HB 301-UTILITIES: RENEWABLE PORTFOLIO STANDARD  3:17:21 PM CO-CHAIR FIELDS announced that the first order of business would be HOUSE BILL NO. 301, "An Act relating to the establishment of a renewable portfolio standard for regulated electric utilities; and providing for an effective date." [Before the committee was CSHB 301(ENE).] CO-CHAIR FIELDS opened invited testimony. 3:17:37 PM CHRIS ROSE, Executive Director, Renewable Energy Alaska Project (REAP), provided invited testimony on HB 301 via a PowerPoint presentation titled "Support for HB 301," dated 5/2/22. He turned to the second slide and noted that REAP is a statewide nonprofit organization that has been working to promote renewable energy and energy efficiency since 2004. He moved to the third slide, "REAP Education & Programs," and related that REAP has multiple education programs in both urban and rural Alaska, including science, technology, engineering, and mathematics (STEM) education in the schools so children understand where their energy comes from, as well as work for development to make sure there are people in the state to operate, maintain, and optimize renewable energy and energy efficiency projects into the future. MR. ROSE showed the fourth slide, "REAP Advocacy," and recounted that REAP has been involved in advocacy since 2008 when it helped pass the Renewable Energy Fund, for which the legislature has appropriated $275 million to date for renewable energy projects around the state. More recently, REAP supported Senate Bill 123, Railbelt Grid Reform, which passed [in 2020] to create the first electric reliability organizations in the state, which will affect the Railbelt. MR. ROSE spoke to the fifth slide, "Why the Railbelt Needs More Renewable Energy." He said the Railbelt needs more renewable energy because the region is dangerously [80 percent] dependent on one, high-priced fuel Cook Inlet natural gas. Because of that, he stated, the Railbelt's electricity rates are very high, about twice as much is paid for Cook Inlet gas as Lower 48 utilities pay for their gas. He pointed out that the Railbelt has renewable energy resources, including wind, solar, hydro, geothermal, biomass, and tidal. He further pointed out that the Railbelt has a history of inaction, it took about 40 years for SB 123 to pass to create a mechanism for the Railbelt utilities to work together. The Railbelt has no energy policy that really focuses on ensuring that Railbelt consumers are protected, Mr. Rose continued, so SB 123 did a lot by creating a mechanism to ensure that regional planning will be done in the future. If passed, HB 301 would be executed through that regional planning process, he explained. MR. ROSE proceeded to the sixth slide, "Declining Wind & Solar Prices Compared to Natural Gas." He said the graph shows how quickly solar and wind prices have come down, with solar (gold line) coming down about 90 percent over the last 10 years and wind (blue line) coming down about 70 percent. He drew attention to the average cost of natural gas (dotted line) and noted that wind and solar are now competitive with natural gas in the Lower 48. He reiterated that about twice as much is being paid for Cook Inlet gas and said a strong argument can be made that wind and solar are competitive in the Railbelt right now. He pointed out that the circles on the graph represent individual contracts between utilities and independent power producers and the bigger the circle the bigger the contract. 3:21:42 PM REPRESENTATIVE SPOHNHOLZ, regarding declining wind and solar prices, noted that a federal tax credit has helped make solar a lot less costly for Americans. She offered her belief that the credit expires in 2024, and asked whether an extension of this credit has been introduced federally. MR. ROSE replied that there have been discussions in Congress to continue to extend the production tax credit, but as of now he doesn't know of any package that it is in. MR. ROSE resumed his presentation and addressed the bar graph on the seventh slide, "Levelized Cost of Energy Comparison Unsubsidized Analysis." He explained that this analysis, done every year by the consultant group Lazard, compares the unsubsidized cost of all different energy resources. He related that the cost of renewable energy resources, solar and wind, are roughly $30, $28, and $26 a megawatt hour (MWh), which is now the cheapest unsubsidized electricity that can be produced. For conventional resources, he continued, the cost from a fully depreciated nuclear plant is $29/MWh while the cost from a newly built nuclear plant would be $130-$204/MWh; the cost from a fully depreciated combined cycle natural gas plant is as low as $24/MWh while the cost from a newly built combined cycle natural gas plant would be $45-$74/MWh. The Railbelt, he specified, is producing Cook Inlet gas closer to the price of $74. MR. ROSE displayed the eighth slide, "Net electricity generation from wind and other sources in selected states (2020)." He pointed out that 20 percent of all the electricity received in Texas is now from wind and that 58 percent of all electricity produced in Iowa is wind power. MR. ROSE discussed the nineth slide, "Declining Costs of Lithium Ion Batteries." He said an important part of the picture is the cost of energy storage, at least in the cost of lithium-ion batteries. A sharp decline is being seen in the cost of lithium-ion batteries; a large driver for that is electric vehicles, but other consumer products are using lithium-ion batteries thereby creating a greater economy of scale and driving the price down. The price of energy storage is expected to continue going down, he continued, which can help integrate variable renewables like wind and solar. MR. ROSE turned to the tenth slide, "Sources of U.S. electricity generation, 2020." He specified that renewables are about 20 percent of the current mix, with the percentage increasing as the price of these resources goes down. MR. ROSE spoke to the eleventh slide, "Renewable & Clean Energy Standards." He explained that the map depicts the states where there are already either renewable energy portfolio standards or clean energy standards. Thirty states have renewable portfolio standards, which is what HB 301 started out as, he said, and five states have clean energy standards. These standards, he added, drive the portfolios toward more clean energy. 