ALASKA STATE LEGISLATURE  HOUSE SPECIAL COMMITTEE ON ENERGY  January 26, 2012 3:04 p.m. MEMBERS PRESENT Representative Neal Foster, Co-Chair Representative Lance Pruitt, Co-Chair Representative Bob Lynn Representative Kurt Olson Representative Dan Saddler Representative Pete Petersen Representative Chris Tuck MEMBERS ABSENT  All members present COMMITTEE CALENDAR  PRESENTATION: STATUS OF AEA PROJECTS~ SPECIFICALLY THE SUSITNA PROJECT~ BY THE ALASKA ENERGY AUTHORITY (AEA) - HEARD PREVIOUS COMMITTEE ACTION  No previous action to record WITNESS REGISTER  SARA FISHER-GOAD, Executive Director Alaska Energy Authority (AEA) Department of Commerce, Community & Economic Development (DCCED) Anchorage, Alaska POSITION STATEMENT: Answered questions during the presentation on the status of the Susitna-Watana Hydroelectric Project. WAYNE DYOK, Lead Project Manager Susitna-Watana Hydroelectric Project Alaska Energy Authority (AEA) Department of Commerce, Community & Economic Development (DCCED) Anchorage, Alaska POSITION STATEMENT: Provided a PowerPoint presentation entitled, "Susitna-Watana Hydroelectric Project," dated 1/26/12, and answered questions. BRIAN BJORKQUIST, Senior Assistant Attorney General Labor and State Affairs Section Department of Law Anchorage, Alaska POSITION STATEMENT: Answered questions during the presentation on the status of the Susitna-Watana Hydroelectric Project by the Alaska Energy Authority. MICHAEL SWIGER, Attorney at Law Van Ness Feldman, P.C. Washington, D.C. POSITION STATEMENT: Answered questions in his capacity as the Federal Energy Regulatory Commission (FERC) licensing attorney on contract to the Alaska Energy Authority for the Susitna- Watana Hydroelectric Project. ACTION NARRATIVE 3:04:24 PM CO-CHAIR NEAL FOSTER called the House Special Committee on Energy meeting to order at 3:04 p.m. Representatives Foster, Pruitt, Olson, Saddler, Petersen, and Tuck were present at the call to order. Representative Lynn arrived as the meeting was in progress. ^PRESENTATION: Status of AEA Projects, Specifically the Susitna Project, by the Alaska Energy Authority (AEA) PRESENTATION: Status of AEA Projects, Specifically the Susitna  Project, by the Alaska Energy Authority (AEA)    3:05:37 PM CO-CHAIR FOSTER announced that the only order of business would be a presentation on the status of Alaska Energy Authority (AEA) Projects, specifically the Susitna-Watana Hydroelectric Project, and he introduced Sara Fisher-Goad, Executive Director of AEA. 3:06:16 PM SARA FISHER-GOAD, Executive Director, AEA, Department of Commerce, Community & Economic Development (DCCED), introduced staff members and reviewed the qualifications of the Susitna- Watana Hydroelectric Project manager, Wayne Dyok. 3:07:51 PM WAYNE DYOK, Lead Project Manager, Susitna-Watana Hydroelectric Project, AEA, DCCED, said he would provide a synopsis of the project, brief comments on the progress of the past year, and plans for the future. He began a PowerPoint presentation entitled, "Susitna-Watana Hydroelectric Project," dated 1/26/12. Slide 1 was a map of the project location and its proximity to the Anchorage/Fairbanks Electrical Intertie. The project is located at river mile (RM) 184 on the Susitna River above Devils Canyon. The proposed dam is approximately 700 feet high with a reservoir 39 miles long and 2 miles wide at the widest. The project will provide about 50 percent of the Railbelt electrical demand by a capacity of 600 megawatts (MWs) and an annual average energy production of 2,500,000 megawatt hours (MWhs). The project's life will exceed 100 years, and it will provide long-term and stable electric rates. Slide 2 illustrated the project location relative to river miles, and he pointed out that the middle river area from RM 98 to RM 184 will be the most impacted. Studies will also be conducted on the lower river area from RM 98 to RM 0. Slide 3 was a map that showed three proposed access corridors: the Denali corridor from north to south; the Chulitna corridor north of the Susitna River; and the Gold Creek corridor south of the Susitna River. The access corridor will house the access road and transmission line. Slide 4 was a map of the project area including the dam, powerhouse, reservoir, roads, camps, air strip, and quarry areas. Slide 5 illustrated the conceptual site plan of the dam, upstream and downstream diversion structures, roads, and the flow-through area for the river during construction. Mr. Dyok stated that the primary operating objectives of the project are: maximize firm power generation from November to April; generate power while meeting the minimum flows required for environmental purposes; maximize power generation from May to October; and generate power to meet the electrical Railbelt demand. Slide 7 was a graph that showed the fluctuation during a typical 24-hour period of the anticipated Railbelt energy demand in 2025. The project seeks to provide a load-following mode that allows on- line gas-fired plants and other electrical generation to run on a constant, cost-effective basis. 