Legislature(2009 - 2010)SENATE FINANCE 532

02/26/2009 03:00 PM Senate ENERGY


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03:08:56 PM Start
03:09:36 PM Alaska Center for Energy and Power
03:42:15 PM Institute of Social and Economic Research
03:58:47 PM Cambridge Energy Research Associates
04:38:22 PM Black Lion Energae
04:57:48 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Joint w/(H) ENERGY
Work Session: Comprehensive Energy Plan
Presenters: Gwen Holdman, Dir., Alaska
Center for Energy and Power; David Hobbs
and Jim Meitl, Cambridge Energy Research
Associates; Darrell Smith, Black Lion
Energae
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
               SENATE SPECIAL COMMITTEE ON ENERGY                                                                             
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                       February 26, 2009                                                                                        
                           3:08 p.m.                                                                                            
                                                                                                                                
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
SENATE SPECIAL COMMITTEE ON ENERGY                                                                                              
                                                                                                                                
 Senator Lesil McGuire, Chair                                                                                                   
 Senator Bert Stedman                                                                                                           
 Senator Bill Wielechowski                                                                                                      
                                                                                                                                
HOUSE SPECIAL COMMITTEE ON ENERGY                                                                                               
                                                                                                                                
 Representative Bryce Edgmon, Co-Chair                                                                                          
 Representative Charisse Millett, Co-Chair                                                                                      
 Representative Kyle Johansen                                                                                                   
 Representative Jay Ramras                                                                                                      
 Representative Pete Petersen                                                                                                   
                                                                                                                                
Also present were Representatives Fairclough and Guttenberg.                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
SENATE SPECIAL COMMITTEE ON ENERGY                                                                                              
                                                                                                                                
 Senator Lyman Hoffman                                                                                                          
 Senator Albert Kookesh                                                                                                         
                                                                                                                                
HOUSE SPECIAL COMMITTEE ON ENERGY                                                                                               
                                                                                                                                
 Representative Nancy Dahlstrom                                                                                                 
 Representative Chris Tuck                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
Work Session: Comprehensive Energy Plan                                                                                         
Presenters:                                                                                                                     
     Gwen Holdmann, Alaska Center for Energy and Power                                                                          
     Ginny Fay, Institute of Social and Economic Research                                                                       
     David Hobbs, Cambridge Energy Research Associates                                                                          
     Darrell Smith, Black Lion Energae                                                                                          
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No action to report                                                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
GWEN HOLDMANN, Director                                                                                                         
Alaska Center for Energy and Power (ACEP)                                                                                       
Fairbanks AK                                                                                                                    
POSITION STATEMENT: Spoke of Alaska's energy policies.                                                                        
                                                                                                                                
GINNY FAY, Economist                                                                                                            
Institute of Social and Economic Research (ISER)                                                                                
Anchorage AK                                                                                                                    
POSITION STATEMENT: Spoke of Alaska's energy policies.                                                                        
                                                                                                                                
DAVID HOBBS, Managing Director                                                                                                  
Cambridge Energy Research Associates (CERA)                                                                                     
Cambridge MA                                                                                                                    
POSITION STATEMENT:  Promoted CERA  for providing the  state with                                                             
energy consulting.                                                                                                              
                                                                                                                                
DARRELL SMITH                                                                                                                   
Black Lion Energae and ING                                                                                                      
Mason City, IA                                                                                                                  
POSITION STATEMENT: Promoted using algae for energy.                                                                          
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                              
^Work Session: Comprehensive Energy Plan                                                                                        
                                                                                                                                
3:08:56 PM                                                                                                                    
CHAIR LESIL  MCGUIRE called the  joint meeting of the  Senate and                                                             
House Special Committee on Energy  to order at 3:08 p.m. Senators                                                               
Stedman, Wielechowski, and  McGuire and Representatives Petersen,                                                               
Ramras, Edgmon, and Millett were present at the call to order.                                                                  
                                                                                                                                
^Alaska Center for Energy and Power                                                                                             
                                                                                                                                
3:09:36 PM                                                                                                                    
GWEN  HOLDMANN,  Director, Alaska  Center  for  Energy and  Power                                                               
(ACEP), Fairbanks,  said ACEP is the  applied-energy research arm                                                               
of  the University  of Alaska.  There  are many  programs in  the                                                               
University researching  energy issues  in Alaska, and  ACEP draws                                                               
on all of  those resources and addresses the  most pressing near-                                                               
term,  applied   energy  concerns  for  Alaska   communities  and                                                               
industries. It has  projects all over the state and  is active in                                                               
small and  large-scale renewable and  non-renewable technologies.                                                               
The  three  areas  of  focus   are  community  energy  solutions;                                                               
powering the  economy; and the  energy field of the  future. ACEP                                                               
is  partnering   with  communities   to  address   renewable  and                                                               
alternative  energy. ACEP  is assessing  geothermal, large  scale                                                               
solutions  like Susitna  and Chakachamna,  and  power for  remote                                                               
mines. The  energy field  of the  future is  how Alaska  can best                                                               
manage and  develop oil  resources for  the long  term, including                                                               
heavy oil  and methane hydrates. ACEP  is looking at what  can be                                                               
done with the infrastructure once the oil fields are depleted.                                                                  
                                                                                                                                
3:12:14 PM                                                                                                                    
MS. HOLDMANN said Alaska needs  to address its energy goals. Does                                                               
Alaska  want to  lower the  cost of  energy, stabilize  the cost,                                                               
develop  community   and  state  self-sufficiency,   boost  local                                                               
economies, create jobs, develop  wealth, or reduce greenhouse gas                                                               
emissions? "If your  energy is free but you don't  have a job, is                                                               
that  really  a benefit  to  our  residents?" What  are  Alaska's                                                               
priorities, and do  some goals conflict with  one another? Making                                                               
smart  investments is  important. Alaska  has begun  investing in                                                               
the  renewable energy  fund, and  they should  be prudent,  smart                                                               
investments that will result in  projects that are around for the                                                               
long term.  Alaska should take  calculated risks and  be invested                                                               
in cutting-edge  technology, but  it should  start with  the low-                                                               
hanging fruit.  A balanced approach includes  planning, projects,                                                               
and research. Planning must be  done at all levels from community                                                               
to  statewide. There  have  been efforts  at  creating an  Alaska                                                               
energy policy,  "and I think that  we're getting a lot  closer to                                                               
really coming up with some good objectives."                                                                                    
                                                                                                                                
