Legislature(2013 - 2014)BARNES 124
02/12/2014 08:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Energy Authority | |
| Presentation: Alaska Industrial Development and Export Authority and Alaska Energy Authority | |
| 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 12, 2014
8:02 a.m.
MEMBERS PRESENT
Representative Doug Isaacson, Co-Chair
Representative Neal Foster
Representative Pete Higgins
Representative Shelley Hughes
Representative Benjamin Nageak
Representative Andy Josephson
MEMBERS ABSENT
Representative Charisse Millett, Co-Chair
COMMITTEE CALENDAR
PRESENTATION: ALASKA ENERGY AUTHORITY
- HEARD
PRESENTATION: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY AND ALASKA ENERGY AUTHORITY
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
GENE THERRIAULT, Deputy Director
Statewide Energy Policy Development
Alaska Energy Authority (AEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Provided a presentation on Alaska
Transmission Issues, and answered questions; participated in the
Interior Energy Project (IEP) overview, and answered questions.
MARK DAVIS, Deputy Director
Infrastructure Development
Alaska Industrial Development and Export Authority (AIDEA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of the Interior Energy
Project (IEP) and answered questions.
ACTION NARRATIVE
8:02:38 AM
CO-CHAIR DOUG ISAACSON called the House Special Committee on
Energy meeting to order at 8:02 a.m. Representatives Josephson,
Hughes, Nageak, and Isaacson were present at the call to order.
Representatives Higgins and Foster arrived as the meeting was in
progress.
^PRESENTATION: ALASKA ENERGY AUTHORITY
PRESENTATION: ALASKA ENERGY AUTHORITY
8:03:48 AM
CO-CHAIR ISAACSON announced that the first order of business
would be a presentation by the Alaska Energy Authority (AEA) on
Alaska Transmission Issues.
8:04:10 AM
GENE THERRIAULT, Deputy Director, Statewide Energy Policy
Development, (AEA), Department of Commerce, Community & Economic
Development (DCCED), directed attention to the PowerPoint
presentation entitled, "Alaska Transmission Issues," dated
2/12/14. Mr. Therriault said the report would cover work AEA
has been doing on the transmission system in the Railbelt,
specifically on the infrastructure needs and the benefits to
consumers.
The committee took a brief at-ease at 8:05 a.m.
8:05:58 AM
MR. THERRIAULT explained that one of the issues for Alaska is
the distance required to transmit power from its source to the
user, for example, the Railbelt transmission system from Bradley
Lake Hydroelectric Project (Bradley Lake) in Homer to the Golden
Valley system is 580 miles. Also, there are governance issues,
and upgrades to infrastructure are needed to improve the
reliability and the capacity of the system [slide 2]. In
response to Co-Chair Isaacson, he addressed the issue of
governance. Over time, as the different utilities in the
Railbelt built systems, there were gaps in the linkages between
systems. The state owns over 170 miles of transmission line -
from Wasilla to Healy - which is committed to use by the local
utilities so they can transmit power up and down the Railbelt.
Thereby the utilities are linked and power can be transmitted
from Homer to Fairbanks. However, the individual components of
this system are owned by utilities. The goal is to achieve a
system of governance that will allow all of the components -
those owned by the utilities and the state - to be operated
efficiently together. Ideally, this type of system could
utilize the cheapest source of power at various times of the day
and night through economic dispatch. Economic dispatch sends
the cheapest source of power up and down the system for the
benefit of the consumers. For about the last 30 years, the
utilities have been linked together by contractual arrangements
that have allowed the system to function, but the need for new
capital infrastructure has prompted a move to a system of
governance.
8:09:40 AM
REPRESENTATIVE HIGGINS recalled that the "choke point" when
transmitting power from Homer to Fairbanks, is a 26-mile section
in [Talkeetna], which needs to be upgraded by the local utility.
He asked what the state can do to eliminate choke points in
order for the power to "free-flow both directions back and
forth."
MR. THERRIAULT advised the worst problem is on the southern
portion of the transmission line to transmit the power from
Bradly Lake. Later in the presentation are suggested
improvements, expansions, and additions to the existing system
that will provide redundancy, and expand the capacity so power
can move up and down the Railbelt without hindrance. Mr.
Therriault pointed out that the utilities have increased
generation and do not have the economic ability to invest in
transmission infrastructure, so they have approached the state
for financial assistance. He said policymakers feel that if the
state is expected to put money into improving transmission, the
state should seek an improvement in the governance structure
also, to ensure that consumers will benefit.
