Legislature(2009 - 2010)BUTROVICH 205

02/23/2009 03:30 PM Senate RESOURCES


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03:32:27 PM Start
03:33:09 PM Overview: Updated Information on the Susitna Hydro Project Alaska Energy Authority
04:25:32 PM Chakachamna Hydro Power Project
05:02:35 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Overview:
+ Updated Information on the Susitna Hydro TELECONFERENCED
Project Alaska Energy Authority;
+ Proposed Chakachamna Hydro Project; TELECONFERENCED
TDX Power: Nick Goodman, Pres. and Eric
Yould, Program Dir.
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE RESOURCES STANDING COMMITTEE                                                                             
                       February 23, 2009                                                                                        
                           3:32 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Bill Wielechowski, Co-Chair                                                                                             
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Hollis French                                                                                                           
Senator Bert Stedman                                                                                                            
Senator Gary Stevens                                                                                                            
Senator Thomas Wagoner                                                                                                          
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Lesil McGuire, Co-Chair                                                                                                 
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Joe Thomas                                                                                                              
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
Overviews                                                                                                                     
Updated Information on the Susitna Hydro Project by Jim Hemsath,                                                                
Deputy Director, Alaska Energy Authority                                                                                        
                                                                                                                                
Proposed Chakachamna Hydro Project by Nick Goodman, President,                                                                  
and Eric Yould, Program Director, TDX Power                                                                                     
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to consider                                                                                                  
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
JIM HEMSATH, Deputy Director                                                                                                    
Project Development                                                                                                             
Alaska Energy Authority (AEA) and                                                                                               
The Alaska Industrial Development and Export Authority (AIDEA)                                                                
POSITION STATEMENT: Presented AEA overview.                                                                                   
                                                                                                                                
NICK GOODMAN, President                                                                                                         
TDX Power                                                                                                                       
POSITION STATEMENT: Presented TDX Chakachamna overview.                                                                       
                                                                                                                                
ERIC YOULD, Program Director                                                                                                    
Chakachamna Hydro Power Project                                                                                                 
POSITION STATEMENT:                                                                                                           
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:32:27 PM                                                                                                                    
                                                                                                                                
CO-CHAIR BILL  WIELECHOWSKI called the Senate  Resources Standing                                                             
Committee meeting  to order at 3:32  p.m. Present at the  call to                                                               
order were  Senators Huggins,  Stevens, Stedman,  Wagoner, French                                                               
and Wielechowski.                                                                                                               
                                                                                                                                
^Overview:  Updated  Information  on the  Susitna  Hydro  Project                                                               
Alaska Energy Authority                                                                                                         
                                                                                                                                
3:33:09 PM                                                                                                                    
JIM HEMSATH, Deputy Director,  Project Development, Alaska Energy                                                               
Authority (AEA) and the Alaska  Industrial Development and Export                                                               
Authority (AIDEA), said last year  the legislature was interested                                                               
in the  possibility of a  hydro electric power plant  at Susitna.                                                               
AIDEA and AEA were commissioned  to study and update the original                                                               
1984 estimate  to understand  where the costs  are, look  for new                                                               
construction  technologies  that  might  minimize  the  cost  and                                                               
perform a system  study or Integrated Resource Plan  (IRP) to see                                                               
where Susitna would fit into the Railbelt system.                                                                               
                                                                                                                                
First he wanted  to update the committee on the  work done on the                                                               
capital costs from  an HDR Alaska interim report  with the intent                                                               
that if the costs  appear to be out of line,  work on the project                                                               
would stop.  He had provided the  committee with a memo  from his                                                               
staff that summarized where they  stand on those figures. He said                                                               
his presentation focused  on the physical aspects  of the project                                                               
so the costs associated with them could be better understood.                                                                   
                                                                                                                                
3:36:25 PM                                                                                                                    
His  first picture  showed where  the Watana  and Devil's  Canyon                                                               
dams  would sit  on  the  Susitna River.  He  explained that  the                                                               
Susitna  dam,  as   a  concept,  goes  back  to   the  early  50s                                                               
culminating in 1983/85 with the  Alaska Power Association putting                                                               
in a FERC permit for a  dam that was subsequently withdrawn. That                                                               
dam system  has a  number of variations.  The two-dam  concept is                                                               
what was  picked by  the Corps of  Engineers in  1984. Previously                                                               
there were as many as four dams on the Susitna River.                                                                           
                                                                                                                                
So he looked  at the 1984 FERC application on  the Susitna dam as                                                               
a system  that includes the  Watana dam, a large  earthen 48-mile                                                               
long  dam, and  the  Devil's Canyon  dam, which  is  a thin  arch                                                               
concrete 26-mile long structure. He said  you want to get as much                                                               
power generation as you can for the capital investment.                                                                         
                                                                                                                                
3:38:44 PM                                                                                                                    
There  are  four  options:  a  short Watana,  a  full  Watana,  a                                                               
Watana/Devil's Canyon,  one sequentially  after the other,  and a                                                               
staged  project with  continuous construction.  Any of  the cases                                                               
could  be built  in  20 years,  but for  the  Watana and  Devil's                                                               
Canyon option specifically, the one  dam could be built first and                                                               
the second  one 20 years  later. The debt structure  just changes                                                               
the overall cost of power.                                                                                                      
                                                                                                                                