3:26:13 PM MR. ROSE proceeded to the twelfth slide, "The Railbelt is Dangerously Dependent on High-Priced Cook Inlet Natural Gas." He reiterated that the Railbelt's portfolio is heavily dependent on just one resource and noted that that resource is provided by a virtual monopoly, Hilcorp. He further noted that the Railbelt doesn't have a lot of factors that are going to see its prices drop: demand is flat, production costs in Cook Inlet are high, infrastructure is aging, and the state gas subsidies for Cook Inlet are now unsustainable. MR. ROSE moved to the thirteenth slide, "Published Prevailing Values for Cook Inlet Gas ($ per MCF)," a graph depicting the price of Cook Inlet natural gas from 1994 to 2022. He said Cook Inlet gas is now in the range of $8 [per thousand cubic feet (MCF)], while the Henry Hub price in the Lower 48 is around $4, which went up significantly in the last year. [The Railbelt's] natural gas prices are very high despite being produced in-state because of the very small market. MR. ROSE reviewed the fourteenth slide, "Renewable Portfolio Standard Assessment for Alaska's Railbelt." He related that the governor asked the National Renewable Energy Laboratory (NREL) to look at whether 80 percent renewables by 2040 was a possibility. The NREL study found two things: 1) Multiple pathways exist for the Railbelt to achieve 80 percent without impacting the reliability of the grid; 2) An 80 percent [renewable portfolio standard (RPS)] will save consumers $400- $500 million a year in natural gas fuel prices. But, he said, the next question i: How much will it cost to get there? MR. ROSE turned to the fifteenth slide, "Preliminary Benefit/Cost Analysis of NREL's RPS Scenario 3." He explained that Alan Mitchell of Analysis North did a preliminary benefit/cost analysis of NREL's Scenario 3 using very conservative assumptions. He said Mr. Mitchell found that the capital cost of getting to 80 percent wind and solar along with a little bit of hydro would be $3.2 billion compared to $6.7 billion of fuel cost savings, a 2:1 ratio of savings. MR. ROSE showed the sixteenth slide, "A New Railbelt ERO Would Execute HB 301." He pointed out that Senate Bill 123, the bill passed two years ago, now has created a mechanism to execute a policy like this. He stated he is part of a group that has been meeting for the last two years to develop an application to the Regulatory Commission of Alaska (RCA), which was submitted at the end of March. If the RCA certificates that group, he said, it would become the first electric reliability organization (ERO) in Alaska, and the group would be required to do integrated resource planning for the entire region, which would do technical and economic feasibility on a range of portfolio options. So, he continued, if the legislature specified a goal, then the ERO would do the analysis to find the portfolios to get there. 3:29:42 PM MR. ROSE suggested three amendments for the committee's consideration. First, he said, is the initial requirement of 25 percent by 2030. The original bill, he noted, had a requirement in 2025 and then 30 percent by 2030. He suggested moving that requirement back to 30 percent and moving the timeline somewhere between 2025 and 2030. He stated that it is important to keep moving forward rather than allowing complacency and waiting until 2030 before reaching these initial goals because getting to 30 percent by the next goal is possible. Second, he suggested that the proposed fine be raised from $20 a MWh to closer to $50 a MWh, which is about the national average for these kinds of fines. Third, he suggested that the clean energy credits scheme be reorganized and stated that [REAP] would provide detailed technical comments on that. MR. ROSE concluded his presentation with the seventeenth slide, which read as follows [original punctuation provided]: HB 301 Would: • Diversify the region's generation portfolio and increase resiliency • Displace high-priced natural gas fuel, and save hundreds of millions of dollars every year • Utilize local, flat-priced renewable resources • Not impact reliability on the grid • Keep Alaska competitive in a fast-changing world, increase energy independence and meet consumer demand • Support electrification of transportation and heat • Create jobs, spur statewide innovation and keep precious energy dollars circulating in the state's economy • Establish a standard that triggers action MR. ROSE added that REAP believes all these requirements are achievable even faster than the current legislation requires. 3:33:02 PM JULIE ESTEY, Director, External Affairs & Strategic Initiatives, Matanuska Electric Association (MEA), provided invited testimony during the hearing on HB 301. She concurred with Mr. Rose that diversifying the energy portfolio is an important step for the Railbelt. She stated that utilities in the Railbelt have been very clear in actions and testimony that they support effective policy for creating a diversified energy portfolio. She said surveys show that 70-80 percent of MEA's members in this conservative district want some sort of carbon reduction or renewable energy portfolio, but this support declines significantly when members are asked about the effect on rates or reliability. So, she continued, what MEA hears from its members is that they are interested in innovation and energy diversification, but they want to make sure that MEA's primary responsibility around reliability and rates is kept full as well. MS. ESTEY noted that MEA's members are constituents