HomeMy WebLinkAboutInterim Report for Governor Frank Murkowski 2006
Interim Report
for
Governor Frank H. Murkowski
ADMINISTRATIVE ORDER #230
Energy Policy and Strategy Recommendations
December 1, 2006
Report Prepared by Nels Anderson, Jr.
Energy Policy Advisor to the Governor
AIDEA/Alaska Energy Authority
Office of the Alaska Energy Policy Advisor
Box 234
Dillingham, Alaska 99576
907-842-2366
andora@nushtel.net
Table of Contents
Message From The Alaska Energy Policy Advisor
Recommended Energy Policy For Alaska
Recommended Energy Policy Implementation Strategies
Conclusion
Administrative Order Number 230 11
Page 2 of 13
Message from the Alaska Energy Policy Advisor
On October 18, 2006, Governor Frank H. Murkowski appointed me, Nels Anderson, Jr.
of Dillingham, to the position of Alaska Energy Policy Advisor. The duties of the Energy
Advisor, with the assistance of certain executive branch agencies, is to "facilitate
coordination of an energy policy for the state with the goal of increasing energy
availability in the state and preparing for in-state use of gas from a gas transmission
pipeline.”
Many studies done over the past ten years address these energy issues. Many
suggestions have been made that could be the answers we need to our diverse energy
challenges across the state.
One of the studies suggested that we consider an Alaska State Energy Grid where all of
our communities would be connected. Another suggests we move toward geothermal
sources because of the proximity to many of our communities to active volcanoes.
Others think that wind is the answer. Hydro, peat, possible new gas fields on Bristol
Bay's Alaska Peninsula, new gas fields in Nenana, coal at Beluga and other sites
across the state all present possible solutions for our energy needs.
High energy prices are driving efforts to define an energy policy that will provide energy
equality for all of the citizens of Alaska. The challenge is to find a way to deliver reliable,
low-cost, and long-term energy to all of Alaska presents interesting opportunities for
innovative strategies that will get Alaska on the path of energy self-sufficiency by 2010.
It is necessary to devise strategies that will bring the most benefits in the shortest time
frame possible. Since many of our communities are located close to hydro, geothermal,
wind, tidal, coal-bed-methane, and bio-mass sources, it may be possible to move many
of the communities of Alaska away from diesel toward renewable energy in the near
term.
These options can be hybrids of diesel and wind, diesel and hydro, diesel and tidal, or
some other combination. This is happening in Kotzebue, St. Paul, and several other
small communities across the state. The Alaska Village Electric Cooperative is working
on a number of projects that will make many of those communities less dependent on
diesel. Promising geothermal projects include Chena Hot Springs and Naknek.
As we move toward Southeast Alaska, we find a different set of problems for finding
reliable, affordable, and long-term answers. Solutions may be more of a challenge
although Southeast Alaska has many of the same high cost problems found in rural and
remote Alaska. Fairbanks is beginning to feel the high cost of heating oil during the
winter months along with our schools, university, and other public facilities throughout
Alaska.
Page 3 of 13
Gas fields in Cook Inlet are declining and placing a strain on the economy and
pocketbooks of the people in the Cook Inlet basin. Agrium has had to cut back on its
operations to allow for the use of gas for heating and production of electricity. Liquid
natural gas exports are continuing as Cook Inlet begins to experience severe gas supply
strains.
Meetings with Enstar, Chevron, and state officials, tell me that it is critical that we
establish a policy that will ensure that the people of the Railbelt have a source of
affordable energy as gas fields in Cook Inlet continue to decline. We must support the
Southeast Intertie, and find ways to alleviate the high cost of energy to rural and remote
Alaska.
An energy policy should a) increase supplies; b) encourage conservation; c) search
diligently for alternatives; and d) have the will to achieve energy self-sufficiency by
2025. The energy policy should make sure that the next generation of our energy
sources are reliable, affordable, and long-term.
Recommended Energy Policy for Alaska
The energy policy statements come from the authority granted in our Alaska State
Constitution. The language found in our Constitution is broad and clear regarding how
our natural resources should provide "for the maximum benefit of its people."
Specifically:
"Article 8, Section 2. General Authority -
The legislature shall provide for the utilization, development, and
conservation of all natural resources belonging to the State, including
land and waters, for the maximum benefit of its people."