8:12:15 AM
REPRESENTATIVE HUGHES noted that Homer Electric Association,
Inc. (HEA), and Matanuska Electric Association (MEA) are
generating their own power, and asked how this affects
governance issues.
MR. THERRIAULT responded that when HEA began generating its own
power, the bottleneck in the southern end of the district was
exacerbated. All of the utilities have a share of the power
from Bradley Lake, and the power in excess of HEA's share needs
to travel up the intertie and off the Kenai [Peninsula];
previously, Chugach Electric Association, Inc. (Chugach) was
able to power swap with HEA, and rather than send power south to
HEA, HEA was allocated a portion of Chugach's share. That meant
Chugach could send power to the utilities at the northern end;
this power swap made the system work. Now, with HEA generating
its own power, there is no power swap. The utilities can still
get their shares of the cheaper Bradley Lake power, but not at
the ideal times for the highest benefit to consumers. Mr.
Therriault restated that improving the capacity and redundancy
of the system will allow power to be available at optimal times.
MR. THERRIAULT, returning to the issue of governance, noted that
because AEA owns a part of the intertie system along with the
utilities, it is a member of the Intertie Management Committee
(IMC). This committee, over several years, has codified
reliability standards for the intertie, for instance, on how to
merge power. At this time, the reliability standards are not
complete but have been adopted by IMC and submitted to the
Regulatory Commission of Alaska (RCA). Although IMC has the
authority for the 170-mile section of intertie that the state
owns, the compliance and adoption of the regulations for the
sections of intertie owned by the individual utilities is
voluntary. He advised that "... the governance problem [is] we
don't have an entity that is empowered to establish these rules
of the road for the entire system; we have to at this point just
sort of rely on voluntary compliance and adoption." Further, as
independent power producers (IPPs) seek access, and utilities
want to sell power to each other, rules and an entity in charge
become necessary.
8:17:23 AM
CO-CHAIR ISAACSON asked whether the Alaska Industrial
Development and Export Authority (AIDEA) and AEA considered
other alternatives - such as conditioning lines to allow for the
transmission of more power - before recommending building new
transmission lines.
MR. THERRIAULT said the following projects are a blend of
improvements to the existing infrastructure and building new
infrastructure. A consultant to AEA evaluated the system and
recommended improvements that would result in an ideal system.
The first part of the system is the southern section:
Unconstraining Bradley Lake Projects. Bradley Lake is owned by
the state and operated in conjunction with the utilities.
Components of the Unconstraining Bradley Lake projects total a
capital cost of over $402 million with the purpose of increasing
capacity and reliability; in some areas, a second line would be
added to carry the load if needed [slide 3]. The second part is
the Anchorage Municipal Light and Power (ML&P), Chugach, and MEA
section: Southcentral Projects, estimated at a capital cost of
over $20 million to improve the capacity of two substations
[slide 4]. The third part is the northern section: Northern
Projects. Components of the Northern Projects total a capital
cost of over $480 million, and are also needed to increase
capacity and reliability [slide 5].
8:21:45 AM
MR. THERRIAULT advised that the following "number crunching" is
based on assumptions used only for evaluation purposes [slide
6]. He turned to the evaluation of the consumer impact of the
project: the cost of the Unconstraining Bradley Lake,
Southcentral Projects, and Northern Projects totals $903.4
million; the project would benefit the entire Railbelt system;
and the project is separated into two phases [slide 7]. Base
assumptions for the project are: total capital expenditures
(CAPEX) cost is $903 million; additional operating expense
(OPEX) for maintenance and operation is over $18 million per
year; financing at 5 percent; a bond term of 30 years; inflation
at 2.5 percent; and total output of power in the Railbelt of 4.8
gigawatts [slide 8]. As an aside, he stressed that the costs
and benefits are spread over all of the consumers evenly in the
Railbelt, "not to say that that necessarily would be the way
things are, are done, but again just so that we could crunch
these numbers ...." The estimation of the overall total benefit
to the consumers in the Railbelt on a yearly basis is between
$146 million and $241 million per year; in fact, if this system
is in place in 2016, power could be economically dispatched for
the aforementioned result [slide 9]. He noted that the cost-
benefit analysis was done without the potential of [Susitna-
Watana Hydro] and the proposed transmission system would be
utilized if Susitna-Watana Hydro were built. For the consumer,
depending on the term of the financing, the savings are between
$0.015 and $0.035 per kilowatt. However, the utilities and RCA
have estimated a more conservative benefit to the consumers of
$100 million. If, in fact, these improvements were in place by
2015, the cost would be lowered to the consumer through their
rates, but there would be no way for the utilities to capture
the savings and pay for the improvements to the infrastructure.
