Legislature(2011 - 2012)HOUSE FINANCE 519
05/07/2011 10:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Review of Energy Projects | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
REVIEW OF ENERGY PROJECTS
[Contains discussion of SB 46.]
10:12:23 AM
CO-CHAIR PRUITT announced that the only order of business would
be a review of energy projects in CSSB 46 Version T, Section 4,
page 98, line 1, through page 101, line 27: Alaska Energy
Authority requests submitted by the administration. He
explained the review would exclude weatherization, in-state gas,
and renewable energy grant funds. A description of each project
would include answers to 10 questions previously submitted to
the witnesses, in addition to: an indication of local support
for the project; sources of financial support outside of state
funding; the end-cost to ratepayers for power; the scope of the
vetting process; challenges of "the 50 percent requirement."
10:14:32 AM
CHRISTINE KLEIN, Executive Vice President & Chief Operating
Officer, Calista Corporation, said the Calista Region in
Southwest Alaska is served by the Nuvista Light & Electric
Cooperative (Nuvista). The Nuvista hydroelectric (hydro) power
project would be the first hydro project in this region of the
state and - at a cost of $17.6 million - would serve a 59,000
square mile area encompassing 56 villages, many of which are
located along the Yukon and Kuskokwim Rivers, and with a
population of nearly 31,000 residents. Ms. Klein noted that
this region is the poorest in the state and has a dispersed
population with a very remote and limited infrastructure.
Currently, the cost of power in this region is the highest in
the U.S. Nuvista was established in 1995 and its goal is to
deliver and reduce electrical cost to residents, and to find
solutions to the high cost of energy. Nuvista's members include
the region's major stakeholders; in fact, its board of directors
represents the major energy users in the region such as the
Association of Village Council Presidents (AVCP), the Yukon
Kuskokwim Health Corporation, AVCP Regional Housing Authority,
Alaska Village Electric Cooperative; Chaninik Wind Group; Middle
Kuskokwim Electric Coop.; Lower Yukon Representative Electrical
Coop.; Calista Regional Corporation. The project is the result
of many groups working together to find a solution to the cost
of energy, and to improve the economy of the region.
10:17:49 AM
MS. KLEIN turned attention to page 1 of her written presentation
provided in the committee packet. Chart I titled, "Y-K Region
Energy Situation," indicated that diesel is the primary fuel
used for home heating and electrical generation, and it sold
last year at prices ranging from $6.14-$9.50 per gallon. Ms.
Klein pointed out that because the fuel is purchased by barge,
the prices are unchanged until the fuel is consumed;
furthermore, Nuvista expects the price to increase next year.
The chart also indicated: the amount of family income used to
pay for heating has risen from 50 percent to 75 percent; there
are over 40 independent diesel generators generating electricity
in the region; conservation measures are routine; the cost of
electricity per kilowatt hour (kWh) is $0.58-$1.05. Because the
cost of fuel oil is twice that of Anchorage and Bethel, and the
cost of electricity is three to five times that of Anchorage,
the Power Cost Equalization (PCE) program is vital to survival
in the villages. Ms. Klein provided historical data indicating
that beginning in 1975, 21 engineering reports and studies have
been conducted in the Bethel area, and since 2006, $2.28 million
has been spent by AEA, the Denali Commission, and other
agencies, and $650,000 has been spent by Nuvista in the search
for solutions. These studies reveal that the electrical demand
for Bethel and the surrounding sub-region is expected to be 65
megawatts (MW) by 2020, which is an increase from the current
demand of 14 MW. In addition, the studies indicate that coal
and hydro have high potential for electrical generation in the
region. She called attention to the graph on page 2 titled,
"II. Electrical Cost Projections 2002," that illustrated the
current cost of electricity is much higher than was predicted in
2002.
10:22:25 AM
MS. KLEIN continued to Nuvista's region-wide alternative energy
plan that determined that because the area is immense and very
diverse in the population of the villages and their locations,
there is no one solution for the region. For example, the
coastal villages have wind energy to augment their energy needs,
but wind is not a total solution; in fact, nine villages are
using wind turbines and saving 140,000 gallons of diesel fuel
per year. Therefore, Nuvista is focusing on the energy needs of
the Bethel sub-region at this time because it holds over 50
percent of the population and energy demand, and is experiencing
the greatest growth. The Bethel sub-region also lacks a
transmission system, and the illustration on page 2 titled, "II.
Transmission System Needed," proposed a sequenced transmission
grid build-out beginning at Bethel, which was identified as
"Group 1 Villages." On page 4 a table titled, "II. Previous
Alternatives Considered," listed how residents feel about
different types of technologies: residents are comfortable with
diesel; geothermal is preferred but is unlikely; wind power is
preferred but is limited by location and production; hydro is
preferred but has a high construction cost; coal is feared
because of health risks; nuclear power is troublesome in Alaska.
Nuvista reviewed the top three alternatives to meet large-scale,
long-term demand: wind turbines, a coal power plant, and hydro
power. Ms. Klein advised that wind power can be variable and
does not meet the entire demand. Although a coal power plant
was found to be very feasible and would provide the lowest-cost
electrical energy, this system was not acceptable to the
community. However, 12 hydro sites were determined viable and
that the proposed Bethel grid would support a majority of
villages in its area, thus the hydro option was seriously
pursued.
10:29:18 AM
MS. KLEIN related that a feasibility report commenced in 2009-
2010 through a grant from AEA and determined the four most
viable options for a hydro site: Chikuminuk Lake Allen River
Outfall; Kisaralik River Upper Falls; Kisaralik River Lower
Falls; Kisaralik River Golden Gate Falls. She referred to
several engineering reports that recommended proceeding with the
Federal Energy Regulatory Commission (FERC) permitting of sites
on the Kisaralik River. However, in 2010, MWH engineers found
the best option to be the site at Chikuminuk Lake. Chikuminuk
Lake is 118 miles from Bethel, has a generating capacity of 13.4
MW, and is a year around source of power. Importantly, the
Chikuminuk Lake site does not have anadromous fish as do the
Kisaralik River sites, which also have historical significance
and can only provide power on a seasonal basis. She noted that
transmission lines are included in the cost estimate of $391.7
million.
10:34:29 AM
MS. KLEIN said that the project has been well received by the
public and all 56 villages are in support of the Chikuminuk Lake
option. As directed by AEA's standard process, Phase II of the
project is a detailed feasibility assessment and initial
engineering designs. She called attention to a chart on page 6
titled, "IV. Preferred Alternative," that compared the
construction cost, design cost, total project cost, estimated 20
year cost/kilowatt hour (kWh), and demand capacity of the four
sites. Total construction costs - including transmission lines
- for each project are between $350 million and $500 million.
To compare projects and determine whether a project is
economical, AEA uses diesel models with the cost of oil at $25-
$30 per barrel - which is very low - and the net present value
over 20 years for the Chikuminuk option would be $554 million,
and in 2022 it would be $36.6 million. Ms. Klein explained that
the capital investment of the project equates to $17,262 per
capita, which is similar to that of the Railbelt at $16,200 per
capita. Of the four options, the Chikuminuk site has the lowest
non-diesel net present value. She noted the reconnaissance and
feasibility phase of the project is completed and the public and
the Nuvista board of directors have made the decision to
proceed. Next, the Nuvista board will hire a project manager
and begin the preliminary application for the FERC license.
Also, the AEA Project Phase II process of detailed feasibility
and design will begin. She called attention to the chart on
page 7 of the document in the committee packet titled, "IV.
Next Steps: Capital Request," which listed the specific tasks
and their costs that itemize the capital request. Step "1a" is
the detailed feasibility work, geotechnical work, FERC
licensing, field surveying, and gathering the preliminary
financial options at a cost of $5.88 million. Step "1b" is the
preliminary engineering design, site field investigations, and
specifications at a cost of $11.75 million. If the project were
begun today, electricity will be available in 2022, as long as
the project is sequenced; in fact, the abovementioned tasks are
combined into one field season to save time and money. Ms.
Klein cautioned that the legislative appropriation process
dictates that "money is not accessible until the middle of a
construction season which makes it a little difficult to proceed
ahead effectively." She concluded that the capital request by
Nuvista to complete the detailed feasibility report, the
remaining field investigations, hydrologic monitoring, surveys,
stream gauging, permitting, and engineering plans, is
$17,630,000, an amount which is "well in line" with the 4
percent commonly accepted for a final feasibility and design
effort.
REPRESENTATIVE TUCK stated his support for hydropower and asked
if there is support from the administration.
MS. KLEIN said the project has been reviewed by AEA.
10:45:11 AM
REPRESENTATIVE SADDLER asked whether the cost of the entire
build out system of transmission lines to all six of the village
groups is included.
MS. KLEIN said she was unsure.
10:45:38 AM
REPRESENTATIVE SADDLER asked for more details on the financing
arrangements with the U.S. Department of Interior (DOI) and
bonds for rights of way.
MS. KLEIN answered that at this time she did not know what
agencies would provide funding; however, Calista Corporation has
briefed federal agencies on the project. In fact, there are a
number of options at future stages for funding through DOI,
Bureau of Indian Affairs (BIA), and Bureau of Land Management
(BLM) due to the socioeconomic and/or cultural history of the
region. In addition, support from the Alaska Congressional
delegation has been solicited.
10:48:11 AM
REPRESENTATIVE SADDLER further asked about U.S. Department of
Energy (DOE) bonds for construction funds.
MS. KLEIN advised financial arrangements must wait for the final
feasibility report; however, she is researching a mixture of
funding sources such as grants and very low-interest loans
through the Department of Commerce, Community & Economic
Development, Alaska Industrial Development & Export Agency
(AIDEA) and the DOE Tribal Energy program.
10:49:54 AM
CO-CHAIR PRUITT asked how much money the project will need from
the state in grants and investment.
MS. KLEIN restated that is unknown at this time.
10:50:59 AM
CO-CHAIR FEIGE asked for the combined baseload of all of the
villages.
MS. KLEIN said she was unsure.
10:52:13 AM
CO-CHAIR FEIGE observed the project seems expensive in terms of
dollars per MW: $34 million-$35 million dollars per MW, as
compared to the Susitna dam project which is projected to cost
$3 million per MW. Because the villages are widely dispersed,
interconnection may be considerably greater than estimated; in
fact, he doubted if the cost would be under $1 billion to
connect the villages as planned. Representative Feige asked why
Calista did not partner with the proposed gold mine at Donlin
Creek, which would be a large electrical consumer, to build a
power plant in Bethel.
MS. KLEIN advised the "coal options" were significantly explored
in 2002 and 2004. The Donlin Creek mine has been in the
exploration mode for over 16 years and inquiries by Calista
Corporation found that delays with the mine were holding up
energy plans for the region and projects in some villages.
Furthermore, coal was dismissed by the population. She added
that the permitting process for the mine would take years and
making the mine a utility cooperative would affect its permit.
10:55:46 AM
CO-CHAIR FEIGE opined the mine would be a customer for a coal-
fired power plant, which over a period of 30 years, would pay a
significant portion of the cost of a power plant in Bethel, in
addition to saving hundreds of miles of transmission lines.
MS. KLEIN pointed out that the Donlin Creek mine could purchase
power from this project or from a coal power plant. She
restated that the community of Bethel studied the option of
building a coal power plant and "said 'no,' so it's been taken
off the table."
10:57:00 AM
CO-CHAIR FOSTER called attention to the Chikuminuk project's
estimated 20 year cost per kWh of $0.58-$0.70, and asked whether
that projection is inclusive of transmission line maintenance
and operation (O&M).
MS. KLEIN said the projection includes only the cost of
construction; however, operation and maintenance of hydropower
is very low when compared to diesel. She opined the projection
is very conservative in that she expects an increase of demand
after heating plants are converted from diesel to electric.
CO-CHAIR FOSTER observed the demand in Western Alaska is
growing.
10:59:35 AM
REPRESENTATIVE P. WILSON ascertained the Bethel community's
concern about coal was related to health issues.
MS. KLEIN answered yes and advised that public meetings in 2004
stopped the project, but she was unclear about the exact
reasons. In further response to Representative P. Wilson, she
said the plant proposed using imported coal from British
Columbia. Other potential mines in the region are the Niak and
the Platinum.
11:03:55 AM
REPRESENTATIVE PETERSEN assumed the life of the project is
beyond 20 years, and after the pay-off the cost of electricity
goes down.
MS. KLEIN said he was correct. The life-cycle of most hydro
projects is typically 50 years, and it is not uncommon to exceed
that.
11:04:50 AM
REPRESENTATIVE PETERSEN asked what type of generating plant will
be built.
MS. KLEIN explained that the 20-mile long lake would be dammed
by a 100- to 160-foot-high dam with a 91-foot head, and
consisting of a rock-fill, concrete-face dam structure with
penstock. In further response to Representative Petersen, she
said there are no known anadromous fish in the lake.
11:06:33 AM
REPRESENTATIVE TUCK was pleased that the project will help meet
the state's energy policy of 50 percent renewable by 2025.
Hydropower is cost effective and maintenance-free after
construction costs and loans are paid off, and low-cost and
reliable energy spurs economic development. He asked when the
most recent survey of residents' opinions was conducted.
MS. KLEIN answered that the most recent public meeting on all of
the options was March 2011, in Bethel. The findings were
reviewed by about 150 people from throughout the region, and the
Chikuminuk Lake Hydropower option was chosen.
11:10:46 AM
REPRESENTATIVE TUCK surmised the decision was determined by
public hearings, not a mail or phone survey.
MS. KLEIN said he was correct.
11:11:20 AM
CO-CHAIR SEATON asked whether there will be excess power
available for other communities such as Dillingham.
MS. KLEIN acknowledged that this site has the potential to be
significantly expanded.
11:12:37 AM
CO-CHAIR SEATON recalled that coal-fired plants have had
problems with permitting in Alaska and are being phased out in
the Lower 48. He compared the cost of $3 million per mWh at
Susitna displacing $0.06 avoided cost power, with $30 million
per mWh at Chikuminuk displacing $0.80 avoided cost power, and
opined Chikuminuk is more cost efficient than Susitna in that
aspect. He cautioned against not "look[ing] at the full
equation of what we are getting away from, and that is very
expensive power ...." Co-Chair Seaton expressed his support,
although more information in needed on the use of this power by
villages, transmission, how many villages will benefit, and on
the generation of constant baseload power.