of the committee's members, which is why MEA is before the committee to share how it believes HB 301 can be adjusted and smart policy made because the time to make a transition is right now. She recounted that in testimony before the House Special Committee on Energy, Jenn Miller, CEO of Renewable Independent Power Producer ("Renewable IPP"), stated that the Railbelt is at a critical time for transition, the transition is big, and there should be no pretending that it is going to be easy, but that doesn't mean it shouldn't be done; it means it should be done right and it starts here with policy. So, Ms. Estey continued, that is why [MEA] is before the committee today. She noted that Renewable IPP has brought on cost-effective solar power in Willow and [will soon be doing the same] in Houston. MS. ESTEY offered MEA's belief that the purpose section added in CSHB 301(ENE) is well written and clearly describes attributes of a successful and sustainable clean energy standard. This addition is appreciated, she said, because it brings everyone together around common goals. She stated that the Railbelt utilities before the committee today have worked earnestly to revise the bill to provide cost and reliability protection for consumers as well as due consideration for the realities of the Railbelt's current limited system. Also, she pointed out, the Railbelt has few rate payers to spread costs over, so that must be considered in a transition and be part of the plan. MS. ESTEY noted that the goals listed in the purpose section of HB 301 include to minimize costs [to consumers], a priority of MEA. While there are many positive reasons to make the transition, she stated, the rate impact will be to MEA's members so it must be done right to limit that impact. She further noted that the goals in the purpose section of the bill also include to provide price stability to enhance opportunities for economic growth, maximum grid resiliency, and minimize carbon emissions. For member-owned cooperatives, she said, those are all very important parts, each equal, in how this is moved forward. She commended the House Special Committee on Energy and Chair Schrage for their efforts to listen to all the stakeholders involved and bring a committee substitute (CS) that has a significant amount of support. She offered MEA's belief that the bill is very close to something that can achieve the goals established in the purpose section. MS. ESTEY deferred to Mr. Brian Hickey to address some of the topics brought up in testimony [before the House Special Committee on Energy]. 3:38:07 PM BRIAN HICKEY, Chief Operating Officer, Chugach Electric Association, provided invited testimony during the hearing on HB 301. He offered appreciation to the committee and to the [the House Special Committee on Energy and Chair Schrage] to get a spectrum of comments before deciding. He submitted that there will be an achievable and sustainable product that can be done in a technically effective way. MR. HICKEY drew attention to page 10, Figure 4, of the NREL study, "Renewable Portfolio Standard Assessment for Alaska's Railbelt." He said NREL did not do a reliability analysis but did run a production costing model which tells whether enough capacity is had in every hour a day to meet load. A significant amount of work needs to be done to do the reliability analysis, he advised, and NREL was upfront about that in its assessment. MR. HICKEY stated that Section 42.05.785(a) is the large project preapproval process from the language of Senate Bill 123. Those projects, he said, cannot be completed if they are detrimental to the load serving entity (LSE) achieving its goals under the renewable portfolio standard (RPS). That section of Senate Bill 123, he explained, was put in place so that local areas could develop reliability projects to meet local reliability, and typically those must be dispatchable resources. However, he noted, wind and solar are non-dispatchable because they come and go when they come and go. Therefore, he advised that section constrains those local regions from building reliability projects that are necessary and have not been included in the integrated resource plan (IRP) that comes out of the electric reliability organization (ERO). 3:40:37 PM MS. ESTEY explained that the ERO was formed in Senate Bill 123, and the ERO brings all the stakeholders - utilities, non- utilities, independent power producers, the State of Alaska, and consumer advocates - around the table to talk about reliability standards and integrated resource planning. The ERO, she noted, has an independent staff that will help in coming up with an integrated resource plan. She stated that there is going to be lots of public process, lots of transparency, and lots of fun money to be spent coming up with an integrated resource plan. She said she agrees with Mr. Rose's statement that that is a natural place for these two efforts to merge, but qualified that she agrees with him on a different level. There is going to be lots of conversation, transparency, and involvement, she reiterated, and having a clean energy standard out in front of that basically gives that group the answers, and that is one way for policy members to impact that. Since a previous legislature has already impowered that group of stakeholders to come together as approved by the RCA and come up with an integrated resource plan, she continued, one suggestion is to have the current goals perhaps confirmed by a feedback loop from that process back into policy. That is something to consider while going through this process, she said. MS. ESTEY pointed out that there was no real economic analysis in the NREL study because NREL did not have the time or scope to do so. She offered support for a second phase of NREL studies to help confirm the numbers and economics. She noted that NREL did do an analysis of the potential fuel savings but the cost to achieve those was not included. Mr. Mitchell's