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HomeMy WebLinkAboutAlaska Energy Strategy April 1994Alaska Energy Strategy April 1994 Department of Community and Regional Affairs Edgar Blatchford, Commissioner Division of Energy, Departmep of Community and Regional Affairs Herv Hensley, Director Alaska Energy Strategy April 1994 State of Alaska , Walter J. Hickel ernor ZZ,- DLR Oo Department of Community and Regional Affairs Edgar Blatchford, Commissioner Division of Energy, Departmep of Community and Regional Affairs Herv Hensley, Director TABLE OF CONTENTS EX@CUtIVe! SUMMARY esse cossscacart cee enna tas tat cut aars sted dotac event ansaneisee siete eates acca eaeeE eS 2, Alaska's| Energy \sSues ststecotestcc torch sce ite tesa stor scot sie tanssnts oneness teste eearaae area 4 Goalsiand| Objectives see siee steerer ES ete t nace stoccet ee tacetsttcestcbissttot ft tt 5 Appendix A, Division of Energy Programs Appendix B, Bulk Fuel Crisis.................... Appendix C, Appropriation History Page 1 of 13 EXECUTIVE SUMMARY In 1993, the Alaska Legislature terminated the Alaska Energy Authority Board of Directors and placed the Energy Authority under the Board of Directors of the Alaska Industrial Development and Export Authority (AIDEA). The corporate structure of the Energy Authority was retained but the ability to construct and acquire energy projects was eliminated. The operating assets and financing capabilities of the Alaska Energy Authority became the responsibility of AIDEA. The Alaska Energy Authority's other programs were transferred to a newly created Division of Energy (DOE) within the Department of Community and Regional Affairs (DCRA). The statutory mission of the Alaska Energy Authority was: to promote, develop, and advance the general prosperity and economic welfare of the people of Alaska by providing a means of constructing, acquiring, financing, and operating power projects and facilities that recover and use waste energy. The mission of the Department of Community and Regional Affairs is to build strong, fiscally responsible local governments and strong local economies. Drawing on these previously stated missions of Alaska Energy Authority and Department of Community and Regional Affairs... The mission of the Division of Energy is to assist in the development of safe, reliable, and efficient energy systems throughout Alaska, that are financially viable and environmentally sound. The Division of Energy is placing emphasis on lowering the costs and increasing the safety and reliability of rural power systems. Some rural utilities need assistance to remedy safety deficiencies and assure safety inspections of electrical systems. Emergency responses to utility systems failures are provided, as necessary, to protect the life, health, and safety of rural Alaskans. In order to achieve the least cost energy supply, DOE will assess options to replace diesel generation and oil heat with alternatives based, if possible, on local sources of energy such as coal, natural gas, wood, hydroelectric, solid waste, or wind. Interties connecting community electrical systems will be investigated to determine if lower cost energy can be achieved. Where interties are not feasible, and alternatives to diesel are not locally available, DOE will work with the utilities to maximize the efficiency of diesel generation. Waste heat recovery and distribution systems will be investigated and implemented where feasible. Assistance for connecting new customers can be granted when lower energy costs for the new customer are demonstrated or when the additions to the customer base of the utility result in overall utility rate reductions. Page 2 of 13 Bulk fuel delivery systems, storage systems, and purchasing cooperatives, are areas in which utilities and DOE can work together to achieve the goals of reducing risk to the environment and lowering total fuel cost to the utility. Working with the Bulk Fuel Task Force, the Division of Energy will develop plans for the maintenance, management, and scheduled replacement of bulk fuel storage facilities. Assistance for emergency bulk fuel repairs will be available from DOE based on critical need and funding availability. The Bulk Fuel Task Force is preparing an overall strategy to begin a systematic, long-term approach to resolve the enormous task of repair, improvement, new construction, and remediation. Coordination of federal, state, and local efforts, along with those of private sector tank owners and fuel suppliers will be needed to confront this crisis. Small village utilities can find it difficult to provide professional management and experienced personnel for system operation and maintenance. DOE will work with these smaller utilities to investigate ways for their customers to realize the benefits from professional management. Electrical interties help to interconnect communities thus building a system large enough for economy of scale savings. In conjunction with the Department of Environmental Conservation, training programs will be used to increase the knowledge and broaden the capabilities of rural utility operators. Circuit rider maintenance programs help to complete the goal of