3:39:55 PM                                                                                                                    
The Watana  dam is a  rock-fill gravity dam,  a big pile  of dirt                                                               
and rock  885 ft. tall  and approximately  4,100 ft. wide  at the                                                               
top. It will basically control the  flow of the Susitna River and                                                               
create  a 48-mile  long  lake that  is 15-20  miles  wide at  its                                                               
widest section.  Diversion of the river  will be done by  two 30-                                                               
foot  tunnels and  the  design  at full  capacity  is six  200-MW                                                               
generators.                                                                                                                     
                                                                                                                                
3:41:18 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI asked  how active the fishery  is there. Do                                                               
salmon go up that far?                                                                                                          
                                                                                                                                
MR. HEMSATH  answered that the  1984 study found that  the salmon                                                               
didn't come  that far  up stream.  It also  found that  there was                                                               
minimal  impact on  the salmon  from  a little  bit of  turbidity                                                               
coming out  of Devil's  Canyon. It was  thought that  would clear                                                               
out before the hatcheries were put in place on the river.                                                                       
                                                                                                                                
CO-CHAIR WIELECHOWSKI asked what is in  the 48 miles that will be                                                               
flooded.                                                                                                                        
                                                                                                                                
MR. HEMSATH replied  trees, tundra and some sheep.  He showed the                                                               
committee  pictures of  what the  dams would  look like.  He said                                                               
they looked at  two different options for the Watana  dam; one is                                                               
the  low option  of  700 ft.  that would  generate  power a  year                                                               
earlier than  the high  option. It  would have  297 MW  of annual                                                               
average output and  cost $6.9 billion to build  and provide power                                                               
for $0.24/kWh based on a 50-year  bond at 5 percent interest. The                                                               
50-year term  would fit with  the FERC  license. The dam  life is                                                               
assumed to be  100 years. After 50 years the  cost of power drops                                                               
down to the $0.03-.04/kWh.                                                                                                      
                                                                                                                                
3:46:02 PM                                                                                                                    
SENATOR FRENCH asked what a 50-year bond would go for now.                                                                      
                                                                                                                                
MR.  HEMSATH replied  they went  for 5-6  percent last  year; now                                                               
maybe  8-9 percent.  The  biggest problem  for  bonds is  getting                                                               
underwriting for them.                                                                                                          
                                                                                                                                
3:47:19 PM                                                                                                                    
SENATOR  FRENCH   asked,  for  perspective,  what   an  Anchorage                                                               
consumer is paying now per kWh.                                                                                                 
                                                                                                                                
MR. HEMSATH replied $0.13-.15 kWh.                                                                                              
                                                                                                                                
SENATOR FRENCH asked what about Fairbanks.                                                                                      
                                                                                                                                
MR.  HEMSATH replied  $0.28 kWh  based mostly  on the  North Pole                                                               
power plant  and the ability  to move  power up on  the Intertie.                                                               
The financed price  of coal-fired power is $.08 kWh,  but that is                                                               
not delivered.                                                                                                                  
                                                                                                                                
3:48:15 PM                                                                                                                    
SENATOR STEDMAN asked the btu-equivalent  of natural gas compared                                                               
to the cost of electricity.                                                                                                     
                                                                                                                                
MR. HEMSATH said he didn't have that figure.                                                                                    
                                                                                                                                
CO-CHAIR  WIELECHOWSKI  said  he  is  surprised  at  the  numbers                                                               
because he  sees how low the  Southeast numbers are. Did  it take                                                               
50  years before  consumers of  the  Four Dam  Pool in  Southeast                                                               
started getting  low rates? What  are the differences in  the two                                                               
projects?                                                                                                                       
                                                                                                                                
MR. HEMSATH  replied that Susitna  is an extremely  large capital                                                               
project that is  limited by the hydrology itself.  The Watana Dam                                                               
is 1,200 MW peak generation capacity  for that one second in time                                                               
when the lake is full and all  the turbines are running. A lot of                                                               
capital is being carried for a  certain amount of load. He didn't                                                               
have the  numbers on  Bradley Lake  other than  he heard  when it                                                               
first started  generating at $.07-.08  kWh, people  were appalled                                                               
at the cost of power; now that is looking pretty good.                                                                          
                                                                                                                                
3:50:36 PM                                                                                                                    
SENATOR STEDMAN  said the Green  Lake dam,  built in the  '80s in                                                               
Sitka, didn't  come inside  the Four Dam  Pool group  because the                                                               
group didn't want  to be tied in with the  rate issues around the                                                               
state.  The  community  built  it  with the  help  of  a  conduit                                                               
instrument through  the Alaska Industrial Development  and Export                                                               
Authority  (AIDEA).   It's  rate   was  $0.10-.11,   which  seems                                                               
relatively  cheap now,  but when  the dam  was built  some people                                                               
thought it was too expensive.                                                                                                   
                                                                                                                                
3:51:39 PM                                                                                                                    
CO-CHAIR  WIELECHOWSKI  agreed  that  information  like  that  is                                                               
helpful  as they  grapple with  this  project, because  $0.24/kWh                                                               
would double  people's electric rates  in Anchorage,  which would                                                               
be a tough sell. Have you explored other ways to get rates down?                                                                
                                                                                                                                
