Legislature(2025 - 2026)GRUENBERG 120
01/23/2025 01:00 PM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| Presentation(s) Alaska Energy Authority (aea) Progress Update | |
| Presentation(s): Cook Inlet Update: Net Profit Share Leasing and Gas Storage | |
| 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
January 23, 2025
1:05 p.m.
MEMBERS PRESENT
Representative Donna Mears, Co-Chair
Representative Ky Holland, Co-Chair
Representative Mia Costello
Representative Cathy Tilton
Representative Chuck Kopp
Representative George Raucher
Representative Bryce Edgmon
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION(S): ALASKA ENERGY AUTHORITY (AEA) PROGRESS UPDATE
- HEARD AND HELD
PRESENTATION(S): COOK INLET UPDATE: NET PROFIT SHARING LEASING
AND GAS STORAGE
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CURTIS THAYER, Executive Director
Alaska Energy Authority
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint titled Alaska Energy
Authority, AEA Progress Update.
JOHN CROWTHER, Deputy Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Co-presented a PowerPoint titled, Cook
Inlet Update: Net Profit Share Leasing (NPSL) & Gas Storage.
DEREK NOTTINGHAM, Director
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Co-presented a PowerPoint titled, Cook
Inlet Update: Net Profit Share Leasing (NPSL) & Gas Storage.
ACTION NARRATIVE
1:05:13 PM
CO-CHAIR DONNA MEARS called the House Special Committee on
Energy meeting to order at 1:05 p.m. Representatives Edgman,
Raucher, Kopp, Tilton, Costello, Holland, and Mears were present
at the call to order.
^PRESENTATION(S) Alaska Energy Authority (AEA) Progress Update
PRESENTATION(S) Alaska Energy Authority (AEA) Progress Update
1:11:16 PM
CO-CHAIR MEARS announced that the first order of business would
be the Alaska Energy Authority Legislative Update presentation.
1:11:18 PM
CURTIS THAYER, Executive Director, Alaska Energy Authority,
presented a PowerPoint regarding the Alaska Energy Authority
(AEA) [hard copy included in the committee file]. He reviewed
its history, powers of authority, its primary projects, and the
progress of its projects. He explained that AEA is an
independent and public corporation of the state of Alaska
created by AS 44.83.070 in 1976 for the purposes of financing
and operating power projects and facilities in Alaska. He then
discussed the board of directors, reviewing their areas of
expertise. He described the powers and duties of AEA and how
they apply to the design, construction, permitting, and
maintenance of energy projects, among other responsibilities.
He explained that AEA is broken up into a number of areas
including Railbelt Energy, Power Cost Equalization (PCE), rural
energy, renewable energy, energy efficiency, grants and loans,
energy planning, and the Railbelt Transmission Organization
(RTO). He gave specific examples from each group.
MR. THAYER pivoted to a summary of how AEA has been affected by
House Bill 307, passed by the Thirty-Third Alaska State
Legislature. He said it was "one of the most important pieces
of legislation for the Railbelt since Alaska statehood." He
provided specific examples of the resultant changes in the
transmission systems, funding, cost savings, changes in
operation, and how it incentivizes new energy development. He
showed a map titled, "AEA Active Projects and Services."
1:20:36 PM
MR. THAYER turned to an explanation of "owned assets,"
concentrating specifically on Railbelt projects and clean energy
projects. He emphasized that the infrastructure along the
Railbelt is 60 years old and it lacks reliability and
redundancy. He pointed out the amount of power needed along the
Railbelt cannot be supported by the transmission system without
major upgrades and gave supporting examples. He then pointed
out the project upgrades and clean energy projects which are
being implemented, and described their funding sources.
1:27:19 PM
MR. THAYER responded to a question by Representative Kopp,
explaining that AEA would like to put the Susitna Clean Coal
project in place, but studies of the proposal are waiting for
funding.
1:30:36 PM
The committee took an at-ease from 1:30 p.m. to 1:34 p.m.
1:34:01 PM
MR. THAYER in response to a question by Co-chair Holland,
explained that the projects listed on the map are being
considered in terms of what is feasible for the Railbelt. Not
all the projects will be implemented. He named several projects
at different stages of development and what those projects will
mean to the Railbelt. The primary project moving forward is the
Dixon Diversion which is projected to be up and running by 2030.
That project will displace 1.5 billion cubic feet of natural
gas. The AEA is addressing what needs to be done within the
transmission system to move the power and how to do it the most
economically. He defined the Personal Consumption Expenditure
program (PCE) and how the per kilowatt floor prices in
Anchorage, Fairbanks, and Juneau affect pricing in other parts
of the state.