3:14:40 PM                                                                                                                    
MS.  HOLDMANN said  without projects,  policy means  very little.                                                               
The Chena hot springs geothermal plant  put Alaska on the map for                                                               
geothermal  power.  She showed  a  photo  of the  first  in-river                                                               
turbine  ever installed  in North  America,  and it  is in  Ruby,                                                               
Alaska.  ACEP  has  spent  resources  on  the  Healy  clean  coal                                                               
project. Research is the third leg  of having a balanced plan. It                                                               
can peer  over the horizon  to see  what is needed  for long-term                                                               
success. Efficiency  is the best  "bang for our  buck." "However,                                                               
where we are  today is we're investing in projects,  which have a                                                               
fairly  substantial, often,  capital cost  investment ...  but we                                                               
also  see long-term  benefits associated  with  those." There  is                                                               
interest  in innovative,  but costly,  new technology  in Alaska.                                                               
The  goal  of  ACEP  is  to  drive down  the  cost  and  risk  of                                                               
innovations so they make economic sense for Alaska.                                                                             
                                                                                                                                
3:17:04 PM                                                                                                                    
MS. HOLDMANN said  one role of ACEP is to  test equipment to keep                                                               
things out  of the field  that may not  work, saving the  state a                                                               
lot of  money. ACEP is  partnering with the Institute  for Social                                                               
and  Economic   Research  (ISER)  for  assessing   technical  and                                                               
economic  feasibility.  ACEP  also   tests  emissions.  A  unique                                                               
challenge  for  Alaska  is  the   integration  of  projects  with                                                               
existing power  systems. Alaska has  small isolated  grids, which                                                               
also occurs  in the world but  not so much in  the United States.                                                               
Alaska needs  to take the  lead in deploying renewables  in small                                                               
grids. Procurement experiments  are a favorite of  the ACEP. Many                                                               
vendors come by  and the ACEP looks to see  if they actually have                                                               
a product  behind the sales pitch  and if it meets  their claims.                                                               
Her  group  also  works  with  viable  manufacturers  to  improve                                                               
products for  use in Alaska.  ACEP can  be an impartial  agent on                                                               
behalf of Alaska  communities to make sure  investments are wise.                                                               
ACEP can also  leverage resources. Every dollar  can be leveraged                                                               
into five dollars  of federal funding, because  the Department of                                                               
Energy typically requires 20 percent cost share per project.                                                                    
                                                                                                                                
3:19:46 PM                                                                                                                    
MS.  HOLDMANN said  these projects  save money  in the  long run.                                                               
Fuel cells  have been tested  by ACEP, but that  technology isn't                                                               
ready for  Alaska. It  may change.  The big  problem is  that the                                                               
federal government is  the customer for the  research programs at                                                               
the university. "If they are  the customer, we are doing research                                                               
that our customer  is having us do." So ACEP  focuses on what the                                                               
federal government wants instead of  state interests. ACEP has no                                                               
base funding; it  was vetoed in last year's budget.  So the state                                                               
is not spending any money  on research and development of energy;                                                               
Alaska ranks  46th in  the country. North  Dakota has  the Energy                                                               
and  Environmental  Research  Center  --  a  high-tech  nonprofit                                                               
branch  of the  University  of  North Dakota.  It  operates as  a                                                               
business within the university system,  so it does things similar                                                               
to ACEP  within a private  business model  with a goal  of moving                                                               
the best  technologies into the  marketplace. The  private sector                                                               
makes up 84  percent of its contracts. It has  generated 14 spin-                                                               
off companies. It has 290  scientists and engineers, and most are                                                               
graduates from  the University of  North Dakota. They  are people                                                               
that the state is able to  retain because of the good high-paying                                                               
jobs.  Additional  job creation  was  $94  million. That  program                                                               
receives no base  funding from the state. It serves  as a funding                                                               
source and generates money to  fund the university. But there was                                                               
significant  state  and federal  money  put  into developing  the                                                               
program when it started about 20 years ago.                                                                                     
                                                                                                                                
3:23:28 PM                                                                                                                    
SENATOR  WIELECHOWSKI asked  if there  was any  money put  in the                                                               
budget for ACEP.                                                                                                                
                                                                                                                                
MS. HOLDMANN said there was $500,000 passed by the legislature.                                                                 
                                                                                                                                
SENATOR WIELECHOWSKI asked why the governor vetoed it.                                                                          
                                                                                                                                
MS. HOLDMANN said she heard that  the governor wanted to wait for                                                               
a completed energy  plan. Ms. Holdmann provided  the requests for                                                               
the capital budget  for energy projects for fiscal  year 2010. It                                                               
is a tight budget year,  but funding for research and development                                                               
is  a very  important component.  By  putting it  in the  capital                                                               
budget, the legislature has the  opportunity to not fund programs                                                               
that  aren't successful  and to  continue to  fund programs  that                                                               
give  a return  on  the money.  Another option  is  to create  an                                                               
emerging energy  technology development  fund. She is  not saying                                                               
that  all  the  energy  research   should  be  done  through  the                                                               
university,  but there  is  this existing  program  and it  makes                                                               
sense to fund  it. It also makes sense to  fund pilot projects in                                                               
technologies  where  Alaska can  take  a  leading role  and  that                                                               
result in long-term jobs and  economic opportunities. The company                                                               
that put  the in-river turbine  in Ruby is considering  opening a                                                               
facility in Alaska for building the turbines.                                                                                   
                                                                                                                                
3:26:02 PM                                                                                                                    
MS. HOLDMANN said  a good state research  and development program                                                               
can attract investment and reduce  failures. That saves money. It                                                               
can  provide focus  to  energy initiatives.  Rather  than take  a                                                               
scatter-shot approach, Alaska  can do a good  job at implementing                                                               
the projects that give a good  bang for the buck. The program can                                                               
assist with  developing prudent policy  and planning, and  it can                                                               
create jobs. Iceland  is one model of a  research and development                                                               
program that created 100,000 jobs tied to the energy sector.                                                                    
                                                                                                                                