Mr. Therriault concluded his presentation with slide 11, which
depicted the impact on rates, the cost of the components, and
the savings to consumers.
8:28:17 AM
MR. THERRIAULT, in response to Representative Nageak, said the
transmission lines going south from Anchorage are owned by the
individual utilities, and the portion of the transmission line
owned by the state is from Wasilla to Healy.
REPRESENTATIVE NAGEAK asked whether funding for the transmission
lines came from the state to the utilities, or whether the lines
were built by the state for the utilities.
MR. THERRIAULT said portions of the lines were built using some
state funds and grants, such as AEA grants that were
appropriated for improvements to lines; however, utilities have
also invested their money in components of the transmission
line.
REPRESENTATIVE NAGEAK surmised the upkeep is paid by the
utilities.
MR. THERRIAULT answered yes, and explained the utilities have
rates for shipping power over the lines they own, and the state
charges the utilities for shipping power over the lines it owns
to pay for maintenance and operations.
CO-CHAIR ISAACSON interjected that economic dispatch reduces
rates, but then the utilities cannot pay their debt service.
MR. THERRIAULT said correct. In response to Representative
Nageak, he said the utilities do pay into the system through the
tariffs that are charged to use the transmission system. For
the infrastructure that exists today, the construction costs
have been paid by a mix of the utilities' and state money. The
portion owned by the state was paid for by state money. Mr.
Therriault advised that at this point the utilities do not have
much capacity to bond and borrow money for improvements, thus
they have come to the legislature with a capital request. He
added that the improvements under discussion would take about 10
years to build and the utilities seek a mechanism in place to
guarantee that they would reach their stated goal.
8:34:12 AM
REPRESENTATIVE HIGGINS asked how many high-voltage direct
current (HVDC) lines are in Alaska.
MR. THERRIAULT said none. In further response to Representative
Higgins, he said one line is under consideration and the "step
down" is included in the estimated price of $185 million.
REPRESENTATIVE HIGGINS understood that looping the intertie and
the grid is important, but has heard no discussion about that.
MR. THERRIAULT replied that parts of the grid from Homer to
Fairbanks are looped in the MEA and Chugach systems; however,
there is no dual capability from Wasilla to Healy. From Healy
to Fairbanks there are two transmission lines; in fact, the
abovementioned infrastructure would provide looping on all of
the system.
REPRESENTATIVE JOSEPHSON asked how the amount of increased power
generation that would come after the proposed $902 million
investment compares to the amount generated by Susitna-Watana
Hydro.
MR. THERRIAULT stated that the proposed investment would not
result in a net increase in generation, but would move power.
In further response to Representative Josephson, he clarified
that the above projections are based on all of the generation
that will be completed by 2015, including the new South
Anchorage plant and the new generation by HEA and MEA.
REPRESENTATIVE JOSEPHSON questioned whether the movement of
power economizes the cost of power from new sources.
MR. THERRIAULT explained that economic dispatch lowers the price
because the consumer - no matter their location in the Railbelt
- gets access to the cheapest source of generation; for economic
dispatch to work, the system needs increased capacity and
reliability. Further, with the single line bringing power from
Anchorage, generation in the north still must be maintained in
case of a transmission line failure.
CO-CHAIR ISAACSON assumed AEA seeks to build redundancy before
increasing capacity on existing small lines, by various means.
MR. THERRIAULT further advised that adding redundancy increases
capacity. In response to Co-Chair Isaacson's comment that
adding redundancy costs more than power-fitting existing lines
because of rights-of-way and permitting, he pointed out that the
above improvements include investments to the existing wires so
they can carry more power; however, as more power goes across
the lines, line losses increase by a factor of four. In further
response to Representative Josephson, he said IPP stands for
independent power producer, and the whole transmission system is
known as the Railbelt Transmission System. The Alaska
Transmission System is the 170-mile portion owned by the state.
8:41:55 AM
REPRESENTATIVE HUGHES expressed her understanding that the
Railbelt Transmission System upgrades would allow more power to
move more cheaply, and that the upgrades are also needed if
Susitna-Watana Hydro comes online. Also, if more power is
generated in Southcentral, why would we "move it away?"