Energy Policy Statements:
y¥ _ Alaska must provide energy equality for all the citizens of Alaska
vy Energy must be affordable, reliable, and long-term
vy Energy conservation must be encouraged for all Alaskans
Y Alaska must work toward a common state-wide energy grid
v Energy alternative research and development must be encouraged and
supported
Page 4 of 13
¥ _Non-renewable oil and gas set-asides need to be adopted to allow for
in-state use
v Energy providers and producers must plan collectively for energy
infrastructure development
vy Alaska must be on a path of energy self-sufficiency by 2010 and
energy self-sufficient by 2025
Recommended Energy Policy Implementation Strategies
¥ _ Alaska must provide energy equality for all citizens of Alaska
Strategies must be adopted that will have the effect of equalizing the cost of electricity,
gasoline, heating fuel, diesel, and propane for all Alaskans. Royalty oil and gas can be
purchased, refined, compressed, and distributed to Alaskans at cost plus transportation
to Alaskans. New programs may be needed in the near term to lower the cost of energy
to the most expensive locations in Alaska. Studies must be done that will provide the
plans needed.
Legislation should be proposed that would give a sales tax waiver for communities that
impose such a tax and have the state reimburse communities to replace that revenue.
Legislation should proposed that would lower the cost of gasoline, heating fuel, diesel,
and propane for communities that pay more than the average cost found in Railbelt
communities.
Strategies and plans must be made that will allow the use of North Slope gas from four
off take points. Special consideration should be given to a site at the Yukon River where
gas taken from a gas pipeline can be used by communities up and down the
Yukon/Kuskokwim Rivers, and West Coast of Alaska. Immediate studies must be
commissioned to determine if propane from the existing pipeline can be used by
communities across Alaska.
If Alaska is going to realize meaningful long-term benefits from development of our oil,
gas, coal, and renewable resources, we must demand more than training and jobs. We
must insist on being prepared to maintain and operate the industries that are exploiting
our resources. Our schools, university, and private industry associated with our oil, gas,
coal, and renewable resource development must bring Alaskans into the decision
making process, exploration, development, production, marketing, and distribution of
our resources. Finally, we must be able to gain access to the energy resources that are
discovered and developed. Only then will Alaskans realize the true benefit of the
exploitation of our natural resources.
Page 5 of 13
v Energy must be affordable, reliable, and long-term
Incentives must be developed that will provide long-term, affordable, and reliable
sources of energy by promoting energy projects that will use our abundant resources
such as geothermal, wind, tidal, hydro, coal, and biomass creatively. Gas and diesel are
rapidly increasing in cost; displacing those resources must be encouraged whenever
possible.
The state needs to form strategic alliances with energy providers, the University of
Alaska, the federal government, the Denali Commission, and the private sector to find
the most feasible ways and means to provide long-term, reliable, and affordable energy
to all Alaskans.
A comprehensive Alaska Energy Plan must be worked on and adopted as soon as
practicable.
v Energy conservation must be encouraged for all Alaskans
The creation of public benefits programs within energy utilities that incent reductions in
energy consumption must be encouraged. Pre-paid meters should be adopted by
energy users so that Alaskans can monitor their energy use and conserve where
possible.
All of the conservation proposals found in the Alaska Energy Policy Task Force Report
of 2003 and the Rural Energy Action Council Report should be supported and
implemented as. part of a balanced Alaska energy policy.
v Alaska must work toward a common state-wide energy grid
In order for Alaska to have a balanced energy program, it must have a common energy
grid that will tie our communities together. Economic development cannot occur without
a grid that businesses can tie into when economic development opportunities arise
across Alaska. Remote regions of our state cannot function properly with high cost
electrical energy. Donlin Creek and Pebble mines cannot operate without a low-cost
energy source.
Value-added economic development activity utilizing our fishery, timber, and mining
resources cannot occur without access to low-cost energy. A state-wide energy grid will
ensure that economic activity will create new jobs, provide new tax bases, and stabilize
the smaller communities across Alaska.
Page 6 of 13
Studies must be done that will investigate the best way to move electricity across
Alaska in the most cost efficient manner utilizing the latest technology available.
A phased program is needed. The first phase would get as many villagers as possible to
begin regional planning to build interties between villages and decide which village(s)
will be the central energy provider. The second phase would be to develop a plan to
connect the regional interties to a central state-wide energy grid. A feasibility study is
needed to assist in planning and funding the program to connect as many of our villages
as possible to a common state-wide energy grid.
Studies need to be funded to find the most cost-efficient means of transmitting power
between villages and connecting to a state-wide energy grid. Studies such as the
proposal by ProConsult of Anchorage should be considered very seriously.
v Energy alternatives research and development must be encouraged
and supported
Wind projects such as Pilot Point, St. Paul, Kotzebue, and other locations across the
state should be funded to help those and other communities displace high cost diesel.