SENATOR  MCGUIRE thanked  her for  doing all  her work  without a                                                               
budget and for being creative and finding other funding sources.                                                                
                                                                                                                                
REPRESENTATIVE  RAMRAS  said  he  was a  shareholder  of  General                                                               
Electric  when it  was $28  per share.  It is  now about  $9. One                                                               
corporate  rule for  General Electric  is not  to buy  a business                                                               
unless it  can be number  one or two  in the sector.  The company                                                               
wants to dominate. He  said he has seen some of  the work done at                                                               
the university,  including research on important  medical issues.                                                               
He has wondered why the  university doesn't seek out those things                                                               
where it  can dominate. Ms.  Holdmann is one  of the gems  of the                                                               
University programs. He asked about  tidal and biomass fuels, and                                                               
suggested Alaska can be a first mover and best in a category.                                                                   
                                                                                                                                
3:29:35 PM                                                                                                                    
MS.  HOLDMANN said  Alaska has  immense resources,  renewable and                                                               
nonrenewable. Biomass  is an opportunity  for much of  the state,                                                               
but  the technology  for small-scale  gasification  has not  been                                                               
economic. Manufacturers are working  with Alaska communities, and                                                               
if  Alaska  can  find  something   that  works  and  develop  the                                                               
expertise, it  can export it  to a  large part of  the developing                                                               
world. Alaska  has 90  percent of the  tidal and  wave resources.                                                               
"We can't be  waiting for someone else to take  the leading role.                                                               
If somebody  is going  to be developing  these kinds  of devices,                                                               
tidal and  wave energy and  in-river hydro,  it's got to  be done                                                               
here." Alaskans may not be  inventing the turbines, but they will                                                               
be  working with  the manufacturers,  shepherding the  technology                                                               
ahead and having  the expertise. Energy storage  is important for                                                               
rural Alaska. It  is a big deal to try  and increase the capacity                                                               
of wind  power on the grids.  The turbines need to  be performing                                                               
better and displacing more diesel  fuel than they are today. This                                                               
is of interest in the developing  world and in the United States.                                                               
The  grid  systems  were  not  designed  for  inconsistent  power                                                               
generation  sources like  wind. Energy  storage can  offset those                                                               
fluctuations  and  is a  big  part  of  research.  She was  at  a                                                               
national  lab  last week  and  the  lab  was very  interested  in                                                               
solving  Alaska's rural  issues. If  the models  work on  a small                                                               
scale, then  they can work  on a big scale  in the Lower  48. New                                                               
transmission lines and smart grids are other opportunities here.                                                                
                                                                                                                                
3:32:52 PM                                                                                                                    
SENATOR  WIELECHOWSKI   said  the  programs  need   funding.  The                                                               
legislature provided it, but the governor vetoed it.                                                                            
                                                                                                                                
REPRESENTATIVE RAMRAS  said Chris Rose was  looking for incubator                                                               
funds. There  was a  vigorous debate about  77 projects  for $100                                                               
million  into the  communities. What  is the  distinction between                                                               
the incubator  funds and the $1  million for ACEP, and  how would                                                               
that differ from the $100  million for the 77 projects? Redundant                                                               
funding would be a reason for another veto.                                                                                     
                                                                                                                                
3:34:31 PM                                                                                                                    
MS.  HOLDMANN said  the Alaska  Energy Authority  has a  specific                                                               
mandate to work in commercial  technology. Its mission is to find                                                               
deployable energy  solutions for  today, but  it doesn't  look at                                                               
pre-commercial  technology. A  good  example would  be the  Chena                                                               
geothermal power plant.  It was the first  installation like that                                                               
in the  world. It was not  proven technology. The state  needs to                                                               
be prudently investing in those kinds of projects.                                                                              
                                                                                                                                
CHAIR  MCGUIRE  asked about  alternative  grants  in the  federal                                                               
stimulus package.                                                                                                               
                                                                                                                                
MS. HOLDMANN  said she  thinks there are  a lot  of opportunities                                                               
and has  been working with  the Department of Energy.  Money from                                                               
the  state could  be leveraged  for those  funds. Alaska  already                                                               
lost  some   opportunities  in  hydro-kinetic-tidal   energy  and                                                               
geothermal in the  past for not having the  matching dollars. But                                                               
there  is a  lot of  funding out  there. Some  of the  geothermal                                                               
budget is coming to Alaska, and she hopes other money too.                                                                      
                                                                                                                                
3:37:49 PM                                                                                                                    
MS.  HOLDMANN  said  she works  directly  with  communities.  The                                                               
Tanana Chiefs Conference represents  42 villages in rural Alaska,                                                               
and ACEP  created a position  jointly with them that  will expand                                                               
the work  with rural  communities to  pick the  technologies that                                                               
make the most sense and find funding opportunities.                                                                             
                                                                                                                                
^Institute of Social and Economic Research                                                                                      
                                                                                                                                
GINNY FAY,  Economist, Institute of Social  and Economic Research                                                               
(ISER),  Anchorage,  said she  has  worked  on energy  policy  in                                                               
Alaska for over 25 years.  The average Alaska household spends 40                                                               
percent of their  household budgets on space  heating, 35 percent                                                               
on electricity, and  25 percent on transportation.  In some parts                                                               
of Alaska  people spend 70  percent on space heating.  Alaska has                                                               
focused its  energy policy on  electric power generation  and oil                                                               
and gas  development. It  would be  good to  broaden that  out to                                                               
what really affects  Alaskans every day. A  bystander would think                                                               
that  Alaska's energy  policy  is  to reduce  the  total cost  of                                                               
energy,  to distribute  the resources  fairly, and  to lower  the                                                               
cost of energy in rural  Alaska. She suggested developing a long-                                                               
term approach to  energy rather than a reaction to  oil prices at                                                               
the time. When  oil prices go up, Alaska has  more money, but all                                                               
households and businesses  suffer because of the  cost of energy.                                                               
"So we scramble to try to lower  their cost of energy and then we                                                               
go down the next cycle, oil  prices go down; we abandon our quest                                                               
for  energy  efficiency and  renewable  energy  because we  can't                                                               
afford it anymore."                                                                                                             
                                                                                                                                