MR. HEMSATH replied  that the most economical option  in terms of                                                               
power in  these cases is  building two  dams one right  after the                                                               
other. The  current analysis assumed  that all the power  that is                                                               
generated  is consumed,  a fairly  large assumption.  The IRP  is                                                               
part of  the next phase that  would be taking place  this summer.                                                               
The combination of the two dams  brings the cost of power down to                                                               
$0.16/kWh because the  second dam takes advantage of  the cost of                                                               
the  infrastructure, like  roads  and bridges  that  were put  in                                                               
place for the first one.                                                                                                        
                                                                                                                                
Secondly, while  they expect to  have virtually no change  in the                                                               
cost estimate from  this perspective, this analysis  is an update                                                               
of the  '84 numbers  and a  refinement of  different construction                                                               
techniques   that  were   not  available   in  1984   that  could                                                               
potentially use less fill and,  therefore, less time to construct                                                               
as well. He didn't think $0.16 kWh  for the next 50 years was out                                                               
of  the question  considering  where  gas prices  would  be as  a                                                               
typical alternative with gas-fired generation.                                                                                  
                                                                                                                                
CO-CHAIR  WIELECHOWSKI  asked  the   total  load  demand  in  the                                                               
Railbelt.                                                                                                                       
                                                                                                                                
MR. HEMSATH replied 800-1000 MW.                                                                                                
                                                                                                                                
CO-CHAIR WIELECHOWSKI said the full  project would essentially be                                                               
replacing  that  total  megawatt  load.  Did  his  costs  include                                                               
transmission lines, dams, roads, et cetera?                                                                                     
                                                                                                                                
MR.  HEMSATH answered  yes; the  costs also  include transmission                                                               
lines and substations that didn't existing in 1984.                                                                             
                                                                                                                                
3:54:42 PM                                                                                                                    
SENATOR  THOMAS  asked if  he  anticipates  building a  schematic                                                               
showing the  potential for  gas and  hydro power  generation with                                                               
the IRP.                                                                                                                        
                                                                                                                                
MR. HEMSATH replied  that looking at and comparing  all the power                                                               
generations options  available in the  Railbelt is the  intent of                                                               
the IRP.                                                                                                                        
                                                                                                                                
3:56:17 PM                                                                                                                    
SENATOR WAGONER asked what electricity cost in 1984.                                                                            
                                                                                                                                
MR. HEMSATH  replied the 1984  report said  it was three  to four                                                               
times higher than fossil generation.                                                                                            
                                                                                                                                
SENATOR WAGONER  asked what  the difference in  cost would  be of                                                               
using three or four dams on the river instead of two.                                                                           
                                                                                                                                
MR. HEMSATH  answered that the  two-dam combination was  the most                                                               
cost effective to generate power from the Susitna River.                                                                        
                                                                                                                                
SENATOR STEDMAN  asked if he  ran 100  percent debt with  the 50-                                                               
year bonds at 5 percent.                                                                                                        
                                                                                                                                
MR. HEMSATH answered yes.                                                                                                       
                                                                                                                                
SENATOR STEDMAN asked for an  analysis of impacts that any equity                                                               
positions would provide.                                                                                                        
                                                                                                                                
MR. HEMSATH  replied that  is their plan;  to refine  the capital                                                               
costs and the  financing options as well as looking  at what kind                                                               
of financing options exist worldwide.                                                                                           
                                                                                                                                
3:59:46 PM                                                                                                                    
MR. HEMSATH  said the  Devil's Canyon Dam  is an  arched concrete                                                               
dam approximately  646 ft. tall  and it  would be done  after the                                                               
Watana Dam, which in all cases  is used to control the river. The                                                               
costs for doing the Devil's Canyon  by itself would be upwards of                                                               
$5 billion, and while the cost  of power is on an averaged basis,                                                               
this dam  by itself is  subject to seasonal variations.  The peak                                                               
generation would be  during the summer and  virtually very little                                                               
in the  winter (maybe 100 MW).  A combination of both  dams would                                                               
provide the optimal flow.                                                                                                       
                                                                                                                                
Their study will continue to  look at the geology, earthquake and                                                               
seismology for the  area that wasn't known in 1984,  he said. The                                                               
estimate includes improvements to 21  miles of existing roads and                                                               
81 miles of  new roads, a 1,600 ft. suspension  bridge across the                                                               
Susitna  River by  Devil's Canyon,  heavy equipment  to move  the                                                               
turbines, a  rail header up to  the road system, a  number of air                                                               
strips  and permanent  camps. The  project is  very large,  large                                                               
enough  to  compete  with  other  large  projects  in  the  area.                                                               
Logistics  and local  material suitability  are different  things                                                               
that could impact this particular project.                                                                                      
                                                                                                                                
4:04:31 PM                                                                                                                    
The financing of  this project is going to be  very expensive and                                                               
they   have  to   understand   how   private  sector   financing,                                                               
private/public  partnerships, and  equity positions  would change                                                               
its economics.  The IRP  will also help  them understand  what it                                                               
means to  use this  dam system  at its  maximum capacity  all the                                                               
time. It will help them see  opportunities 20 years down the road                                                               
when the  power comes on line;  and it will help  them understand                                                               
carbon costs.                                                                                                                   
                                                                                                                                
4:05:29 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI  asked how this  compares to other  dams in                                                               
the U.S.                                                                                                                        
                                                                                                                                
MR. HEMSATH replied it's not quite  as big as the Hoover Dam, but                                                               
these are world-class dams.                                                                                                     
                                                                                                                                
CO-CHAIR  WIELECHOWSKI  asked  when  the final  report  would  be                                                               
ready.                                                                                                                          
                                                                                                                                