11:15:29 AM
MS. KLEIN reviewed some of the benefits of the project such as
the displacement of 10 million gallons of diesel per year, the
reduced carbon footprint, the stability of hydropower, the
savings to PCE, the low O&M costs, the electrical support to a
minimum of 14 villages as indicated on the map provided in the
committee packet, and the potential to expand electrical support
to other villages throughout the region.
CO-CHAIR FOSTER asked for the population of the Calista Region.
11:17:52 AM
MS. KLEIN estimated between 21,000-24,000 residents. In further
response to Co-Chair Foster, she estimated 148 miles of
transmission lines would connect all of the villages in the
region.
11:18:41 AM
CO-CHAIR FOSTER then asked for a side-by-side comparison of the
basic information for Susitna Hydro and the Chikuminuk Lake
project, especially regarding a financing plan and final costs
to rate-payers.
11:19:41 AM
REPRESENTATIVE MUNOZ asked for the distance between the proposed
Donlin Creek mine and the project.
MS. KLEIN answered that Donlin Creek is in the upper Kuskokwim
River area which may not be a part of this project due to river
crossings. In further response to Representative Munoz, she
said other large scale customers for power generated by this
proposal would be the school district, two fish plants, the
airports, and other commercial enterprises.
11:21:27 AM
REPRESENTATIVE MUNOZ stressed the importance of working with
potential large-scale commercial customers; for example, in
Juneau the Hecla Greens Creek Mining Company (HGCMC) agreed to
purchase surplus power from Alaska Electric Light and Power
(AEL&P) which enabled AEL&P to pay off the bonds from the Lake
Dorothy Hydroelectric Facility. She urged Ms. Klein's
organization to "reach out to Donlin Creek and other commercial
entities."
MS. KLEIN said she was very familiar with the operation of the
proponents of the Donlin Creek mine. She pointed out that the
major stakeholders in the area, such as the hospital, are
represented on the Nuvista board of directors.
11:23:11 AM
REPRESENTATIVE MUNOZ asked what type of power plan is proposed
for the Donlin Creek mine.
MS. KLEIN explained the project is looking at a gas pipeline
because of the tremendous amount of power needed. In further
response to Representative Munoz, she opined the demand from a
mine of that size would exceed the capacity of the Chikuminuk
project.
REPRESENTATIVE MUNOZ further encouraged Ms. Klein to "look at
that opportunity," as "this would be a great ... common effort
and opportunity to benefit both organizations."
MS. KLEIN acknowledged the hydro project is expandable.
11:24:56 AM
REPRESENTATIVE SADDLER verified that the Nuvista board of
directors was unanimous in its choice of the project. He asked
how the failure to secure AEA funding will affect the project.
MS. KLEIN acknowledged that lack of funding would have a
tremendous impact. In further response to Representative
Saddler, she said that other energy projects proposed by Nuvista
throughout the region have a lower priority but are being
studied.
11:27:09 AM
REPRESENTATIVE SADDLER asked whether any state park land would
be affected by the project.
MS. KLEIN stated that the Calista Region is entirely surrounded
by federal and state park land. The Chikuminuk site is located
in Wood Tikchik State Wilderness Park and the Kisaralik sites
are located in the Yukon Delta National Wildlife Refuge.
11:27:48 AM
REPRESENTATIVE P. WILSON supported working with the proposed
mine.
MS. KLEIN estimated that the proposed development needs 200
megawatts, which is three to four times the capacity of the
project. Technologically, it is possible to connect with the
system at any time.
11:30:12 AM
REPRESENTATIVE P. WILSON asked whether the proposed dam is
designed to provide power for all six village groups.
MS. KLEIN explained that the power capabilities are based on the
flow of water and the number of generators; the initial design
will call for sufficient "slots" so appropriately sized
generators can be added in future years.
11:30:54 AM
JOHN DUHAMEL, Executive Engineer, Copper Valley Electric
Association (CVEA), said his responsibilities as an executive
engineer at CVEA include environmental and regulatory issues and
he is the program manager for the Allison Creek Hydro Project.
Copper Valley Electric Association (CVEA) has 3,700 members and
operates an isolated grid independent of the Railbelt and
without the benefit of PCE. At CVEA, power is generated by four
power plants, three generating power by burning fossil fuel and
one hydroelectric facility. The CVEA's vision is to reduce its
dependence on fossil fuel in order to stabilize power rates.
Mr. Duhamel pointed out that CVEA began its study of the Allison
Creek project in 2007, and is prepared to file its license
application to FERC in August. He described three earlier
iterations of the project and their shortcomings. After a
reevaluation of the Allison Lake Basin, the CVEA board of
directors chose Alternative 4-Run of the River (ROR), as the
best alternative. This project locates a diversion structure
away from the mouth of Allison Lake that "splits the water"
between Allison Creek and a 42-inch penstock which continues to
the powerhouse. There is no need for a road, but only an access
trail for the construction of the penstock. This design
includes two 3.25 MW turbines for a combined peak production of
6.5 MW. Mr. Duhamel related that many risks were eliminated or
reduced by moving to the Alternative 4 option, such as seepage
and liquefaction; access issues; avalanche risk; environmental
impacts to fish and the Valdez Marine Terminal; furthermore,
operational and project costs were reduced. He provided further
comparisons between Alternative 3C and Alternative 4 and noted
the cost of Alternative 4 is $39 million with a cost of power of
21.3 cents per kWh. He pointed out that CVEA will have excess
power in the summer and if additional summer industry were
found, the rate would drop to 14.6 cents per kWh.
11:42:19 AM
MR. DUHAMEL called attention to a chart on page 5 titled,
"Allison Creek is Green-Fuel Savings," which illustrated savings
to members of $1.163 million per year when fuel oil is $4 per
gallon. Regarding the financing of the project, he explained
that the project analysis is based on borrowing funds at 7
percent interest with 100 percent commercial financing; every 1
percent drop in the interest rate reduces the cost of power by
1.7 cents per kWh, and every $1 million in grant funds reduces
the cost of power by 0.5 cents per kWh. He provided two graphs
showing that power from Allison Creek would reduce the use of
diesel from 23 percent to 11 percent.
11:45:25 AM
MR. DUHAMEL addressed the first written question previously
submitted by the committee and stated that the project has
received a tremendous amount of support from the local community
as shown by letters of support provided in the committee packet.
In addition, 400 members attended CVEA's annual meeting and
responded to Alternative 4 with positive comments. In answer to
the second question, he responded that a bank cooperative
indicated that CVEA has the capacity to borrow 100 percent of
the financing; however, financial assistance from the state will
improve the economics of the project. In answer to question
three, he said the total cost of the project is $39 million. In
answer to question four, he said the state has contributed $1
million and the Renewable Energy Fund contributed $2.8 million,
thus CVEA's Capital Project Submission and Information System
(CAPSIS) document is for $35 million, of which 50 percent is
requested from the state. In answer to question five, CVEA's
funding plan for the next five years shows rapid progress; in
fact, power is expected from the project within four to five
years. The license application to FERC will be submitted within
four months - although FERC's approval may take two years -
during that time, CVEA will finalize any remaining design and
environmental issues in order to be ready for construction,
which is expected to take two seasons. In answer to question
six, he said the project is finished with the scientific
research, has established the liabilities and weaknesses, and is
moving toward final design. He assured the committees that the
cost of $39 million includes all of the studies and license
submission, and the construction of the diversion structure,
powerhouse, and connection to CVEA's system. In answer to
question seven, Mr. Duhamel said ratepayers are expected to pay
$0.21 per kWh, although a grant for 50 percent of the project
drops the cost to ratepayers to just over $0.11 per kWh, and a
grant of $10 million drops the cost to ratepayers to $0.16 per
kWh. In answer to question eight, he said his community does
not have an active regional energy planning body; however, local
organizations are in support of the project. In answer to
question nine, he said AEA has vetted the project, in fact,
since 2007 AEA has assisted with the feasibility studies and
license application, and CVEA will be applying for Round 5
Renewable Energy Fund grants.
MR. DUHAMEL summarized that Allison Creek Hydro is a long-term
solution; although the capital investment is high, the project
will produce power for 50-100 years, and he described the low
maintenance that is required on CVEA's existing turbine
generator. He attributed a drop in the census in his community
to the cost of living, and expressed CVEA's desire to lessen the
cost of living and eliminate the use of at least 1 million
gallons of diesel, 19,000 tons of greenhouse gases, and 10,000
tons of hazardous pollutants per year. The design of the
project calls for the diversion of water, but the water is
returned to the stream for salmon and accommodations will be
made for Dolly Varden trout. He closed by saying that the
project is ready to go and advance CVEA's use of hydro from 51
percent to 66 percent.
11:54:20 AM
REPRESENTATIVE TUCK asked for CVEA's current energy demand.
MR. DUHAMEL responded that the current load is 12-14 megawatts,
which varies depending on the amount of electricity needed by
commercial customers. In further response to Representative
Tuck, he said diversions are not uncommon, in fact, in Cordova
there is a successful ROR project underway. Furthermore, AEA
has provided the project as much support as possible during the
pre-phases and design.
REPRESENTATIVE TUCK asked why this project was not included in
the governor's capital projects.
MR. DUHAMEL said he did not know.
11:56:20 AM
CO-CHAIR PRUITT asked for clarification on the amount of CVEA's
request for funding.
MR. DUHAMEL confirmed CVEA's CAPSIS request is for a 50 percent
match, although the amount in the bill is $10 million.
11:56:42 AM
CO-CHAIR SEATON clarified that the total cost is $39 million and
the project has received about $4 million and requests an
additional $10 million.
11:57:13 AM
CO-CHAIR FOSTER asked for a definition of anadromous fish.
MR. DUHAMEL explained that anadromous fish spend part of their
time in both freshwater and saltwater such as salmon and Dolly
Varden trout. It is important not to interrupt the waters that
facilitate their ability to breed and thrive, he said.
11:58:25 AM
CO-CHAIR PRUITT announced the meeting was recessed until 12:55
p.m.
12:58:45 PM
CO-CHAIR PRUITT reconvened the meeting at 12:58 p.m. Present at
the call back to order from the House Special Committee on
Energy were Representatives Pruitt, Foster, Lynn, Tuck,
Petersen, and Saddler. Present from the House Resources
Standing Committee were Representatives Seaton, Feige, Dick,
Foster, Munoz, and P. Wilson.
12:59:16 PM
RICHARD LEVITT, President, Gustavus Electric Company, informed
the committees the hydroelectric project submitted by the
Gustavus Electric Company is a completed project that has been
online since July 2009, and generates 96 percent of the
electricity needed by the community. He stated that prior to
that, electricity in Gustavus was 100 percent generated by
diesel fuel. The project cost $8,400,000 and was funded by
$2,800,000 from the Denali Commission, $1,500,000 from the U.S.
Department of Agriculture Rural Utility Service, $1,450,000 from
state capital appropriations, and $750,000 from the Renewable
Energy Fund grant program. The remainder of the financing is
outstanding balances on $1,000,000 in loans from AEA, $300,000
in private investor loans, and $400,000 in equity from Gustavus
Electric Company. Mr. Levitt noted that the outstanding loans
were for construction costs and do not include 25 years of pre-
construction costs for permitting and FERC licensing. He
advised that the cost of electricity to the residents of
Gustavus has been reduced by 30 cents per kWh through the cost-
of-power adjustment and tariff filed quarterly with the
Regulatory Commission of Alaska (RCA). Currently, Gustavus
Electric Company is paying approximately $100,000 per year in
principal and interest on the loans, and is requesting relief of
the debt, the repayment of which is not included in the rates
charged to its ratepayers at this time. Based on the amount of
kWhs sold per year, recovery on $100,000 per year is just over
$0.06 per kWh to residents, although the company has been paying
on the loans for three years out of its revenues. He was urged
by Representative Thomas to request relief of the debt rather
than raise the rates. If debt relief is not forthcoming, the
company will file a new revenue requirement with the Alaska
Public Utilities Commission to add the debt to the rate base
which will add $0.06 per kWh. Currently, the electric rate is
$0.26 per kWh, which is down from the highest diesel rate of
$0.70 per kWh, and Gustavus is blessed to have the hydro
project; however, he said this is the last chance for any kind
of rate reduction for the residents of Gustavus. Mr. Levitt
provided supporting documents from the Gustavus City Council
seeking debt relief. In conclusion, he pointed out that the
2004 Gustavus Strategic Plan identified the high cost of energy
as the highest priority in the community, and the lower cost
from the hydro facility will benefit economic development, state
agencies, the school, the Department of Transportation & Public
Facilities, and the airport, in addition to large savings to the
Power Cost Equalization (PCE) program.
1:06:48 PM
CO-CHAIR SEATON surmised most of the construction was paid for
by grants and the total amount obligated by the utility is $1.3
million. Further, the hydro project dropped the utility rate
from $0.60 to $0.32, and the requested amount to fully fund the
project will drop the rate to $0.25.
MR. LEVITT answered yes.
1:07:52 PM
CO-CHAIR SEATON asked whether residents receive PCE.
MR. LEVITT answered yes, residents still qualify.
1:08:13 PM
REPRESENTATIVE MUNOZ asked about plans for the National Park
Service to convert from diesel.
MR. LEVITT explained that the headquarters for Glacier Bay
National Park is eight miles from Gustavus. The park service
has a diesel generating system and he proposed installing a
transmission line to provide power to the park, but it refused.
The hydro plant is sized to supply the park and Gustavus
Electric Company would like them to participate because they are
burning diesel and the increase in sales would help with the
cost of operation and maintenance of the plant. The park
service recently expressed interest in connecting to the power
plant, however, at this time nothing has happened.
1:11:29 PM
REPRESENTATIVE MUNOZ offered her assistance.
MR. LEVITT related that the Alaska Congressional delegation and
legislators have urged for a response.
1:12:09 PM
CO-CHAIR PRUITT observed that $4.3 million of federal money
helped build the hydro plant. He asked how the park service
participation would affect the cost per kWh to the ratepayers.
