Legislature(2021 - 2022)BARNES 124
05/02/2022 03:15 PM House LABOR & COMMERCE
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 | |
| HB301 | |
| HB382 | |
| SB190 | |
| Workers' Compensation Appeal Commission | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 301 | TELECONFERENCED | |
| + | HB 382 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 190 | TELECONFERENCED | |
HB 301-UTILITIES: RENEWABLE PORTFOLIO STANDARD
3:17:21 PM
CO-CHAIR FIELDS announced that the first order of business would
be HOUSE BILL NO. 301, "An Act relating to the establishment of
a renewable portfolio standard for regulated electric utilities;
and providing for an effective date." [Before the committee was
CSHB 301(ENE).]
CO-CHAIR FIELDS opened invited testimony.
3:17:37 PM
CHRIS ROSE, Executive Director, Renewable Energy Alaska Project
(REAP), provided invited testimony on HB 301 via a PowerPoint
presentation titled "Support for HB 301," dated 5/2/22. He
turned to the second slide and noted that REAP is a statewide
nonprofit organization that has been working to promote
renewable energy and energy efficiency since 2004. He moved to
the third slide, "REAP Education & Programs," and related that
REAP has multiple education programs in both urban and rural
Alaska, including science, technology, engineering, and
mathematics (STEM) education in the schools so children
understand where their energy comes from, as well as work for
development to make sure there are people in the state to
operate, maintain, and optimize renewable energy and energy
efficiency projects into the future.
MR. ROSE showed the fourth slide, "REAP Advocacy," and recounted
that REAP has been involved in advocacy since 2008 when it
helped pass the Renewable Energy Fund, for which the legislature
has appropriated $275 million to date for renewable energy
projects around the state. More recently, REAP supported Senate
Bill 123, Railbelt Grid Reform, which passed [in 2020] to create
the first electric reliability organizations in the state, which
will affect the Railbelt.
MR. ROSE spoke to the fifth slide, "Why the Railbelt Needs More
Renewable Energy." He said the Railbelt needs more renewable
energy because the region is dangerously [80 percent] dependent
on one, high-priced fuel Cook Inlet natural gas. Because of
that, he stated, the Railbelt's electricity rates are very high,
about twice as much is paid for Cook Inlet gas as Lower 48
utilities pay for their gas. He pointed out that the Railbelt
has renewable energy resources, including wind, solar, hydro,
geothermal, biomass, and tidal. He further pointed out that the
Railbelt has a history of inaction, it took about 40 years for
SB 123 to pass to create a mechanism for the Railbelt utilities
to work together. The Railbelt has no energy policy that really
focuses on ensuring that Railbelt consumers are protected, Mr.
Rose continued, so SB 123 did a lot by creating a mechanism to
ensure that regional planning will be done in the future. If
passed, HB 301 would be executed through that regional planning
process, he explained.
MR. ROSE proceeded to the sixth slide, "Declining Wind & Solar
Prices Compared to Natural Gas." He said the graph shows how
quickly solar and wind prices have come down, with solar (gold
line) coming down about 90 percent over the last 10 years and
wind (blue line) coming down about 70 percent. He drew
attention to the average cost of natural gas (dotted line) and
noted that wind and solar are now competitive with natural gas
in the Lower 48. He reiterated that about twice as much is
being paid for Cook Inlet gas and said a strong argument can be
made that wind and solar are competitive in the Railbelt right
now. He pointed out that the circles on the graph represent
individual contracts between utilities and independent power
producers and the bigger the circle the bigger the contract.
3:21:42 PM
REPRESENTATIVE SPOHNHOLZ, regarding declining wind and solar
prices, noted that a federal tax credit has helped make solar a
lot less costly for Americans. She offered her belief that the
credit expires in 2024, and asked whether an extension of this
credit has been introduced federally.
MR. ROSE replied that there have been discussions in Congress to
continue to extend the production tax credit, but as of now he
doesn't know of any package that it is in.
MR. ROSE resumed his presentation and addressed the bar graph on
the seventh slide, "Levelized Cost of Energy Comparison
Unsubsidized Analysis." He explained that this analysis, done
every year by the consultant group Lazard, compares the
unsubsidized cost of all different energy resources. He related
that the cost of renewable energy resources, solar and wind, are
roughly $30, $28, and $26 a megawatt hour (MWh), which is now
the cheapest unsubsidized electricity that can be produced. For
conventional resources, he continued, the cost from a fully
depreciated nuclear plant is $29/MWh while the cost from a newly
built nuclear plant would be $130-$204/MWh; the cost from a
fully depreciated combined cycle natural gas plant is as low as
$24/MWh while the cost from a newly built combined cycle natural
gas plant would be $45-$74/MWh. The Railbelt, he specified, is
producing Cook Inlet gas closer to the price of $74.
MR. ROSE displayed the eighth slide, "Net electricity generation
from wind and other sources in selected states (2020)." He
pointed out that 20 percent of all the electricity received in
Texas is now from wind and that 58 percent of all electricity
produced in Iowa is wind power.
