Legislature(2015 - 2016)CAPITOL 17
02/05/2015 10:15 AM House ENERGY
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Independent Power Producers Association | |
| Presentation: Alaska Environmental Power | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
February 5, 2015
10:18 a.m.
MEMBERS PRESENT
Representative Jim Colver, Co-Chair
Representative Benjamin Nageak
Representative David Talerico
Representative Cathy Tilton
Representative Matt Claman
Representative Adam Wool
MEMBERS ABSENT
Representative Liz Vazquez, Co-Chair
COMMITTEE CALENDAR
PRESENTATION: ALASKA INDEPENDENT POWER PRODUCERS ASSOCIATION
- HEARD
PRESENTATION: ALASKA ENVIRONMENTAL POWER
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DUFF MITCHELL, Executive Director
Alaska Independent Power Producers Association (AIPPA)
Juneau, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation
entitled, "Designing Alaska's Future: Removing Energy
Gridlock," and dated 2/5/15.
MIKE CRAFT, Owner
Alaska Environmental Power
Delta Wind Farm, Developer
Fairbanks, Alaska
POSITION STATEMENT: Provided comments related to his experience
as an independent power producer.
ACTION NARRATIVE
10:18:51 AM
CO-CHAIR JIM COLVER called the House Special Committee on Energy
meeting to order at 10:18 a.m. Representatives Nageak, Tilton,
Claman, Wool, and Colver were present at the call to order.
Representative Talerico arrived as the meeting was in progress.
^PRESENTATION: ALASKA INDEPENDENT POWER PRODUCERS ASSOCIATION
PRESENTATION: ALASKA INDEPENDENT POWER PRODUCERS ASSOCIATION
10:19:50 AM
CHAIR COLVER announced that the first order of business would be
a presentation by the Alaska Independent Power Producers
Association.
10:20:06 AM
DUFF MITCHELL, Executive Director, Alaska Independent Power
Producers Association (AIPPA), disclosed he is also the managing
director of Juneau Hydropower, which is in the process of final
licensing for a 19.8 megawatt (MW) hydropower project located 30
miles south of Juneau that would provide power and energy
security for the capital city. He informed the committee that
AIPPA's position on electrical competition is that legislative
action is needed. The Alaska Independent Power Producers
Association is comprised of Alaska Native corporations and
private Alaska energy developers and operators in Alaska's wind,
hydropower, ocean/river kinetic, and combined heat and power
sectors. In addition, AIPPA includes a group of small private
hydropower and transmission operators. The organization formed
because members needed a collective voice to be heard along with
that of the utilities. According to the Federal Energy
Regulatory Commission (FERC), an independent power producer
(IPP) is a corporation or entity that owns or operates
facilities for the generation of electricity for use by the
public, and which is not an electric utility. In comparison,
utilities provide reliable service by producing or purchasing
available power in a no- or low-risk situation by passing costs
on to ratepayers; an IPP develops a facility and assumes all of
the risks of permitting, financing, construction, and
operations, and the development costs are paid by investors.
Historically, IPPs were very rare until after passage of the
U.S. Public Utility Regulatory Policies Act (PURPA) of 1978;
section 210 of PURPA requires utilities to purchase energy from
qualified IPPs' facilities at the utility's avoided cost, which
allows IPPs to garner a reasonable price for their energy, and
ensures that energy generated by small producers is not wasted.
Mr. Mitchell said PURPA was the result of the 1973-1974 oil
embargo because, at that time, most of the utilities on the East
Coast were dependent upon oil.
10:26:05 AM
MR. MITCHELL continued to explain that the desire for energy
security spurred the development of IPPs across the country. He
listed seven challenges to Alaska's generation of electricity as
seen by IPPs:
· Alaska has the second most expensive electricity in the
nation (slide 8); Alaska has had substantial rate increases
compared to U.S. residential electricity prices (slide 9).
· Alaska's non-oil economy is electric intensive: electricity
can be up to 50 percent of a mine's operating cost;
electricity can be up to 35 percent of seafood processing
operating cost.
· The high cost of electricity has social costs in Alaska:
eat or heat dilemma; stagnant economy; dependency upon
government subsidies; energy refugees.
· Alaska no longer has the money to solve in-state energy
needs.