MR. LEVITT gave two possible options: the park could buy excess
hydro power for a fixed price when it is available; Gustavus
Electric Company could provide all of the park's power and
supplement with diesel at a higher cost when necessary. He said
other options are possible, but the park service has not
responded to his efforts to meet.
1:14:30 PM
CO-CHAIR PRUITT clarified that the $1.3 million requested from
the state would pay off AEA and any private investor loans, but
that the utility rate is adjusted for the administration and
maintenance of the facility.
MR. LEVITT explained the entire distribution and generating
system of the electric company - except for the hydro plant -
was built with zero public funds, thus the rates include the
diesel plant, which will be retained as back-up generator. In
further response to Co-Chair Pruitt, he said the year around
population in Gustavus is 500, and double that in the summer.
1:16:53 PM
CO-CHAIR FOSTER asked for the electrical demand of the park
service.
MR. LEVITT offered its average demand is 50 percent of that of
Gustavus.
1:17:22 PM
REPRESENTATIVE P. WILSON asked how much the residents receive in
PCE money.
MR. LEVITT estimated "a few cents." In further response to
Representative P. Wilson, he said $0.26 is the base rate and
residences with PCE pay about $0.19 for the first 500 kWhs per
month.
1:18:51 PM
REPRESENTATIVE P. WILSON asked what the reduction would be as a
result of adding the park service to the system.
MR. LEVITT said he was unsure, but different scenarios would
lower the rate to all of the ratepayers. In further response to
Representative P. Wilson, he said any estimate of the effect of
the park service would be based on assumptions.
1:21:50 PM
CO-CHAIR SEATON asked for the capacity of the hydro project.
MR. LEVITT responded one megawatt. In further response to Co-
Chair Seaton, he said the electric company has to supplement
with diesel in periods of low flow as happened last winter;
however, this was predicted in the analysis of the project.
CO-CHAIR SEATON observed the electric company would have to
supplement with diesel a higher percentage of time if it is
supplying the park service.
1:23:54 PM
REPRESENTATIVE P. WILSON questioned why the park service would
buy electricity if it could generate its own.
MR. LEVITT advised that 65 percent of the time the electric
company could provide with all of the park's needs with hydro.
1:24:56 PM
CO-CHAIR PRUITT asked for clarification on power usage.
MR. LEVITT restated that 65 percent of the time the electric
company could provide all of Gustavus and the park with hydro
power. In further response to Co-Chair Pruitt, he said the park
service's estimate to connect is $5 million.
1:26:22 PM
REPRESENTATIVE SADDLER surmised the state support is not
critical.
MR. LEVITT responded that without debt relief, the loan payments
will continue for 30 years and rates will increase. In further
response to Representative Saddler, he said there is no time
limit on the new rate filing with the RCA.
MR. LEVITT, in response to Co-Chair Pruitt, said the percentage
rate with AEA is 4.8 or 4.7.
1:27:23 PM
MIKE KLINE, Electric Division Manager, Ketchikan Public
Utilities (KPU), read the following [original punctuation
provided]:
Ketchikan Public Utilities (KPU) serves 7,600 electric
residential, commercial and industrial accounts
supporting a population of approximately 13,000
people. Ketchikan Public Utilities generates
approximately 40 percent of its own electrical energy
and purchases 60 percent from the Southeast Alaska
Power Agency (SEAPA). Both KPU and SEAPA generation
is hydro with KPU diesel being used when hydro energy
runs short. Current and planned development in
Ketchikan as well as heating conversions, driven by
the rising cost of oil, results in a projection that
Ketchikan may need as much as 30 million kWhs of
additional energy beyond the current consumption level
in the next several years. This is an 18 percent
increase over the 170,000 million kWhs generated and
purchased in 2010. Significant components of this
increase are expansions and processing changes of fish
processors, business expansion by Alaska Ship and Dry
Dock, large heating conversions by the school
district, a new community pool, and a new Alaska
Marine Highway System administration and yard facility
at Ward Cove. Efforts have begun to encourage other
heating technologies to reduce this demand projection.
Conservation and demand response mechanisms are being
considered but additional generation is still needed.
The Whitman hydro project will help address this
supply need. Whitman is a 4.6 megawatt project that
will supply an additional 16 million kWhs annually.
In 2011 to date, in spite of KPU and SEAPA starting
with full hydro reservoirs ahead of the winter heating
season, KPU and SEAPA were short of hydro energy by
mid-April requiring 3.1 million kWhs of diesel
generation support. Ketchikan Public Utilities has
just completed three weeks of diesel generation to
meet local power consumption. The Whitman project
will displace over one million gallons of diesel
annually. Just the fuel cost of producing 16 million
kWhs with diesel would be $0.26 per kWh, to be passed
to customers, at the current price of $3.93 per
gallon. If constructed with the funding as currently
proposed, the cost of production from Whitman would be
in the $0.06-$0.07 per kWh range. This is similar to
KPU's current purchased power rate and would be
neutral in terms of pressure on customer rates. Total
project cost in $19.4 million and approximately $2.7
million has been spent to date to permit, license and
develop the project. Of this, approximately $1
million has been local funds while $1.7 million has
been from AEA Renewable Energy grants. Pending
approval of Whitman within the capital budget under
consideration, the city will bond for the balance
needed to complete the project and satisfy the 50
percent maximum state investment criteria of SB 46,
Version T. This funding will complete the project by
2016 and no further funding requests are anticipated.
The amount of $2.3 million has been granted to the
project to date by the AEA Renewable Energy Grant
Fund. Another $700,000 is under consideration from
this fund in this budget cycle. On this basis, this
project has been vetted with AEA. Efforts to build
this project started prior to 1997. As is typical
with almost all hydro projects, the licensing process
took well beyond the five year process defined. The
FERC license was finally issued in February 2009
starting the two year clock to begin construction. An
extension was requested by Ketchikan and granted by
the FERC in late 2010 such that construction must now
start by February of 2013. Only one such extension is
granted by the FERC. Failure to start construction
will result in loss of the license. Should
construction not start by February 2013, the only
potential remedy would be a stay of the license by the
U. S. Congress. The license now requires completion
of the project in early 2016. Assuming construction
starts in 2013, operation is anticipated in late 2015.
The Whitman hydro plant will be constructed using an
existing dam. The transmission corridor requirements
are minimal due to the plant location being less than
a half-mile to KPU's transmission which also provides
interconnection to the other SEAPA interconnected
communities. The Whitman project is near shovel
ready. Engineering is nearly final. The FERC license
is in place. The equipment specifications are ready.
KPU will initiate contracting efforts when funding is
finalized. This project is supported by the Ketchikan
City Council and Ketchikan Gateway Borough and is the
number one project for the Community of Ketchikan as
agreed upon by the Ketchikan Gateway Borough, the City
of Ketchikan, and the City of Saxman. Letters of
support have also been issued by the Ketchikan School
District and Oceans Alaska, a marine science center
under development in Ketchikan. Whitman has been
identified by the IRP Working Group as one of the
projects that should move ahead of completion of the
IRP and is identified in that resolution.
1:34:10 PM
REPRESENTATIVE SADDLER asked for clarification on the amount of
grant funds from AEA.
MR. KLINE explained that $1.7 million has been expended from
total grant funds of $2.3 million.
1:35:02 PM
REPRESENTATIVE TUCK recalled that in 2009 the governor vetoed
all but $1 million for the project. He asked what that
allocation was used for.
MR. KLINE stated that in the beginning, a portion of that money
was used towards design; however, the project is now "sitting on
the edge" and facing loss of the FERC license. In further
response to Representative Tuck, he said the funding will come
from AEA grants, $1 million from the City of Ketchikan,
approximately $8 million from the state, and $8 million in bonds
by the city.
1:36:51 PM
CO-CHAIR PRUITT clarified that the original submission was for
$15,680,000, but $8,025,000 is in the capital budget.
1:37:01 PM
REPRESENTATIVE MUNOZ inquired as to the relationship between KPU
and SEAPA.
MR. KLINE responded that KPU is a member of SEAPA and purchases
65 percent of its energy from SEAPA; in fact, KPU sits on the
SEAPA board of directors, and interacts with them to manage
energy. The power sales agreement (PDA) between SEAPA and its
member communities allows the communities to generate their
energy locally, and purchase more from SEAPA on demand. This
creates a "very tight, close, working operational relationship."
In further response to Representative Munoz, he said SEAPA
controls the Swan Lake to Tyee Lake asset.
1:38:00 PM
REPRESENTATIVE MUNOZ asked if this project would connect with
the Swan Lake to Tyee intertie.
MR. KLINE answered the Whitman hydroelectric project would tie
in to the KUP transmission system which is connected to SEAPA's
system. In further response to Representative Munoz, he said
that other proposed projects in the area include the Mahoney
Lake project - in which Saxman in a partner - and others which
are being considered under the integrated resource plan (IRP)
and will have access to the intertie, subject to operational and
engineering studies.
REPRESENTATIVE MUNOZ concluded the other projects will not be
prevented from having access to the intertie.
MR. KLINE observed these questions would be for the SEAPA board
of directors to answer; KPU may not prevent a connection, but
may charge a rate to move power between the SEAPA system and
Mahoney.
1:39:41 PM
REPRESENTATIVE MUNOZ asked whether KPU intends to extend its
long-term contract with Alaska Ship & Drydock, Inc. to supply
power for an industrial rate.
MR. KLINE said the existing contract is for a term of 30 years.
1:40:13 PM
CO-CHAIR SEATON reviewed the current and projected costs and
asked for the current rate to customers in Ketchikan.
MR. KLINE answered that Ketchikan's residential rate is 9.58
cents per kWh and the SEAPA portion is 6.8 cents per kWh. If
Whitman is financed by a 50/50 partnership with the state, there
will be no increase on rates as a result of its construction.
In further clarification to Co-Chair Seaton, he said the 9.58
cents rate is exclusive of diesel, and the city adds a
surcharge, spread over six months, in addition to the 9.58 cents
when using diesel.
1:42:27 PM
REPRESENTATIVE SADDLER referred to the project's use of an
existing hydro dam and asked what components will be
constructed.
MR. KLINE responded that the project will build a powerhouse,
penstock, and a diversion dam.
1:43:20 PM
REPRESENTATIVE P. WILSON asked whether the project would satisfy
the FERC deadline to begin construction before March 16, 2013
without the requested funding.
MR. KLINE indicated no. In further response to Representative
Wilson, he opined the chances of obtaining a new license if the
existing one expires are remote.
1:44:43 PM
REPRESENTATIVE TUCK asked for KPU's "back-up" or contingency
plan.
MR. KLINE cautioned the back-up will be an increasing use of
diesel.
1:45:07 PM
REPRESENTATIVE PETERSEN asked whether the diversion of water
will have any effects on the Whitman Lake hatchery.
MR. KLINE said no. The design of the project is "hatchery
sensitive," and will maintain the temperatures necessary to the
hatchery; in fact, the hatchery has provided a letter of support
for the project. He stressed that protecting the hatchery is
critical to the economy of the region.
REPRESENTATIVE P. WILSON cautioned that SEAPA gets its first
choice for power, and Ketchikan is secondary. In addition, the
other member communities are growing, she said.
MR. KLINE agreed. In fact, since 2009, the three member
communities of Wrangell, Petersburg, and Ketchikan have used 16
percent more energy, he said. He affirmed that Wrangell and
Petersburg have the first option for the water from the Tyee
reservoir.
1:47:49 PM
CO-CHAIR SEATON expressed interest in knowing how state funding
for the project will lower the consumer rate.
MR. KLINE estimated that if the project is funded without state
participation and is fully bonded, the rate is affected by 11-13
cents per kWh.
1:49:05 PM
CO-CHAIR SEATON surmised if that were the situation, KPU would
not go forward with the project.
MR. KLINE deferred to the Ketchikan City Council.
1:49:29 PM
REPRESENTATIVE TUCK referred to the $10 million in AEA's
Southeast Energy Fund and asked whether the Whitman hydro
project could apply for a portion of those funds.
MR. KLINE said he did not know.
1:49:40 PM
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development
(DCCED), with respect to the $10 million for the Southeast
Energy Fund, responded that if the appropriation stands AEA will
develop a criteria and application process for potential
grantees. She cautioned that it will take time to go through a
full regulatory process before grants could be issued. She
mentioned that the working group of the Southeast Integrated
Resource Plan (SEIRP), led by AEA, suggested that some projects
should move forward without waiting for the SEIRP due to their
advanced stages of permitting and licensing. She expected the
use of the $10 million would be to ensure that concepts from the
SEIRP are integrated for grantee applications. She anticipated
that the project and others would be recommended for funding,
but was uncertain if the timing was appropriate and cautioned
that Southeast Alaska is a large area so $10 million would not
go very far. She thought the circumstance might be similar to
one AEA uses with the Renewable Energy Fund grant program in
that a $2 million and $4 million cap is used to ensure adequate
spreading of projects throughout the state. Ms. Fisher-Goad
opined the project was likely eligible, but she could not state
whether the project would receive full funding.
1:52:28 PM
REPRESENTATIVE TUCK said that according to the Southeast
Electrical Intertie Study, the Southeast Conference would like
to see six projects move forward without waiting for the SEIRP.
He inquired as to whether all of the projects are supported by
AEA.
MS. FISHER-GOAD answered by detailing the status of the six
projects that were mentioned in the SEIRP's advisory work group
resolution. She reported that the Blue Lake Hydroelectric
Project is subject to the capital budget, and that AEA's
involvement with the Blue Lake project has not been through the
Renewable Energy Fund grant program, but to manage a $12.5
million grant that was provided to the City and Borough of Sitka
several years ago. Regarding the Kake-Petersburg Intertie, she
said this complicated project has several grants and AEA has
been working through issues with the grantee. She stated the
Metlakatla-Ketchikan Intertie is another project that AEA has
been involved with that is subject to SB 46. The Reynolds Creek
Hydroelectric Project is a project that has had significant
loans approved by the legislature last year and this year.
Additionally, this project received both Renewable Energy Fund
grant funding and some designated grants, including one through
Southeast Conference. She also reported that the Thayer Creek
Hydroelectric Project is part of Renewable Energy Fund Round 4
funding, and the sixth project is Whitman Lake. In further
response to Representative Tuck, she answered that the projects
have not been ranked by the advisory group that recommended all
of the projects should move forward.