preliminary benefit/cost analysis was a great start, she continued, but it would be good to have further conversation and vetting around that. She related that the utilities started doing their own economic analysis but realized that it probably wouldn't be credible. She therefore suggested having NREL do a similar and more in-depth analysis than Mr. Mitchell's given that NREL does this for other places all the time. MR. HICKEY informed the committee that significant transmission investment in the Railbelt will be required to move renewable power from one location to another. He said there are currently two transmissions lines that tie the three areas together. The Anchorage and the Kenai line, owned by Chugach Electric Association, moves about 75 megawatts, he specified, which is about 10 percent of the peak load of the Railbelt. It is a single contingency line, he explained, so when it is out of service there is no access to [the Bradley Lake Hydroelectric Project] resources. Nor, he added, would Chugach have access to [the proposed Dixon Diversion Hydro Project ("Dixon Creek"], nor would Chugach be able to carry the energy from Dixon Creek on that line. Responding to Co-Chair Spohnholz, he said the proposed Dixon project is located near the Bradley Lake facility on the Kenai Peninsula on Kachemak Bay. MR. HICKEY said the [second transmission line] from Anchorage to Fairbanks carries about 80 megawatts, about 10 percent of the peak flow, and it is a single contingency line that is going to cost a fair amount of money. Federal infrastructure funding is actively being sought for this, he related, and it is important to pass HB 414 and SB 241 to give the Alaska Energy Authority (AEA) the receipt authority for federal funds from the [2021] Infrastructure Investment and Jobs Act (IIJA). 3:45:50 PM CO-CHAIR FIELDS asked whether those provisions of SB 414 are included in the current Senate Finance Committee CS which rolled in many provisions of SB 414. MR. HICKEY replied that they were, but he doesn't know about the current [CS]. MR. HICKEY resumed his testimony. He said that in addition to federal funding and utility contributions it is likely there will have to be state funding for some of the transmission. Building out that level of transmission could be done by the utilities, he stated, but it would result in significant rate increases, so it is really beyond the financial capabilities of the Railbelt at this point. MS. ESTEY interjected that [the utilities] disagree with any statements that $20 per MWh is not a steep enough fine. She said the utilities are nonprofit cooperatives that do not have shareholders from which to grab fine payments. The fines would be paid by cooperative members somehow, whether through rates or through margins, which are the capital credits. She pointed out that any fine, especially one at $20 per MWh, would be paid on top of the large amount that the utilities are already paying for gas-powered generation. So, she continued, a fine of $20 per MWh would be more than an adequate deterrent for a member owned cooperative. Many of the member owned cooperatives in the Lower 48 are exempt from these sorts of requirements, she noted. MR. HICKEY added that including it in rates as opposed to taking it out of the cooperatives' margins is critical. He recalled discussion in the House Special Committee on Energy that some items are not allowed in rates, such as advertising for lobbyists. He specified that Chugach's margins in 2021 were about $9.7 million, so Chugach's portion of a 30 percent penalty for missing the target would be $4.5 million. That would move Chugach into areas where its bond debt covenants, which require Chugach to collect 110 percent of its margins for interest over interest, would push the cooperative into a realm where it could go into technical default. The RCA is required to set rates under AS 42.05.431 that allow [a public utility] to recover costs that are contracted for in bond covenants; so, Mr. Hickey advised, there is a dichotomy there. The challenge, he continued, is that this number is much bigger than anything that is currently disallowed in rates for a cooperative. A cooperative's margins are razor thin because cooperatives return that money to their members. Not having it recovered in rates and trying to recover it out of capital credits, he stated, could push the utilities into difficult financial straits. MR. HICKEY related that it was brought up in the House Special Committee on Energy and in the NREL study that utilities should be able to put large quantities of wind and solar on the system and shut down their gas turbines for extended periods of time. The challenge with that on the Railbelt, he explained, is that there are minimum deliverability takes out of the inlet to keep the wells producing natural gas. The home heating sector is still drawing gas, but as gas turbines are shut down and as deliverability is shut down, it is likely that deliverability will be lost in the basin, which will increase both the cost of gas and the availability of it. So, Mr. Hickey continued, while this concept works well at the one-hundred-thousand-foot level, when getting down into the details it must be figured out how to transition off Cook Inlet natural gas without losing Cook Inlet natural gas altogether. This critical component, he advised, must be addressed in the CS. 3:50:41 PM MS. ESTEY stated that the utilities have consistently voiced what they feel is necessary, such as rate caps and reliability assurances. She said CSHB 301(ENE) includes considerations for the RCA to keep an eye on that and it is anticipated the RCA would write detailed regulations to spell that out. It is the RCA's responsibility to look after the rate impacts and reliability of the utilities, she continued, so [CSHB 301(ENE)] assures that that is happening. She related that the regulatory commissions in other places can adjust the renewable portfolio