ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
February 3, 2015
10:17 a.m.
MEMBERS PRESENT
Representative Jim Colver, Co-Chair
Representative Liz Vazquez, Co-Chair
Representative Benjamin Nageak
Representative David Talerico
Representative Cathy Tilton
Representative Matt Claman
Representative Adam Wool
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
PRESENTATION: INSTITUTE OF THE NORTH
- HEARD
HOUSE JOINT RESOLUTION NO. 8
Urging the federal government to empower the state to protect
the state's access to affordable and reliable electrical
generation.
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HJR 8
SHORT TITLE: FEDS ALLOW STATE TO MAKE ENERGY CHOICES
SPONSOR(s): REPRESENTATIVE(s) TALERICO
01/23/15 (H) READ THE FIRST TIME - REFERRALS
01/23/15 (H) ENE, RES
02/03/15 (H) ENE AT 10:15 AM CAPITOL 17
WITNESS REGISTER
NILS ANDREASSEN, Executive Director
Institute of the North
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint presentation on
various Institute of the North activities, including the 2013
Arctic Energy Summit.
JOSHUA BANKS, Staff
Representative Dave Talerico
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced HJR 8 on behalf of
Representative Talerico, prime sponsor.
ACTION NARRATIVE
10:17:08 AM
CO-CHAIR JIM COLVER called the House Special Committee on Energy
meeting to order at 10:17 a.m. Representatives Talerico,
Tilton, Claman, Wool, Vazquez, and Colver were present at the
call to order. Representative Nageak arrived as the meeting was
in progress.
^PRESENTATION: INSTITUTE OF THE NORTH
PRESENTATION: INSTITUTE OF THE NORTH
10:18:37 AM
CO-CHAIR COLVER announced that the first order of business would
be a presentation by Nils Andreassen, Executive Director,
Institute of the North.
10:18:40 AM
NILS ANDREASSEN, Executive Director, Institute of the North,
began his presentation with a review of Arctic energy issues
derived from policy tours and energy summits hosted by Institute
of the North ("Institute"). Mr. Andreassen informed the
committee the Institute is the center for Alaska's Arctic
policy. The Institute's vision is: Effective land and resource
governance resulting in individual and collective prosperity - a
vision that began with founder former Governor Hickel's belief
in Alaska as an owner-state. The Institute's mission is: To
inform public policy and cultivate an engaged citizenry - which
is focused on understanding and conveying the opportunities and
obligations of the Arctic. To accomplish its mission, the
Institute convenes different groups in forums that include the
public sector, industry, the private sector, and community
leaders. He said fundamental challenges facing Alaska and
Alaska's Arctic are declining oil production and price,
infrastructure deficit, increasing changes and activity, state
and national fiscal constraints, and increasing international
and national attention, with a "huge disconnect between local
concerns, state concerns, and national attitude." Mr.
Andreassen reviewed four fundamental lessons for Alaska from
Iceland:
· Choose competitive resources on which to focus.
· Spend time to develop a comprehensive plan on how to
develop the chosen resources.
· State or national government must own the power grid
infrastructure and allow communities to develop the
resource.
· Export value-added product so that the main industry is
energy intensive.
MR. ANDREASSEN presented a different model from Norway:
· Export non-renewable resources - oil and gas - and develop
renewables for domestic use.
· Co-invest in production and infrastructure sharing risk
and reward.
· Build regulatory capacity for effective and efficient
development of resources.
10:24:21 AM
MR. ANDREASSEN presented a chart entitled, "Iceland and Alaska
by the Numbers" which illustrated significant differences in
population and geography (slide 4]. He pointed out that
installed electricity generation capacity for both entities is
similar, but power consumption is much higher in Iceland. He
concluded that Iceland has successfully focused on one or two
sources in its energy portfolio, and Alaska can do so with
natural gas. The energy mix in Iceland is 80 percent of its
primary energy supply from renewables for electricity production
and heating, and 20 percent from imported fossil fuels for
transportation and fisheries; Iceland continues to transition
away from fossil fuels. In 2010, Iceland's electricity profile
indicated 73 percent of electricity supports the aluminum
industry; raw materials are imported and aluminum is smelted and
exported. Hydropower provides electricity at $0.02-$0.03 per
kilowatt hour (kWh) which attracts industry to Iceland; the
Karahnjukar Hydropower Plant is similar to size and design of
the proposed Susitna-Watana Hydro project in Alaska. The
Fjardaal Aluminum Smelter is connected to the hydropower plant
thus connecting the energy resource to industry, and excess
power is returned to the electrical grid. Energy intensive
industries total one-quarter of Iceland's exports; another one-
quarter is fisheries, and another one-quarter is tourism.