1:55:15 PM
CO-CHAIR PRUITT asked for clarification on whether the cost to
users is based on the $4 million gap between the estimated cost
of the project and the funding; basically, whether the $4
million would be applied to make the potential $0.03 per kWh
cost because the remaining would have been covered by other
state funding. He restated: The difference between the
estimated construction cost and the funding cost is about $3.5
million, which is what the $0.03 per kWh cost is based upon.
MR. KLEIN agreed, except the amount is in the $.06 to $.07
range.
1:56:58 PM
CO-CHAIR PRUITT continued, relating that the proposed funding is
less than KPU initially requested thus KPU would need to obtain
bonding. He inquired as to the cost to the consumer if this
project is funded in the current capacity, and KPU needed to
bond for the remaining portion.
MR. KLEIN reiterated that it would be in the $.06 to $.07 per
kWh range. In further response to Co-Chair Pruitt, he said this
is the final request on the Whitman Lake project. He said, "Our
backs are against the wall." He related that depending on what
the legislature decides, and if the bond amount is higher than
$8 million, the local government will need to make the final
determination.
1:57:50 PM
DARRON SCOTT, President and Chief Executive Officer (CEO),
Kodiak Electric Association, Inc. (KEA), stated that KEA is
working hard to fulfill its vision which is to endeavor to
produce 95 percent of its energy sales with cost effective
renewable power solutions by the year 2020. Kodiak Electric
Association does not include diesel in its future; in fact,
power generation at this time is about 80 percent hydro, 9
percent wind and 11 percent diesel. Terror Lake Hydro Facility
was built in the early '80s with two 11.25 megawatt hydro units.
However, the penstock was designed with a third outlet ready to
accept a third unit. Today, Kodiak's electrical needs are
growing and the project would add the third turbine and the
associated equipment which would expand the capacity of the
hydro plant by 50 percent to 33.75 MW. The Kodiak system
supplies power to the community of Kodiak, the U.S. Coast Guard
(USCG) base, and the communities of Port Lyons and Chinak, which
have a combined peak load of about 26 MW. As the peak output
for Terror Lake hydro is currently 22 MW, the additional power
needed is generated by expensive diesel fuel. The installation
of a third turbine will eliminate the need for diesel during
peak loads, and would also provide the redundancy needed to
perform maintenance on the hydro units. Furthermore, because
newer hydro units are more efficient, KEA should increase to 3
million kWhs from this expansion. Finally, this project would
provide grid stability to KEA since the power from hydro is
increased as the wind power declines; in fact, the hydroelectric
power is dispatchable and counted on "to keep the lights on," as
the wind fluctuates.
MR. SCOTT explained that wind energy is the most cost-effective,
renewable energy source for Kodiak's future; however, three
hydro turbines on the electrical grid working together are
necessary to take full benefit from future wind projects. He
stated that AEA has vetted the project, and it is currently in
the Renewable Energy Fund grant program Round 4 for $3.75
million, ranked very high; for example, the economic analysis
showed a cost benefit of 2.21, based on last fall's diesel
prices. In addition, he noted Pillar Mountain Wind Farm Phase 1
provides 4.5 MW of wind power and Phase 2 will add another 4.5
MW of wind to the system. Mr. Scott opined it will be highly
problematic to put the additional wind from Phase 2 on the
system without the third turbine. With the additional turbine
and Phase 2, Kodiak residents could save 17 cents per kWh, and
could add 17 million kWhs of power per year to its system,
saving the community nearly $3 million in year one of the
project. He characterized the community's support of renewable
energy as "ecstatic," and noted additional support from the City
of Kodiak, the Kodiak Island Borough, the USCG, and the Kodiak
Chamber of Commerce. In terms of status and schedule, the
project is well underway in the FERC permitting process and has
obtained numerous waivers from other agencies, including U.S.
Fish and Wildlife, the Alaska Department of Fish & Game, and
U.S. Army Corps of Engineers,. He reported that the agencies
have not found any negative environmental impacts since the
plant was built for expansion. He relayed that KEA has begun
some of the transformation construction and anticipated it will
purchase the generator and turbine this fall so that
installation will begin during the summer of 2013. Regarding
the funding source, he restated the project's high position with
AEA, adding that KEA has secured low-interest financing for the
remainder of the project through the federal Clean Renewable
Energy Bonds (CREBs) program.
MR. SCOTT concluded that KEA is excited about the project and
the grid stability it would bring to Kodiak. Additionally,
adding the third turbine is imperative to help KEA reach its 95
percent renewable energy goal.
2:08:13 PM
REPRESENTATIVE PETERSEN informed the committee that he was
impressed after seeing the Pillar Mountain Wind Farm Phase 1.
He asked whether the expansion of Pillar Mountain Wind would
double the wind generation.
MR. SCOTT indicated yes. He explained that in conjunction with
the hydroelectric expansion, KEA would like to add three more
wind turbines to the site.
2:09:01 PM
REPRESENTATIVE PETERSEN related his understanding that the
Terror Lake expansion provides the best way to integrate the
wind into the system.
MR. SCOTT agreed, noting that KEA needs the stability, capacity,
and horsepower of hydro to utilize the power. For example,
during a day using 23-24 MW, there may be plenty of water but
because the wind fluctuates it is necessary to have the hydro
power to cover the load. He pointed out that the third turbine
at Terror Lake alleviates this issue. Kodiak's power load has
increased so it is becoming more imperative to add the third
turbine.
REPRESENTATIVE TUCK asked for the price difference between wind
and hydro power per kWh.
MR. SCOTT advised that the hydro turbine would price the power
at 6.8 cents per kWh, and the existing and future wind sources
at Pillar Mountain would provide power for 12 cents per kWh.
2:10:49 PM
REPRESENTATIVE TUCK asked which type of project he would prefer:
wind or hydro.
MR. SCOTT stated "if all things stayed exactly even, hydro you
can count on." However, after examination by KEA, due to the
capital and installation costs of hydro, wind power was the most
cost effective. He reiterated that he would prefer hydro power,
but the two sources work very well together.
REPRESENTATIVE TUCK asked for the rationale behind expanding the
wind farm before the third turbine was added.
MR. SCOTT explained the process as a parallel process. In fact,
KEA began working on the third turbine at Terror Lake in 2007-
2008, but the primary focus was on Pillar Mountain Wind Farm,
Phase 1, because it was the most cost-effective. He opined the
two sources work together to amplify their benefits saying, "One
is good. The other is good. Together they're great." Kodiak
Electric Association considered other hydro projects that were
separate, but the projects were not as cost effective.
Furthermore, until two years ago, SEAPA owned Terror Lake as
part of the Four Dam Pool; after KEA took ownership, it moved
forward with adding the third turbine.
2:13:34 PM
REPRESENTATIVE TUCK related his understanding that wind needs
hydro or some other means as a main generator and that hydro
power is cheaper once the projects are finished. He inquired as
to whether hydro can stand alone or if it needs wind.
MR. SCOTT answered no. He acknowledged that "in the grand
scheme of things" hydro costs are cheaper, but the available
resources also have to be considered. He responded that the
Terror Lake third turbine can stand on its own completely, will
be cost effective, will bring more efficiency, and add to the
grid stability and the peak load capacity. On the other hand,
adding wind in the future will make the system better. He
stressed that the expansion will be a great project for Kodiak
and will last for 50 to l00 years.
2:14:53 PM
CO-CHAIR SEATON understood that the Terror Lake project would
provide electricity for a produced cost of 6.8 cents and wind at
12 cents. He inquired as to the consumer price for electricity.
2:15:34 PM
MR. SCOTT affirmed the production cost for hydro, after the
third turbine is installed, will be 6.8 cents per kWh, and wind
power is 12 cents per kWh. The residential rates are 13.8 cents
plus a surcharge for diesel fuel at 4.2 cents for a total of 18
cents per kWh. In further response to Co-Chair Seaton, he
confirmed that the 4.2 cent surcharge is added to everyone's
bill for each kWh used, primarily due to KEA's diesel usage.
2:16:46 PM
REPRESENTATIVE DICK understood that wind power is "wonderful"
but sporadic. He inquired as to whether it is possible to use
wind power to pump water up for storage.
MR. SCOTT answered that the process he has described is referred
to as "pumped hydro" and is utilized in some areas around the
world. However, he related some inefficiency exists with the
process. Essentially, although the water is not pumped, the
concept is used in Kodiak since when there is more wind, less
hydroelectric power is used and the water is saved in the lake.
When the wind subsides the saved water is used. He reiterated
that the pumped hydro is a process currently used but it is more
expensive.
2:18:52 PM
CO-CHAIR PRUITT related his understanding that KEA would share
the cost with the state at a ratio of 50:50. He inquired as to
whether KEA will achieve its 50 percent obligation with the
current capital budget request.
MR. SCOTT answered yes, including the $3.75 million in the
capital budget and the additional $3.75 million in the Renewable
Energy Fund Round 4 budget as well. He said that would push the
project to the 50:50 split considering the KEA's bonding and the
state's participation. In further response to Co-Chair Pruitt,
he answered that this would be the only funding request and the
project should be completed by summer of 2013.
2:21:21 PM
PAUL BRYANT, General Manager, Metlakatla Power and Light (MP&L),
explained the proposed Metlakatla-Ketchikan Intertie is a 16-
mile transmission line to intertie Metlakatla Power & Light
(ML&P) with Ketchikan's power utility. Metlakatla Power & Light
would sell approximately 8 million kWhs of excess hydro energy
to Ketchikan Public Utilities (KPU) and/or the Southeast Alaska
Power Agency (SEAPA). Construction on the overhead line portion
along 14 miles from the newly constructed Walden Point Road
began last summer; permitting and construction or a one-mile
submarine cable will commence pending future funding. He noted
the cost of the project is estimated at $12.7 million, and KPU
and MP&L have been working on the project since 1999. A
feasibility study completed for KPU in 1999-2000 estimated the
intertie project could be built in a two-year construction
period for about $3.4 million. However, MP&L received $820,000
from the Renewable Energy Fund grants Round 1 for the final
design, and through that process derived a cost projection of
$12 million.
MR. BRYANT mentioned that the immediate benefit of the project
would be to displace the use of diesel in the communities of
Ketchikan, Petersburg, and Wrangell. Eventually, after
construction of a Kake-Petersburg intertie, MP&L's excess hydro
power could be transmitted to Kake. In addition to this funding
request, three other hydro projects have been identified to
complete the overall framework of the system, which would
potentially increase the capacity of power from 8 million kWhs
to 9.8 megawatt (MW), or 33 million kWhs. He reiterated the
project status by relating that the overhead line is under
construction. Over the past 10 years there has been unanimous
support for the project from Ketchikan and the Metlakatla Indian
Community Council and Executives. Furthermore, the project has
been vetted by the AEA; in fact, the project is listed as one of
the six projects recommended for funding this year by the by the
Southeast Integrated Resource Plan (IRP). The Round 1 Renewable
Energy grant included a stipulation for matching funds of
$160,000, and MP&L has expended close to $200,000 thus far. The
sources of existing funding include appropriations of $500,000
from the Denali Commission for pole line hardware for the
present construction project, a $2,000,000 appropriation from
last year's governor's budget, and $820,000 in Round 1 funding
from the Renewable Energy Fund. He pointed out that the project
is on the priority list for the area's regional plan, although
he was unsure of its ranking. Finally, the project has been
vetted by AEA, he said.
2:27:19 PM
REPRESENTATIVE PETERSEN asked for the consumers' power rate in
Metlakatla.
MR. BRYANT answered 9.2 cents per kWh. In further response to
Representative Petersen, he agreed the intertie has the
potential to reduce rates.
2:28:00 PM
REPRESENTATIVE PETERSEN recalled that helicopters are sometimes
required to bring in poles and to aid in line construction. He
inquired as to whether that would be necessary for this project.
MR. BRYANT responded no. The overhead portion is being
constructed along the new Walden Point Road so the project will
not require the use of helicopters.
2:28:46 PM
CO-CHAIR SEATON pointed out a number of proposed projects for
Southeast. He inquired as to whether MP&L will sell hydro power
to nearby Ketchikan or if Ketchikan will be fully supplied.
MR. BRYANT related that Ketchikan is very quickly expending its
hydro resources so MP&L will be in the position to supply power
to Ketchikan and to the SEAPA customers of Petersburg and
Wrangell.
2:30:01 PM
REPRESENTATIVE P. WILSON understood that Metlakatla can
currently meet its peak power needs. She inquired as to whether
this intertie project is necessary to reduce future power costs
to customers, and whether MP&L will make money on this project.
MR. BRYANT answered that the initial impetus for this proposed
project was to provide a revenue stream for Metlakatla. In
1999, Metlakatla's primary employer, the Annette Hemlock Mill,
closed due to impacts from federal rulings, and left Metlakatla
with an 80-90 percent unemployment rate. His company recognized
it had excess energy due to the mill closure, so it began to
explore how to market it. Although the initial reason to
consider the project was to create a revenue stream, the project
will also lower rates for the consumer base in Metlakatla.
2:32:04 PM
MARLENE CAMPBELL, Director, Government Relations, City and
Borough of Sitka, summarized that the expansion of the Blue Lake
Hydroelectric Project would expand the hydro facility to its
maximum energy capacity and is the first priority of the
community of Sitka and the City and Borough of Sitka (CBS),
which serves approximately 9,000 people. This project been
studied by AEA, the Southeast Conference, and the local CBS
utility since the '80s. Currently, CBS has exhausted its hydro
resources, and to illustrate this she detailed the past winter's
experience when the electric utility issued a "red alert" to
advise citizens to conserve energy to minimize the CBS's diesel
generation. Load studies predict up to 5 million gallons of
fuel oil for use in supplemental diesel generators will be
required prior to completion of the Blue Lake Expansion Project,
based on an annual load growth at 1.2 percent. However, since
2007, the electric system has seen unprecedented growth
averaging 3.8 percent annually. The community has been courting
economic development without having the means to provide any
additional power. She related that developers of a new fish
plant have been interested in locating in Sitka, but cannot do
so due to a lack of power. She reiterated that the lack of
power makes it less attractive for other new industries to
relocate in Sitka.