standard (RPS) if it is felt that the RPS is going above and beyond what is needed. However, she stressed, that is not what is being asked for here, it is just being asked that the RCA raise its hand or put on guardrails. Currently, most of [the Railbelt's] renewables are above the costs of producing with gas generation, and everyone is banking on that shifting in the future. If it doesn't shift, then it is the members of the cooperatives who are holding the bag, Ms. Estey stated. Given it is already the RCA's responsibility to look at rates and reliability, putting some guardrails on what is acceptable is important to everyone, she continued. So, the changes made by the House Special Committee on Energy are appreciated and [the cooperatives] look forward to the RCA creating more. She again touched on the idea of putting the feedback loop from the ERO process into the clean energy standard. Regarding fines, she related that under the current CS fines are not allowed to be recovered in rates. She reiterated that without shareholders, cooperatives only have rates and margins from which to pull funding. Margins are what is left over, she explained, and those get reinvested back into the cooperative and eventually paid out as capital credits. So, either way it impacts the members of the cooperatives. She expressed her hope that the committee discusses this further. CO-CHAIR FIELDS said he intends to write an amendment on that. He stated that the fines would be put back into building renewable generation so it meets the purpose of the bill and would be clear to consumers. CO-CHAIR SPOHNHOLZ noted that a chart distributed to committee members shows a significant decline in Cook Inlet natural gas usage taking place over the last 20 years. She inquired about the number of years left for being able to reliably count on Cook Inlet natural gas to provide energy to the Railbelt. MS. ESTEY replied that her limited understanding is that it may not be what is called "behind pipe." There is gas, she said, but there would be a cost for getting that gas connected into the system and delivered, and decisions would have to be made as to whether those costs are economically worth it. MR. HICKEY added that significant investment of Cook Inlet would be needed to get gas behind pipe and maintain the gas fields or else go a different way, such as [the proposed Susitna-Watana Hydroelectric Project] and Dixon Creek to bridge that gap. He said there is solar and wind that could be used to fill in some of the gaps, so that transition is necessary. MS. ESTEY added that that is why the energy portfolio should be diversified. 3:55:32 PM CO-CHAIR SPOHNHOLZ commented that a key question on the time horizon for the renewable energy portfolio standard is looking at where to make capital investments during the transition. Rate payers across Alaska are going to pay one way or another, she stated, and a question is whether to accelerate that transition to renewables while trying to maintain reliability or whether it is more economic and worth the higher carbon footprint of developing natural gas moving forward. She said she wants to look at both versions of the bill so that policy makers can make a calculated decision for the people of Alaska. MR. HICKEY advised that a provision in [CSHB 301(ENE)] regarding a levelized wheeling rate for renewable energy creates a conflict between AS 42.05.431(c), which is the Bradley Lake exemption. Bradley Lake, he noted, would be considered a clean energy resource under this bill. The agreements for the Bradley Lake Project, he said, are not regulated by the RCA as they were exempted under AS 42.05.431(c)(1). The challenge, he explained, is that a very complex set of agreements negotiated in 1980 govern the wheeling and delivery of Bradley Lake energy. If the current bill is passed, he continued, there would a conflict between the Bradley Lake exemption and the bill that would then have to be figured out. Mr. Hickey suggested amending the bill to reflect projects that are built on a going forward basis and leave projects that have existing wheeling arrangements which are very intricate and tied together and that are very difficult to unwind. That specific statute, he added, was upheld after several years of litigation by the Alaska Supreme Court in 2019. MS. ESTEY pointed out that [CSHB 301(ENE)] includes a very prescriptive list of what things are acceptable and what are not. She emphasized that it is hard to sit here in 2022 and know what should be on this list decades in the future. She suggested that the bill include a provision for review every two to three years by an independent source, whether it is the Alaska Energy Authority, the RCA, or the Alaska Center for Energy and Power. She related that this was also supported by the REAP board during discussions about looking at these technologies and not limiting because there is a lot on the horizon and there needs to be the ability to take advantage of everything. This topic was discussed before the House Special Committee on Energy, she noted, and the decision was made to have more conversation about it. 3:59:49 PM ALAN MITCHELL, Owner, Analysis North, provided invited testimony during the hearing on HB 301. He stated he has been working on technical and economic analysis of energy and telecom projects for over 30 years in Alaska. He displayed the first of four slides, "Preliminary Economic Analysis of Railbelt RPS," and noted that this preliminary analysis was not done for REAP, but rather on his own and no payment was received from anyone. He said he agrees with Ms. Estey about getting NREL to do a more serious economic analysis. He explained that NREL mapped out five different routes for achieving the 80 percent renewable standard in the Railbelt from which he picked [Scenario 3], which predominantly relies on wind and solar as the renewable means to get to that 80 percent. He said that in his analysis he did not