MR. ROSE discussed the nineth slide, "Declining Costs of Lithium
Ion Batteries." He said an important part of the picture is the
cost of energy storage, at least in the cost of lithium-ion
batteries. A sharp decline is being seen in the cost of
lithium-ion batteries; a large driver for that is electric
vehicles, but other consumer products are using lithium-ion
batteries thereby creating a greater economy of scale and
driving the price down. The price of energy storage is expected
to continue going down, he continued, which can help integrate
variable renewables like wind and solar.
MR. ROSE turned to the tenth slide, "Sources of U.S. electricity
generation, 2020." He specified that renewables are about 20
percent of the current mix, with the percentage increasing as
the price of these resources goes down.
MR. ROSE spoke to the eleventh slide, "Renewable & Clean Energy
Standards." He explained that the map depicts the states where
there are already either renewable energy portfolio standards or
clean energy standards. Thirty states have renewable portfolio
standards, which is what HB 301 started out as, he said, and
five states have clean energy standards. These standards, he
added, drive the portfolios toward more clean energy.
3:26:13 PM
MR. ROSE proceeded to the twelfth slide, "The Railbelt is
Dangerously Dependent on High-Priced Cook Inlet Natural Gas."
He reiterated that the Railbelt's portfolio is heavily dependent
on just one resource and noted that that resource is provided by
a virtual monopoly, Hilcorp. He further noted that the Railbelt
doesn't have a lot of factors that are going to see its prices
drop: demand is flat, production costs in Cook Inlet are high,
infrastructure is aging, and the state gas subsidies for Cook
Inlet are now unsustainable.
MR. ROSE moved to the thirteenth slide, "Published Prevailing
Values for Cook Inlet Gas ($ per MCF)," a graph depicting the
price of Cook Inlet natural gas from 1994 to 2022. He said Cook
Inlet gas is now in the range of $8 [per thousand cubic feet
(MCF)], while the Henry Hub price in the Lower 48 is around $4,
which went up significantly in the last year. [The Railbelt's]
natural gas prices are very high despite being produced in-state
because of the very small market.
MR. ROSE reviewed the fourteenth slide, "Renewable Portfolio
Standard Assessment for Alaska's Railbelt." He related that the
governor asked the National Renewable Energy Laboratory (NREL)
to look at whether 80 percent renewables by 2040 was a
possibility. The NREL study found two things: 1) Multiple
pathways exist for the Railbelt to achieve 80 percent without
impacting the reliability of the grid; 2) An 80 percent
[renewable portfolio standard (RPS)] will save consumers $400-
$500 million a year in natural gas fuel prices. But, he said,
the next question i: How much will it cost to get there?
MR. ROSE turned to the fifteenth slide, "Preliminary
Benefit/Cost Analysis of NREL's RPS Scenario 3." He explained
that Alan Mitchell of Analysis North did a preliminary
benefit/cost analysis of NREL's Scenario 3 using very
conservative assumptions. He said Mr. Mitchell found that the
capital cost of getting to 80 percent wind and solar along with
a little bit of hydro would be $3.2 billion compared to $6.7
billion of fuel cost savings, a 2:1 ratio of savings.
MR. ROSE showed the sixteenth slide, "A New Railbelt ERO Would
Execute HB 301." He pointed out that Senate Bill 123, the bill
passed two years ago, now has created a mechanism to execute a
policy like this. He stated he is part of a group that has been
meeting for the last two years to develop an application to the
Regulatory Commission of Alaska (RCA), which was submitted at
the end of March. If the RCA certificates that group, he said,
it would become the first electric reliability organization
(ERO) in Alaska, and the group would be required to do
integrated resource planning for the entire region, which would
do technical and economic feasibility on a range of portfolio
options. So, he continued, if the legislature specified a goal,
then the ERO would do the analysis to find the portfolios to get
there.
3:29:42 PM
MR. ROSE suggested three amendments for the committee's
consideration. First, he said, is the initial requirement of 25
percent by 2030. The original bill, he noted, had a requirement
in 2025 and then 30 percent by 2030. He suggested moving that
requirement back to 30 percent and moving the timeline somewhere
between 2025 and 2030. He stated that it is important to keep
moving forward rather than allowing complacency and waiting
until 2030 before reaching these initial goals because getting
to 30 percent by the next goal is possible. Second, he
suggested that the proposed fine be raised from $20 a MWh to
closer to $50 a MWh, which is about the national average for
these kinds of fines. Third, he suggested that the clean energy
credits scheme be reorganized and stated that [REAP] would
provide detailed technical comments on that.
MR. ROSE concluded his presentation with the seventeenth slide,
which read as follows [original punctuation provided]:
HB 301 Would:
• Diversify the region's generation portfolio and
increase resiliency
• Displace high-priced natural gas fuel, and save
hundreds of millions of dollars every year
• Utilize local, flat-priced renewable resources
• Not impact reliability on the grid
• Keep Alaska competitive in a fast-changing world,
increase energy independence and meet consumer demand
• Support electrification of transportation and heat
• Create jobs, spur statewide innovation and keep
precious energy dollars circulating in the state's
economy
• Establish a standard that triggers action
MR. ROSE added that REAP believes all these requirements are
achievable even faster than the current legislation requires.