MR. THERRIAULT confirmed that this system could carry Susitna-
Watana Hydro power, but included in the cost of the dam is the
transmission line to carry the power to the Railbelt
Transmission System. In further response to Representative
Hughes, he said the proposed $902 million investment is "the
optimum system that you would like to see in place so that you
would be able to do, optimize your hydro-to-hydro coordination,
operate Susitna in such a manner ... [that] would allow optimum
use of those facilities ...." Furthermore, the proposed
investment takes into account the new generation under contract
to be built. Regarding IPPs, he related that the Alaska
Independent Power Producers Association (AIPPA) would be
supportive of the upgrades because the new system will accept
new sources of power into the system.
REPRESENTATIVE HUGHES asked for the number and location of IPPs
in the state.
MR. THERRIAULT was unsure of the number, noting that IPPs
include Cook Inlet Region, Incorporated (CIRI), Aurora Energy,
and Delta Wind. In further response to Representative Hughes,
he said he would provide an estimate of the combined capacity of
IPPs in the Railbelt.
8:46:11 AM
CO-CHAIR ISAACSON suggested some of this information could be
found in the AEA Alaska Railbelt Transmission Plan.
REPRESENTATIVE HIGGINS stated his support for the investment of
$903 million and for the building of any infrastructure in order
to [prepare for] the future.
CO-CHAIR ISAACSON asked the presenter what fees may be charged
to whom to "economically build this out." He questioned whether
the connection will run the full line between Fairbanks, Tok,
Glennallen, Anchorage, and Valdez so to benefit businesses and
consumers along the entire road system, and thus reduce the cost
per customer.
MR. THERRIAULT informed the committee the related study looked
at the power supply from north to south; however, it is
preferred to establish a mechanism that systematically allows
improvements of this nature to be made, and that can be used as
a model for other projects to connect other areas in the future.
He explained why there is a preference for establishing
reliability standards and an entity to keep them up-to-date.
CO-CHAIR ISAACSON recalled other legislators indicate that
because there are few miles to be completed to connect the road
system in this area, the legislature may want to evaluate the
entire road system prior to making final decisions about the
Railbelt.
MR. THERRIAULT opined further evaluation would require a
different study for extending power to Copper Valley and other
areas that have different economics due to the small user loads.
Previous studies on the capital costs of a proposed connection
would need to be updated.
8:51:52 AM
REPRESENTATIVE NAGEAK observed the discussion is related to
reducing the cost of power for those who already pay less than
residents off the road and rail systems, and also having this
reduction capitalized by the state. He remarked:
I know population rules, but at the same time ... the
people in the rest of Alaska pay horrendous costs to
provide energy to their homes and to their towns, and
I heard during the presentation that the lines are
limited to those, to the Railbelt, and to the road
system, and ... you would have to have interties if
you wanted to put [power] in other villages or towns
along the system right? OK, I just want to know if
we, ever, we come to a place where we have the courage
and the [wherewithal] to try and connect the rest of
the state to power transmission. ... Can we use the
system lines or do we have to build a completely
different structure to [be able] to do that?
MR. THERRIAULT affirmed that the mechanism to move forward with
the proposed investment may have some application in other areas
of the state. He said he is aware of the desire of rural
communities to connect in order to benefit from economies of
scale. There is also the desire by the utilities for the state
to fund [the proposed] infrastructure; however, the Railbelt
utilities realize that "money is tight" thus the consumers in
the Railbelt may have to consider that they may pay at least a
portion the infrastructure. The ultimate benefit is to the
consumer. He stressed that the difficulties in rural Alaska are
the distances, terrain, and small consumer loads. Mr.
Therriault concluded, "That's not to say that a mechanism that
would work for the Railbelt might not have some application in
the future in a rural setting."
8:55:52 AM
REPRESENTATIVE NAGEAK reminded the committee at one time there
was no road between Anchorage and Fairbanks. The Territory of
Alaska and the State of Alaska connected the population centers
and towns in between. He acknowledged that it may be hard for
others to understand the need to connect the rest of the state
to the Railbelt communities in order to lower the cost of
business and energy, and urged for legislators to think about
how to get to resources, instead of thinking in the short-term.
CO-CHAIR ISAACSON agreed that is the charge of the committee.
REPRESENTATIVE HUGHES appreciated the remarks made by
Representatives Nageak and Higgins and asked whether the
proposed upgrades would be sufficient to support future mining
development.
MR. THERRIAULT said the AEA consultant took into consideration
additional demand and the loss of demand in its analyses. The
consultant met with each utility in charge of each geographic
area to determine how the system would interact, and Golden
Valley Electric Association specifically raised questions about
the impact of mining activities.
9:00:41 AM
The committee took an at-ease from 9:00 a.m. to 9:03 a.m.