10:29:27 AM
MR. ANDREASSEN returned attention to comprehensive planning, and
explained that Iceland's municipalities and local utilities
drove the process to transition from imported fossil fuels to
renewables. As an aside, he related that consumers reduced
their energy costs by twelvefold. Value-added industry that is
supported by low-cost geothermal and hydropower ranges from fish
to aquaculture to biomedical products. Iceland's master plan
for the utilization of renewable energy resources was developed
by its university in partnership with the government, and
evaluated 80 possibilities for hydropower and geothermal power
plants. He further described the evaluation process and the
categorization of Iceland's energy resources, and opined that
the plan is a fundamental approach to energy resources beyond
policy (slide 10 entitled, "Iceland Energy Planning"). Iceland
has a circumferential electric transmission grid which serves
almost all of its communities with electricity at a cost of
$0.08-$0.11 per kWh. Originally developed by the private
sector, the government "took it over" and guarantees power to
its residents. He said guaranteed access to the transmission
system allows competition to occur.
10:34:19 AM
MR. ANDREASSEN concluded that the lessons for Alaska from
Iceland are:
· Fiscal prudence.
· A careful approach to projects.
· The government is a guarantor and not a financier of
projects.
· Long-term decision-making on infrastructure and a
willingness of the society to sacrifice for future
prosperity.
· Strategic planning on an intentional and expert level.
· Export expertise.
· Straightforward economic development strategy with
diversification and cluster development.
· A master plan for energy development provides clarity to
limit delay and litigation.
MR. ANDREASSEN then provided a snapshot of Norway in 2010. He
acknowledged that Norway differs from Alaska in that its
population is larger and residents have a higher income, a lower
rate of unemployment, and a very different social contract with
their government. In addition, the nation has a very high level
of taxation and a different method of delivering services;
however, Alaska can evaluate some of Norway's processes, and he
listed the following factors of Norway's licensing system:
· Selects tracts to license for a six-year initial term after
extensive consultations with stakeholders.
· Conducts initial seismic and publishes the results.
· Instead of bonus bid and royalty, industry submits an
application consisting of a work plan, financials, and
safety record.
· Licenses are awarded by the Norwegian Petroleum Directorate
(NPD) to an applicant or group of applicants who can
extract the most value; licenses include a six year "drill
or drop" provision.
· All approvals are included in the license.
· Licenses may include Petoro, the state-owned investment
company that contributes upfront capital and participates
as a partner.
· Private industry and Petoro are part of the decision
process.
10:41:44 AM
MR. ANDREASSEN further explained that through the state's direct
financial interest (SDFI), the Norwegian government participates
directly with private industry in the development of resources.
As part of its active role, the state substitutes definitive
work and investment commitments, and active participation,
instead of a passive, royalty role. He stressed that SDFI
creates alignment of interests between the state and the
producers, who gain certainty, stability, co-investment, and a
guaranteed rate of return. The state gains an understanding of
the investment, access to data, and an understanding of "oil and
gas process." In fact, Norway transitioned away from a bonus
and royalty system because that system impaired investment
decisions. He suggested that SDFI could be added in Alaska as
an option in new leases with the creation of an organization -
similar to the Alaska Permanent Fund Corporation - to administer
the state's interests. Mr. Andreassen reviewed Norway's
investment incentives to development: reduced risk; reduced
upfront costs; shared risk and co-investment through SDFI;
alignment between industry and the state; predictability; quick
permitting; and tax stability. He continued that the above
lessons from Norway are important for Alaska's domestic energy
and its general approach to energy resources. Conclusions from
the Norway tour are as follows:
· NPD serves the purpose of the Department of Natural
Resources (DNR) and the Alaska Energy Authority (AEA),
Department of Commerce, Community & Economic Development
(DCCED), and carries the public's interest.
· Oil and gas for export; develop renewables for domestic
energy consumption.
· Government take maximized through state-owned enterprise
and investment in infrastructure.
· Stability plus returns result in private sector confidence.
· Postage stamp rate for domestic power greater connectivity.