3:33:02 PM
JULIE ESTEY, Director, External Affairs & Strategic Initiatives,
Matanuska Electric Association (MEA), provided invited testimony
during the hearing on HB 301. She concurred with Mr. Rose that
diversifying the energy portfolio is an important step for the
Railbelt. She stated that utilities in the Railbelt have been
very clear in actions and testimony that they support effective
policy for creating a diversified energy portfolio. She said
surveys show that 70-80 percent of MEA's members in this
conservative district want some sort of carbon reduction or
renewable energy portfolio, but this support declines
significantly when members are asked about the effect on rates
or reliability. So, she continued, what MEA hears from its
members is that they are interested in innovation and energy
diversification, but they want to make sure that MEA's primary
responsibility around reliability and rates is kept full as
well.
MS. ESTEY noted that MEA's members are constituents of the
committee's members, which is why MEA is before the committee to
share how it believes HB 301 can be adjusted and smart policy
made because the time to make a transition is right now. She
recounted that in testimony before the House Special Committee
on Energy, Jenn Miller, CEO of Renewable Independent Power
Producer ("Renewable IPP"), stated that the Railbelt is at a
critical time for transition, the transition is big, and there
should be no pretending that it is going to be easy, but that
doesn't mean it shouldn't be done; it means it should be done
right and it starts here with policy. So, Ms. Estey continued,
that is why [MEA] is before the committee today. She noted that
Renewable IPP has brought on cost-effective solar power in
Willow and [will soon be doing the same] in Houston.
MS. ESTEY offered MEA's belief that the purpose section added in
CSHB 301(ENE) is well written and clearly describes attributes
of a successful and sustainable clean energy standard. This
addition is appreciated, she said, because it brings everyone
together around common goals. She stated that the Railbelt
utilities before the committee today have worked earnestly to
revise the bill to provide cost and reliability protection for
consumers as well as due consideration for the realities of the
Railbelt's current limited system. Also, she pointed out, the
Railbelt has few rate payers to spread costs over, so that must
be considered in a transition and be part of the plan.
MS. ESTEY noted that the goals listed in the purpose section of
HB 301 include to minimize costs [to consumers], a priority of
MEA. While there are many positive reasons to make the
transition, she stated, the rate impact will be to MEA's members
so it must be done right to limit that impact. She further
noted that the goals in the purpose section of the bill also
include to provide price stability to enhance opportunities for
economic growth, maximum grid resiliency, and minimize carbon
emissions. For member-owned cooperatives, she said, those are
all very important parts, each equal, in how this is moved
forward. She commended the House Special Committee on Energy
and Chair Schrage for their efforts to listen to all the
stakeholders involved and bring a committee substitute (CS) that
has a significant amount of support. She offered MEA's belief
that the bill is very close to something that can achieve the
goals established in the purpose section.
MS. ESTEY deferred to Mr. Brian Hickey to address some of the
topics brought up in testimony [before the House Special
Committee on Energy].
3:38:07 PM
BRIAN HICKEY, Chief Operating Officer, Chugach Electric
Association, provided invited testimony during the hearing on HB
301. He offered appreciation to the committee and to the [the
House Special Committee on Energy and Chair Schrage] to get a
spectrum of comments before deciding. He submitted that there
will be an achievable and sustainable product that can be done
in a technically effective way.
MR. HICKEY drew attention to page 10, Figure 4, of the NREL
study, "Renewable Portfolio Standard Assessment for Alaska's
Railbelt." He said NREL did not do a reliability analysis but
did run a production costing model which tells whether enough
capacity is had in every hour a day to meet load. A significant
amount of work needs to be done to do the reliability analysis,
he advised, and NREL was upfront about that in its assessment.
MR. HICKEY stated that Section 42.05.785(a) is the large project
preapproval process from the language of Senate Bill 123. Those
projects, he said, cannot be completed if they are detrimental
to the load serving entity (LSE) achieving its goals under the
renewable portfolio standard (RPS). That section of Senate Bill
123, he explained, was put in place so that local areas could
develop reliability projects to meet local reliability, and
typically those must be dispatchable resources. However, he
noted, wind and solar are non-dispatchable because they come and
go when they come and go. Therefore, he advised that section
constrains those local regions from building reliability
projects that are necessary and have not been included in the
integrated resource plan (IRP) that comes out of the electric
reliability organization (ERO).
3:40:37 PM
MS. ESTEY explained that the ERO was formed in Senate Bill 123,
and the ERO brings all the stakeholders - utilities, non-
utilities, independent power producers, the State of Alaska, and
consumer advocates - around the table to talk about reliability
standards and integrated resource planning. The ERO, she noted,
has an independent staff that will help in coming up with an
integrated resource plan. She stated that there is going to be
lots of public process, lots of transparency, and lots of fun
money to be spent coming up with an integrated resource plan.
She said she agrees with Mr. Rose's statement that that is a
natural place for these two efforts to merge, but qualified that
she agrees with him on a different level. There is going to be
lots of conversation, transparency, and involvement, she
reiterated, and having a clean energy standard out in front of
that basically gives that group the answers, and that is one way
for policy members to impact that. Since a previous legislature
has already impowered that group of stakeholders to come
together as approved by the RCA and come up with an integrated
resource plan, she continued, one suggestion is to have the
current goals perhaps confirmed by a feedback loop from that
process back into policy. That is something to consider while
going through this process, she said.