MR. HEMSATH answered  this summer; the IRP would  be completed in                                                               
September.                                                                                                                      
                                                                                                                                
4:06:57 PM                                                                                                                    
SENATOR FRENCH  said it  says something about  the world  when it                                                               
takes longer  to build a  dam than to  build a pipeline  from one                                                               
country to another.                                                                                                             
                                                                                                                                
MR. HEMSATH said this is a  much bigger project than the pipeline                                                               
project in terms of the  logistical effort in moving material and                                                               
earth.                                                                                                                          
                                                                                                                                
4:07:53 PM                                                                                                                    
SENATOR  THOMAS asked  how they  arrived at  100 years  of useful                                                               
life for purposes of calculating the power.                                                                                     
                                                                                                                                
MR. HEMSATH answered  they used 50 years for  the cost comparison                                                               
because  that is  the  typical  time period  FERC  would issue  a                                                               
license; the license  could be renewed at the end  of 50 years as                                                               
well. It is  assumed a hydro project has a  100-year life span in                                                               
terms of its equipment and some of the structural aspects.                                                                      
                                                                                                                                
4:09:17 PM                                                                                                                    
SENATOR  THOMAS  said  some  of the  dams  in  Southeastern  were                                                               
started with the mining industries; so  some of them are over 100                                                               
years   old   and   they  were   not   particularly   technically                                                               
sophisticated. How long does a dam  really last and how will that                                                               
affect financing? He  also asked the reason behind  the road from                                                               
the Denali Highway. Is it potentially  a better route to bring in                                                               
materials  or does  it  go through  some  potential resource  the                                                               
state might develop in the future?                                                                                              
                                                                                                                                
MR. HEMSATH  replied there is no  good answer for a  dam's length                                                               
of life.  The Hoover Dam is  pushing 70-plus years and  no one is                                                               
looking at  a 30-year retirement.  The consultants  and engineers                                                               
they talked  to just don't like  to say anything bigger  than 100                                                               
years. He assured  them that the IRP would look  at fuel costs in                                                               
terms of expected life. He  reminded them that carbon cost issues                                                               
is  a  whole  other  aspect  of  this  project  that  has  to  be                                                               
considered.                                                                                                                     
                                                                                                                                
4:13:30 PM                                                                                                                    
SENATOR STEDMAN  explained that some  hydro work was done  in the                                                               
Southeast during the gold rush, and  the next hydro work was done                                                               
for the  cold storages to  get the  fishing fleet off  of glacier                                                               
ice.  Then hydro  capacity was  installed for  the pulp  mills in                                                               
Ketchikan  and Sitka.  The Sitka  dam  is now  raising the  spill                                                               
height to its design level  to add more generation capacity. It's                                                               
roughly 50 years  old now and they are expecting  it to be around                                                               
a lot longer than 50 more years.                                                                                                
                                                                                                                                
4:14:33 PM                                                                                                                    
SENATOR  HUGGINS asked  if the  infrastructure  breakout was  for                                                               
both dams.                                                                                                                      
                                                                                                                                
MR.  HEMSATH replied  both projects.  He  also addressed  Senator                                                               
Thomas' previous  question about a road  saying his understanding                                                               
from the '84 report is that the  road was put in from a logistics                                                               
aspect for moving material long distances.                                                                                      
                                                                                                                                
SENATOR  HUGGINS  said  he  assumed they  had  done  staffing  in                                                               
different departments to look at the project.                                                                                   
                                                                                                                                
MR. HEMSATH  replied no. They are  treating this as just  a first                                                               
phase engineering  study of capital costs  using some assumptions                                                               
that  the permitting  and other  aspects of  the '84  FERC permit                                                               
were correct enough.                                                                                                            
                                                                                                                                
4:17:40 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI said the seismicity  in zone 4 is great and                                                               
asked if a  dam like this could sustain a  magnitude 7 earthquake                                                               
- because  you have  to assume  there will be  one in  a 100-year                                                               
life span.                                                                                                                      
                                                                                                                                
MR. HEMSATH answered  yes it could sustain an  earthquake of that                                                               
magnitude.                                                                                                                      
                                                                                                                                
4:19:25 PM                                                                                                                    
CO-CHAIR  WIELECHOWSKI asked  how  many jobs  this project  would                                                               
create.                                                                                                                         
                                                                                                                                
MR. HEMSATH answered thousands for  construction, and maybe 50-75                                                               
full time people at both dams.                                                                                                  
                                                                                                                                
CO-CHAIR   WIELECHOWSKI   asked   how  many   years   of   actual                                                               
construction it would take to complete the project.                                                                             
                                                                                                                                
MR. HEMSATH  replied 15 years  for both dams and  approximately 7                                                               
of those  years would be  for permitting activities.  They hadn't                                                               
gotten into the  details of sequencing the  permitting with roads                                                               
and facilities yet.                                                                                                             
                                                                                                                                
4:21:05 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI announced an at ease at 4:21 p.m.                                                                         
                                                                                                                                
4:21:44 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI  called the meeting  back to order  at 4:21                                                               
p.m.                                                                                                                            
                                                                                                                                
^Chakachamna Hydro Power Project                                                                                                
                                                                                                                                
NICK GOODMAN,  President, TDX  Power, said he  is often  asked if                                                               
his  project is  mutually exclusive  of or  competitive with  the                                                               
Susitna project,  but he  believes not.  They think  the projects                                                               
could be  developed sequentially so  they are anxious to  see how                                                               
the Susitna one proceeds.                                                                                                       
                                                                                                                                
