SB 246-SUSITNA HYDRO WORKING GROUP; REPORT  4:29:57 PM CHAIR HUGGINS announced SB 246 to be up for consideration. SENATOR JOE THOMAS, sponsor of SB 246, commented that absent reviewing Susitna and other hydro-electric potential in the state, they are allowing themselves to slip back to where the state was in 1984 and expect that gas and oil will somehow be the cheapest source of fuel for energy and power production. He elaborated: In the early 1980s gas was $.21 - $.25/tcf; diesel was about $1/gallon and river water was free. The Susitna dam was about a $5.2 billion project at that time. Today Cook Inlet natural gas to the electrical production facilities is about $5.57/Mmbtu and diesel is $3 - $3.85/gallon on the road system and as much as $8/gallon in the villages. Oil is selling for $100/barrel and natural gas outside Alaska is $9.22/Mmbtu - and river water is still free. Recent news stories had highlighted the decision of several electric utilities to construct a new 260 megawatt natural gas power plant in Anchorage. Contrast this announcement with the recent news that Texas has passed California as our nation's largest producer of wind energy with nearly 3,000 megawatts of wind power generating capacity. We may be entirely too focused on how we have always done things instead of considering new more efficient more beneficial courses of action. Norway is an oil producer; however I believe that 90 percent of their power is hydro- electric. They use the most efficient, sustainable resource that they have. Nothing indicates that natural gas prices will stabilize and certainly no one believes the price will ever go down other than for short periods of time before increasing beyond its previous high. This is and will be the trend as natural gas and oil become more scarce. Oil and gas exploration and development costs continue to rise; a quick look at capital and operating expenses at Prudhoe Bay and the cost of drilling confirms these facts. These costs will continue to increase. Gas-fired electrical turbines are not the solution nor are they the best and most efficient use of our gas. Our gas will no doubt command the highest price when and if it is sold outside of Alaska and it should be to maximize its benefit to Alaska and her citizens. Some will be used in existing infrastructure for heating purposes or to bolster industrial efforts in Alaska. This is a reasonable and efficient use of gas in-state. However, gas is not the most efficient power generating fuel. The top of the line next generation natural gas turbines only achieve an efficiency of 60 percent and even this modest level of efficiency was thought impossible as recently as the early 1990s. No plan to date suggests in-state use of gas is the highest and best use of our resource. I personally see it as a great potential for industrial use in heating, but not power generation. Trans-Canada and all of the AGIA proposals are export proposals other than the bullet line to Southcentral Alaska. Our resources are stretched to the point that Agrium closes down and we have to negotiate with Cook Inlet producers over exporting LNG, which Nikiski has done for 30 years versus consumer use in Southcentral Alaska. We are still on the road. Let's learn from the past; let's do it differently; let's do our best to change our ways and see some different and better results.... He said $2-$3 million study is roughly the same amount of money we expend as a state every two-three hours of every day of the year under the state's current budget. 4:34:40 PM GRIER HOPKINS, staff to Senator Thomas, said he was available to answer questions. SARAH FISHER-GOAD, Acting Executive Director, Alaska Energy Authority (AEA), said the Palin administration supported the analysis of the Susitna project and the additional regional planning that is required in SB 246. Last week there was some discussion on whether this project could be addressed as a capital project and that is technically correct, but the administration is not taking a position with respect to which vehicle the legislature chooses to address it. On a broader note, the governor and the AEA board of directors will soon be announcing the appointment of an energy coordinator that will also be the AEA executive director. This person will be the one that will direct this Railbelt regional planning and a statewide comprehensive planning effort. CHAIR HUGGINS asked her to review what they could anticipate the AEA will bring back to the body as a product. MS. GOAD replied that the product is detailed in the fiscal note. SB 246 addresses 13 objectives and those have been grouped into specific work tasks. For example work task one would be the feasibility study and the estimate of the plant and of the generated power costs; work task two would be an environmental and the socio-economic impact study; work task three would be the cost of power for selected alternatives. This issue would be to look at Susitna not as itself in a vacuum, but with other energy sources and other potential Railbelt projects. Work task four is the financial options for the project. There is an integrated systems energy plan for the Railbelt as work task five and creation of a project advisory group. Limited field work has been suggested. If SB 246 passes, they have suggested that those be capital appropriations of $2.8 million in FY2009 and in FY2010 of $1.5 million. 4:39:10 PM SENATOR STEDMAN agreed with broader scope, especially objective four, and asked if this wasn't more of a broader energy study than a concentration on just the Susitna dam. MS. GOAD replied that they interpreted SB 246 to include the previous study of the Susitna project as an important part of the entire Railbelt study. There is no idea to not pursue or analyze those other projects; Susitna needs a second look. SENATOR STEDMAN said it appears that Susitna creates its own wake because of its size. He asked if this isn't more of an energy analysis of the Railbelt population centers in relation to more comprehensive planning. MS. GOAD answered yes. CHAIR HUGGINS clarified that Susitna power could reach to Homer and Fairbanks. He asked about the difference in the version E fiscal note. MS. GOAD answered that the tasks are the same, but they would not necessarily need the project advisory group. Other projects have been conducted this way, including the Railbelt Electrical Grid Authority Study. CHAIR HUGGINS asked Senator Thomas his thoughts on the advisory group. 