MS. ESTEY pointed out that there was no real economic analysis
in the NREL study because NREL did not have the time or scope to
do so. She offered support for a second phase of NREL studies
to help confirm the numbers and economics. She noted that NREL
did do an analysis of the potential fuel savings but the cost to
achieve those was not included. Mr. Mitchell's preliminary
benefit/cost analysis was a great start, she continued, but it
would be good to have further conversation and vetting around
that. She related that the utilities started doing their own
economic analysis but realized that it probably wouldn't be
credible. She therefore suggested having NREL do a similar and
more in-depth analysis than Mr. Mitchell's given that NREL does
this for other places all the time.
MR. HICKEY informed the committee that significant transmission
investment in the Railbelt will be required to move renewable
power from one location to another. He said there are currently
two transmissions lines that tie the three areas together. The
Anchorage and the Kenai line, owned by Chugach Electric
Association, moves about 75 megawatts, he specified, which is
about 10 percent of the peak load of the Railbelt. It is a
single contingency line, he explained, so when it is out of
service there is no access to [the Bradley Lake Hydroelectric
Project] resources. Nor, he added, would Chugach have access to
[the proposed Dixon Diversion Hydro Project ("Dixon Creek"], nor
would Chugach be able to carry the energy from Dixon Creek on
that line. Responding to Co-Chair Spohnholz, he said the
proposed Dixon project is located near the Bradley Lake facility
on the Kenai Peninsula on Kachemak Bay.
MR. HICKEY said the [second transmission line] from Anchorage to
Fairbanks carries about 80 megawatts, about 10 percent of the
peak flow, and it is a single contingency line that is going to
cost a fair amount of money. Federal infrastructure funding is
actively being sought for this, he related, and it is important
to pass HB 414 and SB 241 to give the Alaska Energy Authority
(AEA) the receipt authority for federal funds from the [2021]
Infrastructure Investment and Jobs Act (IIJA).
3:45:50 PM
CO-CHAIR FIELDS asked whether those provisions of SB 414 are
included in the current Senate Finance Committee CS which rolled
in many provisions of SB 414.
MR. HICKEY replied that they were, but he doesn't know about the
current [CS].
MR. HICKEY resumed his testimony. He said that in addition to
federal funding and utility contributions it is likely there
will have to be state funding for some of the transmission.
Building out that level of transmission could be done by the
utilities, he stated, but it would result in significant rate
increases, so it is really beyond the financial capabilities of
the Railbelt at this point.
MS. ESTEY interjected that [the utilities] disagree with any
statements that $20 per MWh is not a steep enough fine. She
said the utilities are nonprofit cooperatives that do not have
shareholders from which to grab fine payments. The fines would
be paid by cooperative members somehow, whether through rates or
through margins, which are the capital credits. She pointed out
that any fine, especially one at $20 per MWh, would be paid on
top of the large amount that the utilities are already paying
for gas-powered generation. So, she continued, a fine of $20
per MWh would be more than an adequate deterrent for a member
owned cooperative. Many of the member owned cooperatives in the
Lower 48 are exempt from these sorts of requirements, she noted.
MR. HICKEY added that including it in rates as opposed to taking
it out of the cooperatives' margins is critical. He recalled
discussion in the House Special Committee on Energy that some
items are not allowed in rates, such as advertising for
lobbyists. He specified that Chugach's margins in 2021 were
about $9.7 million, so Chugach's portion of a 30 percent penalty
for missing the target would be $4.5 million. That would move
Chugach into areas where its bond debt covenants, which require
Chugach to collect 110 percent of its margins for interest over
interest, would push the cooperative into a realm where it could
go into technical default. The RCA is required to set rates
under AS 42.05.431 that allow [a public utility] to recover
costs that are contracted for in bond covenants; so, Mr. Hickey
advised, there is a dichotomy there. The challenge, he
continued, is that this number is much bigger than anything that
is currently disallowed in rates for a cooperative. A
cooperative's margins are razor thin because cooperatives return
that money to their members. Not having it recovered in rates
and trying to recover it out of capital credits, he stated,
could push the utilities into difficult financial straits.
MR. HICKEY related that it was brought up in the House Special
Committee on Energy and in the NREL study that utilities should
be able to put large quantities of wind and solar on the system
and shut down their gas turbines for extended periods of time.
The challenge with that on the Railbelt, he explained, is that
there are minimum deliverability takes out of the inlet to keep
the wells producing natural gas. The home heating sector is
still drawing gas, but as gas turbines are shut down and as
deliverability is shut down, it is likely that deliverability
will be lost in the basin, which will increase both the cost of
gas and the availability of it. So, Mr. Hickey continued, while
this concept works well at the one-hundred-thousand-foot level,
when getting down into the details it must be figured out how to
transition off Cook Inlet natural gas without losing Cook Inlet
natural gas altogether. This critical component, he advised,
must be addressed in the CS.
