SENATE FINANCE COMMITTEE February 19, 2015 9:03 a.m. 9:03:40 AM CALL TO ORDER Co-Chair MacKinnon called the Senate Finance Committee meeting to order at 9:03 a.m. MEMBERS PRESENT Senator Anna MacKinnon, Co-Chair Senator Pete Kelly, Co-Chair Senator Peter Micciche, Vice-Chair Senator Click Bishop Senator Mike Dunleavy Senator Lyman Hoffman Senator Donny Olson MEMBERS ABSENT None ALSO PRESENT Sara Sarah Fisher-Goad, Executive Director, Alaska Energy Authority, Department of Commerce, Community and Economic Development; Wayne Dyok, Project Manager, Alaska Energy Authority, Department of Commerce, Community and Economic Development. SUMMARY ^PRESENTATION: SUSITNA-WATANA DAM - ADMINISTRATIVE ORDER 271 9:04:43 AM SARA SARAH FISHER-GOAD, EXECUTIVE DIRECTOR, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, introduced the presentation, "Susitna-Watana Hydro." She recapped that the project had received $192 million in capital fund appropriations starting in FY 06, and had, based on legislative direction, sought the appropriate large hydro project in the Railbelt region. She turned to Slide 2, "Project Status": • Federal Energy Regulatory Commission Integrated Licensing Process • Three Environmental Field Seasons Supporting 58 FERC-Approved Studies • Filed Initial Study Report June, 2014 • 50 Tech Memos filed with FERC 2013-2014 • Engineering Feasibility Report Released January 2015 • 60-Day Licensing Abeyance 9:08:04 AM Ms. Fisher-Goad moved to Slide 3, "Project Funding": • Funded total of $192 million through Capital Fund appropriations - FY09-11: $11.17 million (combination of Railbelt Energy Fund and General Fund) - FY12: $65.7 million (Railbelt Energy Fund) - FY13: $0 - FY14: $95.2 million (General Fund) - FY15: $20 million (General Fund) 9:08:38 AM Ms. Fisher-Goad presented Slide 4, "Administrative Order 271": • Dec. 26, 2014- AO 271 directs all State agencies to halt to the maximum extent possible discretionary expenditures for six projects, including Susitna- Watana Hydro • Summary of Project Funding ($thousands) - State of Alaska appropriations $192,072.8 - Expenditures (as of 12.31.14) ($158,476) - Total Non-Discretionary Encumbered Funds ($26,915.10) - Balance of Authorized Funds $6,681.70 9:09:19 AM Ms. Fisher-Goad continued to Slide 5, "Potential Paths". The slide detailed what would be done with the remaining unencumbered funds with the addition of work that could be done with potential future funding as the project advanced toward licensing: Current Status  · Expenditures: (12.31.14) $158.5 million · Encumbered Funds - $26.9 million $6.6 million in Remaining Unencumbered Funds  · 28 Studies Completed · Modeling · Vegetation and Wildlife · T-line Corridor Baseline $10 million Additional Funds  · 36 Studies Complete · Extensive Modeling · Fisheries · Botanical · Limited Cultural Resources $20 million Additional Funds  · 43 Studies Completed · Instream Flow · Water Quality and Geomorphic Modeling · Additional Fisheries License Application  · $100 million · Complete All Studies · License Application · 404 Permit · Water Quality Certification · Biological Assessment · Eagle Permitting 9:11:15 AM Senator Bishop asked how long the FERC license would be valid. WAYNE DYOK, PROJECT MANAGER, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, replied that construction had to begin within four years after procurement of a FERC license. He added that the timeline could be extended permanently through federal legislation. He furthered that the original license was good for 50 years, but reiterated that construction had to begin within the first four years. 9:12:01 AM Senator Dunleavy asked whether building 100 feet of road could be considered construction. Mr. Dyok responded that people have tried in the past to get by with as little construction as possible, he believed that FERC would require an effort that was not diminimus. Senator Dunleavy asked how the state taking a year off from spending would affect the project. Ms. Fisher-Goad replied that currently the AEA was not requesting for any additional funds to be appropriated. Senator Dunleavy asked whether the project could move forward as planned if the state were to clawback the $6.6 million and offer no additional expenditures for FY 16. Ms. Fisher-Goad replied that she did not think that the project could move forward as planned under those circumstances. She said the clawback of the $6.6 million would cause a "hard stop" of the project and would make it difficult to move forward at a later date. Senator Dunleavy wondered what would happen to the $26.9 in encumbered funds. Ms. Fisher-Goad replied that it was difficult to address the question in light of the