change anything in the work NREL did, but he went a step further by taking NREL's results for how much capacity of wind would be needed to achieve the 80 percent and how much capacity of solar and assigning some preliminary benefit in cost numbers to that scenario. MR. MITCHELL proceeded to slide 2, "Preliminary Benefit/Cost Analysis," and explained that the graph is a summary of the benefits and the costs that he came up with. He said his estimate is $3.2 billion in capital cost to implement [Scenario 3], and his estimate is $6.7 billion in present value benefits over the life of these investments, which he estimates to be 22 years. He arrived at $6.7 billion, he explained, by adding up the fuel savings, which were done by NREL and which he did not modify, with proper discounting over that 22-year life. He said he did reduce those fuel savings somewhat by the added operating and maintenance costs of the renewable facilities required. Benefits far exceed the costs, Mr. Mitchell stated, and even if the capital cost was doubled a net benefit would still be seen. MR. MITCHELL moved to slide 3, "Capital Costs of Scenario 3 relative to Base Case," and gave further detail on the estimated capital costs. He said the right-most column of numbers depicts the total cost [in billions] for each renewable energy generation source [wind - $2.34, solar - $0.80, add turbine to Bradley Lake - $0.09, biomass - $0.22, fossil fuel minus $0.21, totaling $3.24]. He noted that the bar chart to the right of those numbers depicts the relative magnitude of the different sources, and the capital costs for this wind-solar scenario are dominated by wind and solar. He pointed out that no transmission and battery storage costs are in the table because NREL assumed that both transmission and battery storage would be built in the status quo case, in the nonrenewable case, and in all the renewable cases, so it was a common investment to everything. MR. MITCHELL continued reviewing slide 3. He stated that Scenario 3 adds 802 megawatts of wind, but NREL did not state what that would cost. He said he therefore looked at Golden Valley Electric's Eva Creek Wind Farm, brought online in 2012 at a cost of about $1.94 [per kilowatt], which was a bit less than twice the cost per kilowatt of the national average wind farm. He took the 1.94 multiplier, he explained, and applied it to current day national average wind costs, so his estimate is roughly twice the current capital cost per kilowatt for wind in the Lower 48. Similarly for solar, he continued, he used a 1.46 multiplier, which is consistent with the publicly stated estimate of the proposed Homer Electric 20-megawatt solar farm. MR. MITCHELL turned to slide 4, "Benefits that were Not Considered in the Analysis." He stated that several things make his analysis on the conservative side. First, while solar cost has declined 85 percent since 2010 [adjusted for inflation] and wind cost has declined 65 percent, he said his analysis did not assume any further decline in solar and wind cost even though he thinks there will be and most of these renewable investments to implement Scenario 3 will occur 5-20 years from now. Second, he stated, these renewable projects are going to save fuel well past 2040, but he did not project fuel prices to increase more than just the general rate of inflation beyond the year 2040. Further, he continued, he didn't take any economic credit for the reduced carbon emissions that these projects will bring about, so he didn't assume that carbon tax would be avoided. Finally, he specified, he didn't factor in any sort of federal subsidies for the renewable projects, he assumed that the projects were entirely funded by Alaskans. 4:07:46 PM ERIN MCKITTRICK, Co-Founder, Ground Truth Trekking, provided invited testimony during the hearing on HB 301. She noted that while she is a board member of Homer Electric Association (HEA), her testimony today is on behalf of herself. She said she has a deep interest in energy and has done independent analysis of the Railbelt system looking at such things as the economics of the current system and carbon emissions. Having a clean energy standard is important, she stressed, and good for Alaskan consumers. MS. MCKITTRICK reviewed two graphs to provide background. She stated that the Railbelt's generation system hasn't changed much in the last decade but the circumstances around it are different. She referred to the graph titled "Cook Inlet Gas usage" [for the years 2000-2020] and said that when lots of gas was being produced in Cook Inlet for a big market, which included Agrium and exports, the local users were just "along for the ride, almost an afterthought." A steep decline occurred as that became less and less economically viable, she stated, and now it is down to a small market that is mostly Enstar, the electric utilities, and the oil and gas industry itself. She referred to the graph titled "State Subsidies vs. Utility Purchases of Gas" and said it looks at the state tax credits. She pointed out that when talking about the current system, the price of gas, and what is going to happen in the future, it must be remembered that steps have already been taken to avert a local energy crisis with substantial state money. She noted that the yellow bars represent $1.3 billion [in tax credits paid by the state], and during several years the state subsidies were more than what all the utilities were paying together. While there is gas out there, Ms. McKittrick continued, it might be more costly to get it to people. The state may well be on the hook for more rescues, she said, and diversifying fuel sources and investing in renewable energy projects instead are tangible things going forward, given nobody knows how long the relative price stabilization from those subsidies will last. 4:11:52 PM MS. MCKITTRICK addressed earlier testimony about the importance of utilities working together for a better economy of scale in building