3:50:41 PM
MS. ESTEY stated that the utilities have consistently voiced
what they feel is necessary, such as rate caps and reliability
assurances. She said CSHB 301(ENE) includes considerations for
the RCA to keep an eye on that and it is anticipated the RCA
would write detailed regulations to spell that out. It is the
RCA's responsibility to look after the rate impacts and
reliability of the utilities, she continued, so [CSHB 301(ENE)]
assures that that is happening. She related that the regulatory
commissions in other places can adjust the renewable portfolio
standard (RPS) if it is felt that the RPS is going above and
beyond what is needed. However, she stressed, that is not what
is being asked for here, it is just being asked that the RCA
raise its hand or put on guardrails. Currently, most of [the
Railbelt's] renewables are above the costs of producing with gas
generation, and everyone is banking on that shifting in the
future. If it doesn't shift, then it is the members of the
cooperatives who are holding the bag, Ms. Estey stated. Given
it is already the RCA's responsibility to look at rates and
reliability, putting some guardrails on what is acceptable is
important to everyone, she continued. So, the changes made by
the House Special Committee on Energy are appreciated and [the
cooperatives] look forward to the RCA creating more. She again
touched on the idea of putting the feedback loop from the ERO
process into the clean energy standard. Regarding fines, she
related that under the current CS fines are not allowed to be
recovered in rates. She reiterated that without shareholders,
cooperatives only have rates and margins from which to pull
funding. Margins are what is left over, she explained, and
those get reinvested back into the cooperative and eventually
paid out as capital credits. So, either way it impacts the
members of the cooperatives. She expressed her hope that the
committee discusses this further.
CO-CHAIR FIELDS said he intends to write an amendment on that.
He stated that the fines would be put back into building
renewable generation so it meets the purpose of the bill and
would be clear to consumers.
CO-CHAIR SPOHNHOLZ noted that a chart distributed to committee
members shows a significant decline in Cook Inlet natural gas
usage taking place over the last 20 years. She inquired about
the number of years left for being able to reliably count on
Cook Inlet natural gas to provide energy to the Railbelt.
MS. ESTEY replied that her limited understanding is that it may
not be what is called "behind pipe." There is gas, she said,
but there would be a cost for getting that gas connected into
the system and delivered, and decisions would have to be made as
to whether those costs are economically worth it.
MR. HICKEY added that significant investment of Cook Inlet would
be needed to get gas behind pipe and maintain the gas fields or
else go a different way, such as [the proposed Susitna-Watana
Hydroelectric Project] and Dixon Creek to bridge that gap. He
said there is solar and wind that could be used to fill in some
of the gaps, so that transition is necessary.
MS. ESTEY added that that is why the energy portfolio should be
diversified.
3:55:32 PM
CO-CHAIR SPOHNHOLZ commented that a key question on the time
horizon for the renewable energy portfolio standard is looking
at where to make capital investments during the transition.
Rate payers across Alaska are going to pay one way or another,
she stated, and a question is whether to accelerate that
transition to renewables while trying to maintain reliability or
whether it is more economic and worth the higher carbon
footprint of developing natural gas moving forward. She said
she wants to look at both versions of the bill so that policy
makers can make a calculated decision for the people of Alaska.
MR. HICKEY advised that a provision in [CSHB 301(ENE)] regarding
a levelized wheeling rate for renewable energy creates a
conflict between AS 42.05.431(c), which is the Bradley Lake
exemption. Bradley Lake, he noted, would be considered a clean
energy resource under this bill. The agreements for the Bradley
Lake Project, he said, are not regulated by the RCA as they were
exempted under AS 42.05.431(c)(1). The challenge, he explained,
is that a very complex set of agreements negotiated in 1980
govern the wheeling and delivery of Bradley Lake energy. If the
current bill is passed, he continued, there would a conflict
between the Bradley Lake exemption and the bill that would then
have to be figured out. Mr. Hickey suggested amending the bill
to reflect projects that are built on a going forward basis and
leave projects that have existing wheeling arrangements which
are very intricate and tied together and that are very difficult
to unwind. That specific statute, he added, was upheld after
several years of litigation by the Alaska Supreme Court in 2019.
MS. ESTEY pointed out that [CSHB 301(ENE)] includes a very
prescriptive list of what things are acceptable and what are
not. She emphasized that it is hard to sit here in 2022 and
know what should be on this list decades in the future. She
suggested that the bill include a provision for review every two
to three years by an independent source, whether it is the
Alaska Energy Authority, the RCA, or the Alaska Center for
Energy and Power. She related that this was also supported by
the REAP board during discussions about looking at these
technologies and not limiting because there is a lot on the
horizon and there needs to be the ability to take advantage of
everything. This topic was discussed before the House Special
Committee on Energy, she noted, and the decision was made to
have more conversation about it.