unknowns in the process toward the license application. She said that the remaining unencumbered funds would allow the state to keep equipment in the field and maintain the momentum of the project. Senator Dunleavy relayed that he was trying to fix the state's revenue shortfall. He thought that all projects should be scrutinized as to whether they really needed funding in FY 16. Ms. Fisher-Goad explained that without the $6.6 million in unencumbered funds the project could not move forward in a manner that would preserve the option to license the project in the future. She reiterated that AEA was no requesting additional funds in FY 16, but was asking for funds that had already been appropriated for the project, in order to maintain the momentum of the project. Senator Dunleavy requested a definitive answer as to whether the project would be dead without the $6.6 million in unencumbered funds. 9:17:34 AM Senator Hoffman asked for a timeframe of the funding pathways represented on Slide 5. Ms. Fisher-Goad answered that the anticipation was that there would not be a request for additional funds until FY 18. She stated that AEA had met with FERC staff to discuss the process forward given the state's fiscal climate; FERC understood the investment and commitment that the state had made in respect to the project and would exercise patience as the state worked through its fiscal issues. She added that in respect to the administrative order, AEA believed that it could continue to work forward incrementally on the project, without additional funding, while continuing to preserve the option to license. 9:19:42 AM Senator Hoffman asked when the cash calls would occur for the additional funding listed on Slide 5 for the license application. He wondered whether the requests would be general funds, or were there other expected revenue sources. Ms. Fisher-Goad reiterated that additional funds would not be sought until FY 18. She elaborated that railroad energy and general funds had already been received for the project. She thought that the current financial situation was an opportunity to explore other potential funding options for licensing. 9:21:01 AM Senator Bishop asked how much money had been spent in the 1980's on the project. Ms. Fisher-Goad replied $140 million. Senator Bishop asked whether the FERC license has a value that could be assigned to it, and whether the license was transferrable with the value assigned to it. Mr. Dyok responded that it was hard to quantify the value of the license, but that the state could consider selling sometime in the future. He did not believe that there was any value until the license was officially procured. He thought that once the state got the license, it would be easier to bring in partners to help develop the project. 9:22:19 AM Co-Chair MacKinnon asked whether the $10 million and $20 million listed on slide 5 were cumulative, and whether there would be 36 independent studies and then 43 additional studies. Ms. Fisher-Goad replied that the $20 million would pay for the 43 studies. Co-Chair MacKinnon clarified that the steps were not incremental, but were options that the legislature could choose from. She surmised that AEA was advising that $100 million was needed in order to reach the licensing, the $10 million and $20 million were interim steps that could move the project forward. Ms. Fisher-Goad stated that projections of what could be done with half of the requested funding could be provided. 9:23:50 AM Co-Chair MacKinnon asked how many people were employed working on the projects, including contractors. Ms. Fisher-Goad said that she could get back to the committee on the specific number of employees. She stated that in the 2013 and 2014 field seasons, there were over 200 people employed in the field alone. Mr. Dyok added there were approximately 70 different contractors currently working on the project. He offered that there had been approximately 700 employees working in the field over the past three years. 9:25:45 AM Ms. Fisher-Goad presented Slide 6, "Project Cost Range," and noted that over $150 million that had already been expended on the project for field seasons and data collection. She made note of the unprecedented effort in the licensing effort. She spoke to the slide, which illustrated that the base estimate for the project cost range was $5.6 billion. 9:27:20 AM Ms. Fisher-Goad moved to slide 7, "Comparing 3 Finance Options," and shared that AEA had been working with a financial advising form that specialized in very large projects: • Bond & RUS Financing - $0.064/kWh 50 year average real price • All Bond Financing - $0.073/kWh 50 year average real price • State Loan & RUS - Similar to Bradley Lake model - $0.037/kWh 50 year average real price Ms. Fisher-Goad emphasized that AEA was examining financing options that would provide a reasonable cost of power and were not looking to the state to grant fund the project. 