3:42:15 PM                                                                                                                    
MS. FAY suggested looking at 50  years from now. She provided the                                                               
committee with a  paper on what could be considered  in an energy                                                               
policy.  It's not  complete, but  it has  general recommendations                                                               
knowing that oil  prices are going to be  volatile. She suggested                                                               
establishing a long-term oil price  forecast to use for budgeting                                                               
and as  an assumption for  renewable energy planning.  There will                                                               
probably be  "cap and  trade" and carbon  pricing in  the future.                                                               
Alaska should  be proactive  in where  it wants  to be,  "and not                                                               
look at  it that we're  using renewable energy to  replace fossil                                                               
fuels, think  of it more as  we're investing in ways  that we can                                                               
be able  to export more of  our energy resources that  we develop                                                               
because we  have our  long term.  We're more  self-sufficient, we                                                               
aren't as  dependent on consuming so  much of our oil,  and we're                                                               
not so much  victims of volatile prices, because  we don't really                                                               
have any control over them."                                                                                                    
                                                                                                                                
3:44:06 PM                                                                                                                    
REPRESENTATIVE RAMRAS  said a  problem with  export in  Alaska is                                                               
the cost  of moving things. "Cap  and trade is a  little bit like                                                               
synthetic gas for the air  force. Their objective is 20 percent."                                                               
The Air Force in Alaska could  be at 100 percent, contributing to                                                               
the whole  United States Air  Force without having to  export one                                                               
drop  of synthetic  gas.  Is the  same thing  true  of any  trade                                                               
material created  in Alaska? "Could we  create it and sell  it to                                                               
the Lower  48, which  is the  whole nature of  the cap  and trade                                                               
exchange, without having to physically  transport it?" That could                                                               
level the playing field.                                                                                                        
                                                                                                                                
3:45:17 PM                                                                                                                    
MS. FAY  said she is not  an expert on  cap and trade, but  it is                                                               
her understanding that there will  be a mechanism for accounting.                                                               
It is similar  to what is done with Bradley  Lake. "Not all those                                                               
neurons make it to Fairbanks; it  might be consumed in Homer, but                                                               
then you have agreements on how  you share those agreements. So I                                                               
think they envision those kinds of things for cap and trade."                                                                   
                                                                                                                                
REPRESENTATIVE  RAMRAS   said  there   is  a   tremendous  export                                                               
opportunity  to invest  in tidal  and others  and then  create an                                                               
exported commodity that doesn't have to  be put on a truck, boat,                                                               
or plane to  actually export it. "I was hoping  that you could be                                                               
more explicit."                                                                                                                 
                                                                                                                                
3:46:36 PM                                                                                                                    
MS.  HOLDMANN said  this is  a  different way  to export  energy.                                                               
Alaska doesn't have a grid that  ties Alaska to the Lower 48, but                                                               
Alaska has an  opportunity to create value-added  products so "we                                                               
are  essentially exporting  our  energy to  other  places in  the                                                               
world."  This   is  especially  true  with   developing  stranded                                                               
resources;  "that  would certainly  give  us  some fairly  unique                                                               
opportunities  to do  that, especially  when you  take a  look at                                                               
shipping routes  and where our  resources are." The  state should                                                               
be looking  at it  very carefully  in term of  where it  wants to                                                               
position  itself. She  sees it  as a  national security  issue as                                                               
well.  "As  we're exporting  many  of  our high  energy-intensive                                                               
industries  off   shore,  that  really  creates   some  potential                                                               
concerns in  terms of national security.  And if we can  be doing                                                               
some of that here in Alaska,  that certainly is one way to export                                                               
our stranded resources."                                                                                                        
                                                                                                                                
MS.  FAY  said one  of  Alaska's  opportunities is  its  isolated                                                               
grids. While  Alaska is solving  problems for one community  at a                                                               
time  by  developing  integrated   systems,  Alaskans  should  be                                                               
developing the expertise  the same way they have  with module oil                                                               
and gas  development and  oil spill  technology. There  are about                                                               
two  billion people  who  live off  the grid  in  the world,  and                                                               
Alaskans  should  be  the exporters.  The  state's  objective  in                                                               
renewable  energy   is  not   always  clear.   Is  the   goal  to                                                               
redistribute  wealth or  reduce the  total amount  of energy?  It                                                               
would be  helpful for  everyone to  know the  state's objectives,                                                               
goals, and policies.  Sometimes the most efficient  policy is not                                                               
the fairest.                                                                                                                    
                                                                                                                                
3:49:35 PM                                                                                                                    
REPRESENTATIVE RAMRAS  said, "We might  try and find  somebody at                                                               
Citibank or Bank  of America to talk about micro  lending." It is                                                               
a   new  phenomenon   around  the   world  where   $100  may   be                                                               
insignificant  for  us  but  people  start  businesses  in  small                                                               
countries  with  it. It  is  now  a  commercial division  of  the                                                               
largest  banks. Ms.  Fay told  the committee  that there  are two                                                               
billion people living  in a world just like rural  Alaska, and it                                                               
is  an untapped  potential  for  the state.  He  referred to  the                                                               
Ketchikan  dry  dock,  which  has the  licensing  rights  to  the                                                               
intellectual  property  of Lockheed  Martin  and  the ability  to                                                               
replicate that effort.  Alaska could use its  villages with these                                                               
varying  types   of  renewable  energy   and  create   all  these                                                               
incubators,  "and   while  we're   solving  problems   of  dollar                                                               
kilowatts and  reducing them  to 20  or 30  cents, if  we learned                                                               
about  micro  lending  and  how   that  works,  we  really  could                                                               
recognize this  as an  export commodity for  the state  of Alaska                                                               
that could be replicated where two billion people live."                                                                        
                                                                                                                                
3:51:20 PM                                                                                                                    
MS. FAY said,  "As you develop energy policy...at the  end of the                                                               
day  we are  all  better off  in Alaska,  but  instead of  having                                                               
outsiders come  and sell us things  that might not work,  we take                                                               
it  on  to  ourselves  to  make sure  it  works  by  testing  it,                                                               
educating  our students  and people  within our  state to  become                                                               
experts." Alaska will  solve its problems one village  at a time.                                                               
Every  time there  is an  oil spill  in the  world, someone  from                                                               
Alaska goes and helps. The silver  lining of high energy costs is                                                               
building an industry.                                                                                                           
                                                                                                                                