3:13:56 PM MR. DYOK continued to explain that this mode of operation is dependent upon the results of the environmental studies such as the amount of water needed when salmon are spawning. The average daily power generation is anticipated to be 250 MW; however, the advantage of hydroelectric (hydro) power is the flexibility and responsiveness to energy demand, and in an emergency the system could run at 600 MW "for whatever it is that we need" as long as there is no violation of environmental requirements established for the dam. 3:15:07 PM REPRESENTATIVE TUCK understood this is an expandable dam and asked for the reasons not to build the "full dam" now. MR. DYOK explained that the primary reasons are cost and the existing demand of the system. A study this year will determine the optimum size of the dam; in fact, it is not unusual to build a dam and then raise the height at some point in the future. At this time the agency is anticipating that one-half of the energy needed can be accommodated. He acknowledged that this is taking a relatively conservative approach as AEA forecasted a decline in demand in the near future due to conservation, and then increases of .5 percent per year until 2023. 3:17:11 PM REPRESENTATIVE TUCK opined the demand should be built for future - not current - demand because more industry and development will come to the state. He asked how much more the full dam will cost and why gas turbines are a factor to consider. MR. DYOK explained that combustion turbines and combined-cycle units for electrical generation need to keep running at a constant level to be efficient. The goal of the project is for maximum flexibility for the Railbelt utilities. In further response to Representative Tuck, Mr. Dyok said AEA intends to use energy from the project in the system first, and generation from gas-fired turbines will be added to meet peak demand. Thus the hydro project is run to meet the varying load and the gas- fired units are run at a constant level. REPRESENTATIVE TUCK said, "I would think that we would like to be able to make gas turbines obsolete through hydro power." He expressed his belief that limiting the size of hydro projects to only meet current demand may be catering to the oil and gas industry, and he reminded the committee of the state's policy to generate 50 percent of its energy by renewable sources by 2025. He cautioned against losing the vision of "building the big dam." 3:21:09 PM MR. DYOK explained AEA's feasibility report, which will be available at the end of this year, will define a study area including all of the different elevations and "will have all this information laid out" so an informed decision can be made. REPRESENTATIVE LYNN assumed the proposed dam will be engineered to allow for future expansion. MR. DYOK explained that the powerhouse is sited at the downstream end and will accommodate expansion; in addition, the roller-compacted concrete (RCC) construction allows for access to the back side of the dam where an additional 180 feet could be added. 3:23:04 PM REPRESENTATIVE PETERSEN asked whether wind power could also be easily integrated with hydro power. MR. DYOK said yes. The project can utilize wind energy that is available; in fact, hydroelectric generation allows improved integration of wind projects. MS. FISHER-GOAD added that AEA is working with the Railbelt utilities in order to develop a wind integration study and maximize the renewable power that is available. CO-CHAIR PRUITT assumed that the Federal Energy Regulatory Commission (FERC) application filed by AEA will include several different options regarding the size of the project. 3:25:13 PM MR. DYOK said AEA filed a preliminary application document that allows full flexibility, although the goal is to make a decision as to the size of the dam by the end of 2012. If AEA chooses the smaller project, but later decides to build the larger one, it must file a license amendment. MS. FISHER-GOAD, in response to Co-Chair Pruitt, said the decision will be made by the team, which is led by Mr. Dyok, and includes the AEA Board of Directors, Ms. Fisher-Goad, and the administration. 3:27:00 PM CO-CHAIR PRUITT surmised AEA has the authority, along with the administration, to make the determination without further legislation. MS. FISHER-GOAD assured the committee the process will involve the legislature because it must authorize funding after the plan is recommended by AEA and the administration. CO-CHAIR PRUITT clarified that for the purpose of filing for the FERC permit by the end of the year, AEA will proceed. 