9:28:39 AM Senator Dunleavy asked whether there was a formula or program being used to evaluate different economic strategies using different variables. Ms. Fisher-Goad replied that there was not a simple spreadsheet that could provide that information, and that there was a connection between the way the project would operate through model and engineering work and the financing options. She said that the models that were used to evaluate different scenarios were complicated. Senator Dunleavy explained that he was trying to understand the financing options for the $7 billion project. He asserted that the public equated the project with cheap electricity, which might not be the case under certain financing options. 9:30:31 AM Co-Chair MacKinnon clarified that the price for the project was $5.6 billion and not $7 billion. Ms. Fisher-Goad offered to have the project's financial advisor walk through the financing options at a later date. She added that the bond financing for the Bradly Lake Hydroelectric Plant model involved a power sales agreement with the utilities that purchased the power, those utilities were committed to paying the debt service, which was incorporated into rates for the customer. She said that a more detailed description of the various options could be provided at a later date. 9:31:56 AM Ms. Fisher-Goad presented slide 8, "Economic Impact": • Majority Alaska Hire - 65% Alaskans employed - Capitalizing on Pacific Northwest hydroelectric experience while maintaining Alaska Hire • In 2014, nearly $7 million earned in Alaska wages  • In 2013, $6 million spent in goods and services in  the Mat-Su Valley  9:33:08 AM Mr. Dyok presented Slide 9, "Environmental Study Process," and noted that there were four phases to the process: · Study Plan Development • Study Implementation Phase • Impact Assessment • Development of Protection, Mitigation and Enhancement Measures (PMEs) Mr. Dyok relayed that although AEA had not completed the last two bullet points on the slide, he was going to draw conclusions from the data that had already been collected in order to give the committee a taste of what would come in the future. 9:34:13 AM Mr. Dyok moved to Slide 10, "2014: Safe and Effective Field Work": • More than 200 in the field, with one recordable incidents • Completed data collection for 13 FERC-approved studies - Water Quality, Bioaccumulation of Mercury - Ice Processes, Glacier and Runoff Changes - Salmon Escapement, Aquatic Habitat Characterization, Fish Passage Barriers - Large Carnivores, Terrestrial Furbearers, Bat, Wood Frog - Subsistence - Probable Maximum Flood 9:34:51 AM Mr. Dyok moved to Slide 11, "Understanding the Susitna Basin," explaining that the work that had been done, to date, had identified environmental issues and expanded the state of knowledge that would allow the agencies to do a better job managing resources, with particular emphasis on fish and wildlife data: • Advanced the state of science for agencies to better manage resources - Wildlife, fish, recreation, subsistence surveys etc. - Documented distribution of invasive Northern Pike in Lower Susitna River - Contributed >4,500 tissue samples to ADF&G Gene Conservation Lab - Expanded distribution data for species such as Chinook Salmon, Lake and Rainbow Trout - Maximized value of Mat-Su fisheries research • Expanded public knowledge of Susitna Basin - Environmental, fish and game, aerial imagery, hydrology data, etc. 9:36:13 AM Mr. Dyok moved to Slide 12, "Cultural Resources": • Developing a better understanding of historical and current human use of the Susitna region - Subsistence, cultural resources, archeology, ethnogeography, recreation, health, etc. • Ahtna Ethnogeography Study - Interviewed Ahtna elders to discuss traditional uses - Documented Ahtna place-names, Athabascan groups and territorial boundaries, traditional routes, trails, artifacts. • A similar effort for Dena'ina people part of FERC approved study plan, not completed 9:36:43 AM Senator Dunleavy requested the total amount that had been spent on fish studies, and the amount dedicated to further studies. Mr. Dyok responded that approximately $50 million had been spent on fish studies. Senator Dunleavy asked what was included in the studies. Mr. Dyok replied that the studies included hydrology; out of the total licensing cost more than half of the cost would go toward water quality, hydrology, ice, and fisheries studies. These studies were largest driver of the cost of the project, with cultural studies coming in second place. Senator Dunleavy asked how much money would be spent on fish studies in the future. Mr. Dyok agreed to provide the information at a later date. 9:38:00 AM Co-Chair MacKinnon asked whether Mr. Dyok was actively sharing the information with the Department of Fish and Game (DF&G). Mr. Dyok responded in the affirmative. He and added AEA was also working with federal agencies. 