CHAIR MCGUIRE said there is  a school in Seward training students                                                               
to work with wind/diesel turbines.                                                                                              
                                                                                                                                
MS. FAY said  Alaska should look at energy policy  from the stand                                                               
point  of  electricity and  space  heating.  Transportation is  a                                                               
significant portion  of household  budgets. A policy  should look                                                               
at "how  we provide  for transit and  build communities  and help                                                               
save families' money, and also just  looking at how we build jobs                                                               
and our  industrial sector  to make them  more cost  effective by                                                               
also being more efficient."                                                                                                     
                                                                                                                                
3:53:54 PM                                                                                                                    
^ Cambridge Energy Research Associates                                                                                          
                                                                                                                                
DAVID  HOBBS,   Managing  Director,  Cambridge   Energy  Research                                                               
(CERA), Cambridge,  Massachusetts, said noted that  the strategic                                                               
debate about energy  in Alaska has changed  from maximizing value                                                               
from production  into developing  a long-term strategy  to insure                                                               
sustainable energy  for residents. No strategy  ever survives its                                                               
first contact  with reality. Alaskans need  to fly to be  able to                                                               
get  anywhere. The  reason there  is confidence  in the  pilot is                                                               
that he  or she  has worked in  a simulator and  in a  variety of                                                               
aircraft.   Alaska's  energy   strategy   needs   to  come   from                                                               
envisioning different  results and practicing responses  to those                                                               
situations so that when the  unexpected happens, like a change in                                                               
oil prices, Alaska knows how to respond without losing stride.                                                                  
                                                                                                                                
3:58:47 PM                                                                                                                    
MR. HOBBS said  Alaska has the smarts to develop  a strategy, but                                                               
outsiders  can help  Alaska learn  from other  people's mistakes.                                                               
Alaska needs  to be seen  as islands  that are separated  by land                                                               
instead of  water. Alaska  should look at  how the  Seychelles or                                                               
Hawaii has dealt  with energy challenges, as well  as places with                                                               
cold  environments. He  can  discuss what  the  components of  an                                                               
energy  strategy are  and what  can be  learned from  others. The                                                               
most important goal  is inspiring all Alaskans to  share a vision                                                               
of where  it wants to  go. There are  many routes to  arriving at                                                               
that  destination. "If  we can  inspire a  shared vision  of that                                                               
destination  then there's  a chance  of achieving  something that                                                               
... probably  no legislature anywhere  else in North  America has                                                               
successfully achieved."                                                                                                         
                                                                                                                                
4:00:39 PM                                                                                                                    
REPRESENTATIVE PETERSEN  said setting a  goal is the  first thing                                                               
to do. Part  of that would be committing funding  for projects to                                                               
reach  the  goal.  Alaska  has made  a  commitment  to  renewable                                                               
energy, so  it has  a start.  The state  needs to  feel confident                                                               
that it is heading in the right direction.                                                                                      
                                                                                                                                
MR.  HOBBS  said it  is  easy  to  be  daunted by  the  financial                                                               
challenge. Napoleon said his soldiers  would be better off in the                                                               
shade, so he wanted to plant  trees along routes. He was told the                                                               
trees  would take  forty years  to  grow. His  response was,  "We                                                               
better start planting  now." Alaska needs that  kind of long-term                                                               
commitment. With  low oil prices it  may look like a  deep valley                                                               
to cross, but  there is another side to the  valley. Alaska needs                                                               
to know what it will take to  bridge that divide. The new team in                                                               
Washington D.C.  has a  greater sense of  strategic vision  and a                                                               
determination not to fall pray to the prisoner's dilemma.                                                                       
                                                                                                                                
4:03:31 PM                                                                                                                    
REPRESENTATIVE RAMRAS  said committee members are  enthusiasts of                                                               
alternative energy. T. Boone Pickens  believes the Midwest can be                                                               
the Saudi  Arabia of  wind, but it  can't happen  without federal                                                               
subsidies.  Alaska  is  taking  a  buckshot  approach  to  energy                                                               
because its needs  are so vast, as shown in  the $100 million for                                                               
77 projects  that must be  regionally balanced. It  was difficult                                                               
to sort  out a  compromise on  that. The  three people  from CERA                                                               
each represent  strategy, philosophy, or business.  He asked what                                                               
a comprehensive energy plan will cost  that is not bogged down by                                                               
politics. What can  CERA do for us? How does  one string together                                                               
all these  vast opportunities in  Alaska and make it  work? There                                                               
is a limitless  energy potential. "How do we make  a business out                                                               
of it so that we can get it approved by Senator Stedman?"                                                                       
                                                                                                                                
4:05:56 PM                                                                                                                    
MR. HOBBS  said there are  a variety of  parts to the  answer. He                                                               
has been  asked by  legislators if  Alaska is  unique. It  is "as                                                               
unique as  every other unique place,  and in all the  same ways."                                                               
CERA is  in the business of  ruthless research of energy.  He has                                                               
no illusions that when oil prices  hit $150 per barrel, it may be                                                               
very good  to invest  in a particular  type of  renewable energy,                                                               
but  at a  low price  the  investment looks  terrible. Energy  is                                                               
about heat,  light, and motion.  The firm was founded  on telling                                                               
stories  that  allowed  people  to interpret  the  past  and  the                                                               
future. Energy  doesn't produce jobs,  but the energy is  used to                                                               
create jobs.  Everyone has their  own vision, and  sometimes they                                                               
forget that  they are working  in the same direction,  instead of                                                               
focusing on what  divides them. Any energy policy  has to include                                                               
sustainable,  reliable, and  affordable  energy.  His firm  helps                                                               
develop the consensus.                                                                                                          
                                                                                                                                
4:10:22 PM                                                                                                                    
CHAIR MCGUIRE asked for an example of past work.                                                                                
                                                                                                                                