· Energy potential is virtually untapped: 40 percent of the
U.S. potential hydropower; phenomenal wind power; tidal and
wave; biomass; coal
· Ranks last in IPP competitive power generation: 4.2
percent generated from IPPs; average for the U.S. is 37.4
percent; China has 6 percent.
· Regulatory regime limits electrical competition.
10:31:51 AM
MR. MITCHELL advised that Alaska has resources and private
capital available to develop its resources, thus AIPPA seeks
regulatory remodeling in order to open Alaska to investment. He
referred to an unidentified report that said Alaska was last in
attracting private capital for clean energy investments (slide
10). According to AIPPA, Alaska is lagging due to the
following:
· State regulations and utility practices are outdated and
discourage competition, competency, and efficiency at the
detriment of Alaska ratepayers.
· Wholesale competition is legislatively and regulatory
nonexistent.
· Open access and transmission at non-discriminatory rates do
not exist.
· Market forces are nonexistent.
· Dependence upon state money is not a competitive business
model.
· Capital flight: Alaska businesses invest in energy
resources outside the state
· Legislation and regulations are anti-competitive and
utility-centric rather than market force-centric; through
regulation, Alaska receives what it incentivizes.
MR. MITCHELL continued to address the seventh challenge, and
pointed out that the state energy policy is a great billboard
and encourages private investment and private development in
energy resources, and promises streamlined regulations and job
creation. However, he characterized the energy policy as
aspirational; in fact, there was testimony before the Regulatory
Commission of Alaska (RCA) that if the legislature intended
implementation of the policy it would have provided RCA with
direction. This interpretation created problems for the many
IPPs that had invested money in anticipation of support from the
state and the changes that were expected from its energy policy.
However, RCA state regulations regarding "competitive power"
remain unchanged since 1982. After expensive legal challenges,
Alaska Environmental Power and AIPPA have Docket R-13-002
scheduled to be heard before RCA. He concluded that Alaska
ratepayers pay too much due to protectionist policies that are
out of "synch" with delivering the lowest competitive cost to
ratepayers. Returning to PURPA, he explained that section 210
is designed to promote the development of alternative energy
sources by overcoming the historical reluctance of electric
utilities to purchase power from nontraditional facilities.
Further, Congress directed FERC to promulgate rules requiring
utilities to purchase electricity from qualifying producers at
non-discriminatory rates. Each state was given the opportunity
to implement PURPA; however, in 1982, the Alaska Public
Utilities Commission (APUC) Docket U-81-35, Order No. 4,
temporarily removed Alaska from the market forces of competitive
energy development until Alaska utilities were "sophisticated"
enough to have competition. He stressed that the temporary
order to "hold off on the implementation of PURPA" has been the
law since 1982.
10:38:08 AM
MR. MITCHELL turned to the subject of avoided cost, noting that
FERC regulations require that states ensure that utilities
purchase power from qualifying facilities at a level that equals
the utility's avoided cost; in fact, IPPs can and have offered
to sell energy at less than the avoided cost. However, Alaska
uses average avoided cost, which includes the cost of energy
from generation facilities that have depreciated to "zero." The
federal definition is incremental avoided cost, and based on the
last cost - which may be much higher - thus allowing alternative
energy sources to displace the higher cost. He turned attention
to RCA Docket R-13-002, and said on 1/28/15 RCA provided a
status report on the docket after hearing testimony from Alaska
Environmental Power representing Delta Wind Farm, AIPPA, and
many utilities. Docket R-13-002 was to examine the definition
of avoided cost, integration costs, curtailment of power, and
open bidding process and mediation; RCA indicated that draft
proposed amendments would be released on 2/11/15. The proposed
amendments will include a revised definition of avoided cost; a
revised determination of avoided cost rates; revised utilities'
obligations to purchase from qualifying facilities; implementing
the legally enforceable obligation to purchase power at the
lowest cost; allocation of integration costs; revised qualifying
facilities' interconnection requests; request utilities to
compile avoided cost information; modify the standard for
qualifying facilities under 100 kilowatt (kW). He advised the
docket was heavily protested by Alaska utilities and the Alaska
Power Association, thus the draft RCA amendments are an unknown.
After a period for public comments, the decision will be issued
on or before 8/23/15.