MS. CAMPBELL explained the proposed Blue Lake project would
raise the height of the existing dam by 83 feet to an elevation
of 425 feet and construct a new intake structure and new
penstock to supply a new powerhouse adjacent to the existing
powerhouse. The new powerhouse would replace the existing two 3
MW generators with three 5.3 MW generators which will increase
the installed capacity from 7.5 MW to 17 MW. This would
increase Sitka's total annual electric energy production by
approximately 32,000 mWh, or by 29 percent of its existing
capacity. Sitka has aggressively engaged in the preliminary
engineering and licensing phase of the expansion, she said, with
a goal to complete construction and bring on the additional
hydro capacity online by 2015. This capital funding request is
for $28.5 million which would fully fund the state's interest in
the $100 million Blue Lake Hydroelectric Project Expansion.
Further, CBS plans to more than match the state's assistance by
financing the project with 50 percent state funds and 50 percent
municipal funds. Ms. Campbell advised that local community
strongly supports the proposal as evidenced in public hearings,
and the project also has strong support from the CBS Assembly,
the Sitka Conservation Society, and environmental groups. This
project has undergone a public process, and she noted that bonds
for the project were supported by an 80 percent public vote.
The overall project cost estimate is for $100 million and CBS
has provided $5 million in cash, has bonded for $21 million, and
received $20.5 million in state funding previously approved via
the AEA process. The current funding request is $28.5 million,
which will fully satisfy state funding, thus CBS will need to
bond an additional $25 million. Of the total $100 million, CBS
will provide 51 percent, and this request is for 49 percent from
the state. She recapped the CBS funding plan: CBS has about
$42 million available for the studies, engineering, licensing,
and the major equipment, and which is anticipated to last until
the beginning of construction in mid-summer 2012; the balance of
funds would be spent over the construction period ending in
December 2014. Additionally, approximately $2 million will be
spent in tune-up and clean-up activities in 2015-2016. The
completion of this project will complete the Blue Lake Hydro
facility, and no other electric projects, except for long-term
development needs, are planned in the next 10-15 years. The
project has undergone the environmental work, public hearings,
the preliminary design phase, and the geologic investigation
activities, and the dam design has been approved.
MS. CAMPBELL reported that the FERC license amendment
application was submitted in November 2010, and is expected to
be approved by November 2011. Construction will begin in the
summer of 2012 with project completion late in 2014. She
related that the current funding request, matched by the CBS
bonding, will be used for the construction phase of the project.
Upon completion, CBS expects the current retail rate of
approximately 9.5 cents per kWh - with little diesel generation
- will change. The city has reached its hydro production limits
and will need to add supplemental diesel later this year and
subsequently until the Blue Lake Hydroelectric Expansion Project
comes on line in 2015. This project will displace approximately
2.3 million gallons of diesel per year at a cost of $8.5 million
in current dollars, as well as provide adequate power to enable
economic expansion. Until the project is complete, the
anticipated diesel cost is anticipated at 36 cents per kWh which
could raise the rate to 20 cents or more per kWh. With the
bonds sold, the debt service on the existing hydro debt has been
paid and the level of debt service to be assumed for the Blue
Lake expansion will be comparable. No new personnel will be
required due to the expansion; in fact, CBS anticipates the
rates after project completion will be 10 percent or higher than
rates paid today - primarily because of inflationary pressures -
which could be around 12 cents per kWh. The project fits very
well into the system expansion without substantial increases in
debt service or operational costs. A move to diesel-generated
power would increase rates to residents and will discourage
economic development. Sitka currently uses approximately 99
percent renewable energy and would like to stay that way. This
project was selected as a priority project by the Southeast
Conference, AEA, and the advisory Group for the SEIRP, in
addition to being Sitka's number one priority for several years.
She said the present state funds are administered through AEA
and CBS keeps AEA informed of its progress. The assigned AEA
project manager attends critical meetings with FERC and the
consultants, and has visited the site. Ms. Campbell concluded
that the requested appropriation of $28.5 million, added to the
existing appropriations of $20.5 million, totals $49 million, or
49 percent of the overall current project estimate, leaving CBS
to fund the remaining 51 percent of the project.
2:42:53 PM
REPRESENTATIVE P. WILSON referred to the document provided in
the committee packet which indicated the total energy
requirements of Sitka are currently being met by 80 percent oil
and 20 percent hydro. She inquired as to how those figures
would change upon completion of the project.
2:43:27 PM
ROBERT DRYDEN, System Engineer, Electric Department, City and
Borough of Sitka, clarified those figures relate to the
community-wide use of energy; however, CBS is 99 percent
renewable energy and after the project would remain 99 percent
renewable until pushed again to diesel fuel by rising load.
Sitka currently generates about 20 percent of all the energy the
community needs. In further response to Representative Wilson,
he stated that about 99 percent of the electrical energy is
generated by hydro power, but Sitka is pretty well at capacity
and will need diesel to supplement the power, which will raise
the cost substantially. Mr. Dryden continued to explain that
the load growth seems inevitable. Moreover, Sitka is about 10
to 15 years away from the development of another hydroelectric
facility at Takatz Lake.
2:45:00 PM
CO-CHAIR SEATON appreciated the conundrum since the legislature
is considering hydro projects not just to produce electricity,
but to handle the load growth from offsetting diesel usage in
home heating. He stated that all of Alaska's communities intend
to offset diesel. He expressed his interest in the projects
being put forward, recognizing that the goal is renewable energy
offsetting residential diesel use, as well as electricity to
operate lights and computers. He recapped that the legislature
is trying to help communities advance whatever type of
alternative energy is available to them.
2:46:32 PM
REPRESENTATIVE SADDLER referred to the CAPSIS request, noting
that the overall project cost has increased. He asked for
clarification on the increase.
MR. DRYDEN responded that the project cost always changes as the
project is refined. He explained that the original estimate of
$60 million was a very preliminary number. Since the project is
currently in the final dam design stage, the cost estimate
reflects all of the specific requirements of the project. Mr.
Dryden advised that $100 million reflects the best estimated
cost and does not mean that the project changed in scope, but is
a refinement of the initial estimate as the project went through
the design and investigation processes.
2:48:04 PM
CO-CHAIR PRUITT asked whether CBS is fairly certain that it will
receive the federal funding request of $12.5 million.
MS. CAMPBELL answered that CBS is fairly certain it will not
receive this funding. She said for several years federal
requests for assistance have included a federal component and
CBS had hoped for three-way partnership between city, state, and
federal governments. However, she indicated this has now become
unrealistic and it is more likely that the project will be a
state and city project. She reiterated that CBS would match the
state's 49 percent with its 51 percent of funding.
2:49:20 PM
CO-CHAIR PRUITT understood the 12 cent per kWh rate would
include the $12.5 million.
MS. CAMPBELL answered no. She responded that the budget figures
presented are expected to be borne by CBS through additional
bonding if no federal funding is received.
CO-CHAIR PRUITT then surmised that instead of passing through
the project cost to ratepayers, CBS taxpayers will fund the
costs associated with the bonding debt.
2:50:30 PM
MR. DRYDEN related that the utilities are an enterprise division
and stand alone; therefore, no funds can change hands between a
municipality and an enterprise division. This is "straight-up"
utility business and although the bond is co-signed by CBS and
arranged for by the city, the total debt service associated with
bonding is applied directly to the utility rates. The advantage
of this particular project is that the debt service recently
ended for the Green Lake Project is comparable to the debt
service that CBS will assume with this expansion. Thus, the
cost to the ratepayer is about the same. He anticipated that
increases in other costs would likely push up the rate by a
penny or so by 2015.
REPRESENTATIVE SADDLER noted that some of these projects are
being touted as fulfilling the state's energy policy. He
pointed out that the first principle in the policy requires
energy efficiency. He inquired as to whether CBS and its
residents are working to use energy efficiently.
2:52:52 PM
MS. CAMPBELL answered that CBS has worked hard to become more
efficient by efforts such as converting heating systems to heat
pumps, and she emphasized that nothing is as efficient as hydro
power.
MR. DRYDEN agreed that CBS and the utility work to encourage
heat pumps since because they can use electrical energy to
amplify the effect of displacing oil by a factor of 3 to 1 over
resistance heat. The utility has been working to restructure
its rates to encourage the use of heat pumps and discourage the
use of electric space heaters. He further stated that the
utility works with citizens and businesses in a proactive
manner, and citizens' groups in Sitka have been "raising
awareness."
2:54:12 PM
The committee took an at-ease from 2:55 p.m. to 3:04 p.m.
3:05:10 PM
JOE GRIFFITH, President, Board of Directors, Alaska Railbelt
Cooperative Transmission and Electric Company (ARCTEC); General
Manager, Matanuska Electric Association (MEA), called the
committees' attention to a letter in the committee packet from
Rick Schikora, Chairman of the Board, introducing ARCTEC. Mr.
Griffith stated the first ARCTEC energy project is the Anchorage
to Quartz Creek Transmission Maintenance and Repair project
which is a crucial transmission link that ties the heart of the
Railbelt to Bradley Lake Hydro. The project scope includes
repairing portions of the transmission line that are at the
highest risk of failure. The first segment would run 11 miles
from Anchorage to Powerline Pass and 12 miles between Johnson
Pass trailhead and Ingram Creek. He said this line is nearly 50
years old and is wearing out. Mr. Griffith stressed that it is
crucial to get Bradley Lake and Cooper Lake power to the
Railbelt because all of the utilities use the reserves and the
benefits that those two hydro projects provide. He said ARCTEC
ranked this project as very near the top.
3:08:30 PM
CO-CHAIR PRUITT asked for clarification on how ARCTEC
prioritized the energy projects it chose to submit to the
legislature.
MR. GRIFFITH explained that the ARCTEC Board of Directors
reviewed studies done by the Railbelt Electrical Grid Authority
(REGA), the Railbelt Integrated Resource Plan (RIRP), and
pertaining to the proposed Greater Railbelt Energy &
Transmission Company (GRETC), and each of the projects listed
were identified as crucial links in the provision of power
across the Railbelt. Furthermore, the projects were forwarded
by the general managers of the participating utilities to the
ARCTEC board, which approved them. Mr. Griffith advised that
the projects represent the position of the electric utilities
that serve nearly 75 percent of Alaska's population.
3:09:56 PM
CO-CHAIR PRUITT observed that ARCTEC has identified a list of
projects it deemed as highest priority projects. However,
individual utilities also have presented projects for
consideration. He inquired as to why all of the projects are
not proposed by ARCTEC.
3:10:42 PM
MR. GRIFFITH said ARCTEC, as a recently formed organization,
felt putting all of the projects together would create an
"overwhelming" need. Thus the board tried to parse out projects
that were most important to the entire Railbelt region for
ARCTEC support. If a utility had a project that did not benefit
the entire Railbelt, the project could be completed by the
individual utility and submitted separately, or could be held
over for consideration by ARCTEC next year. This process did
not mean a specific project not on the list did not have
support; in fact, this list just "bubbled out of the pot when we
turned the heat up," he said.
REPRESENTATIVE P. WILSON inquired as to whether the $25 million
funding request for the transmission line repair is for the
total cost or if there is another source of funding.
MR. GRIFFITH indicated that is not the total cost. He recalled
the last time he prepared an estimate for repair to the line was
about 8-10 years ago, and the cost was $50 million. He then
pointed out that the $50 million is for one single line; if the
project is done correctly it would have two lines that would
cost as much as $200 million. In further response to
Representative Wilson, he agreed that additional funds are
necessary, and are allotted for maintenance and operation to
keep the lines maintained, given the fact it is a 50-year-old
line that has never been fully replaced. The segment that
brings Bradley Lake power north is also in various stages of
disrepair. He reiterated that ongoing funds will be needed.
3:14:28 PM
REPRESENTATIVE P. WILSON asked whether significant maintenance
has been done in the past and if money is set aside for that
purpose.
MR. GRIFFITH answered no. He deferred to Chugach Electric
Association (CEA) but recalled that as much as CEA desired to
set aside funds, that little working capital was available for
maintenance due to a low rate of return.
REPRESENTATIVE P. WILSON inquired as to the cost delivered to
customers per kWh.
MR. GRIFFITH estimated that Matanuska Electric Association (MEA)
and Chugach Electric Association (CEA) deliver electricity for
about 12 cents per kWh; Golden Valley Electric Association
(GVEA) is substantially higher, and he was not familiar with
Seward Electric Department's rate. He offered his belief that
Municipal Light & Power (ML&P) is about 30 percent less because
natural gas costs less.
3:16:21 PM
REPRESENTATIVE P. WILSON assumed the cost to ratepayers will go
up once the repairs were completed to cover the maintenance and
repair costs.
MR. GRIFFITH expressed ARCTEC's intent to keep costs down which
is possible with the state's assistance. The biggest fear of
the utilities in the Railbelt has been the rising fuel costs.
Because this is an aging system with "huge generation plants
coming online," the system needs to be funded in the same as is
infrastructure. Electric lines "provide[s] the grease for our
economy," he said.
3:17:50 PM
REPRESENTATIVE P. WILSON stated that other funding organizations
such as the Denali Commission are starting to require that
maintenance costs are included. She cautioned entities that
receive state funding that there is going to be more
accountability required of them in terms of maintenance.
BRAD JANORSCHKE, Vice Chair, Board of Directors, Alaska Railbelt
Cooperative Transmission and Electric Company (ARCTEC); General
Manager, Homer Electric Association, Inc. (HEA), said project
six, which is the Quartz Creek to Soldotna Transmission
Maintenance and Repair, is similar to the first project Mr.
Griffith described. He acknowledged that the issue of
maintenance is important; however, utilities struggle because
Alaska is a big state with population centers separated by great
distances. For example, the distance between the Kenai
Peninsula and Anchorage does not lie on a straight path since it
winds through Cooper Landing. Homer Electric Association has
put a significant amount of money into the maintenance of lines,
particularly in the mountainous east section of its system. He
noted that HEA works to first serve local customers, but will
put in about $200 million of its own funds over the next three
years to ensure that the service on the Kenai Peninsula stays
reliable and affordable. It becomes a financial challenge for
HEA and other utilities to not only accommodate the local needs
of their system, but the public lines between service areas. He
pointed out that most of the projects listed are those that are
trying to get Bradley Lake Hydro power and Kenai Peninsula power
tied to Southcentral Alaska. Mr. Janorschke said that the
utilities attempt to address the operation and maintenance for
systems, but some areas are expensive.