safe, efficient systems. DOE will continue efficient administration of the Power Cost Equalization Program. Also, by working with the Alaska Housing Finance Corporation, DOE will assess opportunities for reducing heating energy consumption. The Division of Energy serves the entire State of Alaska. Although emphasis of the Division is on rural Alaska, urban communities will benefit from utility capital financing programs. Possible sources of funds will be explored and State financing opportunities through the Power Project fund will be investigated. Statewide publications on Alaska's electric industry provide accurate and timely information necessary for bond financing and long range planning of both rural and urban utilities. Page 3 of 13 ALASKA'S ENERGY ISSUES The Power Cost Equalization Program and predecessor programs have been helping rural electric utility customers by paying part of their electricity costs since 1981. These programs were created by the Legislature to equalize the cost of electrical power between urban and rural electricity rates. During this period, urban areas of Alaska were benefiting from major state funded power projects which resulted in sustainable low rates. The PCE program now requires approximately $18.8 million annually of state funds. With the decline in oil revenues, demand among state agencies for these funds has increased. The 1993 Legislature established an endowment from which to fund PCE for five years. This action is based on the assumption that PCE will be replaced by alternate and more efficient energy systems. Energy projects around the state will face a continued scarcity of funds. Alaska has over 118 independent utilities serving a population of less than 600,000. Environmental compliance places an increasing burden on rural communities. In addition to federal assistance, a state agency is needed to assist with basic infrastructure development, and to be responsible for state-wide planning, development, and coordination of energy activities. The multitude of energy initiatives located in many different agencies (federal, state, and local) involved in community development requires coordination. Emerging technologies such as wind, fuel cells, hydroelectric, and solar photovoltaics, all represent clean, small modular technologies that can achieve cost efficiencies similar to those enjoyed by large centralized utilities. Alaska will need to follow these advances in technologies that generate energy from local fuels and help to implement those that are cost effective. Wind, solar, hydropower, solid waste, coal, coal bed methane, geothermal activity, natural gas and biomass, along with innovative management relationships offer options for Alaskans. Page 4 of 13 GOALS AND OBJECTIVES This strategy emphasizes three goals. 1. Affordable, safe, reliable, and efficient energy for all Alaskans 2. Self-reliant electric utilities 3. An effective energy policy Successfully attaining these goals is dependent on cooperation between federal, state, and local entities as well as adequate funding. Goal 1: Affordable, safe, reliable, and efficient energy for all Alaskans Objectives: 1.1. Address the bulk fuel supply problems of rural Alaska. Create incentives and mechanisms to repair bulk fuel systems before a crisis exists. Assist private owners in recognizing the need for improving their systems to meet minimum standards. 1.2. Develop demonstration projects which use local fuels as an alternative to diesel electric generation. 1.3. | Advance the development of hydroelectric resources. 1.4. _ Assess the feasibility of incorporating certain functions of water and waste water system maintenance and operation into the services provided by rural electrical utilities. 1.5. | Review the Power Cost Equalization Program regulations. Work with the Legislature and the Alaska Public Utilities Commission (APUC) to revise and update the PCE program to provide further incentives to local utilities to invest in energy efficiency and operational cost reductions. 1.6 | Emphasis will be placed on developing electrical interties that interconnect load centers, and small utility improvements which reduce dependence on power cost equalization. Goal 2: Self-reliant electric utilities Objectives: 2.1. Establish mechanisms to encourage private investment in rural utilities. 2.2. Provide the incentives and skills in rural Alaska to meet the goal of self-sufficiency through operator training and development of the business strength of the utility. 2.3. Create incentives for responsible and efficient energy use on an individual basis. 2.4. Promote and facilitate professional utility management. Future State of Alaska infrastructure investments can then be made with the assurance that facilities will be maintained over their useful life and when necessary, replaced with utility funds. Page 5 of 13 Dene 2.6. Zee 2.8. Assist electric utilities in developing business plans to independently finance, and develop future generation and transmission systems. Conduct management audits that encompass adequacy of rates to cover all costs including depreciation and insurance. Review maintenance programs, adequacy of sinking funds for renewals and replacements, compliance with National Electrical Safety Code, National Electrical Code, and applicable environmental regulations. Work with the utilities to resolve identified issues. Foster the voluntary consolidation of utilities into economic units. Develop and adopt an investment plan that qualifies utilities for various levels of state investment. This plan will include well-defined and impartial application procedures, as well as quantifiable criteria upon which to make funding decisions. Goal 3: An effective energy policy Objectives: Sle Seas Bik 3.4. 