1:39:27 PM
MR. THAYER presented a video titled, "Bradley Lake Hydroelectric
Project."
1:42:11 PM
MR. THAYER followed the Bradley Lake video presentation with
information concerning the Dixon Diversion project which would
divert water to Bradley Lake from the Martin River which is fed
by the rapidly receding Dixon Glacier. The diversion project
would increase Bradley Lake's energy production by 50 percent.
1:43:51 PM
MR. THAYER presented a video titled, "Proposed Dixon Diversion
Project, The Bradley Lake Hydroelectric Project."
1:46:38 PM
MR. THAYER continued his presentation regarding the Dixon
Diversion by pointing out a line item in the governor's budget
which would allow AEA to complete environmental studies and
designs. He described the project as being "shovel ready" and
discussed funding sources, potential tax credits, and possible
matching funds. He explained that the overall cost of the Dixon
Diversion project will be $342 million dollars with the earliest
projected date of 2029. He also provided updates to the
Sterling to Quartz transmission lines and the Grid Resilience
and Innovation Partnerships (GRIP).
1:50:15 PM
MR. THAYER presented a video titled, "Hi-Voltage Direct Current
(HVDC) Submarine Cable Transmission Line Project" about the
transmission lines between Homer and Anchorage, Alaska.
1:53:15 PM
MR. THAYER emphasized that these three projects represent over a
billion dollars' worth of construction in Southcentral Alaska,
creating a very beneficial economic impact. The GRIP project is
in the engineering and scheduling phase with a projected
completion date of 2031. He turned his focus to a description
of the Alaska Intertie, the status of several permits, and how
the battery storage systems assist in stabilization.
1:58:11 PM
MR. THAYER reviewed the power cost equalization (PCE) explaining
eligibility for the program and describing it as a means for
lowering the cost of the significantly higher rural electrical
services. The PCE was established in 1985 to help rural
communities meet energy needs and is funded by an endowment
managed by the permanent fund. He then shifted focus to
deferred maintenance costs, bulk fuel upgrades, and AEA's system
upgrades to aging infrastructure, providing examples such as the
relocation of a bulk fuel system in danger of falling into a
river. He described the Circuit Rider Program which provides
training and assistance with electrical emergencies throughout
Alaska. In 2023 the four circuit rider employees visited 350
communities.
2:04:22 PM
MR. THAYER showed a video about AEA'S inventory and assessment
of rural community power which is done to prioritize needs and
to guide limited resources where they are most needed.
2:07:22 PM
REPRESENTATIVE KOPP commented on unmet deferred maintenance
costs throughout Alaska including the university system. He
suggested that the legislature seriously consider 30-year GEO
bonds for upgrades to avoid potential catastrophic events.
MR. THAYER noted that recent federal funds increased AEA's
budget, but Alaska's power houses and bulk fuel infrastructure
did not qualify for the funds. Renewable projects did qualify
and helped displace fossil fuel, but when temperatures are 50
degrees below zero, rural communities need diesel powerhouses.
2:11:11 PM
The committee took an at-ease from 2:11 pm to 2:16 pm.
^PRESENTATION(S): Cook Inlet Update: Net Profit Share Leasing
and Gas Storage
PRESENTATION(S): Cook Inlet Update: Net Profit Share Leasing and
Gas Storage
2:16:56 PM
CO-CHAIR MEARS announced that the next order of business would
be the Legislative and Executive Support of Cook Inlet natural
presentation.
2:17:23 PM
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources, co-presented a PowerPoint titled, "Cook Inlet Update:
Net Profit Share Leasing and Gas Storage" [hard copy included in
the committee file]. He explained that the Department of
Natural Resources (DNR) focuses on Alaska's natural resources as
they apply to energy and to the Railbelt. The department has
been a long-standing active manager of state leases in the Cook
Inlet area. Currently there is a need for additional natural
gas production in Cook Inlet as a bridge to long-term energy
solutions. Governor Dunleavy has encouraged the department to
use existing authorities to unlock natural gas resources in the
inlet. He said the purpose of the presentation was to update
the committee on the status of projects in Cook Inlet, recent
activity, development plans, and some of the department's
analysis of specific production scenarios.
2:20:39 PM
DEREK NOTTINGHAM, Director, Division of Oil and Gas, Department
of Natural Resources, addressed the question of why Cook Inlet
gas is so important, and showed Slides 2 and 3. He explained it
was the feedstock for the utilities that supply heat and
electricity to the Anchorage bowl and some parts of Fairbanks.