ERIC  YOULD, Program  Director, Chakachamna  Hydro Power  Project                                                               
said he  wanted to  put it  into context  first. He  said Susitna                                                               
needs to  be looked  at in the  framework of what  it was  at the                                                               
time. For  instance, inflation was  running about 20  percent and                                                               
the cost  of revenue bonds  was about  10 percent. Here  they are                                                               
talking about revenue bonds in the neighborhood of 5 percent.                                                                   
                                                                                                                                
He said he  was the program manager for the  Susitna project when                                                               
it was  looked at by the  Corps of Engineers and  later he became                                                               
the executive  director of  the Alaska  Power Authority  for five                                                               
years. It  was an exciting  project, but  it died when  a similar                                                               
economic  downturn took  place as  is happening  today. When  the                                                               
project started the price of oil  was going for $34/barrel and by                                                               
the  time  the project  "cratered,"  it  was  down to  less  than                                                               
$9/barrel. The state essentially  didn't have the disposable cash                                                               
for its equity investment, but  the economics of the project were                                                               
eroded as well.                                                                                                                 
                                                                                                                                
4:25:32 PM                                                                                                                    
To put  the project into perspective  he wanted to talk  a little                                                               
bit about statewide  hydro resources. People think  of Susitna as                                                               
a gigantic  project, but it  is really  quite a small  project in                                                               
comparison to some of the other  resources the state has. He said                                                               
the Chakachamna project,  was shelved in the 70s  and 80s because                                                               
it looked like it was  actually competing with Susitna for market                                                               
at the  time. The Bradley  Lake project was brought  forward, but                                                               
Chakachamna was shelved. They feel  that Chakachamna, Susitna and                                                               
projects like  Mt. Spurr are  not mutually exclusive,  but rather                                                               
give the state a tremendous  opportunity that people in the Lower                                                               
48 just don't have.                                                                                                             
                                                                                                                                
4:26:58 PM                                                                                                                    
MR. YOULD  said Cook Inlet is  running out of gas  and today it's                                                               
at a low  of $7.50/mmbtu. They started off with  2 tcf of natural                                                               
gas and they  are down to less  than 2 cf. So,  unless they bring                                                               
LNG in,  find more natural gas  in Cook Inlet or  bring something                                                               
down from the North Slope, Alaskans  will be paying a premium for                                                               
their natural gas in the future.                                                                                                
                                                                                                                                
Cook Inlet has  a tremendous amount of coal  resource from Healy,                                                               
the  Pacific Rim  and  Beluga.  The cost  of  that is  relatively                                                               
inexpensive compared  to natural  gas at  only $2/mmbtu,  but the                                                               
economic consequences  of coal  are high  because of  the capital                                                               
cost it  takes to develop  coal-fired generation. Those  would be                                                               
the two  primary options if  the state doesn't develop  its hydro                                                               
power. That  is not  to say  that we  don't have  other renewable                                                               
resources. We have wind, but  that will generally be an augmenter                                                               
of our  generation, not a primary  component of it; Mt.  Spur has                                                               
geothermal potential,  and tidal power  is expensive and  has its                                                               
impacts. Solar  is a  great technology, but  "when the  sun don't                                                               
shine, you've got problems."                                                                                                    
                                                                                                                                
4:28:41 PM                                                                                                                    
The state has  tremendous amounts of hydropower;  the Corps found                                                               
256 sites alone  that if developed could provide  192 billion kWh                                                               
of  electricity;  the Railbelt  consumes  5  billion kWh.  It  is                                                               
roughly 40 percent of the untapped U.S. hydro power potential.                                                                  
                                                                                                                                
Rampart Dam would  be the biggest project on the  Yukon River and                                                               
could produce  34 billion kWh.  But it would require  a reservoir                                                               
roughly the size  of Lake Erie that would take  17 years to fill.                                                               
It would have enough water to  inundate the entire state of Texas                                                               
with 7 ft. of water.                                                                                                            
                                                                                                                                
4:30:31 PM                                                                                                                    
The  Copper  River  project  has 20  billion  kWh.  His  favorite                                                               
project  is  Yukon/Taiya  that  has  very  little  flow  required                                                               
because  of  the tremendous  head  associated  with the  project.                                                               
Little Susitna  at 6.5 kWh  and Chakachamna has 1.6  billion kWh,                                                               
or 35 percent of the energy needed in the Railbelt today.                                                                       
                                                                                                                                
4:31:08 PM                                                                                                                    
The state  has 40 projects  statewide, most of them  quite small,                                                               
but they will be there for a long time.                                                                                         
                                                                                                                                
4:31:31 PM                                                                                                                    
He said the total cost of  power in 1985 dollars was $5.3 billion                                                               
for the Susitna dams not  including interest during construction.                                                               
The  Watana would  have  62  million yards  of  fill and  Devil's                                                               
Canyon would have 1 million yards of concrete.                                                                                  
                                                                                                                                
4:32:06 PM                                                                                                                    
SENATOR  FRENCH  asked for  a  clear  idea  of what  the  Susitna                                                               
project would cost compared to Chakachamna.                                                                                     
                                                                                                                                
4:32:47 PM                                                                                                                    
MR. YOULD replied in today's  dollars Chakachamna would cost $1.7                                                               
billion; the  two dams  for the Susitna  project would  cost $5.3                                                               
billion.                                                                                                                        
                                                                                                                                
