Legislature(2023 - 2024)BUTROVICH 205
02/01/2023 03:30 PM Senate RESOURCES
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Presentation(s): Railbelt Electric Energy System and Energy Transition | |
| 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
February 1, 2023
3:30 p.m.
MEMBERS PRESENT
Senator Click Bishop, Co-Chair
Senator Cathy Giessel, Co-Chair
Senator Bill Wielechowski, Vice Chair
Senator Scott Kawasaki
Senator James Kaufman
Senator Forrest Dunbar
Senator Matt Claman
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION(S): RAILBELT ELECTRIC ENERGY SYSTEM AND ENERGY
TRANSITION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BRAD JANORSCHKE, General Manager
Homer Electric Association
Homer, Alaska
POSITION STATEMENT: Participated in the presentation on the
Railbelt Energy System and Energy Transition.
ARTHUR MILLER, Chief Executive Officer (CEO)
Chugach Electric Association
Anchorage, Alaska
POSITION STATEMENT: Participated in the presentation on the
Railbelt Energy System and Energy Transition.
TONY IZZO, Chief Executive Officer (CEO)
Matanuska Electric Association
Palmer, Alaska
POSITION STATEMENT: Participated in the presentation on the
Railbelt Energy System and Energy Transition.
JOHN BURNS, President and Chief Executive Officer (CEO)
Golden Valley Electric Association
Fairbanks, Alaska
POSITION STATEMENT: Participated in the presentation on the
Railbelt Energy System and Energy Transition.
ACTION NARRATIVE
3:30:09 PM
CO-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 Dunbar, Claman, Kaufman, Co-Chair Bishop and
Co-Chair Giessel. Senators Kawasaki and Wielechowski joined the
meeting during introductions.
^PRESENTATION(S): Railbelt Electric Energy System and Energy
Transition
PRESENTATION(S): RAILBELT ELECTRIC ENERGY SYSTEM AND ENERGY
TRANSITION
3:31:54 PM
CO-CHAIR GIESSEL announced the committee would hear a
presentation from the Railbelt utilities about the Railbelt
Electric Energy System and Energy Transition. She listed the
presenters and asked them to introduce themselves. She conveyed
that the panel requested the committee hold their questions
until the end of the presentation.
3:33:49 PM
BRAD JANORSCHKE, General Manager, Homer Electric Association,
Homer, Alaska, introduced himself and provided the following
information about the Railbelt electric utilities:
• They provide power to more than 75 percent of the
population in the state.
• The Railbelt electric system stretches 700 miles.
• The average cost of power on the Railbelt is low compared
to the rest of the state, and is comparable to areas in
the Lower-48
• Railbelt utilities use 41 percent of the available Cook
Inlet Natural Gas.
3:35:29 PM
MR. JANORSCHKE displayed a topographic map of the Railbelt that
shows the existing transmission line. He characterized it as a
public highway for electrons. This single line has three load
balancing areas (LBAs): the Kenai Peninsula, Anchorage and the
MatSu Valley, and Fairbanks or the Interior. It passes through
avalanche chutes and heavily forested areas, much of which is on
public land.
3:36:24 PM
MR. JANORSCHKE displayed the key elements of the presentation:
• Natural gas supply
• Diversification
• Transmission/energy storage infrastructure
• Rate stability
3:36:46 PM
ARTHUR MILLER, Chief Executive Officer (CEO), Chugach Electric
Association, Anchorage, Alaska, directed attention to a line
graph of the historic production in Cook Inlet from 2000 to
2021, the projected production through 2040, and the 70 bcf/year
demand. It clearly illustrates that the continued decline of
Cook Inlet gas reserves is a critical issue for the Railbelt
utilities. In fact, last May one of the major Cook Inlet
producers said they were not going to extend their existing
contracts with the utilities as currently structured. DNR's 2022
reserve report corroborated the expectation of continued
decline. This downward trajectory is happening despite
significant events that have occurred on both the supply and
demand sides. The closure of the Agrium fertilizer plant in 2007
reduced demand and added 50 bcf to the supply for the utilities;
production tax incentives passed in 2013 and 2014; Hilcorp
acquired Marathon Oil which resulted in an uptick in production;
and the Kenai export authority closed in 2018. Additional
discoveries in Cook Inlet will help but the real solution is for
the utilities to look for alternative means to fill the gap
between supply and demand.
