Legislature(2009 - 2010)BUTROVICH 205
02/23/2009 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview: Updated Information on the Susitna Hydro Project Alaska Energy Authority | |
| Chakachamna Hydro Power Project | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
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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