3:28:40 PM MR. DYOK summarized the accomplishments made in 2011. The project office was opened in the fall and highly-qualified staff members were hired. He described the expertise of the engineering, environmental, and legal consultants who were contracted. A data-gap analysis of environmental information was completed by looking at all of the environmental data that was compiled in the '80s, to determine what information is still needed. Mapping of the Susitna River drainage was done, although not a lot of new geotechnical drilling was necessary. On 10/27/11, AEA filed its preliminary permit application with FERC and continued its public outreach by consulting with stakeholders and holding agency workshops, a site visit with FERC, and presentations. Mr. Dyok advised the most notable accomplishment was filing the pre-application document with FERC on 12/29/11, which included a description of the status of the project's engineering, proposals for working with participants, and information on environmental studies. Slide 9 entitled, "Licensing Status," indicated the federal government and AEA have made critical contacts with Alaska Native entities regarding cultural issues and land ownership; the FERC scoping document will be issued 2/27/12; and the FERC scoping meetings will be held from 3/27/12-3/30/12. 3:33:17 PM REPRESENTATIVE SADDLER asked for further information on the federal government's meetings with Alaska Native entities. MR. DYOK explained that FERC and the federal government consider this contact to be government-to-government because they recognize tribes "using the Lower 48 terminology." REPRESENTATIVE SADDLER pointed out this raises questions of sovereignty. Mr. Dyok deferred further questions to Mr. Bjorkquist. 3:34:15 PM BRIAN BJORKQUIST, Senior Assistant Attorney General, Labor and State Affairs Section, Department of Law, advised that a government to government obligation arises from FERC's federal requirements. Using Lower 48 parameters, tribal entities are villages, but not the Alaska Native Claims Settlement Act (ANCSA) corporations, or the ANCSA village corporations. In further response to Representative Saddler, he said one example is the Native village of Cantwell, and another is Chickaloon village, but not the ANCSA Chickaloon-Moose Creek Native Association, Inc. REPRESENTATIVE PETERSEN heard a land dispute between Cook Inlet Region, Inc. (CIRI) and Nililchik Native Village Association, Inc. may slow the project. MR. BJORKQUIST advised that CIRI obtained title to certain lands involved in the project at the dam site and reservoir, and also to land in the proposed transmission and transportation corridors. Under ANCSA, CIRI is under obligations to convey the surface estate of certain lands to the ANCSA village corporations. Also, ongoing ANCSA obligations will grant entitlements to some village corporations for title to additional land. He said title issues present obligations to negotiate with the landowners appropriate rights to develop the project, but will not necessarily create barriers to the project; in fact, AEA will begin direct negotiations of rights in earnest in the next week or so. 3:38:22 PM REPRESENTATIVE PETERSEN asked whether Mr. Bjorkquist was aware of other pending Native allotment cases that may affect the planning of the project. MR. BJORKQUIST understood there are Native allotments located in the vicinity of the road and transmission corridors, but not in the project; however, efforts will be made to avoid these areas if possible. 3:39:00 PM MR. DYOK returned to slide 9 and noted the next important deadline is 6/11/12 when AEA will file detailed study plans with FERC. Beginning early in 2012, the agency will conduct a number of field studies to glean basic information from resource agencies and others relevant to the FERC application. The engineering studies will start with 56 years of data from the U.S. Department of the Interior, U. S. Geological Survey Susitna River at Gold Creek gauging station. This data will help to understand the hydrology of the area and the effect of climate change on the flow of the river, and to estimate the number of megawatt hours that will be generated from the project. Data from AEA's Railbelt Integrated Resource Plan (RIRP) will be updated for further planning. Also, AEA will design for different elevations and for the sizing of the units, and will explore transmission system reliability, stability modeling, and upgrades to the existing intertie. He noted that "great data" already exists on the geotechnical investigations. Important to AEA and FERC is the early formation of the board of engineering consultants so it can assist with decisions. Presently, construction cost estimate updates are Level 4 of the Cost Estimate Classification System, thus estimates are still in a wide range rather than in specific numbers. Lastly, AEA will work hard to complete the feasibility report in 2012. 