MR. ANDREASSEN opined a lesson learned by the Institute's
research throughout the Arctic nations is that some governments
have effective criteria and the ability to judge a project based
on specific merits. This is an area that could be explored by
the committee to develop a plan to move from the state's current
energy policy to an implementation plan, and then develop a
system to track projects and expenditures. The goal would be to
improve Alaska's ability to use criteria, strategy, and system
to make decisions and prioritize projects, especially in an
environment of fiscal constraints. This would be accomplished
in concert with state agencies.
10:49:45 AM
MR. ANDREASSEN then presented the following recommendations:
· Consolidate oversight.
· Oversee projects to ensure state return on investment and
benefits.
· Standing committees of the House Special Committee on
Energy and the Senate Special Committee on Energy.
· Evaluate energy projects with a focus on basic
infrastructure.
· Encourage better outreach and communication from state
agencies.
· Encourage and support private investment.
· Leverage state resources for infrastructure.
· Implement energy strategy as a key element of fiscal
policy.
MR. ANDREASSEN turned attention to the 2013 Arctic Energy Summit
- hosted by the Institute - which presented the themes of
richness, responsibility, and resilience. The summit took a
cross-sectorial approach, with the understanding that the
private sector will lead energy development, public entities
will respond, regulate, and manage activity, and both will
utilize academia and non-governmental organizations to advance
projects. Richness is defined as renewables, non-renewables,
and efficiency and conservation. Responsibility is a commitment
from all eight Arctic nations to risk mitigation and response
ability. Resilience is the ability to respond and adapt to
change; implementing responsibility in energy development now
will strengthen resilience. From the summit, the following
research and projects were proposed:
· Grid connectivity research.
· Measurements of government support from all Arctic nations.
· How communities are benefitting from energy development.
· Effective policies for the development of renewable energy.
· Financial vehicles to support energy development.
· Guides to northern energy efficiency and conservation.
MR. ANDREASSEN informed the committee that the Institute will be
hosting the 2015 Arctic Energy Summit in Fairbanks, 9/28-30/15.
The themes will be "Energy Contributing to a Lasting Future,"
"Security," and "Affordability." Outcomes will be reported to
the Arctic Council's Sustainable Development Working Group. He
encouraged members to participate in the summit.
10:56:21 AM
CO-CHAIR COLVER suggested the committee may want to hold a
hearing during the summit.
REPRESENTATIVE NAGEAK asked where in Alaska a real project could
be researched.
MR. ANDREASSEN advised the Alaska Center for Energy and Power
(ACEP) has the ability to research and test projects "on the
ground" and garner an understanding of costs and benefits.
REPRESENTATIVE NAGEAK recommended that the committee contact
ACEP.
CO-CHAIR COLVER clarified that the committee could consider
contacting ACEP regarding the implementation of the
recommendations.
REPRESENTATIVE WOOL asked about the ownership of the grid in
Norway.
MR. ANDREASSEN was unsure and offered to provide an answer. In
further response to Representative Wool, he said the government
of Norway strives for a 100 percent return on the state's
resources, but that is unacceptable to industry; factors in
garnering the state's rate of return are a 78 percent tax and
co-investment.
REPRESENTATIVE WOOL asked whether Norway's oil and gas
production is comparable to that of Alaska.
MR. ANDREASSEN said he was unsure of the current rate of
production and offered to provide that information.
CO-CHAIR COLVER expressed his understanding that only one
environmental challenge is allowed on a Norway project.
MR. ANDREASSEN explained that Norway minimizes delay by
conducting negotiations prior to licensing, and then allows one
subsequent lawsuit.
11:01:40 AM
The committee took an at ease from 11:01 a.m. to 11:02 a.m.
HJR 8-FEDS ALLOW STATE TO MAKE ENERGY CHOICES
11:02:04 AM
CO-CHAIR COLVER announced that the next order of business would
be HOUSE JOINT RESOLUTION NO. 8, Urging the federal government
to empower the state to protect the state's access to affordable
and reliable electrical generation.
11:03:19 AM
JOSHUA BANKS, Staff, Representative Dave Talerico, Alaska State
Legislature, introduced HJR 8 on behalf of Representative
Talerico, sponsor. Mr. Banks explained that the U.S.