^PRESENTATION: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY and ALASKA ENERGY AUTHORITY
PRESENTATION: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY and ALASKA ENERGY AUTHORITY
9:04:03 AM
CO-CHAIR ISAACSON announced that the final order of business
would be a presentation on the Interior Energy Project (IEP) by
the Alaska Industrial Development and Export Authority (AIDEA)
and the Alaska Energy Authority (AEA).
9:04:55 AM
MARK DAVIS, Deputy Director, Infrastructure Development, Alaska
Industrial Development and Export Authority (AIDEA), Department
of Commerce, Community & Economic Development (DCCED), directed
attention to the PowerPoint presentation entitled, "Interior
Energy Project Bringing North Slope Natural Gas to Alaskans,"
dated 2/12/14. He informed the committee AIDEA and AEA are
working jointly on a project to move gas from the North Slope
into liquefied natural gas (LNG), and transport the LNG by truck
down the James W. Dalton Highway to a regasification plant for
use in the Interior, and later for other areas of the state.
The first segment of the project is the construction of an LNG
plant at Prudhoe Bay that is to be completed by the end of 2015.
Project funding for the plant is a mixture of AIDEA loans and
private money. The second segment is transportation down the
Dalton Highway by private trucking companies contracted by each
utility, although AIDEA may provide financing for trailers.
Distribution includes storage and regasification in Fairbanks,
and an AIDEA loan through Northrim Bank to Fairbanks Natural Gas
(FNG) was approved 1/14/14 to build five million gallons of
storage [slide 3]. Mr. Davis explained the IEP goals are: to
supply natural gas to Alaska, particularly the Interior, at the
lowest cost possible, to as many Alaskans as possible, as soon
as possible; to provide propane from the gas stream to those not
on a natural gas distribution system; to model alternative
sources of supply such as a pipeline; and to use private-sector
mechanisms such as the storage facility in Fairbanks [slide 4].
Turning to financing, Mr. Davis said the legislature's
appropriation to the project provided AIDEA $125 million in
Sustainable Energy Transmission Supply (SETS) financing through
Senate Bill 25, passed in the 27th Alaska State Legislature. In
addition, Senate Bill 23, passed in the 28th Alaska State
Legislature, allows AIDEA to provide loans for this project at
up to 3 percent interest instead of its usual rate of market
index. Also, a capital appropriation of $57.5 million from the
SETS fund into AIDEA's revolving fund, and $150 million in new
bonds, are available for the North Slope plant and gas
distribution system [slide 5]. He continued to explain that the
sale priorities for the project are to supply gas as follows:
for residential and commercial space heating that will be
distributed largely in the Fairbanks North Star Borough area;
for electric utilities in and outside of the Fairbanks area; for
industrial customers; and for other utilities. As an aside, he
noted that at this time the technology does not exist to supply
LNG to small communities due to storage problems, but new
technology is anticipated so non-regulated utilities were
included in the sale priorities at the request of the North
Slope Borough (NSB). A permit to build the plant has been
issued by NSB, and NSB and AIDEA are exploring possibilities for
the future. The final sale priority is for open market sales of
excess LNG [slide 6].
9:12:21 AM
MR. DAVIS directed attention to the following completed project
milestones: project pre-feasibility analysis by HDR, Inc. and
MEI, LLC, determined the project could deliver gas by late 2015,
at a price of about $15 into the Fairbanks region; a North Slope
plant plan of development was completed and a consortium of MWH
Americas, Inc. and its investors was chosen for the project
proponent; the private partner due diligence and negotiations
process was completed; bids to build the pad in the summer of
2014 were received; and a bid to deliver equipment by June of
2015 was received. On the distribution side, completed
milestones are: the demand and conversion analysis is
completed; the Regulatory Commission of Alaska (RCA) issued its
decision that resolved service area issues; the distribution
cost project estimate by AEA has been completed; and FNG storage
tank financing has been approved. At this time a six-year
build-out time is estimated for the project [slide 7].
9:15:25 AM
REPRESENTATIVE HIGGINS expressed his understanding that natural
gas was to be available in Fairbanks in 2016.
MR. DAVIS explained that first gas should be available in the
fourth quarter of 2015; AIDEA is in the process of working with
both utilities "to have pipe in the ground in 2014, 2015, 2016."