Wind monitoring should continue and all communities should have the necessary wind
data to know if they should proceed with a wind program or find another alternative.
Geothermal projects like those found at Chena Hot Springs, Naknek, and Unalaska
should be supported and encouraged to provide an alternative to high cost diesel.
Alaska should be at the forefront of our state and nation's efforts to harness our huge
volcanic geothermal resources that are located so close to many of our communities in
Alaska.
The Southeast Alaska Intertie project needs further support to make sure that low cost
energy can be produced for the Southeast Region's communities and also be able to
export surplus production to British Columbia and the lower 48. Governor Murkowski's
vision is to complete Southeast hydro projects, tying communities together by 2030,
exporting surplus power to Canada and the lower 48 through the Bradfield Canal
corridor, and make low cost energy a major draw for the lower 48 and international
timber and mining companies to come to Southeast Alaska.
Statewide exploration for coal-bed-methane should be encouraged to see if any of our
communities are in close proximity to gas that could be used to displace high cost
diesel.
Biomass programs should be funded and encouraged for communities that may not
have suitable alternatives. Also, it may be difficult to connect some of Alaska's
communities to a state-wide energy grid. In those cases, biomass energy could be
found feasible to displace diesel.
Page 7 of 13
Hydro power assessments need to continue and be accelerated. This must be done to
determine if this alternative source of energy may be the most feasible for many of our
communities in close proximity to promising hydro sites.
An Energy Fund must be established that will provide a reliable source of money to fund
energy development programs that will benefit all Alaskans.
Energy fund legislation should be proposed by the governor or support legislation that
achieves the purpose of providing a steady source of funds to implement a balanced
energy policy for Alaska.
Coal is in great abundance all across Alaska. Agrium is looking at gasifying coal to
provide the energy they need to operate. Homer Electric is attempting to activate the
Healy coal generator. Coal is found in the Northwest, Southwest, Southcentral, and
many other parts of Alaska. As we look at alternatives to diesel and gas, we must not
discount the need for using coal as a low-cost alternative that could serve Alaska well
into the future. We must conduct an inventory on our coal deposits in Alaska, continue
to seek clean coal technology solutions, CO” sequestration, gasifying coal, and turning
coal into liquids.
Y Non-renewable oil and gas set-asides need to be adopted to allow for
in-state use
Declining gas reserves in Cook Inlet is causing concern among users of that gas. Home
heating, Agrium, and LNG exports are competing for a resource that is not being
replaced by new gas fields. As a result, Agrium has suspended their winter operations
in order to make sure that home users and electricity producers have sufficient gas.
LNG exports continue as Cook Inlet faces these challenges. It is important to establish
and maintain sufficient reserves for domestic use for our citizens. Oil and gas set-asides
would help accomplish that goal.
Our domestic and economic security are tied to having sufficient access to oil and gas
to warm our homes, cook our food, power our cars, and keep our economy moving
ahead.
It is recommended that future licensing and lease sales have a covenant included that
would ensure that our state's citizens needs are secure. Set-asides could be the answer
to making sure that Alaskans have the oil and gas they need to live and work in Alaska.
v¥ _ Energy providers and producers must plan collectively for energy
infrastructure development
Page 8 of 13
Public and private partnerships should be established to create regional integrated
energy plans. This would require leadership from the governor to draw major economic
interests into discussion forums on energy infrastructure needs and support legislative
action required to allow collective planning and procurement of new generation and
transmission assets. The governor should clearly coordinate efforts with the Alaska
Energy Authority and the Regulatory Commission of Alaska.
Alaska Energy Authority—through its ownership of key generation and transmission
assets—should develop a unified system operation concept and implementation plan to
provide the vehicle for collective planning and organized procurement of new
generation. This would include establishing the framework for a regional integrated
resource plan, the business structure required for the procurement and ownership of
future generation, and the retirement of debt for generation and transmission assets.
Regulatory Commission of Alaska—should serve as the rate making and tariff approval
body to ensure that rate elements for the operation of jointly held generation and
transmission assets are just and reasonable; provide for an orderly process to grant
certificates of public convenience and necessity.
v Alaska must be on a path of energy self-sufficiency by 2010 and
energy self-sufficient by 2025
Unless we set goals to achieve energy self-sufficiency, we will not establish the plans
that will get us there. Many of these policy recommendations will take many years to
accomplish. Therefore, it is imperative that Alaska stays on course and does not deviate
from its very important goal of creating low cost energy for all Alaskans.
Conclusion
The Governor's Administrative Order #230 signed on October 19, 2006, asked for
energy policies and strategies for consideration. This Interim Report to the Governor is
a compilation of proposed policies and strategies found in a number of studies done in
the last ten years.