MR. HOBBS  said Libya had  many of  the challenges of  Alaska. It                                                               
was  an  economy   that  was  over  dependent  on   oil  and  gas                                                               
production, and  the absence of  revenues that could  support the                                                               
social  programs generated  by oil  and  gas made  the economy  a                                                               
hollow vessel. Libya has a  dearth of leadership. Nobody dared to                                                               
put their head  above the parapet and propose a  course of action                                                               
unless they were  sure the country's leader would  agree with it.                                                               
His firm  started by developing  leadership among  a professional                                                               
class that had  been too frightened to display  it. CERA equipped                                                               
them with  "how other  people had  dealt with  those challenges."                                                               
His  firm helped  Libya  begin to  develop  a broader  industrial                                                               
sector to  generate economic prosperity.  "We needed to  get them                                                               
to take  a very level-headed view  of what the future  of oil and                                                               
gas  revenues would  be." The  firm didn't  preach the  future to                                                               
them, but  it developed  three stories of  the future.  One story                                                               
was  continuing  globalization,   especially  with  demands  from                                                               
developing  nations, and  what that  would mean  to keep  up with                                                               
energy demands and what that would  mean in the terms of the cost                                                               
and  prices  of  energy.  The   second  story  had  globalization                                                               
derailed. "We talked  about a rapid rebalancing  of the financial                                                               
imbalances triggered by  the U.S. housing crisis  coupled with an                                                               
increase in  terrorist activity that  undermined trust  in global                                                               
trade, and  that that would lead  to an economic crisis  in which                                                               
growth for the  long term would be much slower,  and we would see                                                               
a  collapse in  oil prices  ... down  below $20  per barrel."  If                                                               
Libya's strategy relied on the  first story, and the second story                                                               
came to  pass, "then you'd  feel awfully silly and  also probably                                                               
be in a desperately difficult place."                                                                                           
                                                                                                                                
4:13:57 PM                                                                                                                    
MR. HOBBS  said the  third story  for the future  of Libya  was a                                                               
supply shortage  pushing oil to  $150 per barrel, and  how policy                                                               
makers  would destroy  the demand  for  oil and  gas products  by                                                               
investing  in  renewable energy  and  efficiency.  As demand  for                                                               
fossil fuel  decreased, "you would  find the price  collapse back                                                               
to a level at which everyone  would say we don't need renewables,                                                               
we don't need  efficiency, we don't need small  cars, et cetera."                                                               
Once his firm got Libya to  buy into those stories and understand                                                               
that  they  were  all  quite  feasible, Libya  was  able  to  ask                                                               
themselves,  "How  would  this  piece  of  the  economy  that  we                                                               
understand  much  better  than  you, CERA,  ever  can  understand                                                               
because you're not  Libyan?" He knows CERA  will never understand                                                               
Alaska  as well  as Alaskans,  but it  can provide  the framework                                                               
that  forces Alaska  to  confront the  hard  truths of  potential                                                               
futures  and  make  sure  a  policy  will  be  resilient  to  all                                                               
potential futures,  rather than making  a huge bet on  one rather                                                               
than the other.                                                                                                                 
                                                                                                                                
4:15:34 PM                                                                                                                    
REPRESENTATIVE RAMRAS asked  the cost for an  initial scoping and                                                               
model  from   CERA  for  a   comprehensive  program   that  would                                                               
revolutionize  the  energy  backbone  of  Alaska.  The  state  is                                                               
talking about a $4 billion  private gas pipeline and $100 million                                                               
for 77  different projects that  will need $1 billion  in conduit                                                               
funding  in order  to  do  them all.  He  doesn't  know how  many                                                               
megawatts will be created and how much diesel will be displaced.                                                                
                                                                                                                                
4:17:19 PM                                                                                                                    
MR. HOBBS said  he cannot tell CERA's price now,  but he can come                                                               
back with the  details. CERA's engagements run from  "a couple of                                                               
hundred  thousand  dollars to  a  couple  million dollars."  CERA                                                               
sometimes facilitates  workshops to give  an entity a  clear idea                                                               
of the direction it wants to go,  and that may be all. That would                                                               
cost a "couple hundred thousand dollars."                                                                                       
                                                                                                                                
CHAIR  MCGUIRE said  CERA was  invited to  discuss what  would go                                                               
into  crafting  an energy  policy,  and  it  wasn't asked  to  be                                                               
prepared for terms of engagement.  She asked what talent CERA has                                                               
to offer to help Alaska develop an energy policy.                                                                               
                                                                                                                                
MR. HOBBS said  he will be happy to come  back with more specific                                                               
terms. A  tool CERA  can bring is  an understanding  of different                                                               
types of fuel and technology  and the geographies where they have                                                               
been applied. It will work  with Alaska's talent pool. Alaska has                                                               
ISER,  universities, and  research already  being done.  CERA can                                                               
help provide context  to keep the discussion on  the right track.                                                               
CERA is at its best when  bringing the research it has been doing                                                               
on the energy  world for 25 years, and that  helps facilitate the                                                               
policy debate.  CERA can  recommend a destination,  but if  it is                                                               
not Alaska's solution, it won't be as resilient.                                                                                
                                                                                                                                
4:21:36 PM                                                                                                                    
MR. HOBBS  said the  works starts with  the realization  that the                                                               
course people  are on will not  lead them where they  want to go.                                                               
There are  diverse views  that may  be worked  out with  a common                                                               
understanding of what  actually is the market  landscape. CERA is                                                               
doing a lot of  work on coal sands in Canada,  and it has brought                                                               
together different  entities. Just getting  them to use  a single                                                               
vocabulary to  describe their  problems has  made an  impact. The                                                               
next step  is a structured dialogue  on what can be  achieved. As                                                               
an aside,  people value electricity  at a higher price  than they                                                               
pay for  it. People won't  give up electricity even  at extremely                                                               
high prices. People  may not agree with decisions  that are taken                                                               
but they understand them.                                                                                                       
                                                                                                                                