Environmental Protection Agency (EPA) Clean Power Plan applies
to all fossil fuel power plant generation - including coal, gas,
oil, and naphtha - by plants that produce power in excess of 25
megawatts (MW), with the exception of power plants at military
bases in Alaska and at the University of Alaska (UA). Although
well-intentioned, the plan would likely lead to much higher
electricity costs as indicated by a study [entitled, "Energy
Market Impacts of Recent Federal Regulations on the Electric
Power Sector," and dated 11/14] provided within the committee
packet. He said the study states that nationwide there could be
an increase in electrical costs as high as 37 percent. The
Clean Power Plan is based on inaccurate assumptions; for
instance, that the largest source of carbon emissions in Alaska
is from power plants. In fact, power plants in Alaska account
for about 25 percent of carbon emissions. The remaining 75
percent of stationary source carbon in Alaska is from operations
on the North Slope. Another assumption is that lower cost
natural gas and renewable energy sources are available; however,
in the near-term these sources are not available in the
Interior. In fact, even if natural gas were available in
Fairbanks, the current projected cost is $20.00 per million Btu
(MMBTU). The final purpose of HJR 8 would be to protect
Alaska's sovereignty. The Tenth Amendment to the U.S.
Constitution states: "The powers not delegated to the United
States by the Constitution, nor prohibited by it to the States,
are reserved to the States respectively, or to the people." Mr.
Bates opined the powers of Congress or the executive branch do
not include the power to regulate carbon emissions in America.
Therefore, this is the states' responsibility. He expressed his
belief that the State of Alaska has the means to make effective
decisions to deal with the problems of climate change, and to do
so without hurting Alaskans. The resolution urges the federal
government to leave decisions in regulating energy production at
the state and local level in order to protect access to
affordable and reliable electrical generation. Mr. Banks said
he expected some changes would be made to HJR 8 as it was
currently written.
11:07:25 AM
REPRESENTATIVE NAGEAK directed attention to the bill on page 1,
lines 9-10, which read:
WHEREAS the Regulatory Commission of Alaska should be
empowered to make decisions with methodology based on
the lowest production costs for electrical generation;
REPRESENTATIVE NAGEAK asked whether the rationale of the
resolution was to get more coal generation.
11:08:14 AM
REPRESENTATIVE TALERICO was unsure about the intent to generate
more coal-fired power, but the intent was to maintain what is in
production at this time. In the Interior, the most affordable
power is from coal. Although power production is available from
other areas of the state, the "bottleneck" is the lack of
transmission lines at the electrical intertie. He recalled the
committee's previous discussion of "pancake" rate tariffs.
Currently in the Interior, coal-fired power costs 4.9 cents per
kilowatt hour (kWh), and hydroelectric (hydro) power costs 5.8
cents per kWh due to the pancake tariff rates. Representative
Talerico said his concern was for the cost to customers in
Fairbanks which is then passed along to surrounding remote
communities.
REPRESENTATIVE NAGEAK referred to testimony last year that the
cost of power generation in rural Alaska could be reduced by the
use of microgrids to connect nearby communities. He suggested
considering the idea proposed by the Alaska Village Electric
Cooperative, Incorporated (AVEC). He then asked for an
explanation of the benefits of placing a 1.5 percent cap on
electricity rate increases.
REPRESENTATIVE TALERICO said the issue of a cap was being
discussed with state agencies, the Regulatory Commission of
Alaska (RCA), and the utilities. He said he asked the co-chairs
to hold the resolution in order to gather more information and
create a better document; furthermore, various agencies would be
bringing recommendations to the bill sponsors.
REPRESENTATIVE NAGEAK directed attention to page 1, lines 14-15
which read:
WHEREAS utilities, communities, residents, and
commercial entities should be protected from any
attempts to close a coal-fired power plant in the
state; and
REPRESENTATIVE NAGEAK asked for examples of coal-fired plants
that would be closed.
REPRESENTATIVE TALERICO referred to an [unidentified] EPA
document provided in the committee packet, noting it is 300
pages long. His interpretation of the document - and his
primary concern - was that the plan calls for reducing carbon
pollution by focusing on the power producing industry. In
Alaska, most of the carbon produced is not from power plants,
unlike in the Lower 48. Coal power plants are the cheapest
sources of energy in the Interior, and if they become "a target"
the price of energy would rise without an impact on Alaska's
carbon emissions.