3255 3:6: Sule 3.8 Survey and assess rural electric utility capabilities and needs. Develop a database with Municipal and Regional Assistance Division, Department of Community and Regional Affairs, that includes electric utility capabilities for each community. Establish a federal contacts work group (Rural Electrification Administration, Department of Energy, Bureau of Indian Affairs, etc.). The Division of Energy staff will continue to examine future trends in: ° Alaska energy resources ° Energy technologies ° Energy distribution systems ° Energy demand forecasts . State revenue forecasts ° Population forecasts as applicable to projects and programs. Review existing state energy programs, with attention to coordinating the efforts of other agencies and programs. Provide utility management assistance in a manner that encourages, facilitates, and provides incentives for communities to work with utility service delivery organizations that can take advantage of economies of scale, or appropriate technology. The Division of Energy will serve as the lead agency to implement the Bulk Fuel Task Force recommendations. Continue to provide comprehensive statistical information to the public on Alaskan electric utility operations by producing the Alaska Electric Power Statistics report and production of an annual statistical report of the Power Cost Equalization program. Coordinate energy system investments with housing construction and sanitation improvements to assure adequate energy supplies are available when projects are complete. Page 6 of 13 APPENDIX A DIVISION OF ENERGY PROGRAMS Operation, Technical and Emergency Assistance: Continuation of specific programs designed to provide a wide range of energy systems operations, technical and emergency assistance to rural communities and utilities. Components of the program include: . Rural Technical Assistance (RTA). Continue technical assistance to rural utilities in evaluating deficiencies and needs in respect to the collective energy systems and facilities within a community. Community support is a key element. ° Rural Utility Training (RUT). Continuation of formal technical training of rural utility operators. Emphasis will be placed on adapting and expanding existing programs such as those provided by the Seward Skills Center, the University of Alaska, and the Job Training Partnership Act to meet this need. ° Meter Installation and Data Acquisition. Provides for adequate metering of tural utilities and trains operators to accurately read and record meter data. This program would also be used to install monitoring devices to record and transmit time-coded data necessary for planning purposes. ° Emergency Prevention. Provides funding to continue activities, procurement of materials, and equipment that would be used to prevent power plant related emergencies and disasters statewide. This program is designed to prevent a potential emergency situation before disaster occurs. Electric System Life, Health and Safety Improvements: Provides follow-on funding for correction of hazards that are existing or pose a potential threat to life, health and safety in rural communities. Wherever possible, funds will be used to leverage local matching funds. Voluntary Rural Utility Business Management Development: Work towards the goal of creating self-supporting utilities in rural Alaska. This is to be achieved through (1) the development of partnerships between utilities, i.e., private ownership, a cooperative or an operations and maintenance agreement with a larger utility, (2) utilities joining a regional utility entity, and (3) the training of utility business managers and operators. Rural Power Systems Upgrades: Provides funding for system upgrades that have been identified through rural technical assistance, circuit rider maintenance, the local community or legislature. Upgrades might include efficiency improvements, line assessments, lines to new customers, demand side improvements, other repairs to generation and distribution systems. Page 7 of 13 Emergency Bulk Fuel Repairs and Spill Prevention: Create incentives and mechanisms to repair bulk fuel systems before a crisis exists. This program provides for emergency repairs to bulk fuel storage and handling systems in rural communities. Priority will be given to those communities where fuel vendors or regulating agencies have threatened to refuse delivery of fuels; where conditions have become a life, health and safety matter, or the environment is threatened. Bulk Fuel System Upgrades: Assist private owners in recognizing the need for improving their systems to meet minimum