3:43:29 PM MR. DYOK then presented slide 11 entitled, "2012 Environmental Studies," which are: studies on understanding sediment transport; ice and changes in the temperature of the river; project operations and engineering affected by ice and water quality; fisheries; wildlife; botanical and the location of wetlands; cultural resources; and recreation. REPRESENTATIVE SADDLER referred to geotechnical drilling work done in the '80s that is still valuable. He asked whether there is residual value in previous environmental work. MR. DYOK opined there is great value in that that information will help AEA look at trends, but significant money must be spent to understand the situation today. In further response to Representative Saddler, he anticipated little savings except in cultural resources and other static subjects. Slide 12 entitled, "Susitna-Watana Schedule," was a chart of tasks and their timelines. Item 1 was to file the Notice of Intent (NO1) and Pre-Application Document (PAD); Item 2 was to complete the Level 4 cost estimate; Item 3 was to conduct informal studies; and Item 4 was the FERC approval of 2013 and 2014 study plans, which is anticipated on November 30, 2012. Continuing, he said Item 5 was the completed engineering feasibility study and Item 6 was a "check-in" with the legislature. After the first draft of the study plan in June 2012, AEA will have a good idea of the cost of all of the studies. Item 7 was a legislative appropriation for licensing/final design, and Item 8 was a possible appropriation for additional state investment in the project. Mr. Dyok pointed out the goal is to file the license application in September, 2015. Prior to filing, AEA seeks to achieve a settlement with stakeholders such as the resource agencies, Alaska Native entities, and nongovernment organizations (NGOs). Item 12 was to negotiate power sales agreements with Railbelt utilities, and Item 13 was the final engineering design which will begin by the middle of next year. After the application is filed, FERC will begin its processing and will prepare its National Environmental Policy Act (NEPA) document. If a license is issued in January 2017, construction will begin immediately and finish in 2023. Finally, AEA is beginning plans for financing the project by discussions with the U.S. Department of Agriculture (USDA) Rural Utility Services (RUS), because interest rates are very low at the present time. 3:51:21 PM REPRESENTATIVE PETERSEN questioned whether the project will meet the state's energy policy goal of 2025. MR. DYOK assured the committee AEA will proceed as quickly as possible while still following the guidelines of the FERC integrated licensing process for new projects. He said he expected AEA will meet the schedule; in fact, AEA is taking on the burden of getting all the information to FERC to facilitate a timely filing. REPRESENTATIVE SADDLER inquired as to AEA's efforts to make the case to Alaskans on the financial benefits. MR. DYOK acknowledged AEA has more work to do on this element of the project. Studies should show benefits such as the cost of power, construction jobs, and low-cost energy for future generations. 3:53:56 PM MS. FISHER-GOAD added that part of the issue in 2012 is making sure that AEA has a Level 4 cost estimate. More detailed cost estimates and further modeling on the size of the project will help "sell the case with respect that this is ... a project that will provide a long-term, stable cost of power for the Railbelt region." REPRESENTATIVE SADDLER supported finding the benefits of the project as part of the message to people. REPRESENTATIVE TUCK would like to help promote the dam because it is an exciting project. Natural gas and oil prices are volatile and he is "a big fan of hydro." He asked for clarification on whether the deadline on the decision to either build the big dam or the expandable one is December, 2012. 3:56:45 PM MR. DYOK said AEA would like to make the decision for the FERC application by the end of 2012 to avoid the challenge of a change "down the road." He opined the following year there will be more environmental information but the engineering information will be sufficient in 2012, except for information on load-growth. The goal is to make the decision next year - although it is possible to wait one or two years - however, when AEA begins work on the FERC application, the decision should be made. He displayed slide 12 entitled, "Susitna-Watana Schedule," that indicated preparing and filing the license application is scheduled for the middle of 2013. An early decision is preferred, but is not required until the application is started, and then "you really need to freeze the design at that point." REPRESENTATIVE TUCK asked whether there is an opportunity to expand the project in the middle of the FERC filing process, or if "we have to start all over with FERC." MR. DYOK said no because the preliminary application document includes alternatives, but the timing of the filing will slow if there are changes. In further response to Representative Tuck, he said FERC will issue a license to build the project as applied for and modified by any constraints placed by FERC. During the construction - if a decision is made to expand to the larger dam - a license amendment will be filed that would not stop construction, even though approval of the change can be a time-consuming process. 