11:14:17 AM
MR. BANKS directed attention to page 23 of a study provided in
the committee packet entitled, "Energy Market Impacts of Recent
Federal Regulations on the Electric Power Sector" and dated
11/14. Energy Ventures Analysis estimated a reduction in the
generation of coal from 31 percent in 2012, to 20 percent in
2020, likely requiring the closure of coal-fired plants
throughout the country.
REPRESENTATIVE NAGEAK observed his district has the cleanest-
burning coal in the world and he supports generating power with
coal using the best technology; however, the industry needs to
be proven. Coal-fired plants should not be closed, but improved
for the benefit of the environment and consumers, and the
federal government should help pay.
CO-CHAIR VAZQUEZ informed the committee it would hear an
upcoming presentation regarding microgrids.
11:17:18 AM
CO-CHAIR COLVER opened public testimony on HJR 8. After
ascertaining no one wished to testify, public testimony was left
open.
CO-CHAIR VAZQUEZ stressed the importance of reliable and
affordable energy to the well-being and economic success of the
state.
REPRESENTATIVE WOOL directed attention to the bill on page 2,
line 2, which read:
WHEREAS the loss of other traditional electrical
generation methods may cause natural gas plants to be
overused or used in ways that exceed their engineered
design; and
REPRESENTATIVE WOOL inquired as to whether natural gas is a
traditional method of electrical generation, and if natural gas
plants have been shown to be exceeding their engineered design.
REPRESENTATIVE TALERICO advised that coal-fired generators have
been around in the Interior since before World War II; this
method is a traditional source along with diesel and naphtha.
In the event 25 MW of daily production were shut down in Healy,
and another 20 MW in Fairbanks, it would be difficult - if not
impossible - to energize the grid. He expressed his willingness
to make additions or deletions to the language of the
resolution.
REPRESENTATIVE WOOL asked if the proposed improvements to the
electrical grid would change the priorities of HJR 8.
11:23:30 AM
REPRESENTATIVE TALERICO opined improvements to the grid are
critical to the economy; however, affordability is still
important. The cost of oil and natural gas fluctuates, but the
coal market remains more stable. He stressed the value of many
diversified sources of energy production coming together to
provide stability in energy costs.
REPRESENTATIVE NAGEAK expressed his passion about lowering
energy costs. During the previous legislative session, the
committee discussed biomass, natural gas, coal, hydropower,
tidal, and geothermal sources of energy that are available on a
regional basis; in fact, most regions have different sources on
a local basis, like biomass, run-in-the-river, and coal
generation. He encouraged the committee to focus on developing
resources that are available in each region.
CO-CHAIR VAZQUEZ will request related testimony from the Alaska
Power Association. She urged for research on the use of coal.
11:29:52 AM
HJR 8 was held over.
^PRESENTATION: INSTITUTE OF THE NORTH - CONCLUSION
PRESENTATION: INSTITUTE OF THE NORTH - CONCLUSION
11:30:33 AM
REPRESENTATIVE CLAMAN summarized from Institute of the North's
presentation that the state needs to develop a long-term plan,
and to look seriously at further investment in infrastructure,
as opposed to investment in production. He asked, "How do we
fit into the 'live within our means,' to that whole picture?"
MR. ANDREASSEN advised that the state's current energy policy is
aspirational and not directive; state agencies have tried to
operationalize the policy, but further clarity is needed on what
the legislature expects in terms of a strategy and
implementation of the policy. Other nations have been able to
better prioritize how to move forward by upfront planning.
These steps can be taken through legislative committees to
develop, formulate, and operationalize the energy policy.
Better strategic planning would result in a different kind of
decision-making and better returns. Regarding infrastructure,
he said all Arctic nations are well-endowed with resources;
however, Alaska has not done as well as others "connecting those
dots from supply to market." Iceland has two priorities:
investing in people, and providing the right infrastructure so
that people can gain prosperity from economic development. He
acknowledged that state investment in human and physical
infrastructure is challenging in an environment of fiscal
constraint. Mr. Andreassen related that Iceland's solution is
affordable energy, for which all Arctic states should strive.
11:35:51 AM
REPRESENTATIVE NAGEAK, referring to testimony heard last year,
stressed that Iceland has a large amount of power from
geothermal, which allows it to support energy intensive
industry.
11:36:51 AM
CO-CHAIR VAZQUEZ recalled it was suggested at a previous hearing
that the state could form an energy infrastructure fund, in
partnership with the private sector, to finance projects.
11:38:42 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:38 a.m.