The recommended policies and strategies are designed to reach Governor Murkowski's
goal of having the State of Alaska on a path of energy self-sufficiency by 2010 and
energy self-sufficient by 2025.
Many of these recommended policies and strategies can be accomplished in a very
short time. Some will take years to accomplish. The timeframe of needed action is
required to keep policymakers focused on the need to provide long-term, affordable,
and reliable energy for Alaskans. Without low-cost energy, our economy will not grow,
new jobs will not be created, rural communities will not be able to develop economies to
generate a tax base to meet their life, health, and public safety needs.
Page 9 of 13
The Administrative Order calls for a public workshop to learn about new ideas for
expanding energy development to meet our energy needs. This has been planned for
April, 2007. It will take place at the same time as the Alaska Energy Authority holds an
Energy Forum. Many people from across Alaska attend this meeting; it would be good
to address new ideas for energy development at that time.
Specific strategies to accomplish the policy goals outlined in this report will require more
work. These recommendations may require statutory changes, regulatory revisions, and
new administrative initiatives.
These recommendations are given to help Alaskans across the state acquire energy
that is affordable, reliable, and long-term. | hope that is the final result.
Page 10 of 13
ADMINISTRATIVE ORDER NO. 230
|, Frank H. Murkowski, Governor of the State of Alaska, under the authority of art. Ill, secs. 1 and 24, of the Alaska
Constitution, establish the position of Alaska Energy Policy Advisor in the Department of Commerce, Community, and
Economic Development, and direct certain executive branch agencies to work with the advisor to facilitate
coordination of energy policy for the state, with the goal of increasing energy availability in the state and preparing for
in-state use of gas from a gas transmission pipeline.
BACKGROUND, FINDINGS, AND PURPOSE
In May 2003, shortly after | took office, the Legislature created the Alaska Energy Policy Task Force to develop a
long-term energy plan to efficiently enhance Alaska's economic future, review and analyze the state's current and
long-term energy needs, and address elements of Alaska's long-term energy needs that can be solved through action
on the part of industry or government, or through actions by both. The task force's April 15, 2004, report on non-
Railbelt energy needs listed several excellent current and long-term energy recommendations, but these were mostly
policy initiatives as opposed to immediate action items.
In April 2004, a report was prepared for the Alaska Energy Authority (AEA) as part of an assessment of
opportunities to improve the efficient, reliable delivery of rural Alaska energy services. The Alaska Rural Energy Plan
stated that significant energy savings in rural Alaska electrical and heating were possible by coordinating community
planning, improving market.incentives, expanding consumer education efforts, encouraging management best
practices, extending metering and telemetry to enable more effective management of electric utilities, and leveraging
cost-effective capital equipment investment for utilities and end users.
While both reports are excellent, neither addresses the unforeseen rural energy crisis that resulted from the
recent skyrocketing oil prices. In October 2004, | exercised my authority as governor to pursue a new energy
assistance program for small villages in need. In my January 2005 State of the State address, | reiterated my
commitment to rural energy needs by proposing to fully fund the Power Cost Equalization (PCE) program and commit
$6.5 million to offset high energy costs in small communities. In February 2005, | created the Rural Energy Action
Council (REAC) and charged it with building on the 2003 and 2004 reports. The operative word in creating the REAC
was "action."
The REAC delivered its report to me on April 15, 2005. It contained eleven recommendations for short-term rural
energy success. | took action based on the REAC report to include full funding for the PCE program in my FY2006
and FY2007 budgets, | created the Bridge Loan program for bulk fuel purchases, | created the Small Municipal
Energy Assistance Program, | included state funding for the low income heating energy assistance program (LIHEAP)
in my FY2007 budget, | directed the AEA to work with the Legislature to raise the loan limit for loans from the bulk fuel
revolving loan fund, and | supported the AEA's alternative energy and energy efficiency programs.
Recent high energy prices have dramatically impacted all Alaskans. The delivery of affordable energy to
consumers throughout the state is anticipated to remain a significant policy concern. It is in the best interests of the
people of Alaska that a high policy-level position be established to foster coordination of energy policy for the state,
not only in rural areas but in its south central region and large population centers. There are still severe energy cost
problems in rural Alaska. The south central region of Alaska has been growing and its energy needs are rapidly
increasing with that population expansion. The cost to consumers of energy statewide is rising. Consumers of
electricity pay different rates in south central depending on which utility serves them. The developed natural gas
resources of the area are declining and the future consumption by current large-volume industrial users of natural gas
is uncertain. Possible use of Alaska coal resources would benefit from further assessment and study. Evaluation of
our energy needs and potential energy development is critical to identifying and developing new sources of energy
deliverable to consumers at a reasonable cost.