3:59:49 PM
ALAN MITCHELL, Owner, Analysis North, provided invited testimony
during the hearing on HB 301. He stated he has been working on
technical and economic analysis of energy and telecom projects
for over 30 years in Alaska. He displayed the first of four
slides, "Preliminary Economic Analysis of Railbelt RPS," and
noted that this preliminary analysis was not done for REAP, but
rather on his own and no payment was received from anyone. He
said he agrees with Ms. Estey about getting NREL to do a more
serious economic analysis. He explained that NREL mapped out
five different routes for achieving the 80 percent renewable
standard in the Railbelt from which he picked [Scenario 3],
which predominantly relies on wind and solar as the renewable
means to get to that 80 percent. He said that in his analysis
he did not change anything in the work NREL did, but he went a
step further by taking NREL's results for how much capacity of
wind would be needed to achieve the 80 percent and how much
capacity of solar and assigning some preliminary benefit in cost
numbers to that scenario.
MR. MITCHELL proceeded to slide 2, "Preliminary Benefit/Cost
Analysis," and explained that the graph is a summary of the
benefits and the costs that he came up with. He said his
estimate is $3.2 billion in capital cost to implement [Scenario
3], and his estimate is $6.7 billion in present value benefits
over the life of these investments, which he estimates to be 22
years. He arrived at $6.7 billion, he explained, by adding up
the fuel savings, which were done by NREL and which he did not
modify, with proper discounting over that 22-year life. He said
he did reduce those fuel savings somewhat by the added operating
and maintenance costs of the renewable facilities required.
Benefits far exceed the costs, Mr. Mitchell stated, and even if
the capital cost was doubled a net benefit would still be seen.
MR. MITCHELL moved to slide 3, "Capital Costs of Scenario 3
relative to Base Case," and gave further detail on the estimated
capital costs. He said the right-most column of numbers depicts
the total cost [in billions] for each renewable energy
generation source [wind - $2.34, solar - $0.80, add turbine to
Bradley Lake - $0.09, biomass - $0.22, fossil fuel minus
$0.21, totaling $3.24]. He noted that the bar chart to the
right of those numbers depicts the relative magnitude of the
different sources, and the capital costs for this wind-solar
scenario are dominated by wind and solar. He pointed out that
no transmission and battery storage costs are in the table
because NREL assumed that both transmission and battery storage
would be built in the status quo case, in the nonrenewable case,
and in all the renewable cases, so it was a common investment to
everything.
MR. MITCHELL continued reviewing slide 3. He stated that
Scenario 3 adds 802 megawatts of wind, but NREL did not state
what that would cost. He said he therefore looked at Golden
Valley Electric's Eva Creek Wind Farm, brought online in 2012 at
a cost of about $1.94 [per kilowatt], which was a bit less than
twice the cost per kilowatt of the national average wind farm.
He took the 1.94 multiplier, he explained, and applied it to
current day national average wind costs, so his estimate is
roughly twice the current capital cost per kilowatt for wind in
the Lower 48. Similarly for solar, he continued, he used a 1.46
multiplier, which is consistent with the publicly stated
estimate of the proposed Homer Electric 20-megawatt solar farm.
MR. MITCHELL turned to slide 4, "Benefits that were Not
Considered in the Analysis." He stated that several things make
his analysis on the conservative side. First, while solar cost
has declined 85 percent since 2010 [adjusted for inflation] and
wind cost has declined 65 percent, he said his analysis did not
assume any further decline in solar and wind cost even though he
thinks there will be and most of these renewable investments to
implement Scenario 3 will occur 5-20 years from now. Second, he
stated, these renewable projects are going to save fuel well
past 2040, but he did not project fuel prices to increase more
than just the general rate of inflation beyond the year 2040.
Further, he continued, he didn't take any economic credit for
the reduced carbon emissions that these projects will bring
about, so he didn't assume that carbon tax would be avoided.
Finally, he specified, he didn't factor in any sort of federal
subsidies for the renewable projects, he assumed that the
projects were entirely funded by Alaskans.
4:07:46 PM
ERIN MCKITTRICK, Co-Founder, Ground Truth Trekking, provided
invited testimony during the hearing on HB 301. She noted that
while she is a board member of Homer Electric Association (HEA),
her testimony today is on behalf of herself. She said she has a
deep interest in energy and has done independent analysis of the
Railbelt system looking at such things as the economics of the
current system and carbon emissions. Having a clean energy
standard is important, she stressed, and good for Alaskan
consumers.
MS. MCKITTRICK reviewed two graphs to provide background. She
stated that the Railbelt's generation system hasn't changed much
in the last decade but the circumstances around it are
different. She referred to the graph titled "Cook Inlet Gas
usage" [for the years 2000-2020] and said that when lots of gas
was being produced in Cook Inlet for a big market, which
included Agrium and exports, the local users were just "along
for the ride, almost an afterthought." A steep decline occurred
as that became less and less economically viable, she stated,
and now it is down to a small market that is mostly Enstar, the
electric utilities, and the oil and gas industry itself. She
referred to the graph titled "State Subsidies vs. Utility
Purchases of Gas" and said it looks at the state tax credits.
She pointed out that when talking about the current system, the
price of gas, and what is going to happen in the future, it must
be remembered that steps have already been taken to avert a
local energy crisis with substantial state money. She noted
that the yellow bars represent $1.3 billion [in tax credits paid
by the state], and during several years the state subsidies were
more than what all the utilities were paying together. While
there is gas out there, Ms. McKittrick continued, it might be
more costly to get it to people. The state may well be on the
hook for more rescues, she said, and diversifying fuel sources
and investing in renewable energy projects instead are tangible
things going forward, given nobody knows how long the relative
price stabilization from those subsidies will last.