4:43:41 PM SENATOR THOMAS said he was concerned about creating an unruly study, so he changed incorporating various departments and stakeholder groups into a working group into simply consulting with those groups. MS. GOAD said she supported the change. 4:45:22 PM SENATOR STEDMAN moved to adopt version E of SB 246 as the working document. There were no objections and it was so ordered. SENATOR MCGUIRE asked if they intended to include fisheries in the term "wildlife" on page 3, line 6. 4:46:05 PM SENATOR THOMAS answered the original study realized concerns about a dam project impacting fish and wildlife. Although those impacts would be negligible with the Susitna dam because it is so far up the river, other impacts need to be reevaluated. For instance, as the dam backs up water, some areas will be inundated. SENATOR MCGUIRE said the committee might want to consider more specific language about the impacts, either positive or negative, on fisheries and she moved a conceptual amendment to specifically include "fish, wildlife, and land use" on line 6. SENATOR THOMAS responded that he had no problem with adding "fish and wildlife" and assumed that study would take place. There were no objections and the conceptual amendment was adopted. SENATOR WAGONER asked how many acres the Susitna reservoir would cover. SENATOR THOMAS didn't know because there are several different plans for the river. The Devils Canyon is a relatively small footprint; the up-river Watana project is quite a bit larger. 4:49:40 PM MS. GOAD said she didn't have any comments on the amendment, but she mentioned he had wanted to know last week about AEA's accomplishments and she wanted to mention specifically their efforts in alternative energy, in particular they just completed an alternative energy solicitation in partnership with the Denali Commission. This is the first time AEA has done one of these studies. At the same time they did a fifth energy cost reduction solicitation. To give the committee an idea of how many proposals and what kinds of projects are out there, Ms. Goad said they had 96 proposals requesting $118 million for total project costs of over $1 billion. Of those 96 proposals, 71 were feasibility analysis of alternative energy projects or roughly $12.3 million. She said it is an important part of their work to look at objective ways to analyze projects and do feasibility analyses. She said the energy cost solicitation has been very successful. The four solicitations have had cost/benefit ratios of 2:1 and have realized over $40 million of fuel cost life- cycle savings of projects that have been funded through that. 4:51:37 PM EARLE AUSMAN, President, Fullerton Consultants, said he was a hydro-engineer representing himself and his firm in the process of developing 4 megawatts of hydro for the MEA system; the firm also sells power to MEA. He said they are developing a paradigm shift in technology by developing a DC transmission project that promises to reduce energy costs for Alaska's rural communities. He said a small fraction of his previous hydro experience was working with the Corps of Engineers with the Snettisham, Rampart and Bradley dams as well as doing reconnaissance work of many other potential hydro plants throughout Alaska. MR. AUSMAN explained that he was approached by some people last year who wanted an alternative to the MEA coal plan. There are more than 50 megawatts of under-the-river hydro potential in the Matanuska Valley as well as wind sites. To be effective, they need to be combined with a peaking system and hydro is perfect for this. For instance, hydro is what makes the 300-megawatt Columbia River state line wind system feasible. He said that system sells its wind power for $.4/kWh on a long-term contract. His first thought was that a full-sized Susitna project, because of its possible cost and environmental opposition, would not be an acceptable candidate and that a reduced-size Devils Canyon portion of this project may be economical and would be more acceptable. So he proposed the dam at Devils Canyon that was one-half the height of the existing proposal to reduce costs. A 50-percent reduction in height on one of these dams can reduce the volume of concrete to 20 percent or so. This dam would be equipped with extra turbines to provide the peak power and although the reservoir is smaller, it would have some storage. If more power would be needed, it could be augmented by the upper Watana part of the project, which could also be scaled back if necessary. He strongly recommended that Alaska look at renewables as is proposed in these bills. They should include both Susitna and Chakachamna because they could work together to provide peaking power and would be key in replacement of new gas turbines or a coal plant proposed to power the Railbelt. He also believed that the power from the Railbelt system could be shared with rural localities by using DC transmission. MR. AUSMAN said wind or water energy not used is lost forever, but the fossil fuel that is replaced by renewable energy sources can be reserved and used or sold to the people outside of Alaska, like Norway is doing. The Department of Energy indicates that the State of Alaska has 45,000 megawatts of developable hydro. 4:57:03 PM He advised that an initial analysis of the economics of Susitna and Chakachamna as well as other renewable energy resources should be done to determine if any of those projects or a combination of them appears fruitful. The work should be done by a group that includes two hydro-plant constructors, one should be Norwegian because that is where the expertise comes from and the second should be from the U.S. It should also include an engineering firm that knows Alaska and its special position, and an economist and report writer. The report should make recommendations on the best course of action provided a project appears to be feasible, and a more detailed study could be performed. 4:59:09 PM JIM HEMSATH, AEA, explained that the fiscal note is organized specifically to focus around the Susitna project and to look for fatal flaws in the engineering and cost of power that may prohibit the project from moving ahead. The bottom of the fiscal note indicates that at any time during the course of the project from the Susitna perspective that they find it is not feasible all the work on it will stop and efforts would be directed elsewhere. He said there is never a guarantee that a study will get the answer you would like to have. 5:00:32 PM SENATOR STEDMAN moved to report CSSB 246 (RES) from committee with individual recommendations and attached fiscal note. There were no objections and it was so ordered.