standards. Fund the design and upgrade of bulk fuel storage and handling facilities in rural communities that are dependent on seasonal fuel delivery requiring large capacity. Statewide Electric and Power Project Development: Engineering, environmental, and economic analysis of power projects throughout the state. The objective is to respond in a timely manner to requests from legislators, utilities and communities on power project proposals and to develop a multi-year plan for implementation. Alternative and Applied Energy Technology Development: Funds the development, design, construction, demonstration and/or operational testing of technological enhancements to energy systems including coordinating the efforts of energy research groups. Electrical Service Extension Fund: Matching grant program that provides up to 60% of the cost of site preparation and construction for extending electrical service to private residences and small businesses not currently served by an electrical utility, and as a second priority, for making improvements to existing utilities. Circuit Rider/Emergency Response Services: Preventative maintenance assessment and response service for emergency work needed on rural electrical systems. This program is intended to be an interim fix until long-term planning can address the problems. Bulk Fuel Revolving Loan Fund: Loans for bulk fuel purchases are available to rural communities in amounts up to $100,000. The Bulk Fuel Revolving Loan Fund (BFRLF) provides state assistance in bulk purchase of petroleum fuels to rural communities with populations of under 2,000. Loans are to be repaid in one year or less. To be eligible for a loan the village must show a previous history of loan repayment and credit worthiness. Loans must be repaid in full before another loan will be approved. The interest rate is increased on each successive loan. Most rural villages are dependent on fuel oil for generation of electrical power and space heating. The majority of these villages are not connected to the state's population centers by roads, and depend on seasonal barge deliveries. Because waterways are often frozen for six or more months per year, villages must purchase large quantities of fuel for delivery prior to freeze-up. The annual need to disburse a relatively large amount of cash creates a Page 8 of 13 financial hardship for many communities that may not qualify for commercial loans. This is a very active loan program. Rural Electrification Revolving Loan Fund: This fund handles administration of outstanding loans only. The Rural Electrification Revolving Loan Fund (RERLF) provided assistance to local utilities for extending electrical service into previously unserved areas of the state. Power Project Fund Loans: The Power Project Fund (PPF) provides loans to local utilities and eligible governmental units for the development of new small-scale power production facilities, and facilities for conservation, bulk fuel storage, transmission and distribution, or potable water supply projects. The amount is based on the borrower's need, its ability to repay the loan, and the balance available in the fund. Power Project Fund loans have a maximum term of 50 years. Southeast Energy Fund: This is a grant fund established by the Legislature in 1993. Utilities participating in the power transmission intertie between Swan Lake hydroelectric project and Tyee Lake hydroelectric project are eligible for this grant fund. Power Cost Equalization (PCE) and Rural Electrification and Capitalization Fund: This is a grant fund established by the Legislature in 1993. Utilities participating in the PCE program are eligible. The purpose of this program is to reduce dependence on the Power Cost Equalization program. Page 9 of 13 APPENDIX B BULK FUEL CRISIS Rural Alaska's system of bulk fuel storage is facing a crisis of major proportion. It is estimated that between $200 million and $400 million in repairs and new construction will be required to bring the bulk fuel tank farms in compliance with current state and federal standards. This figure does not include the cost of environmental remediation of extensive fuel contamination at existing tank farm sites. Rural communities in western and northern Alaska are faced with a unique challenge because the vast majority of the annual fuel requirements must be met by barge deliveries during a brief ice-free shipping season. In response to this, the major fuel consumers have established bulk fuel storage facilities with sufficient capacity for a year's supply of fuel. Construction of the facilities has been funded through state and federal grant programs, state capital appropriations, and private sources. Unfortunately, many of the funding programs did not have adequate controls to provide the proper engineering, design and inspection. As a result, the majority of the facilities were not properly engineered and did not meet applicable codes, regulations and engineering standards at the time of construction. Increased concern for the environment in recent years has resulted in more stringent regulations; however in the past, enforcement of environmental and life/safety regulations for fuel facilities