10:43:59 AM
MR. MITCHELL advised that AIPPA has learned from forums and
testimony that regulators are reluctant to modify legislative
intent: legislators legislate and regulators regulate;
legislation establishes Alaska values, and regulations implement
those values. Again referring to legislation that is
directional versus aspirational, he cautioned against
legislation that is not clear and specific, and opined that
aspirational language has prevented the implementation of the
state energy policy. He questioned whether legislators have the
will to fix these matters by requiring competition and market
forces, or wish to continue with the status quo. In fact,
Docket R-13-002 would not resolve the Cook Inlet Region,
Incorporated (CIRI) Fire Island issue, but legislation would,
and he described pending legislation.
10:48:35 AM
CO-CHAIR COLVER asked Mr. Mitchell to curtail discussion of
upcoming legislation.
MR. MITCHELL advised that electrical rates tend to be lower in
all residential, commercial, and industrial sectors with
restructured electricity markets; AIPPA is not asking for
"retail choice" competition, but for wholesale competition. The
purpose is not to destabilize the utilities, but to provide the
utilities power at the lowest cost. He concluded that AIPPA's
growing membership seeks to create jobs and supply power for
industrial development and manufacturing in Alaska.
REPRESENTATIVE TALERICO recalled asking a presenter at a
previous meeting whether an independent systems operator (ISO)
or a unified systems operator (USO) system would guarantee that
the lowest-cost power producer would provide energy to consumers
in the Interior. He said the answer was unclear. His
constituents in the Interior seek to reduce the cost of
electricity. He restated the foreclosure rate in Fairbanks, and
stressed that any improvement in costs would strengthen the
future of the economy in the Interior and thereby help those
living in remote communities. Representative Talerico expressed
his belief that there is the potential to produce power for the
grid at a more reasonable rate that is not fully utilized. He
said, "All in all, is what you're telling me, is we need to be
able to make that change to steer this a little bit better, so
that everyone has that opportunity, for lower energy rates.
It's my understanding that's not the case. Am I correct?"
MR. MITCHELL responded, " ... if you can't use transmission as a
tool to prohibit commerce, but you use transmission as a tool to
engage commerce, than it will work." In the Lower 48 and
Canada, generation is separated from transmission; in fact, a
utility that owns transmission assets at 69 kW or more must form
a revenue-producing subsidiary to manage its transmission
assets. In Alaska, utilities have a fiduciary responsibility to
certificated areas and to their investors. In order to transfer
power from one area to another, there are rules and problems to
extract revenue. On the other hand, BC Hydro, the utility in
British Columbia, economically wheels power across multiple
states to Mexico at a competitive rate. He explained this is a
man-made problem - not a technology problem - and first the
rules need to be laid, one of which would be to separate
generation from transmission in order to prevent influence by
executives because of their shared responsibilities.
10:56:43 AM
REPRESENTATIVE WOOL asked whether RCA has released prior
decisions on Docket R-13-002.
MR. MITCHELL recalled that last year Delta Wind Farm, Alaska
Environmental Power, attempted to have the rules of PURPA
enforced for its contract with a local utility. From this case,
RCA opened a docket, heard testimony from interested parties and
issued a status report 1/28/15. He anticipated that the
proposed rules to be revealed on 2/11/15 may be good for IPPs;
however, there could be changes to the final document in
response to public comment.
CO-CHAIR COLVER surmised there is alignment between IPPs and the
majority of the Railbelt utilities that there needs to be an ISO
and a transmission entity. Although there is common interest,
parties are awaiting the RCA study on these concepts.
MR. MITCHELL agreed that the transmission system should be able
to use - and not waste - excess power from all sources; IPPs are
prepared to work with the utilities to establish a transmission
company (TRANSCO) or ISO as long as "we just feel that the
ground rules need to be pretty solid ..."
11:00:14 AM
CO-CHAIR COLVER described the failure to reach agreement on a
power sale agreement between CIRI Fire Island Wind and Golden
Valley Electric Association (GVEA). Golden Valley Electric
Association had an agreement with CIRI to buy power from Fire
Island Wind at [6.5 cents]; however, after transmission through
several utility districts, the price to consumers in Fairbanks
was 20 cents and thus uneconomical. He asked for comments from
AIPPA.