SENATOR FRENCH said the two are estimated at $11.6 billion.                                                                     
                                                                                                                                
MR. YOULD said that is what he has been guessing.                                                                               
                                                                                                                                
4:33:12 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI  how do  one figures how  much that  is per                                                               
kwh.                                                                                                                            
                                                                                                                                
MR. YOULD replied it depends on the cost of money.                                                                              
                                                                                                                                
4:33:39 PM                                                                                                                    
MR. GOODMAN  said they can  use the  same numbers Mr.  Yould used                                                               
for Susitna and  be well below $0.10 kWh. But  who knows how it's                                                               
going  to  be  financed;  and  the  way  it's  financed  is  very                                                               
important to what the cost of power would be.                                                                                   
                                                                                                                                
4:34:41 PM                                                                                                                    
MR. YOULD explained  when they looked at Susitna,  they looked at                                                               
13 different  dam sites  along the upper  Susitna River.  At each                                                               
site  they   looked  at  different   heights  and   in  different                                                               
combinations.   Ultimately  they   concluded  that   the  Devil's                                                               
Canyon/High  Watana   scheme  was   the  most   economically  and                                                               
environmentally  acceptable  way  to develop  the  upper  Susitna                                                               
River.                                                                                                                          
                                                                                                                                
4:35:40 PM                                                                                                                    
In looking at Susitna they  found five other hydro power projects                                                               
they  felt could  be good  fits for  the Railbelt  - the  Johnson                                                               
project,  Chakachamna,   Snow,  Keetna  and  Browne.   Of  those,                                                               
Chakachamna,  because  of  its proximity  and  the  environmental                                                               
impact, if Susitna  was not in the picture, would  be the project                                                               
they would be pursuing. He said  TDX Power has the exclusive FERC                                                               
permit to actually assess the project at the present time.                                                                      
                                                                                                                                
4:36:37 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI asked him to  tell them a little more about                                                               
TDX Power.                                                                                                                      
                                                                                                                                
MR. GOODMAN  said TDX Power  is a wholly-owned subsidiary  of the                                                               
TDX Corporation, a  village corporation from St.  Paul Island. It                                                               
was formed in  1990 and is essentially  a utility-holding company                                                               
that  owns and  operates utilities  around the  state from  small                                                               
remote locations, like  St. Paul Island and Adak, all  the way up                                                               
to Prudhoe Bay, their largest holding.                                                                                          
                                                                                                                                
They are  technology neutral  and generate  with natural  gas and                                                               
diesel;  they specialize  in  integrating  renewable with  fossil                                                               
fuels. They have  one of the state's  first wind/diesel projects;                                                               
they are  developing a  small geothermal project  in Manly  and a                                                               
small  hydro project  in Adak.  They are  very familiar  with the                                                               
benefits of renewables. In response  to Senator French's question                                                               
regarding the  comparison of renewable  hydro to a  gas pipeline,                                                               
the upfront costs and the effort  it takes to bring renewables on                                                               
line is always  significantly higher, but then,  of course, there                                                               
is no  fuel. So  often the  benefit is  very long  whereas fossil                                                               
generation is shorter.                                                                                                          
                                                                                                                                
The Chakachamna project was first  conceived in the late 1990s in                                                               
looking at the Railbelt issues.  They saw the shortage of natural                                                               
gas in  Cook Inlet, they had  interest in Mt. Spurr  in the early                                                               
days. But when  they found Chakachamna it became  clear that this                                                               
project  was sized  properly and  was not  mutually exclusive  of                                                               
other  projects. Economically,  it  had a  great  fit within  the                                                               
Railbelt profile in general.                                                                                                    
                                                                                                                                
4:38:32 PM                                                                                                                    
MR. YOULD  said basically there  would be no dam  on Chakachamna;                                                               
rather  they  "blow  a  hole"   in  the  bottom  of  an  existing                                                               
reservoir/lake  and take  the water  12 miles  to an  underground                                                               
power  house in  the  McArthur River  drainage  basin. It's  very                                                               
similar to the  Tyee Hydro Project, a project built  in the '80s.                                                               
The  control is  at the  lake outlet;  the power  tunnel, itself,                                                               
would be 24  ft. in diameter and would be  drilled with a tunnel-                                                               
boring machine. The project could put  out roughly a third of the                                                               
electricity  of what  the Railbelt  consumes today  at a  cost in                                                               
today's dollars of $1.7 billion. The  nice thing about it is that                                                               
it is only 40 miles from  the Chugach Transmission line at Beluga                                                               
Substation. So  it would cost $90  million to bring power  to the                                                               
Railbelt  system  that  could,  then,  bring  power  both  up  to                                                               
Fairbanks and down to Homer, as well.                                                                                           
                                                                                                                                
4:39:53 PM                                                                                                                    
SENATOR FRENCH asked  him to describe the seasonal  flow into and                                                               
out of that lake.                                                                                                               
                                                                                                                                
MR. YOULD replied  the reservoir is drawn down  during the period                                                               
of the least  in-flow in the winter. When spring  comes, it fills                                                               
up again. Every year the lake will  go down about 42 ft. and fill                                                               
back  up to  full  in the  spring and  stay  full throughout  the                                                               
course of the summer and into the fall.                                                                                         
                                                                                                                                
