hour
is more measurable on an annual basis. Some of the
infrastructure that has been developed doesn't necessarily
create efficiencies that are measurable outside of modeling.
It's a mixed bag.
4:53:43 PM
SENATOR MEYER thanked her for the explanation and asked her to
provide energy costs that have been saved. Is that in her
report?
CHAIR GIESSEL said it is posted on line.
MS. CONWAY said Ms. Lister may have referenced the longer report
- the research, methodology, and findings on which the short
report is based, and that should be on their website within a
week or two.
SENATOR COGHILL said most of communities are surrounded by
federal lands and asked if the state asked federal agencies how
they could collaborate on a strategy like this. For example, the
Denali Commission was very significant in helping with bulk
storage, but the cost drivers of running power lines almost
exceeded the value of what was done in bulk storage in some
places, because of having to run through federal lands. One of
the recurring themes he sees is the need for a horizontal
collaboration between state and local agencies and this can also
be true with the federal agencies.
MS. CONWAY replied that AEA works closely with many federal
agencies, in particularly the Denali Commission, which is very
important for a lot energy programs like bulk fuel and rural
power systems.
MS. LISTER added that they do collaborate and work closely with
their federal partners: the Denali Commission, the Department of
Energy, the Office of Indian Energy, and the Environmental
Protection Agency. A lot of the projects that were funded by
federal agencies were evaluated, because the state has had some
small part in them.
SENATOR COGHILL said most of those dollars were administrative
intensive and the federal agencies should be enlisted as part of
the solution.
SENATOR HUGHES said one of the recommendations involved a
universal service charge and she assumed that it would be on a
consumer's utility bill, and asked if she envisioned that to be
statewide or for where the consumers live. Also, the question
was asked whether they would be proposing statutory language and
the answer was no; so, what is going to happen next with the
proposals.
4:58:25 PM
MS. LISTER said they envision collection of the universal
service charge would be at the local level; for electricity it
would be from the utility, for heating oil and natural gas it
would be from the retailer. None of the recommendations apply to
the Railbelt. They are only recommending that this be done as a
means of generating revenue for energy projects within the study
area. To evaluate that as a statewide option would require more
analysis and a lot more stakeholder engagement that was not done
on the Railbelt. She explained that these types of programs are
implemented in a number of ways in the world and they are quite
common in the United States. In Canada, cross subsidies are
common between areas that have legacy hydro-projects and areas
that might be diesel- reliant to equalize the cost of power. In
most of the U.S. the money that is collected within a service
area stays within that service area. Those details would need to
be worked out during a public deliberative process should a
policy maker decide to move forward with that recommendation.
5:00:12 PM
MS. CONWAY added that their hope is that putting a lot of this
on the table will inspire a conversation among lawmakers, which
will hopefully lead to implementing some or all the
recommendations now or into the future.
5:01:27 PM
CHAIR GIESSEL thanked them for the excellent report and
commented that when SB 138 incorporated this requirement she
anticipated something about propane on the rivers and LNG around
the coast recommendations and they had gone much broader. Then
she adjourned the Senate Resources Committee meeting at 5:01
p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AGENDA-1-25-2017.pdf |
SRES 1/25/2017 3:30:00 PM |
Energy |
| SRES-AKAES Report-1-23-17.pdf |
SRES 1/25/2017 3:30:00 PM |
Energy |
| SRES-PowerPoint-AKAES REPORT-1-25-17.pdf |
SRES 1/25/2017 3:30:00 PM |
Energy |
| 2017 01 25 AGDC Senate Resources - Final - 1 25 2017.pdf |
SRES 1/25/2017 3:30:00 PM |
Gas |