4:25:35 PM                                                                                                                    
MR. HOBBS said  Oman's major industrial activity was  oil and gas                                                               
development.  It had  begun to  develop energy-intensive,  value-                                                               
added industry  only to find  that the commitments to  export gas                                                               
exceeded  its own  domestic demand.  Oman had  to decide  between                                                               
shutting  down industry  or reneging  on  export contracts.  CERA                                                               
worked in California  and found that after years  of not building                                                               
new plants  because of  environmental objectives,  the inevitable                                                               
consequences  was  that there  wouldn't  be  enough power.  India                                                               
found  that by  not  paying international  rates  to build  power                                                               
stations, the contractors  decided not to build  them. India thus                                                               
ended up  with an energy  deficit. A key  part of the  process is                                                               
identifying  the stakeholders  whose opinions  matter in  forming                                                               
policy. The representatives  of the oil companies  were afraid to                                                               
tell  leadership what  was  going to  happen  because their  jobs                                                               
depended  on the  version of  the future  they were  told. CERA's                                                               
role was  "to tell truth to  power and make sure  they understood                                                               
the consequences  of the decisions  they had taken."  CERA looked                                                               
at  the  entire  energy  spectrum, including  nuclear  power  and                                                               
burning coal  in an  oil-producing state.  CERA looked  at export                                                               
earnings and  industrial earnings. The stakeholders  were engaged                                                               
throughout. The end  result was that they looked at  a variety of                                                               
options and let them make the political decisions.                                                                              
                                                                                                                                
4:30:19 PM                                                                                                                    
REPRESENTATIVE RAMRAS said, "We're so  hungry to do something and                                                               
we need somebody  to help us put together  a comprehensive energy                                                               
plan,  so   desperately.  We're   going  in  so   many  different                                                               
directions and  we're doing so  with great enthusiasm,  but quite                                                               
clumsily." He asked for a letter addressing his questions.                                                                      
                                                                                                                                
MR. HOBBS said economists will say  a tax is the best answer, and                                                               
politicians prefer a cap and trade.  The outcome will likely be a                                                               
cap and trade  that looks like a tax. It  will have "get-outs" at                                                               
the top  end so it doesn't  get too expensive, or  credits can be                                                               
added to make  the availability greater. The  advantage is making                                                               
"energy  far  more location  agnostic."  If  Alaska provides  100                                                               
percent synthetic fuel to the U.S.  Air Force in Alaska it counts                                                               
against  its aggregate  obligation,  "so  you effectively  export                                                               
production without  ever actually physically moving  it anywhere"                                                               
and without building  a pipeline. Alaska can  build the expertise                                                               
and export know-how  - "a way in which  the logistical challenges                                                               
that you face here in Alaska can  be overcome to a point at which                                                               
you can  achieve your economic development  objectives without as                                                               
much hardware as otherwise you'd require."                                                                                      
                                                                                                                                
4:34:50 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
                                                                                                                                
4:36:31 PM                                                                                                                    
^Black Lion Energae                                                                                                             
                                                                                                                                
DARRELL  SMITH, Black  Lion Energae  and ING,  Mason City,  Iowa,                                                               
said he  has worked for ING  for 23 years. Tim  Tompkins invented                                                               
the  system that  will be  discussed today.  Mr. Smith  has seven                                                               
different  degrees.  Today  the  Obama  Administration  has  $634                                                               
billion in  tax carbon credits in  its budget. It will  raise the                                                               
cost  of   fuel  about  20  percent.   Biofuel  was  specifically                                                               
mentioned. He  asked what  biofuels meant  and the  Department of                                                               
Energy sent  him a letter  that said:  "We know for  certain that                                                               
biofuels is defined as energy derived from algae."                                                                              
                                                                                                                                
4:38:22 PM                                                                                                                    
MR. SMITH  said Black Lion Energae  is the capital arm  formed to                                                               
help fund Renewed World Energies  (RWE), a South Carolina company                                                               
that  produced the  first  known commercially-economic  algae-to-                                                               
energy production  facility. It  developed a  proprietary, fully-                                                               
automated algae  growing and harvesting system  that produces two                                                               
main energy  feedstock sources:  algae oil,  which can  be burned                                                               
for fuel  or converted into  biodiesel, and algae cake,  which is                                                               
processed into synthetic  gas or converted to animal  feed. It is                                                               
grown  in  an  algae  bioreactor, which  is  an  incubation  unit                                                               
developed by  Richard Armstrong  and Tim  Tompkins. The  two have                                                               
built  $7  billion  worth  of  pulp paper  and  energy  for  B.F.                                                               
Goodrich, Duke  Power, G.E.  and others. Why  algae and  why now?                                                               
Biodiesel and  coal are in  big trouble. In rural  Alaska, energy                                                               
costs are  the highest in  the country.  About 80 percent  of all                                                               
biodiesel production  in the  U.S. is  idle due  to soy  oil feed                                                               
stock costs. Coal can't expand due to greenhouse gas emissions.                                                                 
                                                                                                                                
4:40:38 PM                                                                                                                    
MR.  SMITH   said  he  visited  with   [Alaska  Village  Electric                                                               
Cooperative]  this week.  The cost  of a  kilowatt is  $00.127 in                                                               
Anchorage  and $00.51  in  the villages.  RWE  is growing  algae,                                                               
which produces oil and cake. The  oil is extracted from the cake.                                                               
The  algae are  fed with  CO2 and  NOx [nitrogen  oxide]. Oil  is                                                               
produced at $00.85  per gallon. Cake is  converted into synthetic                                                               
gas to provide cheap energy at  $00.025 per kilowatt hour or sold                                                               
as animal feed. The reason  the biodiesel industry is going under                                                               
in the Midwest is due to  high soy oil feedstock costs. Algae can                                                               
consume all  the CO2  and NOx produced  by coal.  Power companies                                                               
spend $22.00 per ton of coal just  to get rid of NOx. Algae are a                                                               
plant  that offers  massive growth  and an  energy solution.  The                                                               
mass of  algae is 35  to 80 percent  oil. There are  over 100,000                                                               
different  strains of  algae. It  helps clean  up diesel  and can                                                               
seasonally  reduce  CO2 and  NOx  emissions  by sequestering  the                                                               
gases  from  diesel  generators.  Algae  will  supplement  diesel                                                               
reducing  the average  cost  per kilowatt  hour.  It can  provide                                                               
community jobs  and reduce energy subsidies.  Dried algae biomass                                                               
can  be  stored and  burned  as  needed. Installation  costs  are                                                               
affordable.   The  bioreactor   provides  low-cost   energy,  and                                                               
installation is  affordable. "Operation  costs doesn't  require a                                                               
PhD." Nothing is harmed if it is spilled.                                                                                       
                                                                                                                                