He turned to the project schedule, noting that the schedule is
"on track;" in fact, the air permitting permit to allow venting
of carbon dioxide was applied for on 1/31/14 and should be
received from the Department of Environmental Conservation (DEC)
by September of this year. Other permits are in place or in
progress, and many should be received by 3/1/14 [slide 8]. The
plant is expected to be located in Deadhorse, and will utilize
fuel gas which is available from the North Slope producers from
the fuel gas pipeline [slide 9]. Mr. Davis restated that on
1/14/14 the AIDEA board selected a consortium headed by MWH and
Northleaf, an investor-partner. A letter of intent was executed
on 2/3/14 which established the parameters of the LNG plant and
the financing between AIDEA and MWH. Proposed financing is for
$100 million of AIDEA financing and approximately $80 million-
$90 million of private investment, which will be paid back from
plant revenues. Although eventually the investors will own the
plant, AIDEA seeks to have some control of the plant by taking
the lease in its name and requiring loan covenants. The Project
Development Agreement (PDA) for the commercial structure of the
project will finalize in March, 2014, and then LNG purchase
agreements with potential customers will be secured. Potential
customers are the Interior Alaska Natural Gas Utility (IGU),
FNG, and Golden Valley Electrical Association (GVEA) [slide 10].
9:20:38 AM
GENE THERRIAULT, Deputy Director, Statewide Energy Policy
Development, AEA, Department of Commerce, Community & Economic
Development (DCCED), displayed a map entitled, "Natural Gas
Service Areas," and explained that this map is the result of the
RCA final decision issued 12/20/13 on who would serve the high-
and medium-density areas of the Fairbanks North Star Borough
(FNSB). Fairbanks Natural Gas presently brings LNG from the
Wasilla area to 1,100 customers. Customer demand in FNG's
service area is 70-75 percent of the total FNSB demand, and RCA
determined IGU would service the new territory shown on the map.
He stated that IGU is a municipal utility that was started as a
cooperative between the three municipalities within FNSB. Based
on AEA's estimate of the number of miles of pipe needed,
additional distribution pipes in FNG's service territory will
cost $31 million, and additional distribution pipes in IGU's
service territory will cost $156 million [slide 11].
REPRESENTATIVE JOSEPHSON pointed out that 1,100 residents have
access to natural gas at this time, and there are 90,000
residents in FNSB. He questioned how, in this timeline, even
with the proposed expenditures shown on slide 11, [access to
natural gas for all consumers] will be available in time to
reduce cost and to address air quality problems.
MR. THERRIAULT agreed the cost of energy and air quality issues
are very important to residents and local officials. Within the
FNG service area, which is about 70 percent of the feasible
demand, AEA believes building a distribution system is possible
in two or three years; however, the outlying areas will be
delayed. In addition, AEA believes the delivered price to
consumers will be $14.50-$17 per 1,000 cubic feet (Mcf) - the
community's target price was $15 per Mcf - which is one-half the
price of oil per British thermal unit (Btu) when fuel oil is
about $4 [per gallon].
9:26:05 AM
REPRESENTATIVE HIGGINS provided a brief history of FNG in the
Fairbanks area and asked how AEA will ensure that IGU will
"deliver" in a timely manner.
MR. THERRIAULT opined IGU's motivation is to "get that
distribution system pushed out as far as possible, as quickly as
possible;" in fact, that is the case IGU made to RCA. As a
municipal entity, IGU does not have a profit motive. Although
homeowners will not be forced to hook up to the pipeline, the
price of gas should be a sufficient incentive. If IGU does not
perform, RCA has the authority to "question" the utility.
REPRESENTATIVE HIGGINS deduced there are no performance
guarantees in the contract.
MR. THERRIAULT added that AIDEA can reserve a percentage of the
capital paid to the utility through contractual means.
MR. DAVIS confirmed that the RCA order does not have an
enforcement mechanism; however, AIDEA seeks a scheduled build-
out and will ask for certain performances from each utility in
order to have cash flowing and pay back the loan. Also, there
will be a commercial structure that is dependent upon a rapid
build-out.
REPRESENTATIVE NAGEAK recalled discussion last year included
[propane] drop-off points along the Yukon River, the North
Slope, and in coastal Alaska. He asked whether these projects
are included in the proposal.
MR. THERRIAULT said, "That certainly is something that we
anticipate ... the possibility of," and affirmed that the LNG
plant is expandable. The core demand from FNSB justifies the
building of the plant; however, the governor intends to have the
resource available to a larger geographic area after the initial
project establishes the delivered price in bulk. Subsequently,
after the lowest price is established, AEA will understand the
economics of delivering to rural and semi-rural areas; for
instance, one possibility would be by delivery on a surface
transportation link between the Yukon River to the Kuskokwim
River, but at this time the economics are unknown.