SENATOR FRENCH asked  him to talk a little bit  about the impacts                                                               
of  taking  it out  of  what  is  normally  the out-flow  of  the                                                               
Chakachatna River and putting into the McArthur River.                                                                          
                                                                                                                                
MR. YOULD  replied that is  a concern because they  are basically                                                               
taking  water  that  would  go down  the  Chakachatna  River  and                                                               
putting  it  into  another  drainage basin;  this  is  called  an                                                               
"inter-basin  transfer of  water." They  have to  make sure  they                                                               
release enough  water down the  Chakachatna River to  sustain the                                                               
existing  habitat and  fisheries  that use  that  stretch of  the                                                               
river. This  will be the  biggest challenge they  have. Estimates                                                               
have  been made  of  how much  water that  is,  but they  haven't                                                               
pinned  it   down  yet.  It's  a   challenging  proposition,  but                                                               
essentially  80 percent  of the  water  will be  diverted to  the                                                               
McArthur drainage basin and 20  percent will be reserved for down                                                               
stream flow to sustain existing fisheries.                                                                                      
                                                                                                                                
4:44:47 PM                                                                                                                    
SENATOR WAGONER said the river will be dry at the low level.                                                                    
                                                                                                                                
MR. YOULD replied yes, but  they have designed a low-level outlet                                                               
to make sure  they would always have water  going downstream. The                                                               
land  status there  consists of  state, federal,  borough, tribal                                                               
and other designations. The majority  of the land was selected by                                                               
the  State of  Alaska  because of  the  Chakachamna project.  The                                                               
federal government,  however, does  own some  land there  and the                                                               
Lake Clark  National Park  and Monument goes  up through  it, but                                                               
the project doesn't impact it.                                                                                                  
                                                                                                                                
4:46:55 PM                                                                                                                    
Five species  of salmon use  the basin;  sockeye is the  main one                                                               
that actually  goes into  the lake area  itself. During  the 1982                                                               
investigations,  they found  roughly  40,000 fish  went into  the                                                               
Chakachamna Lake  area. A total  of 78,000  fish go into  both of                                                               
the drainage  basins; the  Kenai River  has 2.4  million sockeye,                                                               
the  Kasilof  has  1.2  million  and the  Susitna  River  has  .5                                                               
million. It's not  a gigantic fishery, but they  are committed to                                                               
preserving it and perhaps enhancing it.                                                                                         
                                                                                                                                
MR.  YOULD  said  there  are  56 species  of  birds;  the  normal                                                               
wildlife includes no endangered species,  but the Beluga Whale is                                                               
now  a  species that  can't  be  impacted.  Seismic is  the  main                                                               
geotechnical consideration,  and Castle Mountain Fault  runs very                                                               
close to  the power house.  Mt. Spurr is  very close to  the Cook                                                               
Inlet, and there are many glaciers,  any one of which could cause                                                               
their own concern if they decided to advance or decline.                                                                        
                                                                                                                                
4:50:21 PM                                                                                                                    
CO-CHAIR WIELECHOWSKI asked if the  U.S. went to the Kyoto Treaty                                                               
what would CO2 would cost per ton.                                                                                              
                                                                                                                                
MR. YOULD replied  $20/ton, but he didn't know for  sure. He said                                                               
that  hydro actually  goes down  because it  is the  recipient of                                                               
some of those credits.                                                                                                          
                                                                                                                                
4:51:13 PM                                                                                                                    
MR. GOODMAN said  they are two years into  the preliminary permit                                                               
investigations of  a 36-month period. They  expect FERC licensing                                                               
to take  18-36 months; the  real driver  becomes the EIS  and the                                                               
agencies involvement  in that. The  majority of their  focus over                                                               
the last 12 months has been to  work with the agencies to pull as                                                               
much out of them as possible in  terms of what they would like to                                                               
see  addressed   in  the  upfront  work/study   plans.  The  more                                                               
successful  they are  at that,  the closer  they are  to 18-month                                                               
FERC  licensing  as  opposed  to   36  months.  He  said  project                                                               
construction is anywhere  from 48-54 months with  power coming on                                                               
line at the end of 2017/18.                                                                                                     
                                                                                                                                
He summarized that they believe  there is significant hydro power                                                               
potential   in  the   Railbelt  grid,   both  with   Susitna  and                                                               
Chakachamna  and  some  other  smaller  projects  that  are  just                                                               
beginning to be looked at.  They are pursuing Chakachamna because                                                               
they  feel it  has a  very good  place in  the que.  This project                                                               
would  require the  support of  the utilities,  which they  think                                                               
they have  in concept right now.  The utilities want to  know the                                                               
cost of  the power and the  answers to some other  questions like                                                               
is there going to be a bullet line  and what will the cost of gas                                                               
be. And  are they really  shutting down  the pursuit of  coal for                                                               
generation.                                                                                                                     
                                                                                                                                
MR. GOODMAN said  one year ago TDX Power was  proposing this as a                                                               
100 percent  private project  from which they  would try  to sell                                                               
power directly to the utilities.  A couple of things have changed                                                               
since  then that  suggest state  involvement or  partnership with                                                               
the project could be very  beneficial to the end-use consumer and                                                               
they now want  to know the state's level of  interest in taking a                                                               
role in this project.                                                                                                           
                                                                                                                                