4:01:13 PM REPRESENTATIVE TUCK recalled in 2009 AEA determined that the higher dam would cost 22 percent more and would generate 200 percent more power. Furthermore, hydroelectric power has long- term benefits, including rate stabilization, and the cost of hydroelectric decreases with time, once the initial investment is repaid. He questioned whether the fear of funding $8.4 billion will stop the full dam. MS. FISHER-GOAD reminded the committee that AEA seeks a project that will help the state meet its goal for renewable energy. The right size of the dam is also determined by the projected debt payments through a power sales agreement with the utilities, and by the amount of power the Railbelt utilities can purchase from the project. The power sales agreement and the Railbelt utilities' interaction are important considerations. 4:04:15 PM REPRESENTATIVE TUCK urged AEA to continue to look at the larger project. CO-CHAIR FOSTER heard last year there was concern about the public not being able to comment at the public scoping meetings, and he asked about the format. 4:05:25 PM MS. FISHER-GOAD reminded committee members that last year AEA issued the preliminary decision document indicating that the Susitna project should proceed. In February 2011, AEA held a series of public meetings throughout the Railbelt using a presentation format that did not encourage "open dialog." Written questions were taken, but the public was not happy with the format. At the end of August 2011, AEA held a site visit with resource agencies that included a public meeting in Talkeetna. During the meeting, about two and one-half hours were spent by the team fielding questions and working through issues that were raised by residents of the area. She said the upcoming FERC public scoping meetings are another opportunity for the public to provide comments. 4:07:17 PM MR. DYOK explained that typically the FERC public scoping meetings will have a presentation from the applicant on the project, and then FERC will discuss its licensing and decision- making process. Afterward, public comments of 3-5 minutes each will be heard, although he will encourage the FERC manager to ensure that everyone has a chance to speak. There is also an opportunity to submit written comments to FERC for 30 days after the meeting. REPRESENTATIVE SADDLER referred back to the Susitna-Watana Schedule on slide 12 and asked for a more detailed description of the items. 4:09:09 PM MR. DYOK responded that the pre-application document - also called the pre-filing consultation - begins the licensing process. The Federal Energy Regulatory Commission has a formal process to meet with participants and will develop the study plans that have been filed 11 months previous. The following year the studies will be completed, and the initial study report will be submitted after meeting with all of the participants, and FERC arbitrated any disputes. Thus in the two-year time period, there will be one year of study and detailed reports will be submitted to resource agencies - comments and modifications will be addressed in the second year. Mr. Dyok opined AEA will begin the application during the second year - along with the confirmatory studies of 2012 and 2013 - because after the first year of formal studies, negotiations with the stakeholders to come to a settlement agreement will take place. Item 14, the FERC National Environmental Policy Act (NEPA) process, is scheduled for September 2015, and he estimated FERC will take to the end of 2016 to complete its process, including the draft and final environmental impact statement (EIS), and issuance of the license. In response to Representative Saddler's question about potential litigation, he deferred to Mr. Swiger. 4:13:36 PM MICHAEL SWIGER, Attorney at Law, Van Ness Feldman P.C., as outside counsel to AEA on the project, advised that there is always a possibility of litigation at the end of the process after FERC has made its decision. There could be a challenge to the issuance of the license, but a challenge to a FERC license does not necessarily result in a stay of the license. Hopefully, a challenge to the license will be avoided by meeting all of the concerns that arise. The process for challenging a FERC license is to petition for review in the U.S. Court of Appeals for the Federal Circuit, and typically it takes two years, so "at worst if someone challenged the FERC license, and was able to get a stay of the license order, it might hold things up for a couple of years." 