4:11:52 PM
MS. MCKITTRICK addressed earlier testimony about the importance
of utilities working together for a better economy of scale in
building a project that serves more than one utility. Often
necessary in that coordination, she said, is moving power around
between the different utilities. Transmission is part of that,
she stated, and she concurs with the NREL study's anticipation
that transmission upgrades would be necessary to reach that 80
percent number. She pointed out that due to lack of time the
NREL study did not look at lower, more intermediate targets.
She advised that lots of renewable energy can be built, and that
power transferred on the grid as it is now, while working on
building the other things. For example, Ms. McKittrick related,
Homer Electric Association has a rule of 50 percent renewable
energy by 2025 and anticipates that that is possible before new
transmission is built. She further pointed out that the
constraints on the current transmission system aren't true for
every direction. If a line is full going north it is not
necessarily full going south, she explained, so depending on
where a project is put, a lot of power can be transferred on
those lines. It isn't necessary, she continued, to wait for
those transmission improvements to start down this path.
MS. MCKITTRICK, regarding the Bradley Lake agreements affecting
transmission wheeling, stated it is important to have a simple
unified rate going forward to transfer this renewable energy
along existing power lines. She said she doesn't know whether
it would be necessary to specifically exclude Bradley Lake to
avoid legal conflicts, but she imagines that it could be done.
Bradley Lake, she continued, is specifically excluded from many
of the things she has mentioned regarding what could be done
without destroying the intent of freely moving power from other
projects.
MS. MCKITTRICK drew attention to the provision that would let
utilities trade credits for clean power. She stated that this
works between the Railbelt utilities, but the House Special
Committee on Energy's CS modified that to be statewide. She
offered her belief that the intention was to potentially provide
some benefits to rural Alaska but cautioned that, as written,
the provision could have substantial unintended consequences. A
large amount of renewable energy, she explained, is produced by
about nine hydroelectric projects in Southeast Alaska and
Kodiak, so if any renewable energy in the state could help meet
these goals there would be incentive for those utilities to sell
those credits cheaply and it wouldn't necessarily benefit
anyone. Those places have cheaper power than the Railbelt, she
noted, and they don't really need to build more renewable power
themselves in many cases because they already are pretty much
running on hydro. Ms. McKittrick suggested that this problem
could be solved by modifying the credit system to be either on
the Railbelt or utilities that are eligible for the Power Cost
Equalization (PCE) Program. Those are small rural utilities
with high costs, she added, and their total amount of power
generation is much smaller so they could sell credits in the
Railbelt but still build projects.
4:17:41 PM
MS. MCKITTRICK said looking at costs is important and looking at
fuel savings is key because current power generation [in Alaska]
is so expensive in many cases that it might be possible to build
and operate a renewable project for the fuel cost of running an
existing plant. Existing plants do not have to be taken off the
books or dismantled, she stated, it makes sense to keep them as
backups when building new more efficient nonrenewable generation
or building renewable generation. There is no need to wait for
existing plants to be at the end of their lives, she added.
CO-CHAIR FIELDS asked Ms. McKittrick to provide her suggestion
for credits by email to the committee.
4:19:25 PM
REPRESENTATIVE MCCARTY noted that certain areas such as Kodiak
have more resources and certain areas do not have access to
renewable energy. He requested comment on that aspect because
it doesn't appear that one thing fits all.
MS. MCKITTRICK responded that this standard applies to the
Railbelt which is all tied together and has enough renewable
resources to meet this. She said the credit system is a way, in
lieu of meeting some portion of that standard, to buy credits
from another utility elsewhere in Alaska, so presumably those
villages or other areas that had access [to renewables] could
sell those credits. This bill would not solve the problem of
providing energy to all villages, she continued; it is intended
to focus on the Railbelt so doesn't attempt to answer that
question about what villages with no access to renewable
resources should do.
4:21:55 PM
RYAN JOHNSTON, Staff, Representative Calvin Schrage, Alaska
State Legislature, presented the summary of changes made in CSHB
301(ENE) on behalf of the House Special Committee on Energy. He
paraphrased from the document in the committee packet titled
"Summary of Changes for HB 301 (Version A to W)," which read as
follows [original punctuation provided]:
Page 1, Lines 1 3: amends the title to read "clean
energy standard" and adds "relating to the Alaska
Energy Authority and clean energy projects;" to the
title of the bill. The title change was done to
conform with the "renewable portfolio" standard being
replaced with a "clean" energy portfolio.
Page 1, Lines 9 11: after "energy resources" adds to
the purpose section of the bill, "in order to minimize
costs to consumers, increase stability for economic
development, maximize grid resiliency, and minimize
the state's carbon emissions."
Page 1, Line 14: adds a new section to AS 42.05.381
that directs the Electrical Reliability Organization
to develop a uniform transmission services rate for
the transmission of energy to comply with the clean
energy standard under AS 42.05.900.
MR. JOHNSTON clarified that for the new section to AS 42.05.381,
any energy transmission done from the generation of clean energy
would be covered under that transmission tariff and anything
existing currently from normal production would not be covered.