MR. FOUTZ informed that committees that CEA is in a similar
situation in that its first priority was to build new efficient
gas turbines to save money on gas. He acknowledged that
maintenance is needed but has been continually deferred because
CEA has to invest over $250 million in new generation. He
pointed out that although CEA owns the line, the line is
critical infrastructure that allows the Bradley Lake hydro power
to move north for the benefit of GVEA, ML&P, and CEA. With the
natural gas constraints in Cook Inlet, it is more important that
the Bradley Lake power moves north. He emphasized that this
project is overdue, needs to be done, and funding will be very
much appreciated.
3:23:15 PM
CO-CHAIR SEATON asked for clarification on the organization of
ARCTEC. He further asked if after projects are funded, the
utilities as a whole will incorporate a rate base dedicated to
the operation and maintenance of upgraded lines and facilities.
MR. JANORSCHKE envisioned ARCTEC as a united entity to forward
large-scale renewable energy projects - that are too big for an
individual utility to build - for the benefit of each of its
members. Secondly, ARCTEC recognizes it must focus on large
projects that are needed by all, but that do not "jump on the
top of our individual lists." He said he foresees a regional
transmission organization that will garner support for projects
such as the tie-line between Kenai and Anchorage, which are
vitally important to the entire Railbelt. He stressed the
benefit ARCTEC brings to strengthen the utilities' positions.
He discussed ways to recoup investments through a cooperative;
for example, when HEA invests in its lines and other parties use
them, the parties are charged a fee to spread the cost of
operation and maintenance. In addition, all of the rates are
reviewed through the Regulatory Commission of Alaska (RCA),
which sets the methodology. This is the process by which the
utilities recover any investments that are made.
3:26:43 PM
CO-CHAIR SEATON pointed out that the legislature is in the
process of making significant investments in these projects. He
offered his belief that the utilities would not work to recover
the costs paid by the state on projects that are owned by
individual utilities. He questioned whether a utility will
depreciate a facility the state has invested in without
providing for its maintenance. He inquired as to whether the
maintenance of projects is the responsibility of ARCTEC, the RCA
when it sets the rates, or of the utility, and asked for
assurance that the legislature would not be approached for
funding "when [the project] falls down."
MR. JANORSCHKE answered that through the RCA's methodology the
utilities can recover all of the operating and maintenance
expenses as well as depreciation. None of the utilities "pre-
fund" to replace an asset, but must borrow. He related a
scenario in which HEA owns a line and invests $200 million in
the transmission line and is "borrowed out." He characterized
it as though someone would go to the bank but has maxed out
their credit cards. He would not want to put the utility in the
position of doing so.
3:29:12 PM
CO-CHAIR PRUITT asked whether the RCA set regulations that limit
or prevent utilities from setting aside money for future
operations, facilities, or generating capacity.
MR. GRIFFITH said, "You're not allowed to do that. If it's
grant-funded, you don't get it."
CO-CHAIR PRUITT clarified that his question was whether the RCA
prevents a utility from investing in future electrical utility
capital projects.
3:30:56 PM
MARK JOHNSON, General Counsel, Chugach Electric Association
(CEA), said he served as a commissioner on the RCA from 2003-
2009. He explained that nationwide standard regulatory practice
does not permit a utility to roll into the rate base
"contributed plant," which are grants from the government. He
agreed that an explicit mechanism does not exist to recover and
collect operating expense from ratepayers for future
maintenance. Mr. Johnson advised that this creates an acute
problem in many rural areas where the legislature has funded a
utility water and sewer plant with grant money, and the
mechanism does not exist to recover the costs. However, the RCA
was created by the legislature and has the ability to step in
and change the rules, and he reiterated that this is a long-
standing regulatory problem that could benefit from a solution.
3:32:22 PM
CO-CHAIR PRUITT understood the legislature is creating a future
problem by not allowing utilities to replace facilities on a
going-forward basis.
3:32:57 PM
MR. JOHNSON opined the legislature did not intend to create this
problem, but the regulatory practice in Alaska does not permit
this.
3:33:22 PM
CO-CHAIR PRUITT pointed out the effect of these limitations on
utilities.
REPRESENTATIVE P. WILSON emphasized that the problem is
compounded when the state has less money to spend on its
citizens. She said she was alarmed by this situation and urged
action during the next legislative session so that utilities can
"charge your ratepayers ... so that you know you can always
maintain and that you have money ...."
MR. JOHNSON observed this issue greatly contributes to problems
between constituents, the utilities, and the RCA.
CO-CHAIR PRUITT pledged the committee's work on this issue.
3:37:15 PM
REPRESENTATIVE PETERSEN asked whether the transmission lines
from Anchorage to Quartz Creek are new lines with additional
capacity.
MR. FOUTS said the transmission lines will be upgraded from 115
volts to 138 volts in order to provide more security for higher
voltages.
3:38:13 PM
REPRESENTATIVE PETERSEN surmised this project will not create
redundancy, but will keep the current lines producing without
worry of failure.
MR. FOUTS reiterated that a portion of the line is 50 years old;
in 2007, CEA performed aerial and field inspections that
revealed two of the seven segments are critically in need of
repair. The requested funding is for repair to the two critical
segments. If further work can be delayed until 2015-2020, the
RCA may allow CEA to recover "prudent expenditures," and the
utility would pay for the additional line upgrades; however,
these lines have needed replacement for ten years. He concluded
that the most optimum investment for the utility right now is to
reduce the cost of gas, which has taken up its line of credit.
3:41:32 PM
REPRESENTATIVE TUCK recalled 8-10 years ago some of the
transmission line was replaced.
MR. FOUTS acknowledged the line was replaced along Turnagain
Arm. In further response to Representative Tuck, he said the
only sections that have been done are along Turnagain Arm,
because the other sections are difficult to access, so
replacements are made in a major project, not pole by pole.
3:43:18 PM
REPRESENTATIVE TUCK agreed sections of the line look old. He
opined there is a nationwide concentration on building new
plants to meet the demand for more power, but transmission lines
are neglected because they do not reduce utility rates.
Representative Tuck said it is important for the state to have
the ability to fund projects in the future, and suggested the
state provide - not grants - but 1-2 percent low-interest loans
which would provide seed money and "pay-back" to the state. He
pointed out that long-term loans are not always available from
financial institutions, but historically, the government has
provided them. He cautioned that the state will not be able to
sustain this level of funding for projects in the future.
CO-CHAIR PRUITT opined more understanding of the legislature's
role is needed.
3:48:37 PM
CO-CHAIR PRUITT turned to Battle Creek Diversion Project, which
he explained would add additional capacity to Bradley Lake
Hydroelectric.
MR. JANORSCHKE agreed that the Battle Creek Diversion Project,
funding request would increase the capacity of Bradley Lake
Hydro. Bradley Lake Hydro is operated and maintained by Homer
Electric Association (HEA) and has a maximum output of about 120
MW, producing power at a cost of about 4.2 cents. The rate is
extremely attractive. However, one drawback is that when the
facility is operated at its highest capacity it will run out of
fuel in about four months. Thus, it does not operate at its
highest and cheapest capacity and is limited to usage for a
peaking unit but cannot use the full capacity and efficiency.
Thus, the investment for the 120 MW capacity benefits at about
the 60 MW level. The Battle Creek Diversion project would
divert some water from Battle Creek into Bradley Lake, and at
4.2 cents and represents the cheapest option in the Railbelt to
add fuel for new generation.
3:50:42 PM
REPRESENTATIVE P. WILSON asked for the location of the
diversion.
MR. JANORSCHKE answered that it is pretty close.
3:51:16 PM
MR. FOUTS, in response to Representative Saddler, answered the
total cost of the project is estimated to be $3l.5 million.
Other funding sources are this grant and bonds issued by the
utilities. Construction is scheduled for five to ten years, and
the pay-back period would depend on future gas prices. The
project is at the preliminary concept level, without detailed
design or permits, and the state money would be used for design
and construction. Finally, the project has been vetted by AEA.
3:53:07 PM
CO-CHAIR PRUITT asked whether ARCTEC "could handle" the
shortfall between the $20 million requested and the $15.5
million in the budget.
MR. FOUTS advised the funding plan is for 50 percent funding by
grant and the six utilities would seek bonding for the balance.
3:53:34 PM
REPRESENTATIVE P. WILSON questioned the effect to the project of
the limitation on the state's capital investment to 50 percent.
MR. FOUTS said based on what is known today, the project will
cost $31.5 million and the intent is to get 50 percent funding
from the state. If the estimated cost changes, the grant amount
may change. However, the project has economic value and the
utilities are highly motivated to complete the project.
3:55:53 PM
CO-CHAIR PRUITT restated the question.
MR. FOUTS, returning to the Anchorage to Quartz Creek
Transmission Maintenance and Repair, said the request is to
rebuild two segments of line for $25 million. The other five
segments of line will be addressed in the future.
3:57:03 PM
REPRESENTATIVE P. WILSON was unsure whether grant recipients are
aware of the 50 percent limitation.
MR. GRIFFITH affirmed that the utilities are aware of the
limitation. He said, "No way we could afford to do that on all
of these."
REPRESENTATIVE P. WILSON stated, "Some of us would like to get
rid of that wording, and so we're just wanting on the record,
your concerns."
CO-CHAIR SEATON confirmed that Battle Creek Diversion is a 50
percent to 50 percent investment, but Anchorage to Quartz Creek
Project is 100 percent state funding. He requested that ARCTEC
specify which proposals are 50 percent matches.
MR. FOUTS answered that the $25 million Anchorage to Quartz
Creek request is for 100 percent grant funding as it's a
transmission line that serves the entire Railbelt. The Battle
Creek Diversion project was a 50 percent request and the Cook
Inlet Gas Gathering System Remodel is a 100 percent request.
3:59:25 PM
JOHN FOUTZ, Utility Manager, City of Seward, related that Seward
has spent "close to 50 percent" funding on the Dave's Creek to
Seward Transmission Line Completion. However, he asked whether
the qualifying funds were "previous funds or future funds."
CO-CHAIR PRUITT referred to page 99, lines 18-19, which
read,"50% of the total investment required to fully complete
each project."
MR. FOUTZ confirmed the City of Seward has spent 50 percent of
the required matching funds.
4:00:06 PM
MR. JANORSCHKE advised that the Girdwood and Sterling Substation
Improvement is a request for 100 percent of the cost of
components. The projects are larger but this component is to
put in a ring bus which would allow them to switch on and off
the transmission line without interrupting the flow of
electrons. In further response to Co-Chair Pruitt, with respect
to the request for the Quartz Creek to Soldotna Transmission
Maintenance and Repair project, he clarified the request is for
100 percent of the cost of upgrading a section of the line to
which ARCTEC has already made improvements.
MR. FOUTS explained the Seward Power Plant Integration request
for $4 million, which is 50 percent of the cost.
MR. GRIFFITH said the Soldotna to Quartz Creek Transmission
Study Design and Permitting request is for 100 percent of the
design function, but not of the whole project, and the Teeland
to Healy Substation Improvements and Repair request is for 100
percent of the completion of the project.
MR. GRIFFITH added that the Teeland to Healy substation
improvements and repair project request for $5 million would be
in addition to a prior related project that was paid by the
state, which he thought was funded at $10 million.
4:01:45 PM
CO-CHAIR SEATON explained the quandary since Ms. Fisher-Goad,
AEA, asked for clarification on the language that requires a 50
percent state investment and related confusion on whether this
percentage related to segment cost or total cost. He agreed
legislators are unsure of exactly what the wording means and the
final outcome on clarification.
CO-CHAIR PRUITT said he understood.
4:02:25 PM
REPRESENTATIVE SADDLER returned to the Battle Creek Diversion,
and asked whether AEA assisted in the conceptual design.
MR. GRIFFITH answered yes. In further response to
Representative Saddler, he said he was not aware of whether
state leases or permits were received.
4:03:26 PM
MR. FOUTS explained the Cook Inlet Gas Gathering System Remodel
affects the pipes in Cook Inlet that serve Anchorage. The
current pipelines run from Kenai to Anchorage and from the west
side of Cook Inlet to Kenai. Currently, there is not a means to
physically get gas from the Kenai to the Matanuska-Susitna
Valley. This worked fine for 30 years when gas supplies were on
the west side of Cook Inlet, but now all the gas production is
headed toward the east side so it would be costly, up to $2
million to do so. This $2 million project would reduce check
values and compression and move gas on the west side, similar a
transmission structure. Over the past several years the gas
burned at power plans was bundled with transportation costs.
Now that the Cook Inlet gas supply has diminished over the
years, the producers are willing to produce the gas but require
transportation be arranged. This project has been identified
for about five years but needs to be done next year. Currently,
the project is in the design and permit phases which should be
completed by October. The total project cost would be $2
million. The funding sources are utilities, Chugach Electric,
Alaska Municipal Light & Power (AML&P), and Enstar. The project
would be completed in one year. He envisioned a permanent
compression fix in the future would require additional funding.
The cost, if not grant funded, would be recovered from
ratepayers. He said the purpose is to provide stability and
reliability of natural gas from Cook Inlet. The AEA has not
been involved in this project, which has been limited to the
three utilities that need natural gas delivered that have
supported the project.
4:06:58 PM
CO-CHAIR SEATON asked whether remodel referred to a
reconfiguration which would be a construction project or whether
it would be a study on how to perform the project.
MR. FOUTS explained that the project would involve replacing a
one-way valve with a two-way valve and to install rental
compression to boost up pressure on the line to prevent
disturbances to other users on the pipeline. Thus, this project
would be to upgrade the pipeline to make it bi-directional.
4:07:45 PM
REPRESENTATIVE PETERSEN related his understanding that this
project would increase access to gas for Anchorage and the
Matanuska-Susitna Valley.
MR. FOUTS answered yes. He related that if Anchorage
experiences really cold weather and additional natural gas could
not be shipped via the Kenai pipelines to Anchorage, the only
gas available would be from two primary natural gas fields via
pipelines and the two-way valve could be completed by October.