3:39:33 PM
MR. MILLER directed attention to the bar graph of the mean case
projected volumes of proved developed and proved undeveloped
Cook Inlet gas from 2022 through 2041. It shows that supply
meets demand through 2026. After that there's a gap between
supply and demand. He explained that utilities make decisions
based on reliability and the provision of optimal generation
assets to meet customer demand at the lowest cost possible.
3:40:40 PM
MR. MILLER reviewed the options for a long-term solution to fill
the gap between supply and demand that benefits Alaskans.
Ideally, he said that would be to increase the supply of instate
gas, but the utilities are also looking at alternative clean
energy technologies and renewable generation. This helps but
it's not the ultimate solution to fill the gap. It's also
necessary to look at how those technologies can be effectively
integrated into the existing system.
The utilities are also monitoring the events of the AKLNG
project. It would be a significant advantage if that project
could deliver gas to Southcentral at $4-$5/mcf. The current
market price is in the vicinity of $7.50-$8/mcf. He noted that
Mr. Richards with AKLNG said gas could be delivered to
Southcentral on a first phase basis in the 2027-2028 timeframe.
He pointed out that access to reasonably priced gas is
critically important to the cost of electricity. In the
Railbelt, gas comprises 20-30 percent of the cost for
electricity. For Chugach Electric, a $1 increase in the cost of
gas translates to a $4 increase in electric rates.
MR. MILLER reported that the utilities were also reluctantly
looking at LNG import opportunities. He opined that it was
unfortunate that a state as resource rich as Alaska should have
to look at importing LNG. Nevertheless, this avenue was being
pursued and the result of these efforts were expected to be
released later in 2023. He noted that, as time passes, the
options were narrowing and a decision had to be reached
regarding LNG. He wanted the legislature to be aware of this and
that an ask may come after that. He also mentioned that the
transition will require significant energy storage capabilities
for gas as well as battery storage and transmission upgrades.
MR. MILLER stated that the Railbelt utilities have to make a
decision about the path forward in the next 12-15 months. He
said the utilities aren't asking for anything today. Rather,
they want to make sure the legislature is aware of the situation
and after the study work is completed they return to present
their recommendations and submit their request.
3:47:38 PM
TONY IZZO, Chief Executive Officer (CEO), Matanuska Electric
Association (MEA), Palmer, Alaska, stated that MEA serves the
second largest population center in the state and was probably
the only utility that continually experiences growth. He
described MEA's gas contract as one of the better ones. It's
about $8 delivered to the power plant. If the price were $5
delivered, it would return $10 million/year into the MatSu
Valley economy.
MR. IZZO stated that the Railbelt utilities had worked
diligently on the approach going forward. He directed attention
to the Railbelt clean energy goals outlined on slide 8.
Focus is on achievable, sustainable energy policy:
• Diversification of generation sources
• A sensible approach with no adverse effect on rates or
reliability
• Fosters and encourages collaboration with stakeholders
• Provides energy security.
• Maximizes carbon reductions.
He said technology is advancing quickly and the Railbelt
utilities want to plan for this with as much prudence as
possible.
3:52:39 PM
MR. IZZO displayed the cost comparison chart of the historical
cost of different generation sources. It shows, in descending
order of cost, the 2020 Hawaii wind power purchase agreement;
EVA Creek Wind-Alaska; Northeast US Regional Solar; Fire Island
Wind-Alaska; the Railbelt utility average cost of power; and
South US Region Solar. He stated that the average cost of power
in the Railbelt is $0.19 and lower prices would facilitate
economic development, the economy in general, members, and
ratepayers.