MR. MITCHELL observed that the aforementioned "is the perfect
case [for] why we have a problem, that's, that's our analysis."
Furthermore, this issue is not new.
CO-CHAIR COLVER asked whether rate information is available to
show how the costs increased from the production rate to the
delivery rate in Fairbanks, in order to see how regulations were
applied. He noted some of the issues confronting competition,
for IPPs or others, are moving power around the grid, the
cheapest power, convenience, reliability, balancing loads, and
spinning reserve.
MR. MITCHELL explained that most utility rate structure
information is proprietary; however, a CIRI executive may be
able to provide information on how the rate increased threefold.
11:03:34 AM
The committee took an at ease from 11:03 a.m. to 11:06 a.m.
^PRESENTATION: ALASKA ENVIRONMENTAL POWER
PRESENTATION: ALASKA ENVIRONMENTAL POWER
11:06:25 AM
CO-CHAIR COLVER announced that the next order of business would
be a presentation by Alaska Environmental Power.
11:06:40 AM
MIKE CRAFT, Owner, Alaska Environmental Power; Developer, Delta
Wind Farm, provided a brief personal background information,
noting he has lived in Alaska for 36 years. Mr. Craft said he
was concerned that the unique opportunities available when he
and his wife first came to Alaska are disappearing. In 2007,
although the economy in Fairbanks was declining, he realized
that cheaper energy, a better environment, and employment
opportunities were needed. He and his wife built a small wind
farm on the Parks Highway, and another in Delta Junction, which
was found to be a better location for the generation of wind
power. After forming a partnership, his company built the first
Northwind 100 kilowatt (kW) turbine in the state, at a total
cost of approximately $780,000, all funded with private capital.
However, at the time the turbine was ready to provide 24
megawatts (MW) of power to the grid, the utility stalled
progress by requiring an integration study, even though Mr.
Craft had secured permits from the Federal Aviation
Administration (FAA), U.S. Department of Transportation, and the
Department of Natural Resources (DNR), a U.S. Fish and Wildlife
study, and permission from the community of Delta Junction. The
integration study cost $110,000 and concluded that Delta
Junction was a better location for a wind farm when compared to
Eva Creek. Mr. Craft said, "That pretty much got thrown in the
trash." At this point, his company applied for a renewable
energy fund grant from the Alaska Energy Authority (AEA),
Department of Commerce, Community & Economic Development
(DCCED).
CO-CHAIR COLVER asked for the project's status at that time.
11:10:38 AM
MR. CRAFT stated one 100 kW turbine was operating and seven
Skystream turbines in Healy were operating. In further response
to Co-Chair Colver as to whether the company was making sales,
he remarked:
They finally gave us a contract for the 100 kW turbine
and it was based on the average of what it cost, they
stalled us for six months on the power line that we
paid in advance for, and lo and behold, we got that
turbine on there and we forced them, just through,
kind of public pressure, to allow us to put that 100
kW turbine online. Sarah Palin's Department of
Natural Resources commissioner came down and cut the
ribbon on that turbine.
CO-CHAIR COLVER asked about the negotiations for the first power
sales agreement (PSA).
MR. CRAFT credited luck and public pressure on Golden Valley
Electric Association (GVEA). In further response to Co-Chair
Colver, he said there was no intent to make a profit from the
100 kW turbine; the goal was to establish a wind regime and wind
technology. He further explained that GVEA had approached RCA
for a qualifying facility (2) rate - an average calculation -
therefore, Mr. Craft's company was competing against power from
the Bradley Lake Hydroelectric Project (Bradley Lake hydro) and
GVEA's diesel plant, which was averaged about $0.09 cents per
kilowatt hour (kWh). At that point, he applied for a 50
percent matching grant from AEA, which helped get a EWT 900 kW
turbine online. Because the state became involved through the
grant, GVEA extended the contract from 100 kW to 1 megawatt
(MW). In response to a question from Co-Chair Colver, he
explained that a EWT turbine is a direct drive turbine
manufactured in Holland, which produces 900 kW, and has a 240-
foot-high tower and 160-foot-long rotors. Pouring its
foundation required 450 truckloads of concrete, and the
construction of the turbine was a boon to the Delta Junction
economy. A direct drive turbine is most suitable for harsh wind
conditions at -50 degrees F. After initial problems, the
turbine is now operating at 99 percent availability, with 69
percent capacity factors. He described an 18-day wind event.