He described how Enstar, Interior Gas Utility, Chugach Electric,
Matanuska Electric, and Homer Electric provide gas and
electricity to Southcentral and the Railbelt which affects
approximately 500,000 people. He provided an overview of Cook
Inlet as a producing region, beginning as an oil producing
region and transitioning to gas production. He described oil
and gas leases and how they function, noting that gas production
in the inlet has been declining since 1990. The department
manages the units and oversees plans of development and
reporting requirements.
2:26:56 PM
MR. CROWTHER, in response to a question by Representative
Costello, explained that the plans of development are public
documents. He referred to Slides 3 and 4, describing the
historical background of the leases including longstanding Cook
Inlet legacy fields which have been in production for up to 50
years. He reminded the committee the governor directed the
department to use current authorities to best utilize legacy
fields; to bring known resources into production; and to promote
new exploration in the inlet. He moved to Slide 5 describing
"Net Profit Share Leases" and how they work. He said the
bidding process has not been dramatically successful, but the
department will continue to market and advocate for these
leases.
2:29:34 PM
MR. NOTTINGHAM moved to Slide 6, the Cook Inlet leasing map, and
pointed out the location of specific leasing units. He then
defined net profit share leasing (NPSL) as leases with no
royalty terms, fixed per-acre cash bonuses, and variable profit
share percentages with the net-profit share being paid to the
state after capital investments and operating costs for bringing
production online. This type of lease results in an earlier
cost recovery for the operator.
MR. CROWTHER explained that companies spend tens to hundreds of
million dollars to develop a site. During this time, they are
not producing any oil or gas and, therefore, not making any
money. Royalties must be paid from the time development starts,
but with the NPSL, companies can pay their development costs
before they start paying the state. On the North Slope, profit
share bids were often 50 percent. By contrast, there were just
a few bidders for the Cook Inlet gas leases, and they were often
near the minimum of 5 percent.
2:33:43 PM
CO-CHAIR HOLLAND posed a series of questions about royalties and
net profits, specifically focusing on how options are
prioritized in order to best benefit the consumer and Alaskans.
He asked, "Which is better for Alaska: Consumers paying the
higher price, but we get a royalty amount, or consumers paying
the lower amount, but we [Alaskans] don't get the royalty?"
MR. CROWTHER responded that the question goes to the core of the
policies the legislature must consider. He said the department
takes its responsibility seriously in order to maximize
development royalties which lead to revenue for the state. The
rate is set for existing royalties, but under the scenario of
net profit share leases, if a project moves forward with gas
development and potential gas sales, it can be done at a market-
clearing rate that benefits the consumers. In a pending royalty
modification under a separate authority, the department looked
closely at whether the modification would lead to more royalties
as well as whether it would potentially increase the available
supply at a competitive cost. He pointed out that consumer cost
would be one of the cornerstone considerations.
MR. NOTTINGHAM referred to the 2023 and 2024 Cook Inlet NPSL
sales results shown on Slide 6. He moved to Slide 7 describing
seismic surveys of Cook Inlet which are now available to the
public.
MR. CROWTHER pointed out that the process for releasing seismic
data has become more efficient, so it is more readily available.
MR. NOTTINGHAM moved to Slide 8 which explains gas storage, how
it works, and why it is important to consumers. He showed
Slides 9 and 10 which illustrated how gas storage works and
where Cook Inlet's gas storage facilities are located.
2:48:15 PM
CO-CHAIR MEARS commented on how gas storage applies to renewable
energy. She pointed out that gas provides a buffer, so
renewables such as solar can be used to produce electricity, and
gas that is stored can be used for heating in the winter rather
than being used for producing electricity. This expands
opportunities beyond natural gas, allowing a more complex energy
system.
CO-CHAIR HOLLAND noted that gas storage is for natural gas, but
it could also be used for hydrogen storage and carbon capture.
He asked how DNR is planning to manage these potential storage
structures as new assets and revenue sources.
MR. CROWTHER replied that question goes to the core
responsibility of DNR to assess the relative value of uses to
maximize benefits for the public. Natural gas storage needs are
currently critical, so the reservoirs that are geologically and
structurally appropriate for storage should be used for that
purpose. The previous legislature passed provisions so a lessee
can store a third party's gas as well as its own gas under the
terms of the lease. He also discussed that companies are
working on potential agreements for carbon capture and hydrogen
storage.
2:54:00 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 2:54 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2025 01 23 HENE DNR Cook Inlet Update.pdf |
HENE 1/23/2025 1:00:00 PM |
|
| 2025.01.22 AEA Progress Update Presentation to House Energy Committee (Final).pdf |
HENE 1/23/2025 1:00:00 PM |