3:54:43 PM
JOHN BURNS, President and Chief Executive Officer (CEO), Golden
Valley Electric Association, Fairbanks, Alaska, stated that the
committee heard about the importance of having a stable supply
of natural gas and diversified generation, but it is also
important to be able to transmit that energy over a reliable and
robust transmission system.
The Railbelt's vision of transmission is very pointed. It is to
lower the cost of electricity across the entire Railbelt to
ensure that the lowest cost electron can be dispatched from
wherever it is generated, and from whatever source to wherever
it is needed. The delivery must be reliable, efficient, and at
the lowest cost possible. By doing so, this will serve as a
catalyst for economic growth. To achieve that vision, requires a
reliable, resilient, and redundant transmission system. It must
be unconstrained, not vulnerable to a single point of failure,
and have the capacity to accommodate energy generation from all
potential sources.
Implementing the Railbelt vision will be done in four stages.
1. Upgrade the existing transmission system.
2. Add southern and northern transmission lines.
3. Build the road-belt transmission line that runs between
Anchorage, Palmer, Glennallen, and Delta Junction.
4. Add energy storage strategically along the Railbelt at
Homer, Anchorage, and Fairbanks.
3:56:55 PM
MR. BURNS stated that this vision is nothing less than
transformative for the Railbelt and the state. He listed the
projected achievements.
• Increased availability of generation and unconstrained
dispatch. This is getting the energy to whatever location
at the lowest price.
• Increased clean energy generation, including renewables.
• Increased transfer capabilities.
• Economies of scale. There is a difference between a 40
megawatt wind project that provides $0.10 or $0.11 per
kilowatt and a 100 megawatt project that provides $0.065.
• Support for the military mission in Alaska. The five bases
on the Railbelt need reliable energy.
• Allow economic development.
• Rate stability will benefit Power Cost Equalization
communities.
3:58:19 PM
MR. BURNS stated that to achieving the Railbelt vision will
require sustained leadership and a commitment to transform the
vision into reality. He spoke to four legislative priorities to
drive down energy costs and promote economic growth.
• A reasonably priced and long-term supply of natural gas,
preferably in-state.
• Transmission infrastructure and energy storage buildouts.
• Leveraging state and federal money to maximize the
opportunity to achieve the transmission upgrades that have
been discussed.
• An economic and affordable transition to lower carbon.
MR. BURNS stated that the Railbelt utilities are committed to
assist any way they can to obtain these objectives.
4:00:17 PM
SENATOR KAUFMAN asked if the transition had a resource-loaded
integrated schedule that shows all the tasks, the resources
needed for the task, and how they will be delivered
MR. BURNS replied there is no specific document, but they had
been evaluating the transition and members had looked at
different aspects of the project with the Alaska Energy
Authority (AEA). The required projects were established and the
Railbelt committed $166 million for the southern transmission
upgrade. The transition will be done in phases with the entire
buildout expected to happen over 10-12 years. He added that, as
committed as the Railbelt utilities are, they can do only so
much; it will also take federal and state efforts.
SENATOR KAUFMAN requested information about the current cost per
kilowatt from the various sources of supply that will feed into
the grid.
4:03:32 PM
MR. IZZO added to Mr. Burns' response saying that some stage
gates were in place. Working with ENSTAR and the Interior Gas
Utility, the gas supply options were being analyzed and should
be complete by June. The costs will be more clearly identified
as the options are narrowed. Another stage gate is transmission,
which is being coordinated with AEA. Documents have been filed
and they were waiting to hear from the Department of Energy
about whether they will be invited to apply. He noted that $15.9
million could be spent over a 15-year period to get a first-
world transmission system.
To the question about cost per kilowatt by individual source, he
said it depends on the source. A 40 megawatt wind project would
cost $0.11/KWh. Under current statute, the Regulatory Commission
of Alaska (RCA) would find that was not in the consumer's
interest because it was too expensive, unless the utility could
demonstrate it was out of gas tomorrow. A 100 megawatt wind
project could produce $0.06/KWh power but it's necessary to have
the infrastructure to get that power into the grid. However, the
existing interties are constrained.