In further response to Representative Petersen, he agreed that
this project would create redundancy and security during
extremely cold weather.
REPRESENTATIVE TUCK inquired as to whether the natural gas
storage on the Kenai would help alleviate the issue.
MR. FOUTS answered that the storage is located on the Kenai
Peninsula. He said one way to transport the gas is via existing
lines but gas storage would not solve the problem since the
natural gas still must travel across Cook Inlet. He
characterized this as a gas transportation problem.
REPRESENTATIVE TUCK asked whether this project was part of the
Railbelt Integrated Resource Plan.
MR. FOUTS said he thought that plan focused mostly on the
electric issues.
JOHN FOUTZ, Utility Manager, City of Seward, explained the
Dave's Creek to Seward Transmission Line Completion. He
detailed that Seward receives power from Chugach Electric
through a single line that runs from Anchorage to Seward. The
line has been updated and repaired. The line was upgraded from
69 to 115 kV. That project was never completed and falls a few
blocks short of the substation. This funding of $1.5 million
would bring upgrade the line to the substation. He answered the
general questions, noting the project has local support and
several resolutions have been passed by the city council in
support of the project. In 2010, the City of Seward spent $1.27
million on upgrading, rerouting and repairing the transmission
line. He noted that nearly $2 million has been spent on
repairing the line. He reviewed funding sources such that state
and federal funds started the project and bonding and city
funding has since been utilized. The ARCTEC funding request of
$1.5 million would complete the project this year. The entire
line from Dave's Creek to Seward is 40 miles and less than a
mile remains. If the rates were allocated to ratepayers it
would have happened thirty years ago so he was uncertain whether
that occurred. The local population is relatively small and
could not absorb the additional costs. The project was vetted
by the AEA and listed in the RIRP but not one of the top
priorities. With respect to the 50 percent matching funds, in
2010 the City of Seward spent $1.27 million to maintain,
upgrade, and repair the line.
4:15:54 PM
REPRESENTATIVE P. WILSON asked for clarification on whether this
project would add a few more blocks of access to electricity.
MR. FOUTZ answered that thirty years ago the process to upgrade
the transmission line from 69 to 115 kV. Currently, the line
transmits power but not to the highest capacity. In further
response to Representative P. Wilson, this project would allow
for a higher voltage, not additional distribution line. The
transmission line transmits power from point "A" to point "B."
The distribution lines would distribute power from point "B" to
the residential home. More specifically, the project takes
power from Anchorage to Seward at a higher voltage, which offers
benefits. The biggest benefit is obtained since the larger the
voltage capacity the lower the line loss, he said.
REPRESENTATIVE TUCK commented that he worked for Norcon, Inc. in
1992, when the 115 kV transmission line was built. He related a
scenario that illustrated the problems with some residents who
objected to the line.
REPRESENTATIVE SADDLER inquired as to whether the 50 percent cap
would limit the state to providing only $1.27 million since that
is the amount the City of Seward contributed as matching funds.
4:18:41 PM
MR. FOUTZ agreed that an additional $130,000 to reach the 2010
match. He was unsure of how the match would be appropriated.
He expressed confidence that reviewing expenses over the thirty
years of the project expenditures would reach $130,000.
Additionally, the City of Seward has right-of-way and
maintenance issues to contend with so the city should be able to
reach its matching funds this year.
REPRESENTATIVE SADDLER acknowledged that the legislature is also
waiting to see how the match would work. He clarified this
project provides the last upgrade to the transmission line, not
that a gap exists in the transmission line.
REPRESENTATIVE DICK provided an example for Representative
Wilson to further clarify the upgrade.
4:20:25 PM
MR. JANORSCHKE reviewed the $4 million request for funding for
the Girdwood and Sterling Substation Improvements. This project
would entail splitting the funding into two segments: $2
million for Girdwood and $2 million for Sterling. The Sterling
funding would reduce voltage for distribution in substations to
supply the power to communities. One method is to use a
doughnut type of connection, which would allow the power to come
into the doughnut and out the other side. This type of
distribution allows a "T" anywhere along the doughnut to serve
the substation. The advantage to this type of connection is it
allows work to be done to the substation without disruption of
power. Additionally, if any issue arises on either side of the
ring or doughnut the line can be serviced with minimal
disruption. Thus, this project would provide greater
reliability. Homer Electric Association, Inc. (HEA) has
currently been working to design the Sterling substation, which
should be completed next year. The design work is using a "T."
He recalled discussions with other utilities that used a "T" and
regret not using the ring or doughnut configuration since it is
more expensive to convert later. He agreed the ring design
should be done but HEA cannot afford to do so at this time. He
related his understanding that Girdwood is expanding and are
tying into the same line. He reiterated that this project is
needed for reliability.
4:23:22 PM
REPRESENTATIVE SADDLER asked him to address the listed
questions.
MR. JANORSCHKE related the total cost is $4 million for the
improvement. He said the Sterling substation costs are
estimated at $6 million excluding the improvement. After
conferring, he agreed the costs at Girdwood would be similar.
Without the funding sources, the HEA would not be able to make
the ring configuration at this time. He related that all the
Railbelt utilities have been unanimous in their support. He
restated that the Sterling project is in the design phase, that
it would move to civil engineering phase during before the end
of this construction season. He anticipated that it would be
completed and online by the next construction season. In
further response to Representative Saddler, he indicated the AEA
has not been involved so far.
4:25:03 PM
MR. JANORSCHKE outlined the Quartz Creek to Soldotna
Transmission Maintenance and Repair. He explained that this
project would be similar to the Quartz Creek to Anchorage
project. He indicated this particular section of the
transmission line is 50 years old and traverses through Kenai
Wildlife Refuge. This has created some challenges to conduct
the ongoing maintenance program since the needs of the refuge
and utility are appropriate but different. He related that from
a utility's perspective a 100-foot clear cut is preferable but
that approach understandably does not work in the refuge. This
project would complete the last section of the utilities'
maintenance program on the east side of the Kenai Peninsula. He
identified that some soggy conditions exist so work has
typically been conducted during the late winter after heavy
freezes using snow roads. The work also would require off road
rigs and helicopters for access, which is very costly. He noted
that the current rate for helicopters is $1,000 to $1,200 per
hour. Thus far all the funding has been provided by the
utilities, he stated. The utilities' costs will be borne by
users and participants including all Railbelt utilities. In the
event this project does not receive funding the project could
likely be funded in-house, but it would need to be done over a
longer timeframe. The Railbelt utilities all support this
project since Bradley Lake power cannot be transmitted from the
Kenai Peninsula if the line goes down.
4:27:42 PM
REPRESENTATIVE P. WILSON inquired as to whether 100-foot wide
breaks would be sufficient for firebreak.
MR. JANORSCHKE answered that there is not any guarantees but the
100-foot firebreaks improve fire protection and provides quick
access.
4:29:13 PM
MR. FOUTZ reviewed the Seward Power Plant Integration project
for $4 million. He explained that the City of Seward has diesel
fuel back up generation. The city has six generators that
basically resemble the ones on World War II submarines. Each
generator provides 2.5 MW for a total capacity of 15 MW of
power. He explained that Seward's maximum load is 10 MW so the
six generators provide an "n minus 2" capability. Seward could
experience maintenance issues with two of its generators yet
still maintain the load. He described the benefit of having 5
additional MW is that it would provide power during emergency
situations to "push power up the line" to other areas not
normally served such as Moose Pass and Cooper Landing, which are
served by Chugach Electric Association (CEA). Two years ago,
the City of Seward initiated a project to increase Seward's
capacity by adding two generators. He said when he became
utility manager that he reviewed the project to "get the most
bang for the buck." This project would provide a full-size
building to house four generators and switch gear for two new
generators. This $4 million project would move the two
additional generators to a new building and upgrade switching
components for all six generators. The new switch gear would
allow the utility to bring generators on-line quicker during
emergency situations in the event of a blackout, avalanche, or
mid-winter natural gas shortage situation.
4:32:59 PM
REPRESENTATIVE TUCK inquired as to how long it takes to get
generators up during a power outage.
MR. FOUTZ answered that it takes up to two hours. In further
response to Representative Tuck, he responded the intent would
be to have both manual and automatic switch gear for different
purposes. The facility primarily provides back-up generation.
The utility needs manual capabilities for emergency situations
to manually turn on the generators. In the event the entire
Railbelt needs additional generation the utility would prefer
automatic switches to allow CEA to rely on the additional
generation.
MR. FOUTZ related significant local support including several
City Council resolutions. The City of Seward bonded for $6
million for this project as well as $2 million of grant funding.
The utility has spent $7.2 million on the project. The $4
million funding would complete Phase I as well as Phase II of
this project. Phase II would provide an office warehouse on-
site to store equipment to provide the benefits of having
materials on-site. He related that the City of Seward funding
over the next five years includes some small construction
projects for the Seward Power Plant Integration that previously
was phased out based on funding constraints. The City of Seward
anticipates the project would be completed within five years
with this funding approved. The project consists of two phases:
Phase I, the generation building, and Phase II, the office
warehouse. The cost of bonding has been passed on to ratepayers
and he was unsure of whether grant funds already paid were
passed on or not. He clarified that the City of Seward is not
funded by the Regulatory Commission of Alaska (RCA). In
response to Representative Saddler, he offered his belief the
source of the grant was state funds.
CO-CHAIR SEATON related his understanding that the City of
Seward received a $2 million state grant for backup generators
two years ago.
4:37:54 PM
MR. FOUTZ acknowledged that the City of Seward bonded $6 million
and received an additional $2 million state grant. He related
that the project was included in in Railbelt Integrated Resource
Plan (RIRP) but is assumed to be completed since the project was
under construction at the time the AEA prepared its RIRP. He
identified that the $6 million in bonding meets the 50 percent
matching fund requirement.
MR. JANORSCHKE reviewed the Soldotna to Quartz Creek
Transmission Study Design and Permitting project. He related
this project as similar to one discussed yesterday. He pointed
out that two transmission lines exist, one higher and one lower
voltage, from Soldotna to Nikiski. When the lines are of equal
voltage it provides redundancy, he said. He said this project
will upgrade an existing line, which is important in order avoid
instances in which the higher line goes offline and transfers
voltage to the lower voltage line that cannot handle the load.
He advised that the only scenario to provide redundancy is when
the higher voltage line can be reduced to the point the lower
voltage line can handle the load to allow for maintenance. This
project would provide a study, preliminary design, and initial
permitting to convert a transmission line between Soldotna and
Quartz Creek substations from 69 kV to 115 kV. He admitted this
project presents challenges since it crosses the refuge. The
right-of-way currently has been rated for the 69 kV line. The
funds would be for analysis and review, routing and design.
Additionally, this project would result in a 54 mile
transmission line, noting the terrain worsens with the distance
from the office. He stated that the average cost is $1 million
per mile, which he believes represents a reasonable cost.
4:42:08 PM
REPRESENTATIVE P. WILSON asked whether converting from a 69 kV
to 115 kV line requires a wider right-of-way.
MR. JANORSCHKE answered that right-of-way costs can vary in
regions. He identified the project's location as adjacent to
the Sterling Highway so as areas are cleared out it attracts
moose, which pose safety issues for motorists.
REPRESENTATIVE P. WILSON clarified her question.
MR. JANORSCHKE stated that the right-of-way permit would need to
be modified to increase the limit of voltage from 69 kV to 115
kV. Once that is addressed, the next step is to determine if
the existing right-of-way can be widened to accommodate the
higher voltage and provide additional safety for electrical
conduction.
4:44:50 PM
REPRESENTATIVE TUCK inquired as to whether an existing 115 kV
line exists or if both a 69 kV and 115 kV transmission line
would exist.
MR. JANORSCHKE responded that currently a 69 kV and 115 kV line
exist as parallel lines for most of the route. He related that
the lower voltage line is essentially useless 98 percent of the
time so to obtain any value the voltage needs to be increased.
In further response to Representative Tuck, he explained the
differences between this project, item number 8 on page 4, and
item number 6 on page 3, the Quartz Creek to Soldotna
Transmission maintenance repair. He said that the project
listed as item number 6 would provide maintenance and repair to
the 115 kV line. The existing 69 kV aging transmission line is
in "horrible" shape, he said.
REPRESENTATIVE TUCK asked if the design and permitting were
complete whether it would be cheaper to perform both these
functions at the same time.
MR. JANORSCHKE disagreed. He identified the projects are
distinctly two separate projects. The Soldotna to Quartz Creek
Transmission Study Design and Permitting project would have some
field work but not any heavy equipment but rather working
through the legal permitting process and performing the civil
engineering to design the replacement for the 69 kV line. He
explained the 115 kV transmission line is limited to the east
side of that section towards Quartz Creek at Cooper Landing.
That project would entail heavy equipment and helicopters to
replace poles and cross arms on the 115 kV transmission line. In
further response to Representative Tuck, he advised they are
adjacent lines with two separate easements with a grove of trees
ranging from 10 to 30 feet.
4:48:36 PM
REPRESENTATIVE TUCK clarified his question, asking if the design
and permitting was completed, whether it would be cost effective
to perform the construction simultaneously since the helicopters
could be used on both adjacent lines.
MR. JANORSCHKE responded that the proposed project entails the
54 mile length of the line. The previous $10 million focused on
the eastern section of the transmission lines, but this project
covers the entire line.
4:49:29 PM
REPRESENTATIVE SADDLER related his understanding that project
number 8 would study design work to upgrade the 69 kV line. He
asked for the relationship between the two projects.
MR. JANORSCHKE answered that the 115 kV line provides the
primary tie between Bradley Lake and HEA and CEA facilities on
the Kenai Peninsula and Anchorage. Project number 8 would work
to build redundancy between that tie line from Kenai to
Anchorage. In further response to Representative Saddler, he
indicated that the estimate is $750,000 to $1 million per mile
for design since an estimate has not been finalized.
4:50:59 PM
CO-CHAIR PRUITT anticipated that funding may be requested in a
future project.
MR. JANORSCHKE agreed.
4:51:18 PM
REPRESENTATIVE TUCK inquired as to whether parallel redundancy
exists from Anchorage to Golden Valley or to the Matanuska-
Susitna Valley.