9:32:25 AM
REPRESENTATIVE NAGEAK recalled:
Last year when we were discussing this ... I kept
bringing this up: to have access to the rest of the
people [for] who[m], right now, the cost of energy is
so ... high. And I wanted to make that sure [at] the
outset ... when we make the plans that we would have
an access point along the Yukon River and barge
propane to those villages. We talked about that, and
also in the North Slope. That was part of the
discussions we had, and I thought that when we ...
approved this project that those were in place ....
REPRESENTATIVE NAGEAK pointed out that the area of expansion is
along the road and rail system out of Fairbanks. He strongly
questioned why propane delivery along the Yukon River and the
coast is not in the plan.
MR. DAVIS said the plan is to expand the plant after anchoring
the project with sales in the Fairbanks area. To ensure that
the expansion takes place, the MWH group has agreed to issue a
letter of credit for expansion of the plant after cash is
flowing from the core area, and money will be available to
expand without further state funds.
CO-CHAIR ISAACSON referred to slide 11 and clarified that the
IGU service area is a census area known as the population area
of FNSB, which includes 80 percent of the population. It is
especially important to get natural gas in two of the areas
there because of very poor air quality. He said his
understanding is FNSB is the anchor tenant that must first be
established to make it feasible to truck LNG along the river and
out to village distribution.
9:36:22 AM
REPRESENTATIVE NAGEAK emphasized that it would be cheaper,
instead of trucking LNG back up to the Yukon River, to have a
drop-off and distribution point on the Yukon River.
MR. THERRIAULT said the shaded area on [slide 11] is identical
to last year's presentation, and there has been no new expansion
in the target distribution area. The delivery of LNG or propane
along the transportation system, or further beyond FNSB, is
possible if there is an LNG storage mechanism. He reminded the
committee that the amount of propane produced by the LNG plant
will be modest and AEA is looking for a customer for the
propane, and he encouraged an interested village or rural entity
to approach AIDEA about access to LNG or propane. He opined
prospective customers in rural areas are waiting to know what
the delivered cost will be.
REPRESENTATIVE JOSEPHSON recalled there was previous discussion
about a "mobility feature" of the plant - or key components
thereof - in order to benefit the Ambler mining district, and he
assumed this was still possible.
MR. THERRIAULT confirmed that the Ambler mining district is
interested in LNG because it could be delivered along a proposed
road. Regarding the mobility of the plant, the AIDEA board of
directors is hoping a gas pipeline across the state will be
built soon and is mindful of using LNG components that can be
used post-pipeline; for example, to build another plant in
Fairbanks, and, using feedstock from a future pipeline, to
supply LNG to rural areas or towns along the Richardson Highway.
REPRESENTATIVE JOSEPHSON recalled his experience living in the
Russian Mission area and asked how LNG would be moved between
the Yukon and Kuskokwim Rivers.
9:42:03 AM
MR. THERRIAULT said a group has studied a surface transportation
link between the two water systems. In response to Co-Chair
Isaacson, he said the group was from Bethel. Mr. Therriault
assured the committee that AEA continues to look at the delivery
of LNG along coastal Alaska, examining the economics and demand
and providing information to communities. He described how
diesel fuel can be delivered to a village on a river system from
a barge; however, delivering LNG along a river system using ISO
containers would require heavy-lift capabilities and new
infrastructure.
REPRESENTATIVE HUGHES referred to the requirement that MWH
dedicate money for future expansion and asked about the timing
[of expansion] and how much money "have they parked." Also, she
inquired as to the capacity of the expansion, and how many
villages could be served.
MR. DAVIS opined the first expansion would be an increase from
nine billion cubic feet (Bcf) to twelve Bcf, which would be a
$30 million expansion; that increase would serve the service
areas shown on [slide 11] with excess for shipping "elsewhere."
He cautioned that at this time using ISO containers is not
feasible, but AIDEA has agreed to name NSB as a customer for gas
"if and when infrastructure and technology becomes available for
them to use the gas in the communities on the Slope." The LNG
plant should last 30-40 years and can be used to serve other
customers and the mines if the pipeline reaches Fairbanks.
REPRESENTATIVE HUGHES restated her question as to what specific
villages would be served after the first expansion. Also, she
asked whether there are economic indicators that would stop
expansion.
MR. DAVIS said there are two models: 1. if a pipeline comes,
what is the future of the plant; 2. if a pipeline does not come,
the use of the plant increases. These are two separate models,
although AIDEA is committed, along with AEA, to delivering the
most gas to the most Alaskans at the best price. In
anticipation of changing technology, he reiterated that AIDEA is
in discussions with NSB, and mining interests, which could
benefit villages.