MR. IZZO said another consideration is that while meteorological
evaluation towers (MET) are collecting data on wind as a power
supply, they aren't found in population centers so transmission
and infrastructure will be needed to get to those tower
locations.
4:07:16 PM
SENATOR KAUFMAN expressed concern that alternate energy sources
include nuclear, which seemed to be at odds with the talk about
energy resilience and energy security. He said he was looking
for the plan that mitigates the risk of transitioning from the
current state to the future. He asked if that was the
forthcoming plan that was previously mentioned.
MR. IZZO said the work to look at the inputs to the system was
ongoing but reliability was a key consideration. It's the reason
he said MEA will still need 4 bcf of gas in 2040. MEA has all
the gas under contract it needs until March 31, 2028. Then next
day it has zero. Hilcorp will likely step up and there will be
an additional contract, but it might be only half of the present
supply. That's five years to figure out, permit, and finance the
collective supply to ensure reliability and shift away from the
paradigm of every 10 years trying to breathe additional life
into something that always seems to cost more.
4:11:17 PM
CO-CHAIR BISHOP asked the presenters how they would solve the
problem if they had $1.3 billion.
4:11:38 PM
MR. JANORSCHKE said the first step would probably be to improve
the transmission and redundancy with a focus on batteries.
However, nothing matters if there isn't any gas. In contrast to
MEA, Homer Electric Association's (HEA) supply of gas under
contract ends March 31, 2024. He said he's slowly warming to
importing LNG but the members won't like it any more than an
Alaska fisherman would accept farmed salmon as a good idea.
He talked about what a good investment the state made in Bradley
Lake and that all the utilities would like to get 100 percent of
their power from a renewable like that. He relayed that he often
tells the HEA board that the first priority is to keep the
lights on and the second is to keep upward pressure off the
rates. Last year HEA was nearly 90 percent dependent on natural
gas. It represents about one-third of ratepayers' electric bill.
It's a straight passthrough from the suppliers of natural gas to
members. None of that helps the cooperative to pay any of the
bills other than the natural gas.
4:16:07 PM
CO-CHAIR BISHOP clarified that he asked the question because the
current situation wasn't new. The state has put $1.3 billion in
cash credits into Cook Inlet over the last 10-12 years and the
situation had not changed. He agreed that upgrading transmission
was a good starting point.
MR. MILLER opined that the best use of the funds would be
something like Bradley Lake. Its useful life is about 100 years.
That benefit is generational. It displaces gas, it's a clean
energy technology, it provides diversification of generation,
and it's an asset with a 100-year life. The benefit goes
directly to the consumers.
4:18:30 PM
MR. IZZO said the utilities need gas so some of the $1.3 billion
needs to secure contracts, but the majority needs to be invested
in infrastructure, so the paradigm can shift. Infrastructure is
agnostic to fuel, but it has to be reliable. It may be necessary
to pay more for the gas that can be produced in the interim
versus making an investment of hundreds of millions of dollars
in something like LNG imports, which will create another host of
issues.
4:20:32 PM
MR. BURNS stated that the transmission system would be built out
over time. Ideally, the $1.3 billion would be spent in $250-$300
million tranches over time. This would create job opportunities
and growth within Alaska. The ancillary benefit of that becomes
huge in terms of being able to integrate diverse generation into
the system. Without question, it's a heavy lift; the total cost
of transmission is estimated to be $2.9, but that's to be built
over time. The intention is for the investment that pays
dividends in the long run. It grows the economy. For example,
the road belt provides the opportunity for economic growth. The
opportunities in areas of the state that are unserved by
electricity are huge. He specifically mentioned mining.
CO-CHAIR BISHOP asked if the clean energy that's been mentioned
included coal and if it has direct capture sequestration
potential.
MR. MILLER responded that carbon sequestration falls under the
definition of clean energy.