a project that serves more than one utility. Often necessary in that coordination, she said, is moving power around between the different utilities. Transmission is part of that, she stated, and she concurs with the NREL study's anticipation that transmission upgrades would be necessary to reach that 80 percent number. She pointed out that due to lack of time the NREL study did not look at lower, more intermediate targets. She advised that lots of renewable energy can be built, and that power transferred on the grid as it is now, while working on building the other things. For example, Ms. McKittrick related, Homer Electric Association has a rule of 50 percent renewable energy by 2025 and anticipates that that is possible before new transmission is built. She further pointed out that the constraints on the current transmission system aren't true for every direction. If a line is full going north it is not necessarily full going south, she explained, so depending on where a project is put, a lot of power can be transferred on those lines. It isn't necessary, she continued, to wait for those transmission improvements to start down this path. MS. MCKITTRICK, regarding the Bradley Lake agreements affecting transmission wheeling, stated it is important to have a simple unified rate going forward to transfer this renewable energy along existing power lines. She said she doesn't know whether it would be necessary to specifically exclude Bradley Lake to avoid legal conflicts, but she imagines that it could be done. Bradley Lake, she continued, is specifically excluded from many of the things she has mentioned regarding what could be done without destroying the intent of freely moving power from other projects. MS. MCKITTRICK drew attention to the provision that would let utilities trade credits for clean power. She stated that this works between the Railbelt utilities, but the House Special Committee on Energy's CS modified that to be statewide. She offered her belief that the intention was to potentially provide some benefits to rural Alaska but cautioned that, as written, the provision could have substantial unintended consequences. A large amount of renewable energy, she explained, is produced by about nine hydroelectric projects in Southeast Alaska and Kodiak, so if any renewable energy in the state could help meet these goals there would be incentive for those utilities to sell those credits cheaply and it wouldn't necessarily benefit anyone. Those places have cheaper power than the Railbelt, she noted, and they don't really need to build more renewable power themselves in many cases because they already are pretty much running on hydro. Ms. McKittrick suggested that this problem could be solved by modifying the credit system to be either on the Railbelt or utilities that are eligible for the Power Cost Equalization (PCE) Program. Those are small rural utilities with high costs, she added, and their total amount of power generation is much smaller so they could sell credits in the Railbelt but still build projects. 4:17:41 PM MS. MCKITTRICK said looking at costs is important and looking at fuel savings is key because current power generation [in Alaska] is so expensive in many cases that it might be possible to build and operate a renewable project for the fuel cost of running an existing plant. Existing plants do not have to be taken off the books or dismantled, she stated, it makes sense to keep them as backups when building new more efficient nonrenewable generation or building renewable generation. There is no need to wait for existing plants to be at the end of their lives, she added. CO-CHAIR FIELDS asked Ms. McKittrick to provide her suggestion for credits by email to the committee. 4:19:25 PM REPRESENTATIVE MCCARTY noted that certain areas such as Kodiak have more resources and certain areas do not have access to renewable energy. He requested comment on that aspect because it doesn't appear that one thing fits all. MS. MCKITTRICK responded that this standard applies to the Railbelt which is all tied together and has enough renewable resources to meet this. She said the credit system is a way, in lieu of meeting some portion of that standard, to buy credits from another utility elsewhere in Alaska, so presumably those villages or other areas that had access [to renewables] could sell those credits. This bill would not solve the problem of providing energy to all villages, she continued; it is intended to focus on the Railbelt so doesn't attempt to answer that question about what villages with no access to renewable resources should do. 4:21:55 PM RYAN JOHNSTON, Staff, Representative Calvin Schrage, Alaska State Legislature, presented the summary of changes made in CSHB 301(ENE) on behalf of the House Special Committee on Energy. He paraphrased from the document in the committee packet titled "Summary of Changes for HB 301 (Version A to W)," which read as follows [original punctuation provided]: Page 1, Lines 1 3: amends the title to read "clean energy standard" and adds "relating to the Alaska Energy Authority and clean energy projects;" to the title of the bill. The title change was done to conform with the "renewable portfolio" standard being replaced with a "clean" energy portfolio. Page 1, Lines 9 11: after "energy resources" adds to the purpose section of the bill, "in order to minimize costs to consumers, increase stability for economic development, maximize grid resiliency, and minimize the state's carbon emissions." Page 1, Line 14: adds a new section to AS 42.05.381 that directs the Electrical Reliability Organization to develop a uniform transmission services rate for the transmission of energy to comply with the clean energy standard under AS 42.05.900. MR. JOHNSTON clarified that for the new section to AS 42.05.381, any energy transmission done from the generation of clean energy would be covered under that transmission tariff and anything existing currently