He  said that  private money  is still  out there,  but the  risk                                                               
profile associated with  a project like this  today is considered                                                               
higher than  it was 12 months  ago. It's quite clear  to them, he                                                               
said,  that  the  cost  of  power would  be  cheaper  with  state                                                               
involvement.  The private  sector  is looking  for  a minimum  15                                                               
percent  return and  in reality  probably closer  to 20  percent.                                                               
This is  for a number of  reasons that aren't critical  of Alaska                                                               
or utilities.                                                                                                                   
                                                                                                                                
4:55:10 PM                                                                                                                    
TDX has  seven utilities of varying  sizes from the south  of the                                                               
Kenai all the way up  to Fairbanks, from municipalities to coops,                                                               
and they all have different  financial structures right now. This                                                               
makes  it  difficult  for  financial investors  to  see  how  the                                                               
creditor or the purchaser of the power  as a unit will be able to                                                               
stand behind the financing of this project.                                                                                     
                                                                                                                                
MR.  GOODMAN said  the other  issue that  has come  up, which  is                                                               
potentially very  beneficial to the  project, is the  REGA study.                                                               
Will there  be some  kind of combined  structure in  the Railbelt                                                               
grid?  Will  the  utilities  be  bulked  together  at  least  for                                                               
transmission? What role  will generation play? This  is a double-                                                               
edged sword, because  in many ways their goal in  this project is                                                               
to stay  neutral to all of  the various utility interests  and to                                                               
try  to  provide power  to  the  entire  Railbelt, perhaps  on  a                                                               
Bradley Lake-like model  where all of the utilities  share in the                                                               
power output. At  the same time, discussions of  things like REGA                                                               
and  consolidation  within  the  Railbelt  only  serve  to  raise                                                               
question  to potential  investors. What  will that  structure be?                                                               
Who  will  be  purchasing  the power?  What  is  their  financial                                                               
capability to stand behind the power purchase?                                                                                  
                                                                                                                                
4:57:12 PM                                                                                                                    
One  question  for the  state  is  does  it  have interest  in  a                                                               
partnership  with  TDX  Power  on   this  project.  He  sees  two                                                               
possibilities  there:   the  first  would  be   where  TDX  Power                                                               
continues developing  this project privately with  partners. They                                                               
have a  budget of  $30 million  to get  it to  construction which                                                               
includes all of  the permitting, licensing and design.  Or if the                                                               
state wanted to  play some sort of a role  in the project finance                                                               
in the  form of  guarantees or  bonds, that  would lower  the end                                                               
cost of  power considerably because  it would remove some  of the                                                               
risk.                                                                                                                           
                                                                                                                                
4:58:17 PM                                                                                                                    
SENATOR WAGONER  asked if  $30 million takes  them to  the second                                                               
phase of the FERC process.                                                                                                      
                                                                                                                                
MR.  GOODMAN  answered  it  takes  them  up  to  commencement  of                                                               
construction.                                                                                                                   
                                                                                                                                
CO-CHAIR WIELECHOWSKI asked if rates are regulated by FERC.                                                                     
                                                                                                                                
MR.  GOODMAN answered  that rates  for  a project  like this  are                                                               
likely to be regulated by the RCA.                                                                                              
                                                                                                                                
CO-CHAIR WIELECHOWSKI said  if his investors wanted  a 20 percent                                                               
rate of return.                                                                                                                 
                                                                                                                                
MR. GOODMAN  interrupted to say  this is  a concern. On  one hand                                                               
putting $30  million at risk for  5-6 years is unheard  of in the                                                               
state  regulated  utility industry.  It  would  warrant a  higher                                                               
return. At  the same time,  that's a  higher return than  the RCA                                                               
typically allows. The driver would the  end cost of the power and                                                               
if it is lower than the avoided  fuel costs of the natural gas or                                                               
coal   alternative.   This   question   adds   further   to   the                                                               
consternation of private investors.                                                                                             
                                                                                                                                
4:59:43 PM                                                                                                                    
He said  the second structure would  be for TDX Power  to partner                                                               
directly with  the state of  Alaska and to  share in some  of the                                                               
development risk  in the remaining  $25 million budget to  get to                                                               
construction.  This scenario  would  deliver the  lowest cost  of                                                               
power.                                                                                                                          
                                                                                                                                
5:00:23 PM                                                                                                                    
SENATOR  HUGGINS asked  if there  was concern  about the  glacier                                                               
lakes.                                                                                                                          
                                                                                                                                
MR.  YOULD replied  if  Kenibuna  Lake, which  has  a Lake  Clark                                                               
boundary   going  through,   becomes   the   same  elevation   as                                                               
Chakachamna  it   would  be  impacted  on   the  fluctuations  of                                                               
Chakachamna  Lake as  well. He  didn't know  what kind  of impact                                                               
that would have on Lake Clark National Park.                                                                                    
                                                                                                                                
5:01:34 PM                                                                                                                    
SENATOR WAGONER said  that he knows for salt water  that the feds                                                               
authority  only goes  to  mean  high water  and  he thought  they                                                               
should check on  whether that rule applies to  fresh water lakes,                                                               
too.                                                                                                                            
                                                                                                                                
MR. YOULD  said the one agency  that has been most  concerned has                                                               
been the  National Park Service,  but it's the one  resource that                                                               
will probably be least impacted by the project.                                                                                 
                                                                                                                                
5:02:35 PM                                                                                                                    
CO-CHAIR  WIELECHOWSKI thanked  everyone for  their presentations                                                               
and adjourned the meeting at 5:02 p.m.                                                                                          
                                                                                                                                

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