CO-CHAIR ISAACSON directed attention back to the project.
REPRESENTATIVE NAGEAK declared his intention to ensure that
AIDEA and other state agencies follow up and make sure there
will be drop-off points for LNG or propane on the Yukon River,
and along the coast, as part of the project. He explained,
"Because that is what we were talking about last year, now we're
just saying we [have to] do all of this first ... but I thought
I made it clear ..." Representative Nageak stressed that plans
for the aforementioned components are to be included in the
money spent for this project.
CO-CHAIR ISAACSON asked the presenters, "Are you or are you not
considering the distribution of ... the trucked LNG or propane
to the communities - other than Fairbanks and North Pole - along
the transportation corridor?"
MR. THERRIAULT responded, "This infrastructure is designed so
that it ... can accommodate that demand." In response to
Representative Foster, he said the plant can be expanded to meet
whatever volume of demand is presented.
MR. DAVIS clarified that the plant allows for expansion to 20
Bcf on its current pad, if needed.
CO-CHAIR ISAACSON described a scenario in which the desired
delivered price is not met and the trucking [of LNG] is through
private contractors. He said his constituents, contractors, and
local officials question whether any of the money provided by
Senate Bill 23 can be used to subsidize the private-contract
trucking portion and reduce the delivered price to that which
will incentivize customers to convert.
MR. DAVIS advised that the current commercial structure directs
that approximately $30-$35 million of the $57.5 million
appropriation will be put into the plant, with a $10 million
contingency. If the contingency is not needed, it could be
available to lend, although AIDEA does not subsidize "anything."
The Department of Law has informed AIDEA the aforementioned
money could be used to help finance trucking trailers. In
response to Co-Chair Isaacson, he said AIDEA cannot make grants,
but "it can model the money as it deems fit to make the project
work, which means it can be very patient capital."
9:53:08 AM
CO-CHAIR ISAACSON expressed the understanding of many
legislators that [the $57.5 million] was the grant.
MR. DAVIS explained that if AIDEA puts $35 million of the $57.5
million into the plant, AIDEA will only recover that money
should the plant be sold at a certain point of time - the money
would not be part of the debt service of the plant, which means
there is no return on the money.
MR. THERRIAULT directed attention to the economics of delivering
LNG to the consumer after its production, trucking, and storage.
His agency studied the social science of incentivizing consumers
to convert to natural gas. Interior Gas Utility conducted a
telephone survey and a consultant for AEA formed focus groups in
the community to educate residents on the cost of conversion,
and to determine their interest. The study showed that a
delivered price of approximately $15 would convince a majority
of consumers to convert. The timing of a homeowner's decision
to convert is also important. The cost of conversion varies for
individual homeowners, but to swap an entire heating system
costs $9,000-$11,000 per home in order to achieve a savings of
$2,000-$2,500 per year. Further, the study showed Fairbanks has
a fairly transient population due to influences of the
University of Alaska Fairbanks and the military base, which may
discourage conversion, so there is a need for an "on-bill
financing mechanism" as a way to amortize the cost [slide 12].
In response to Co-Chair Isaacson, he opined there would need to
be statutory changes to allow a utility to employ this
mechanism.
MR. DAVIS interjected that since IGA is a borough utility, the
financing mechanism may be authorized by a borough ordinance.
MR. THERRIAULT turned to slide 15, which showed the expected
growth of demand for gas from 2013 to 2030. He described
different possibilities for GVEA.
9:59:18 AM
REPRESENTATIVE HIGGINS observed that studies are costly, and he
recommended that legislators base their opinions on the results
of this study and take action.
MR. THERRIAULT acknowledged that the AEA social science study
was small in size.
MR. DAVIS cautioned the timing of the demand of LNG affects its
delivered price into the borough area.
MR. THERRIAULT concluded that AEA believes the delivered price
will motivate most consumers to convert, and assistance programs
will help a number of consumers [slide 16].
10:01:29 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at [10:01]
a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| ENE - PRESENTATION - AEA Transmission 02.12.14.pdf |
HENE 2/12/2014 8:00:00 AM |
(H) ENE AEA Transmission 02122014 |
| ENE -PRESENTATION - AIDEA IEP 2.10.14 Final.pdf |
HENE 2/12/2014 8:00:00 AM |
(H) ENE AIDEA IEP 02122014 |
| Meeting Agenda - House Energy Committee 28th AK Legislature DRAFT 4 (02-12-14).pdf |
HENE 2/12/2014 8:00:00 AM |