4:16:10 PM REPRESENTATIVE SADDLER confirmed that this would come at the end of the process. MR. SWIGER said yes, after the FERC process is concluded. REPRESENTATIVE PETERSEN questioned whether land acquired by eminent domain would slow down construction of the dam. 4:17:15 PM MR. SWIGER was unsure whether AEA has quick-take authority under state law. If so, the quick-take provision of eminent domain allows the land to be acquired immediately, and the cost is litigated later. He pointed out that the conveyances to CIRI were made subject to a power-site reservation which ensures the right of reentry into formerly federal land to develop a hydro project; therefore, eminent domain action will not be necessary. REPRESENTATIVE PETERSEN, in response to Representative Tuck, surmised the utilities might not want to buy 100 percent of their power from the dam project because they are presently investing in natural gas facilities that will be online for 35- 40 years with a 30-year payoff. He opined after those sources of energy are gone, it makes sense to expand the dam. 4:19:39 PM REPRESENTATIVE TUCK referred to page 20 of the "Susitna-Watana Hydroelectric Project Report to the Legislature" provided in the committee packet, and said one condition is that "one hundred percent financing would be through bonds: no state investment." The other condition is that "all energy will be sold and ... I see that that could be a problem because ... we know that not all energy will be sold." Further, he pointed out that the bond rates are reported at 5 percent over a term of 50 years with no contribution by the state; however, investment by the state would garner better terms, and the state could defer to a 30- to 50-year payback. Representative Tuck said he understood the financing issue presented by Ms. Fisher-Goad. REPRESENTATIVE SADDLER asked Ms. Fisher-Goad if AEA has sufficient staff and resources for the work it is doing now. MS. FISHER-GOAD acknowledged AEA has a small staff and that authorization has been requested for some additional positions for 2012, although with the addition of contractors, the existing staff will be sufficient. In further response, to Representative Saddler, she said there will be a need for engineering and environmental assistant managers. 4:22:04 PM CO-CHAIR PRUITT observed the present design calls for RCC construction and asked whether this type of construction will have an impact on the initial cost estimates. MR. DYOK answered that RCC will allow for a smaller dam, however, the construction schedule by MWH Global, Inc. (MWH), one of AEA's consultants, remains the same and he does not know of cost savings at this time. In further response to Co-Chair Pruitt, he agreed that RCC makes the project easier to expand because construction can take place while the dam is operating. CO-CHAIR PRUITT asked whether AEA has looked for new industries that will utilize power and thus bring the cost down. MR. DYOK said the RIRP includes potential large mining projects and other future demands for energy - but future demand is really unknown - and the acquisition of turbines requires a lead time of three to four years. He suggested there is a lack of information from the utilities regarding load-growth. 4:26:09 PM CO-CHAIR PRUITT questioned whether the estimated construction timeline of 2017-2023 can be shortened. MR. DYOK expressed his approval of the schedule prepared by MWH. He warned that weather in Alaska can limit construction time and access to the project must be arranged first. He opined the schedule is optimistic and can be improved if the state acquires stakeholder agreement and builds the access road. Mr. Dyok asked for advice from counsel regarding building the access road early. 4:29:53 PM MR. SWIGER, responding to several questions from Co-Chair Pruitt, advised that if the access road is part of a licensed project it would not be built without the authority of the license; however, if there is an independent justification for a multi-purpose access road the state could go ahead. He cautioned against work that could be deemed project construction without a license. REPRESENTATIVE PETERSEN observed this project will become a tourist attraction. 4:32:00 PM CO-CHAIR PRUITT asked whether AEA needs anything from the legislature at this time. MS. FISHER-GOAD suggested that legislators encourage public participation by attending public scoping meetings and by writing letters to FERC. There is no legislation or funding needed now. CO-CHAIR PRUITT commended AEA's direction and progress. 4:34:18 PM ADJOURNMENT  There being no further business before the committee, the House Special Committee on Energy meeting was adjourned at 4:34 p.m.