MR. JANORSCHKE clarified that redundancy does not exist from
Quartz Creek to Anchorage.
4:51:48 PM
MR. GRIFFITH system explained that Golden Valley Association is
looped and redundant from plant 2 in Anchorage to Willow. North
of Willow the line is a single 138 kV line to Healy built to 345
kV standards and dual lines from Healy to Fairbanks. He
recalled that the funding source was Railbelt Energy Fund from
the old Susitna project that built the second line from Healy to
Fairbanks. He further recalled that Anchorage's share is the
$67 million in the governor's budget for the Susitna project.
REPRESENTATIVE TUCK inquired as to whether this is ARCTEC's
project, but it is not going through the CAPSYS program process,
but rather through the governor's budget process.
MR. GRIFFITH related that the $5 million for the Teeland to
Healy Substation Improvements and Repair would provide repair of
the three static systems located at Teeland, Gold Creek, and
Healy. These static systems ensure the ability to reach the
electrical transfer capacity of approximately 75 MW. The
components were installed 25-30 years ago and some are no longer
manufactured. The electronics need to be fixed or replaced.
This project started 7-8 years ago with a $10 million state
grant. The GVA does not have sufficient funding to complete the
project. He said the $5 million will complete the project that
previously was funded with $10 million in state grants.
4:55:27 PM
CO-CHAIR PRUITT asked whether the $5 million request would be
sufficient or if additional funding would be needed to complete
the project.
MR. GRIFFITH answered that this would complete the project. The
prior funding was disbursed to the Municipality of Anchorage and
AEL&P is currently managing the project.
4:56:05 PM
REPRESENTATIVE SADDLER asked him to identify any previous
funding.
MR. GRIFFITH explained that about $8 million of the $10 million
funding was expended on the project and the remaining $2 million
covered fees so insufficient funding exists to complete the
project. In further response to Representative Saddler, he
related his understanding that in about 2004 or 2005 the $10
million funding was secured. The state funding is the only
funding sources. He agreed $5 million will complete the
project.
4:57:00 PM
CO-CHAIR PRUITT inquired as to whether $10 million was the
original estimate for the complete project.
MR. GRIFFITH answered that the shortfall was due to unexpected
expenses. Once the work began they discovered some of the
components were outdated. He confirmed that the $5 million will
complete the project.
4:58:04 PM
MR. GRIFFITH, in response to Representative Tuck, explained that
the substation at Teeland is owned by CEA but contains MEA
components, the Douglas substation is owned by AEA with MEA
components, and the Gold Hill substation is owned by AEA. In
further response to Representative Tuck, he agreed all three
components and the static bar compensators in the substations
are part of the project.
REPRESENTATIVE TUCK inquired as to why this project is not being
presented by AEA since it owns two of the facilities.
4:59:04 PM
MR. GRIFFITH clarified that the original $10 million proposal
was an AEA project which was transferred to the MOA and Alaska
Electric Light & Power (AEL&P). The AEL&P advised that
additional funds would be required. He agreed it is technically
AEA's equipment since it ties into their intertie.
MR. JANORSCHKE noted there are many projects to consider. He
stated utilities must work together to continue to provide
reliable service given the aging systems. He was uncertain how
utilities could continue to provide services without making
these improvements. He related that most issues are with
transmission systems. He predicted that utilities will struggle
to get geothermal, hydroelectric and wind power on the grid so
integrating renewable sources will continue to be challenging.
REPRESENTATIVE SADDLER asked for projections of what lies ahead
in the next five years after funding these projects.
MR. GRIFFITH offered his belief that moving forward with the
Susitna project will require a huge investment in transmission.
The biggest issue the utilities face today is the fuel problem.
Anything that improves the transmission system reduces costs for
everyone in the Railbelt. The issues raised today represent the
key issues which ARCTEC will review. He agreed with
Representative P. Wilson that Alaska cannot afford to run the
systems needed to operate the economy today. He concluded that
ARCTEC will review the issues during the interim and hopes to
come back with suggestions next session.
CO-CHAIR PRUITT thanked the presenters.
5:04:21 PM
CO-CHAIR SEATON expressed his concern about the language on page
99 of CSSB 46(FIN). He referred to page 99, line 18, and
questioned whether a set 50 percent for all projects is
appropriate. There projects are diverse and it may not make
sense to have a "hard and fast" percentage. He suggested a
criteria-based approach be used instead. He suggested the
committee pass these concerns on to the House Finance committee
for use during its deliberations.
CO-CHAIR PRUITT agreed that concerns should be passed along.
5:08:56 PM
REPRESENTATIVE PETERSEN noted the effect of lower rates of
utility rates to commerce in rural areas. He related that
lowering the costs to a grocery store in rural Alaska could be
passed on to customers so milk does not cost $8 to $10 per
gallon. He noted some of the projects will lower the cost to
consumers, but also to small businesses in the region.
Additionally, income could be "freed up" for other projects. He
said he believes that the legislature can improve people's
lifestyles and lower the cost of living by keeping electric
costs as low as possible. He thought many of these projects
could help us reach that goal.
5:10:34 PM
CO-CHAIR PRUITT asked whether participants have addressed
projects in a previous committee setting.
MR. JANORSCHKE answered no.
5:11:42 PM
REPRESENTATIVE SADDLER related that the projects were presented
as implementing the state's energy policy. He read the policy.
He thought that other questions could be asked to determine how
these projects fit into the policy and address energy
efficiency, support economic development, have elements of
energy research, and include government coordination. He
concluded the importance of being able to quantify how these
projects fulfill the energy policy.
REPRESENTATIVE DICK noted school districts are paying very high
utility bills due to fuel costs.
5:12:47 PM
REPRESENTATIVE TUCK recalled grants available including the
Southeast grant funds and if approved, will require regulation.
He offered his belief that many of the projects will need to
apply for grants. He inquired as to the process AEA uses to
distribute grant funds.
MS. FISHER-GOAD responded that only projects in this list that
require regulation process would be the Southeast Energy fund
since it would be $10 million to the fund for the AEA to do a
specific purpose to issue grants to statutory eligible grantees.
The other projects fall under typical capital budget projects
where individual projects would be managed by AEA. The scope of
the project is identified in the backup. The capital budget
provides the AEA the information on how to fund the project.
The AEA would work with the grantees and project owners to honor
match requirements.
5:15:10 PM
REPRESENTATIVE TUCK related his understanding that there is not
a process. He related a scenario, such as the community of
Akiak, who would not have a prescribed process to receive funds
once approved. He inquired as to whether the community would
receive funds from AEA or if the community would need to meet
the criteria to receive the full amount.
MS. FISHER-GOAD answered that Akiak project is unique since it
is a Rural Power System Upgrade (RPSU) project. The RPSU
projects underwent a ranking criterion process the AEA and the
Denali Commission several years ago. She affirmed that Akiak is
at the top of that list. She said that if Akiak receives its
funding from an individual line item in a capital budget, the
AEA can use the $10 million designated for the RPSU project for
other projects. She anticipated the two projects that could be
funded are Fort Yukon or Atmautluak.
REPRESENTATIVE TUCK said he understood. He stated he had
randomly selected Akiak. He then turned to Anchorage to Quartz
Creek Transmission Maintenance and Repair project, noting the
$25 million. He related his understanding the $25 million would
not be directly given to the Municipality of Anchorage (MOA).
He inquired as to whether there are internal controls to
identify when and how the funding is delivered. He clarified
that his interest is focused on the AEA's procedures.
MS. FISHER-GOAD answered that the AEA executes several grant
agreements which would typically consist of 40 pages of
requirements, including those that identify allowable costs.
She recalled the language outlines requirements that are similar
to those of the Renewable Energy Fund requirements. The AEA may
suggest a milestone process for the grantee. She related that
the AEA's project managers have a familiarity with the grantees
and have "boilerplate" grant requirements. She provided an
example of prohibited grant fund uses such that a grantee cannot
use funds for lobbying the legislature. She illustrated the $25
million Anchorage to Quartz Creek Transmission Maintenance and
Repair grant is a grant to the Chugach Electric Association
(CEA) for the project. The grant agreement would identify the
scope of work and would identify any prohibited expenditures.
The primary purpose of the funds would be to perform the
identified project and AEA would verify expenditures via
invoices to ensure the grantee follows the legislature's intent.
She reiterated that the AEA would go administer the grant for
appropriateness of expenditures.
5:19:06 PM
REPRESENTATIVE TUCK offered he had been considering the
Southeast Integrated Railbelt Plan. He inquired as to whether
it would be better to lump the funding for grants rather than to
list each one separately. He related his understanding that the
40-page grant application process provides a standardized
process but some projects could be fine-tuned to ensure the
state's interests are represented.
MS. FISHER-GOAD affirmed that AEA takes its fiduciary
responsibilities very seriously with respect to grantees and the
grant agreement creates a contractual relationship between the
AEA and the grantee. She indicated the AEA would place any
necessary stipulations on a specific project. In further
response to Representative Tuck, she related the AEA would
reallocate money through the legislature in the event that a
grant was terminated, similar to how the AEA administers
Renewable Energy Grants.
5:21:41 PM
REPRESENTATIVE TUCK inquired as to whether the AEA supports the
Teeland to Healy Substation Improvements and Repair project.
MS. FISHER-GOAD related her understanding the specific repairs
are for the AEA Intertie. She offered to confirm this with Mr.
Griffith. She reviewed the history of the project relating that
in 2003 $20.3 million was appropriated to AEA to upgrade the
intertie and create a Teeland bypass. The project experienced
issues but continues to be active with the AEA and the Intertie
Operating Committee. In 2008, the legislature reappropriated
$10 million for the intertie repairs but the necessary project
costs increased to $15 million. She offered her support for the
state to maintain state-owned assets. She opined these repairs
need to be done, noting that it would be difficult for the
utilities to manage the 50 percent matching funds, particularly
due to the intertie agreement. She also recognized the state's
opportunity given the newly created ARCTEC to review and
accomplish repair projects the legislature funds as well as to
consider the overall integrity of the Railbelt transmission
system. She advised that the AEA has historically allowed the
utilities take the lead on repairs which is one reason this
capital request was not made through the AEA budget. She
offered to work with the utilities to determine whether the AEA
should take a more active role or to work on a partnership with
the utilities.
5:26:00 PM
REPRESENTATIVE TUCK understood that AEA was very familiar with
capital projects. He inquired as to whether the AEA maintains a
list of priorities that were previously funded and how the
projects are ranked.
MS. FISHER-GOAD asked for clarification on which projects,
whether he referred to the state-owned AEA assets or statewide
projects.
REPRESENTATIVE TUCK answered that his interest is in all state
projects with AEA involvement.
MS. FISHER-GOAD offered to more fully discuss the matter outside
the meeting since she was uncertain she fully understood his
question. She related that generally, except for Renewable
Energy Fund, the AEA does not typically advocate for utility
projects in the capital budget, except for the Susitna project
which would be AEA-owned. She reiterated that she did not
believe that AEA advocated for a project in the Governor's
budget that the AEA was not directly involved in. She recalled
earlier testimony before the committee that the RPSU and Bulk
Fuel projects represent long standing programs by the AEA and
the Denali Commission to address deficiencies.
5:29:12 PM
REPRESENTATIVE TUCK offered to meet with the AEA. He pointed
out one reason for the special session has been due to the
gridlock over energy projects. He indicated the relevance of
knowing which projects the governor supports or does not support
since that may help identify which energy projects have a chance
of successfully completing the funding process. In response to
Co-Chair Pruitt, he answered that he did not advocate all of the
energy projects be funded. He related that it would depend on
the total amount the legislature would like to authorize. He
clarified that he does not serve on the House Finance Committee
and would not make the final decisions. He inquired as to
whether the joint committee could present recommendations to the
House Finance Committee, similar to the finance budget
subcommittees. He said he prefers to have capital projects move
to the committee level and then back to the finance committee
process as a backwards process although he appreciated learning
about the energy projects and commissioner's testimony with
respect to the process. He expressed interest in being part of
the vetting process to get these important energy projects
approved.
5:31:33 PM
CO-CHAIR PRUITT agreed that information gleaned should be
shared. He inquired as to whether the committee would like to
make recommendations to the finance committee, suggesting that
relevant questions such as the 50 percent provision should be
made. He highlighted that one reason for the meeting was to
determine whether members would like to see these projects move
forward or be tied together. He noted input from both
committees could be valuable to the finance committee during its
deliberations.
5:33:24 PM
REPRESENTATIVE P. WILSON suggested the legislature consider
making regulatory changes with the RCA. She expressed interest
in the state managing its expenditures much in the same way a
household would. She further expressed interest in the
legislature providing the utilities the statutory ability to
plan and collect maintenance funds from ratepayers. She hoped
the legislature would consider the best approach to accomplish
this next year. She recalled the ten questions the committee
asked capital requestors today. She recalled the Denali
Commission and Mental Health Trust developed criteria for
funding proposals to ensure sustainability of its projects. She
suggested that the legislature consider similar methods to
determine sustainability of projects it funds.
5:36:49 PM
CO-CHAIR SEATON expressed concern with the coal-to-liquids
projects with respect to resource perspective. He recalled
testimony that the project is not yet commercially viable. He
questioned whether the state should proceed. He said he was a
conflicted since the process of gas or coal-to-liquids is very
important to the state. He recalled detailed testimony before
the Resources Committee on the gas to methanol process. He
reiterated his concern that the coal-to-liquids has not been
sufficiently vetted whereas the methanol project could
potentially be viable and has elements that make the project
attractive in cold climates. He said he hoped the House Finance
Committee would obtain more information.
5:41:19 PM
REPRESENTATIVE TUCK concluded that the high cost of energy is
question of survival for rural residents given the rural
residents' salaries.
REPRESENTATIVE DICK noted the committee reviewed numerous
projects. He raised concern that some good projects considered
by the other body were not forwarded for consideration. He
offered his belief that all the projects should be considered
since some projects may potentially be as viable as the projects
reviewed by the joint committees.
CO-CHAIR PRUITT agreed. He concluded by asking members to
inform him of any support or concern with respect to individual
projects. He indicated his desire to provide the House Finance
Committee with collective comments on the energy projects.