9:38:32 AM Mr. Dyok presented Slide 13, "Wildlife Studies and Coordination": Increased ADF&G's Understanding for  Game Management Unit 13E  - Moose habitat use and movement; population estimates and bull and calf ratios; productivity and survival - Caribou seasonal use and movement; interactions between neighboring herds and population dynamics - Dall's Sheep surveys 9:39:12 AM Mr. Dyok presented Slide 14, "Understanding Potential Impacts," which depicted a map of the Susitna River, divided into three sections, indicating the proposed dam site. He relayed that studies in the 1980's had revealed a limited number of Chinook salmon going upstream of the dam, but that the real impacts of the dam were in the middle river, thinning out further downstream. 9:40:05 AM Mr. Dyok moved to Slide 15, "Confirming Results and Defining Areas of Impacts": • Observations similar to 1980s - Fish distribution - Chinook salmon only documented anadromous fish above Devils Canyon - Water chemistry and seasonal changes in chemistry - Geomorphically stable river system - Magnitude of bird migration and breeding distribution • Defining potential areas of impacts - Insignificant water quality or geomorphic impacts below Yentna River Confluence (No further modeling proposed in this reach) - Minor impacts on main channel geomorphology in Middle River (Dam site to Chulitna River confluence) 9:42:11 AM Senator Bishop asked whether recent water chemistry findings, and the findings from 1980, could be provided to the committee. Mr. Dyok agreed to provide the information. 9:42:43 AM Mr. Dyok moved to Slide 16, "Average Annual Flow Contributions," which illustrated how conditions would attenuate downstream of the dam. 9:44:02 AM Mr. Dyok turned to Slide 17, "Average Annual Bed Material Load Contributions," and explained that gravel was good for fish, sand was not. He continued to explain that the Susitna River, upstream of Watana Dam, 99 percent of the bed material was sand, and 1 percent was gravel. He said that the dam would stop the material from going downstream; studies had mirrored those done in the 1980's, the reservoir had 100's to 1000's of years if capacity to store the sediment. He shared that the Chulitna River was a driver of the gravel in the system, and most sediment would be coming in downstream from the Yentna River. 9:45:04 AM Mr. Dyok showed Slide 18, "Salmon Spawning Distribution," which offered two pie charts detailing where the salmon were distributed in the river system; 95 to 99 percent of the fish spawned in the lower river. 9:46:19 AM Mr. Dyok showed Slide 19, "Chinook Salmon Spawning Distribution by Basin," and explained that 97 to 99 percent of the salmon spawned in tributaries. 9:47:49 AM Mr. Dyok continued to Slide 20, "Coho Salmon Spawning Distribution by Basin." He said that no Coho salmon spawned in the Susitna River above Devils Canyon. 9:47:53 AM Vice-Chair Micciche queried whether the AEA had a plan to deal with the 5 percent of fish that were spawning in the middle Susitna River, below Devils Canyon. Mr. Dyok clarified that his intent had been to give perspective on the salmon in the middle river. He asserted that most of the fish studies pertained to the fish in the middle river. He said that if the impacts of the dam on the middle river were understood and addressed effectively, there would be lesser effect downstream between the Yentna and Talkeetna Rivers. 9:49:13 AM Senator Dunleavy asked what the plan was for the fish above the dam. Mr. Dyok moved to Slide 21, "Chinook by the Numbers," and explained that there was an area upstream of Devil's Canyon that was utilized by most of the fish that made it that far. He said that DF&G had tagged fish in the lower river, and a contractor had tagged fish upstream of the Talkeetna River. The slide relayed that only one salmon species had been documented within 30 miles of the project site, the numbers were as follows: 2012 - 352 Chinook salmon tagged; 23 made it to Devil's Canyon; 10 above Devil's Canyon; 4 above project site 2013 - 603 Chinook salmon tagged; 18 made it to Devils' Canyon; above Devil's Canyon; above project site 2014 - 622 Chinook salmon tagged; 11 made it to Devil's Canyon; above Devil's Canyon; above project site Mr. Dyok felt that the AEA had a good perspective of the fish activity upstream. 