4:44:50 PM                                                                                                                    
MR. SMITH  said algae consume  wastes while growing.  "Both human                                                               
and animal  waste can be made  to operate in all  weather types."                                                               
He showed  a picture  of the bioreactor.  It is  fully integrated                                                               
with diesel  for minimal costs.  It is self sustaining.  "You can                                                               
put this system down anywhere  at any particular location and the                                                               
low quality  oil produced by  the system  is used to  operate the                                                               
system and provide electricity." It  is a closed system with full                                                               
automation. It uses super-strains,  which are modified algae, and                                                               
98 percent of  the oil is extracted.  Universities are partnering                                                               
with  RWE.  South  Carolina  Power and  South  Carolina  Gas  and                                                               
Electric is  the largest  power production  company in  the state                                                               
and is  offering its free  CO2. The  state of South  Carolina has                                                               
partnered with  RWE and  is offering $13  million in  tax credits                                                               
and  to pay  for  all  worker training.  The  state is  providing                                                               
250,000 acres at  $25 per acre to grow the  algae. The system was                                                               
validated  by Applied  Research Associates,  one of  the nation's                                                               
foremost  grant-writing firms  that work  with the  Department of                                                               
Defense for  system weapons and  energy production.  "They looked                                                               
at all algae systems nationwide;  they came away saying that this                                                               
particular system would solve our energy problems."                                                                             
                                                                                                                                
4:47:47 PM                                                                                                                    
MR.  SMITH said  there is  a proposed  tax on  CO2 emissions  and                                                               
algae will eat  CO2. Coal plants are being voted  down because of                                                               
the  gas exchange  problem, but  algae will  consume the  CO2 and                                                               
NOx. A  typical million-ton coal  plant will spend $30  million a                                                               
year sequestering NOx. Sequestering CO2  will cost from $2 to $70                                                               
per ton  for coal.  Algae convert the  CO2 into  harmless organic                                                               
carbons.  "Gas  sequestration  provides an  environmentally  safe                                                               
expansion  of  coal  mining  and   the  petroleum  industries  in                                                               
Alaska," including the Pebble gold  mine. Algae consume the nasty                                                               
elements associated with mining.                                                                                                
                                                                                                                                
4:49:56 PM                                                                                                                    
MR. SMITH  said there are  two models for  CO2 in the  world, the                                                               
European Union model  where each country gets  an allotted amount                                                               
of CO2 emissions,  and if those are exceeded  carbon credits must                                                               
be purchased  or there  will be  heavy fines.  The U.S.  model is                                                               
voluntary. All  emissions are reported.  If the new  budget comes                                                               
through there will  be "CO2 issues." There are  not enough carbon                                                               
credits relative  to demand  in Europe. In  the U.S.  the carbon-                                                               
trading market is $2  a ton for CO2, and in Europe  it is $19 per                                                               
ton. Algae produce  38,500 gallons of oil per acre  at $00.85 per                                                               
gallon. It  also produces  285 tons of  cake. It  consumes 10,000                                                               
tons of  CO2. At $2 per  ton, one acre of  CO2-consuming algae is                                                               
worth  $20,000. If  it is  trading at  $19 per  ton, one  acre is                                                               
worth $190,000. With one acre of  soy, "you're lucky to get a net                                                               
profit  of  $1,000." Algae  consume  50  tons  of NOx  per  acre.                                                               
Gasification of  both oil and  cake will provide for  the storage                                                               
of energy in Alaska.  It can be used as needed.  "We are making a                                                               
proposal with the Department of Energy for the state of Alaska."                                                                
                                                                                                                                
4:53:24 PM                                                                                                                    
MR.  SMITH  said the  company  has  a relationship  with  Applied                                                               
Research  Associates,  and  both  are filing  a  grant  with  the                                                               
department. The  Applied Research Associates are  bringing in the                                                               
partners. The largest  power company in the Midwest  met with his                                                               
company  over the  last  several months.  The  power company  was                                                               
skeptical, but at  the end of the meeting it  wanted to know when                                                               
it could  get started.  One ton  of coal  will produce  3 million                                                               
tons of carbon. There is no other solution.                                                                                     
                                                                                                                                
CHAIR  MCGUIRE asked  if  the  grant is  under  the new  stimulus                                                               
package - the competitive grants.                                                                                               
                                                                                                                                
MR. SMITH said yes.                                                                                                             
                                                                                                                                
4:55:12 PM                                                                                                                    
REPRESENTATIVE PETERSEN  asked how this can  benefit small Alaska                                                               
communities.                                                                                                                    
                                                                                                                                
MR. SMITH said  his objective is simple. "We plan  to plunk these                                                               
units down into individual communities."  The units don't need an                                                               
outside  source  of energy  to  operate,  because the  energy  is                                                               
created by the unit. The oil  and cake are gasified. Ms. Holdmann                                                               
said  the gasification  industry  isn't "there  yet,"  but he  is                                                               
working with gasification firms from  Scotland to Texas that have                                                               
solved  many  gasification  problems.   The  units  will  produce                                                               
kilowatt  hours at  substantially lower  costs than  the villages                                                               
are paying.  He is not asking  Alaska for money. He  has met with                                                               
Alaska's  largest shipping  and  handling  management company.  A                                                               
development corporation will help. He  met with John Harpole, who                                                               
is the state's  foremost authority on diesel  integration. He has                                                               
put together  a good team, "and  we're going to approach  the DOE                                                               
on your behalf."                                                                                                                
                                                                                                                                
CHAIR MCGUIRE  invited him to  continue to share his  progress on                                                               
getting the competitive grant money.                                                                                            
                                                                                                                                
4:57:48 PM                                                                                                                    
The meeting was adjourned at 4:57 p.m.                                                                                          

Document Name Date/Time Subjects
Algae Fuels Presentation.pdf SENE 2/26/2009 3:00:00 PM
Alaska Energy Policy (ISER).doc SENE 2/26/2009 3:00:00 PM
CERA Presentation.ppt SENE 2/26/2009 3:00:00 PM
Sen Energy Mtg Notice Feb 23-27.doc SENE 2/26/2009 3:00:00 PM
Ginny Fay Presentation.ppt SENE 2/26/2009 3:00:00 PM
Gwen Holdmann Presentation (Feb 26th).ppt SENE 2/26/2009 3:00:00 PM