He continued paraphrasing from the summary of changes:
Page 2, Line 15: amends subsection (B) to be more
aligned with utility industry language.
Page 3, Line 27 Page 4, Line 3: amends the
benchmarks for the clean energy standard to from four
to three. The first being 25 [percent] by December 31,
2030. The second being 55 [percent] by December 31,
2040. And finally, the third being 80 [percent] by
December 31, 2050. The third benchmark was amended to
now only be applied Railbelt wide instead of by each
utility.
Page 4, Lines 18 23: adds a new section to AS
42.05.900 that would allow for construction that has
begun prior to the end of a compliance period to be
counted to fulfilling the clean energy standard if the
project will begin providing energy no later than two
years after the compliance period or the end of a
period determined by the Regulatory Commission of
Alaska.
MR. JOHNSTON explained that this new section to AS 42.05.900 was
added to give more leeway for larger construction projects that
would potentially happen so the RCA would have the ability to
determine that time period.
4:24:49 PM
CO-CHAIR FIELDS asked whether he is correct in understanding
that if the deadline is 25 percent by 2030 and there is a large
project that would get to 25 percent, but it is still being
developed and not actually producing by 2030, then the utilities
are meeting the requirements.
MR. JOHNSTON that is correct; technically if it fell within the
two-year period it would be fine. The gray area, he said, would
be if it was going to fall after the two-year period, then the
utilities would have to make a case with the RCA to determine
the period of time in which it could comply.
MR. JOHNSTON continued paraphrasing from the summary of changes:
Page 5, Line 2: adds a new section to AS 42.05.900
stating that a load serving entity may satisfy the
clean energy standard using clean energy credits.
Page 5, Line 4: adds a new section to AS 42.05.900
that a project located wholly or partially on state
lands are exempted from state lease fees.
Page 5, Line 20: adds a new section to empower the
Regulatory Commission of Alaska to monitor the effect
of the clean energy standard on rates and reliability
to determine if it if consistent with the public good.
Page 5, Line 23 Page 6, Line 4: amends the previous
credit system into the "Clean energy Credits". A clean
energy credit may only be used once. A credit may be
used to comply with the clean energy standard without
purchasing or use of the electrical generation from
which the credit is derived. The energy from which the
credit is derived must be generated in the State of
Alaska.
MR. JOHNSTON pointed out that the credits-based system [was
changed in the CS] to focus on the whole of Alaska instead of
just the Railbelt as was provided in the original version.
CO-CHAIR FIELDS referenced Ms. McKittrick's comments and asked
whether current language states that existing hydro from
Southeast could be counted or whether new language needs to be
added to clarify that this is only new generation.
MR. JOHNSTON responded that under current language it could be
existing or new projects. He related that there have been
conversations about potentially scaling this down because the
intent of the amendment was to create a link between rural
Alaska and the Railbelt since the bill is so heavily focused on
the Railbelt, and then creating a credit system that would allow
a revenue stream for Alaska's small rural power producers to
participate in a clean energy standard.
CO-CHAIR FIELDS stated that that is a change the committee will
need to pursue. The idea, he said, is that the most economic
project might be in Bethel or Southeast and encouraging that is
wanted, but to not count everything that is already there and
thereby do nothing.
MR. JOHNSTON continued paraphrasing from the summary of changes:
Page 7, Line 6: after "commission" changed the word
"may" to "shall".
Page 7, Lines 16 20: amends the previous exemptions
section to a single exception. The new exemption
states that if the Railbelt achieves the clean energy
standard than the individual load serving entities are
exempted.
Page 7, Lines 24 28: adds a definition of a "clean
energy credit".
Page 7, Line 29: Amended the definition of "renewable
energy resource" and renamed "clean energy resource"
was cleaned up by legislative legal to be more in line
with their drafting standards and the previous
committee added nuclear generation to the definition.
Page 8, Lines 6 8: amends the previous definition of
"renewable energy standard" to be a "clean energy
standard" and reordered it in the definitions section.
Page 8, Line 11: amends the compliance period to a 10-
year period.
Page 8, Line 26: adds a new subsection to AS
44.83.940. The new subsection would require that the
Alaska Energy Authority shall provide a report to the
legislature every two years on the progress developing
renewable and clean energy resources in rural parts of
the state.
Page 9, Line 3: the regulations language for the RCA
of Alaska was cleaned up by legislative legal to be
more in line with their drafting standards and
existing powers of the RCA.
4:30:11 PM
REPRESENTATIVE SPOHNHOLZ asked about the change in nomenclature
from renewable energy resource to clean energy resource and why
"clean" is being used as opposed to "renewable."
MR. JOHNSTON answered that with the addition of nuclear it made
more sense to set the precedent with clean rather than renewable
because it is generally not accepted that nuclear is a renewable
energy resource, but it is considered a clean energy resource.
CO-CHAIR SPOHNHOLZ agreed that that makes sense.
MR. JOHNSTON noted that NREL recently provided a cost estimate
and a time period breakdown, which he will pass along to the
committee.
CO-CHAIR FIELDS related that the House Special Committee on
Energy heard this bill extensively for about two months.
[HB 301 was held over.]