9:53:05 AM Ms. Fisher-Goad added that the licensing effort was an attempt to build the project. She said that in order to know how the project would operate, the rivers needed to be thoroughly examined and evaluated. She referred to Slide 9, bullet point 4: the development of protection, mitigation and enhancement measures (PMEs), which were an important part of the FERC licensing development. She related that the benefits of the project, with respect to the potential cost of power, was balanced on the environmental impact by the development of the PME measures. She asserted that the river system needed to be evaluated and understood before work could begin on the PMEs. 9:54:15 AM Vice-Chair Micciche asked whether systems within the drainage could be returned to higher levels of productivity. He asserted that the job of the AEA was to convince the public that the effects of the project on water quality and fish populations would be minimal. He said that in reality there would be environmental impacts. He stated that those proposing and constructing a project could provide mitigation that would deliver a far higher return than the affected water systems. He asked if neighboring drainages had been examined for mitigation of adverse effects of the dam. Mr. Dyok responded that many ideas had been discussed. He thought that as a mitigation effort AEA could work with DF&G to develop a more robust eradication program for northern pike. Vice-Chair Micciche queried whether AEA had worked with fish habitat experts on the possible issues the project could generate. Mr. Dyok responded that AEA had worked with some groups, but that closer work would be done on PMEs as the process developed. 9:57:32 AM Senator Hoffman asked whether a sketch of power line routes and land status options for the project could be provided to the committee. Mr. Dyok responded that two preferred routes had been identified. He referred to the map on Slide 14. He shared that the Gold Creek option, south of the Susitna River - or approaching from the Denali Highway, were the two least environmentally damaging options. 10:00:04 AM Senator Olson noted that there were native lands and residents of the area that were not enthusiastic about power lines traveling across their land. He wondered what percentage of the over-land power line routes had been negotiated. Ms. Fisher-Goad stated that AEA was in the process of studying what the appropriate corridors would be. She noted that they had a permit with CIRI and support to move forward with the licensing of the project. She stated that the CIRI group had expressed support for the road access, which would follow the transmission lines. She stated that the Gold Creek road access plan had been stated as the group's preferred route, and went through their land. She attested that she had not heard of the village corporations taking issue with the access route and power lines. Senator Olson clarified that he was aware that residents were generally not opposed to roads that provided access to their property; however, they did take issue with power lines and the support structures that accompanied them. He understood that more than 20 percent of the three proposed access routes had not been approved by native corporations, both village and regional. Mr. Dyok explained that an agreement had not been made, but that CIRI had stated their preference. He said that AEA had made it clear that the primary transmission route needed to be close to the access route so that it could be maintained. He believed that further discussion would be necessary. He added that the Ninilchik and Tyonek Native Corporations had submitted letters to the governor in support of the continuation of the licensing process. 10:03:36 AM Senator Olson noted that the two native corporations mentioned were located far from where the dam was planned to be built. Ms. Fisher-Goad pointed out that although they were further away than some, they owned the land in the area. 10:04:06 AM Senator Hoffman asked whether the access road would be open to the public, or would it be exclusively for maintenance of the power line. Mr. Dyok relayed that the decision on the access of the road after construction was still in question. He pointed out to the committee that the Gold Creek route would come from the railroad and would not link up to the Parks Highway. He said that during construction, for safety sake, the road would be open for construction only. 10:05:10 AM Mr. Dyok showed Slide 22, "Engineering Accomplishments": • Board of Consultants Endorsed Roller Compacted Concrete and Dam Configuration • 2014 drilling confirmed no active faults found at dam site • Mean Annual Energy - 2,800 Gigawatt Hours • Engineering Feasibility Report - January 2015 - Optimized dam height, capacity and power generation 10:07:08 AM Ms. Fisher-Goad mentioned a missing slide that had provided information about the corridor selection process. She shared that in order to file the license application, a preferred route needed to be identified, as well as alternative routes. She relayed that an additional corridor access study would need to be done in the future. 