from normal production would not be covered. He continued paraphrasing from the summary of changes: Page 2, Line 15: amends subsection (B) to be more aligned with utility industry language. Page 3, Line 27 Page 4, Line 3: amends the benchmarks for the clean energy standard to from four to three. The first being 25 [percent] by December 31, 2030. The second being 55 [percent] by December 31, 2040. And finally, the third being 80 [percent] by December 31, 2050. The third benchmark was amended to now only be applied Railbelt wide instead of by each utility. Page 4, Lines 18 23: adds a new section to AS 42.05.900 that would allow for construction that has begun prior to the end of a compliance period to be counted to fulfilling the clean energy standard if the project will begin providing energy no later than two years after the compliance period or the end of a period determined by the Regulatory Commission of Alaska. MR. JOHNSTON explained that this new section to AS 42.05.900 was added to give more leeway for larger construction projects that would potentially happen so the RCA would have the ability to determine that time period. 4:24:49 PM CO-CHAIR FIELDS asked whether he is correct in understanding that if the deadline is 25 percent by 2030 and there is a large project that would get to 25 percent, but it is still being developed and not actually producing by 2030, then the utilities are meeting the requirements. MR. JOHNSTON that is correct; technically if it fell within the two-year period it would be fine. The gray area, he said, would be if it was going to fall after the two-year period, then the utilities would have to make a case with the RCA to determine the period of time in which it could comply. MR. JOHNSTON continued paraphrasing from the summary of changes: Page 5, Line 2: adds a new section to AS 42.05.900 stating that a load serving entity may satisfy the clean energy standard using clean energy credits. Page 5, Line 4: adds a new section to AS 42.05.900 that a project located wholly or partially on state lands are exempted from state lease fees. Page 5, Line 20: adds a new section to empower the Regulatory Commission of Alaska to monitor the effect of the clean energy standard on rates and reliability to determine if it if consistent with the public good. Page 5, Line 23 Page 6, Line 4: amends the previous credit system into the "Clean energy Credits". A clean energy credit may only be used once. A credit may be used to comply with the clean energy standard without purchasing or use of the electrical generation from which the credit is derived. The energy from which the credit is derived must be generated in the State of Alaska. MR. JOHNSTON pointed out that the credits-based system [was changed in the CS] to focus on the whole of Alaska instead of just the Railbelt as was provided in the original version. CO-CHAIR FIELDS referenced Ms. McKittrick's comments and asked whether current language states that existing hydro from Southeast could be counted or whether new language needs to be added to clarify that this is only new generation. MR. JOHNSTON responded that under current language it could be existing or new projects. He related that there have been conversations about potentially scaling this down because the intent of the amendment was to create a link between rural Alaska and the Railbelt since the bill is so heavily focused on the Railbelt, and then creating a credit system that would allow a revenue stream for Alaska's small rural power producers to participate in a clean energy standard. CO-CHAIR FIELDS stated that that is a change the committee will need to pursue. The idea, he said, is that the most economic project might be in Bethel or Southeast and encouraging that is wanted, but to not count everything that is already there and thereby do nothing. MR. JOHNSTON continued paraphrasing from the summary of changes: Page 7, Line 6: after "commission" changed the word "may" to "shall". Page 7, Lines 16 20: amends the previous exemptions section to a single exception. The new exemption states that if the Railbelt achieves the clean energy standard than the individual load serving entities are exempted. Page 7, Lines 24 28: adds a definition of a "clean energy credit". Page 7, Line 29: Amended the definition of "renewable energy resource" and renamed "clean energy resource" was cleaned up by legislative legal to be more in line with their drafting standards and the previous committee added nuclear generation to the definition. Page 8, Lines 6 8: amends the previous definition of "renewable energy standard" to be a "clean energy standard" and reordered it in the definitions section. Page 8, Line 11: amends the compliance period to a 10- year period. Page 8, Line 26: adds a new subsection to AS 44.83.940. The new subsection would require that the Alaska Energy Authority shall provide a report to the legislature every two years on the progress developing renewable and clean energy resources in rural parts of the state. Page 9, Line 3: the regulations language for the RCA of Alaska was cleaned up by legislative legal to be more in line with their drafting standards and existing powers of the RCA. 4:30:11 PM REPRESENTATIVE SPOHNHOLZ asked about the change in nomenclature from renewable energy resource to clean energy resource and why "clean" is being used as opposed to "renewable." MR. JOHNSTON answered that with the addition of nuclear it made more sense to set the precedent with clean rather than renewable because it is generally not accepted that nuclear is a renewable energy resource, but it is considered a clean energy resource. CO-CHAIR SPOHNHOLZ agreed that that makes sense. MR. JOHNSTON noted that NREL recently provided a cost estimate and a time period breakdown, which he will pass along to the committee. CO-CHAIR FIELDS related that the House Special Committee on Energy heard this bill extensively for about two months. [HB 301 was held over.]