Page 11 of 13
When the Gas Pipeline Project is approved, it will provide for in-state use of gas, the specifics of which will require
substantial planning and evaluation. Such planning and evaluation, including preparing for an open season on the
mainline and any spur lines, will benefit from substantial executive branch involvement and assistance. State
government must play a major role in developing the in-state use of gas from the gas pipeline and ensuring that the
energy needs of Alaskans are addressed, especially the needs in our largest population centers. Currently, there are
several state agencies that have statutorily assigned functions relating to energy needs, development, and
conservation. Maximization of those state agencies' efforts can be increased through coordination of energy policy
development.
ESTABLISHMENT OF POSITION AND DUTIES
To address our energy needs expeditiously | establish the position of Alaska Energy Policy Advisor in the Department
of Commerce, Community, and Economic Development. The advisor shall:
1. foster agreement of executive branch policy on state energy needs, development, costs, and conservation,
especially in the rural areas of the state and in the south central region and other large populated areas of Alaska;
2. continue efforts to implement the recommendations offered by the Rural Energy Action Council, namely:
* advocate for the Power Cost Equalization program
* explore expansion of rural energy operator technical assistance programs
+ assist in the creation of regional bulk fuel cooperatives
* examine the Bulk Fuel Revolving Loan program for recommended changes
+ advocate for power plant operational efficiencies
+ evaluate alternative energy systems, such as coal, in-stream, wind, and gas projects
+ advocate for expansion of renewable energy programs and energy conservation measures
* make recommendations for programs such as LIHEAP that provide energy assistance directly to the
individual consumer
* evaluate how to address energy costs for school districts
+ study the economic impact caused by the net population migration from rural Alaska to urban centers due to
high fuel costs
* work with the University of Alaska to establish regional energy centers
+ study the feasibility of linking rural Alaska to the Railbelt energy grid
* establish a fuel price reporting system for "non-PCE" communities
* assist as needed in the divestiture of state-owned rural energy infrastructure
* recommend improvements to rural fuel transportation and delivery systems;
3. organize a statewide public workshop to learn from Alaskans about new ideas for expanding energy development
to meet energy needs;
4. consistent with existing legal authorities, develop, by December 1, 2006, a strategy for energy development, with
particular emphasis on the rapidly emerging issues for consumers in south central Alaska, for consideration by the
governor and the Legislature;
5. consistent with existing legal authorities, develop, by April 30, 2007, a strategy for planning and preparing for the
use in Alaska of gas from a gas transmission pipeline that would transport gas from the Alaska North Slope on a route
generally along the TAPS pipeline and the Alaska Canada Highway, for consideration by the governor and the
Legislature;
6. report monthly to the governor, the Legislature, and the public regarding accomplishments made under this Order;
the reports may be provided on the state's home page on the Internet.
Page 12 of 13
To address our energy needs expeditiously | establish the position of Alaska Energy Policy Advisor in the Department
of Commerce, Community, and Economic Development. The advisor shall:
+ Regulatory Commission of Alaska
+ Alaska Energy Authority
+ Alaska Industrial Development and Export Authority
+ Alaska Oil and Gas Conservation Commission
+ Department of Natural Resources
+ Department of Commerce, Community, and Economic Development
+ Department of Revenue
+ Alaska Natural Gas Development Authority
DIRECTIVES FOR CERTAIN STATE AGENCIES
Each state agency involved with energy needs assessment, energy development, or energy conservation shall be:
1. consistent with legal obligations, cooperate with the advisor to evaluate options and present new ideas for a
strategy to expand energy development in Alaska, especially to serve rural Alaska and the south central region and
other large population centers;
2. consistent with legal obligations, cooperate with the advisor to assist utilities and other entities interested in
obtaining gas for in-state use, including planning and preparing for an open season for the gas transmission pipeline
and any spur line from the mainline; and,
3. send at least one representative of the agency to the statewide energy development workshop described
above, to discuss current practices and evaluate proposals.
GENERAL PROVISIONS
Nothing in this Order diminishes the responsibilities of state agencies as established by law, alters the functions of the
Alaska Energy Authority as the state's energy office, or reassigns statutory duties to the Alaska Energy Policy
Advisor.
This Order takes effect immediately.
DATED at Juneau, Alaska, this 19th day of October, 2006
/s/Frank H. Murkowski
Governor
Page 13 of 13