MR. JANORSCHKE said he would take a hard look at clean coal if
it reduced the upward pressure on the cost of power. He spoke
about the importance of diversity, the lack of incentive for
exploration companies when there's no market, love for long-term
contracts, the change in business when the export facility
closed, and the risk of relying on just one resource. He
mentioned independent power producers (IPP) and said any of the
utilities would go after a cheaper source of power if given the
chance. However, IPPs don't have the obligation that utilities
have to ensure that the lights stay on. He noted that the Tesla
battery installation was a success. They're used to control the
ramp rates of non-firm resources.
4:28:38 PM
SENATOR CLAMAN asked each of the presenters what their first
option would be to fill the gap between production and demand
that's projected to occur in 2027.
4:29:45 PM
MR. MILLER said the impact to utilities differs based on
contractual requirements with Hilcorp. He spoke to CEA's
contractual situation, the large-scale wind and solar projects
they are evaluating, and that those projects will fill just a
small portion of CEA's gas requirements.
To the question about the first step to fill the gap if Alaska
LNG doesn't become a reality, he opined that it would be
importing LNG, which could be a transition project.
4:33:29 PM
SENATOR CLAMAN recapped that CEA will see a shortfall starting
in 2028, and the utility's first alternative for gas is imported
LNG.
MR. MILLER answered in the affirmative with the optimistic
caveat for Alaska LNG.
4:34:20 PM
MR. IZZO said he interprets the graph several ways, one of which
is that he's seen worse. He mentioned: MEA's contract with
Hilcorp through 2027, that an internal analysis shows
deliverability problems starting as soon as 2025, and MEA's
interest in partnering in any large-scale renewable. He
emphasized continuing to work on transmission infrastructure to
make it possible to shift the paradigm.
MR. IZZO said he was sure that LNG import was going to be the
answer, but there will be investment needs. His concern was that
those investments would be made and two years after that ground
would be broken on a North Slope pipeline.
SENATOR CLAMAN recapped that the short answer is that there may
be a shortfall by 2025, and he didn't see a path in the short
term that doesn't involve importing LNG.
MR. IZZO confirmed that was accurate.
4:40:47 PM
MR. JANORSCHKE said the short answer is there will obviously be
a shortfall, and imported LNG will be part of the transition
plan.
SENATOR CLAMAN asked where on the timeline he sees the
shortfall.
MR. JANORSCHKE described Nikiski as the Henry Hub of Alaska for
deliverability and said he was optimistic that the suppliers
would not allow the Kenai Peninsula to go black. It would be an
issue for the entire state. He opined that the long-term
solution would include importing LNG. He continued that if
investing in an import facility is a way to guarantee that a gas
pipeline would start in two years, he'd recommend investing
today.
4:42:27 PM
MR. BURNS said that, compared to Southcentral, GVA has very
little gas and its members pay more than any of the utilities on
the Railbelt. The cost comes from importing the energy up the
intertie from Southcentral. He mentioned GVA's diverse mix of
energy, adding environmental upgrades to the most reliable
plant, shutting down Healy 2 because it's unreliable and adds to
member's costs, continuing to look for additional renewables,
and long duration energy storage.
MR. BURNS stated that he was steadfast in his view that all the
utilities are in this together and if imported natural gas was
the answer, so be it.
4:44:54 PM
SENATOR CLAMAN referenced Senate Bill 123 that created Electric
Reliability Organizations (ERO) that relate to transmission. He
asked when those might be up and running because it seemed as
though it should have happened.
4:45:24 PM
MR. IZZO explained that the RCA recently certificated the
Railbelt Reliability Council (RRC) as the electric reliability
organization (ERO), and the filing related to tariff and budget
was likely to be settled later this year. He optimistically
estimated that adopting and instituting reliability standards
and conducting an integrated resource plan that looks at the
entire system would take another two to three years. The
collective decision is to take this path he said, but having gas
and infrastructure is the underpinning to make this possible.