10:08:01 AM Senator Dunleavy asked how the project compared to other dam projects in the country, and/or world, with regard to gigawatt production. Mr. Dyok replied that there were a number of dams in the world with higher numbers. He said that in terms of gigawatt production the project ranked in the top 50 dams in the United States. 10:09:10 AM Senator Olson asked whether construction had started on the dam. He referred to an individual related to the project who was killed several years ago while operating heavy machinery. Mr. Dyok clarified that the man who had died had been a contractor who had worked for a lodge which had housed workers in the area. He asserted that construction had not begun. Senator Olson referred to the 1980's, when the price of oil had dropped into the single digits. He wondered whether the AEA had a contingency plan for financing construction if the current low price of oil, and the lack of oil production affected project funding. Ms. Fisher-Goad felt that the opportunity to review the project and examine the project's financing provided by the administrative order was a contingency plan in itself. 10:12:22 AM Senator Bishop asked whether the U.S. Corps of Engineers had modeled the dam at their headquarters in Vicksburg. Mr. Dyok responded in the negative. 10:13:14 AM Vice-Chair Micciche queried the number of utility funded, large energy projects in the Lower 48, where the government had not entered taken responsibility, outside of permitting, and finance options were strictly a percentage of rate-base and not funded by the state. Mr. Dyok replied that most of the projects in the lower 48 were done by the U.S. Corps of Engineers, the Bureau of Reclamation, and the Tennessee Valley Authority on the federal level. Large dams on the state level involved governmental agencies which benefited from low-cost financing. He added that there were some investor owned utilities that were sizeable, but the majority of the larger projects in the Lower 48 were developed by federal or state-backed entities. He said that private entities investing could lead to bonding restrictions and higher interest rates for those investors. 10:16:56 AM Ms. Fisher-Goad added that when AEA was originally given the authority to move forward with the project, there was an assumption that the state would invest. She asserted that it was anticipated that the state would be paid back for its investment in the project. She reminded the committee that the legacy of the project would be clean, reliable energy for the next 100 years. She added that having a low-cost and consistent power source at an inflation proof cost would be economically beneficial for the state. 10:19:01 AM Senator Dunleavy asked how many households the project would provide power to. Ms. Fisher-Goad responded that the project was projected to provide over 50 percent of the power needed in the entire Railbelt area, and not just households. 10:20:12 AM Co-Chair MacKinnon explained that the purpose of the presentation was to consider the viability of the project in the current fiscal climate. She noted that one of the aspects of the project was for the state to meet the goals inside of Alaska's energy policy of 50 percent renewables by 2025. 10:21:43 AM Senator Dunleavy reiterated the question about what the clawback of the $6 million, and taking a year off from funding, would mean for the project. Co-Chair MacKinnon requested the response in writing. 10:22:12 AM Vice-Chair Micciche noted that he was interested in the exploring the private funding options for the project moving forward. He requested that the AEA provide finance models that reflected private/public partnerships. Co-Chair MacKinnon stated that AEA would be back before the committee in the future to discuss individual projects. 10:24:15 AM Senator Hoffman asked whether the numbers for the cost of the dam construction included the cost of the right-of- ways. Mr. Dyok replied in the affirmative. 10:25:11 AM Co-Chair MacKinnon discussed housekeeping. ADJOURNMENT 10:25:41 AM The meeting was adjourned at 10:25 a.m.