In further response to Co-Chair Colver, he said the turbine had
an environmental shut-down when the wind exceeded 25 meters per
second, or 55 miles per hour (mph). An environmental shut-down
can cause problems with integration, as indicated by the
integration study provided to GVEA.
11:15:34 AM
CO-CHAIR COLVER inquired as to the identity of the installer and
technical support for the turbines.
MR. CRAFT said he hired Precision Cranes from Fairbanks. In
further response to Co-Chair Colver, he said the purchase of the
turbine includes a one- to three-year warranty from the
manufacturer, and the use of an erection crew.
CO-CHAIR COLVER pointed out the utilities would be concerned
about specifications and "getting all the bugs out."
MR. CRAFT acknowledged his turbine was the first to operate at -
40 degrees F. He further explained frost or ice on the blades
was not an issue in Delta Junction
CO-CHAIR COLVER asked whether Mr. Craft would invest further in
the construction of additional wind power installations.
MR. CRAFT said he has six empty installation holes, roads, and
permits for more; in fact, the project's strong wind regime has
garnered interest from other investors. He answered, "We're
ready to spend $50 million."
CO-CHAIR COLVER said, "Will you be able to get on the grid with
that power?"
11:17:49 AM
MR. CRAFT said he was waiting to see, but was hopeful because of
the RCA "R" Docket and upcoming proposed legislation. He
stressed that after receiving the AEA grant and further
investment, a second EWT turbine was installed, which produced 2
MW, saving GVEA $1 million, and displacing 300,000 gallons of
oil.
CO-CHAIR COLVER inquired as to the availability of data
comparing output from the Delta Wind Farm to that of other wind
farm sites.
MR. CRAFT assured the committee that his information is shared
with AEA on a daily basis, and is available to everyone in the
state. In further response to Co-Chair Colver, he said others
are secretive. Through RCA certificate of public advantage
(COPA) filings he has learned that GVEA does not charge itself
for regulating Eva Creek Wind, but would charge him $0.18. To
an earlier question, he said power is wheeled from Bradley Lake
hydro to Fairbanks at zero cost; however, the proposed charge to
the wind farm was $0.14, which illustrates the disparity in this
matter.
CO-CHAIR COLVER asked whether the disparity was because Bradley
Lake hydro was managed by all of the utilities, and was
developed with state funds in a cooperative effort, as opposed
to a project developed by private non-utilities.
MR. CRAFT opined the reason the offered rate was $0.14 was that
Fairbanks buys seven MW of economy cells from Chugach Electric
Association (CEA), and the proposed wind power would have
competed with this gas-generated power. Although wind power was
cheaper for Fairbanks, and of benefit to the community, greed
was the "motivation for killing that wind farm." In response to
Representative Wool, Mr. Craft said Delta Wind Farm was the
first commercial wind farm on the Railbelt grid.
REPRESENTATIVE WOOL asked whether GVEA's current approach to
Delta Wind Farm was the result of its savings using wind power,
and also from changes in management.
MR. CRAFT said no.
11:22:38 AM
CO-CHAIR COLVER urged the committee to request data from AEA on
Fire Island Wind and GVEA in order to determine the best
location in Alaska for the production of wind power.
MR. CRAFT advised that the three wind farms are in three
different wind regimes, thus creating a balance in spinning
reserves.
REPRESENTATIVE TALERICO expressed his belief that most GVEA
bills show an evaluation of power production. He recalled that
Eva Creek Wind produces about 32 percent power, but has less
availability. Typically, wind farms seek 28 percent.
MR. CRAFT acknowledged that during the summer generation drops
off; 85 percent of power production comes during November,
December, January, February, and March.
CO-CHAIR COLVER described the location and geography of Delta
Junction which creates frequent wind events.
MR. CRAFT said Delta Junction has no property taxes or zoning,
and the wind farm represents not just access to cheap electrical
generation, but economic opportunities for industrial
development.
11:26:18 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:26 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AIPPA House Energy Committee 2-5-15.pdf |
HENE 2/5/2015 10:15:00 AM |
|
| 2015-02-05 - HENE - Agenda.pdf |
HENE 2/5/2015 10:15:00 AM |