4:48:42 PM
SENATOR KAWASAKI said he didn't know that a coal plant would be
an option, but he appreciated the work the utilities had done to
achieve clean energy goals and reduce emissions while keeping
rates as low as possible for ratepayers.
He asked for the current capacity of the intertie north to
Fairbanks, and what the state needed to do to help the entire
Railbelt.
4:49:41 PM
MR. BURNS answered that the size of the Alaska Intertie is 138
megawatts and it can carry 70 megawatts of energy. A focus in
the first stage is to upgrade the carrying capacity of the
existing Alaska Intertie significantly.
SENATOR KAWASAKI mentioned GVA's work on long term clean energy
proposals and that he just heard from Doyon Utilities about the
proposal to combine the heat and power plant on the military
base at Fort Wainwright. He assumed the electricity would be
purchased from somewhere on the grid but wondered how that would
work if demand for that power already was at capacity.
MR. BURNS said that highlights the need to start today on the
infrastructure buildout because the electrons need to flow from
the point of generation without constraint. He said the surest
way to resolve Fairbank's continuing struggle with the PM 2.5
air quality issue is to electrify, but that can't be done
without expanded generation and an upgraded transmission system.
MR. BURNS stated that from Golden Valley's perspective, all the
utilities are generation, transmission, and distribution.
However, if it's in the best interest of the ratepayers and
there is assurance of reliable and lower cost energy, GVE
doesn't need to be an owner or operator. It can be solely a
distribution facility.
4:53:09 PM
SENATOR KAWASAKI expressed appreciation that all the utilities
were working together. He then asked if the issue of the length
of the contracts was being worked on today.
MR. IZZO replied that there was an ongoing discussion with the
current producers and others. His belief is that a compromise
solution will result, but he can't count on that.
Following up on Senator Claman's comments about the ERO and
Senate Bill 123, he clarified that an integrated resource plan
was what that group is tasked with doing. It would be
problematic to legislatively mandate that now because doing so
is fixing the answer before the group figures out the plan.
4:56:17 PM
SENATOR DUNBAR echoed Senator Kawasaki's comments about having
the utilities appearing together.
He referenced to the legislative priority on slide 12 that cites
"Reasonably priced long-term in-state supply of natural gas." He
asked what the utilities need from the legislature to facilitate
imported LNG if it has to happen.
MR. MILLER said the intent of the update was to make the
committee aware of the situation the utilities face and what
they are doing. Once they complete their analyses and studies,
they would like to return with a specific direction and request
regarding gas.
CO-CHAIR GIESSEL thanked the presenters and relayed that the
committee would look forward to meeting after the analyses and
studies are complete.
MR. MILLER thanked the committee for the invitation to give an
update. He relayed that all the utilities are focused on clean
energy and they are talking with the Cook Inlet producers. They
are hopeful, but realize they can't rely on hope alone.
5:00:31 PM
MR. BURNS said everyone has the best interest of the state at
heart, and everyone is focused on driving down the cost of
energy. Aside from ensuring a stable supply of natural gas, what
can be done today is for the state to adopt the vision for a
long-term plan to improve transmission. It is critical to
whatever generation there is. If the federal money that's
anticipated doesn't materialize, this long-term plan is still
critical. He reiterated that it has to be the state's plan
moving forward. That's the pointed request, he said.
5:02:19 PM
MR. IZZO said he appreciates the idea of coming back. He
continued to say that a decision on LNG import may not be
popular, but it could be a bridge and an LNG storage facility
will be an asset going forward because it will improve
reliability.
5:04:44 PM
MR. JANORSCHKE thanked the committee for the opportunity to have
the conversation.
SENATOR GIESSEL expressed appreciation for the unified message.
5:05:58 PM
There being no further business to come before the committee,
Co-Chair Giessel adjourned the Senate Resources Standing
Committee meeting at 5:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Railbelt Legislative Presenation.FINAL v2.pdf |
SRES 2/1/2023 3:30:00 PM |