in rural communities has been virtually non-existent. The combination of improper design and construction, changing regulations, insufficient regulatory enforcement and inadequate maintenance has resulted in bulk fuel storage facilities that do not meet even minimum requirements and pose a considerable threat to public safety and the environment. In FY 1991 and FY 1992, facing the very real threat that rural communities may be denied fuel delivery due to the poor conditions of fuel storage facilities, the former Alaska Energy Authority and consultants surveyed a total of 44 communities. A field trip to each community was made to gather information on the number and condition of bulk fuel facilities used for public purposes (including privately-owned tanks). Each facility was reviewed for conformance with applicable codes and regulatory requirements. An appraisal was made of current conditions, and public safety and environmental hazards were identified. Detailed engineering studies were prepared for 32 of the communities surveyed. The studies include narrative descriptions of existing facilities, as-built drawings, photographs, concept-level designs for repair/renovation to meet current code and regulatory requirements, and cost estimates for the proposed repairs. Findings include: e Inthe 44 communities investigated, 325 bulk fuel facilities were encountered for an average storage capacity per community of approximately 415,000 gallons. e The United States Coast Guard (USCG) issued, then suspended, "non-compliance operations", warning letters to nearly 80 fuel tank farm owners. The State of Alaska is Page 10 of 13 working closely with the USCG to address the rural fuel tank storage issue and prevent complete facility closures. Less than 1 percent of the tanks encountered had labels indicating manufacture in compliance with Underwriter's Laboratory (UL) or American Petroleum Institute (API) standards; however, most of the tanks appeared to have been manufactured in accordance with good engineering practice and, with limited modification, could probably be made suitable for the intended service. Only two tank farms out of the 325 surveyed had evidence of recent testing and inspection. The potential for leakage from tank bottoms of unknown integrity placed directly on the ground presents a very serious environmental risk. More than 95 percent of the tank farms surveyed did not have a dike that met the minimum requirements. Only 16 facilities had a properly constructed and lined dike. Only 11 properly engineered and installed welded piping systems were found. The remaining 97 percent of the piping systems had other forms of joints, improper supports, poor layout, and a high probability of developing leaks. More than 96 percent of the tank farms surveyed did not have appropriate security fences. Miscellaneous code deficiencies were identified at more than 98 percent of the 325 tank farms surveyed. Significant oil spills were reported to have occurred at 10 tank farms, or 3 percent of the facilities surveyed. It is likely that additional significant spill events have taken place at many of the sites visited, but have not been reported and could not be identified by visual observation. Active leaks were encountered at 35 tank farms. Spill-related events including active leaks, visually observed stains, and reports of spills were noted at 25 percent of the facilities. None of the communities appeared adequately prepared to deal with a significant spill. Some facilities had small quantities of sorbent pads and containment booms. In general, the overall lack of spill response equipment, inadequate operator training, and limited access to remote communities are grounds for serious concern. The total estimated cost for complete repair averages $1,465,000 per community, $199,000 per individual tank farm, and $4 per gallon of storage capacity. Page 11 of 13 ¢ The Division of Energy and the Rural Bulk Fuel Task Force are actively pursuing, along with affected tank owners and fuel suppliers, necessary funding to address this crisis. Page 12 of 13 APPENDIX C APPROPRIATION HISTORY The following history reflects only State of Alaska appropriations made to the former Alaska Energy Authority and the Division of Energy, Department of Community and Regional Affairs: . Rural area projects and programs, $372,808,310 . Other area projects and programs, $734,664,020 . Loan programs and other funding, $294, 164,407. This total funding in excess of $1.4 billion does not include additional State of Alaska energy programs administered by other agencies. The additional state contribution is estimated at over $687 million between fiscal years 1977-1988. TOTAL DESCRIPTION FUNDING RURAL AREA PROJECTS AND PROGRAMS POWER COST EQUALIZATION PROGRAMS (PCE, PCA, & 199,787,218 PPCA) PCE AND RURAL CAPITALIZATION FUND 66,900,000 BULK FUEL UPGRADE AND REPAIR 7,771,978 ALL OTHER RURAL ENERGY APPROPRIATIONS 98,349,115 372,808,310 OTHER AREAS PROJECTS AND PROGRAMS RAILBELT AREA PROJECTS FOUR-DAM POOL PROJECTS LOAN PROGRAMS AND OTHER FUNDING POWER PROJECT LOAN RURAL ELECTRIFICATION REVOLVING LOANS POWER DEVELOPMENT REVOLVING LOAN FUND (FOUR DAM POOL TRANSFER FUND) SOUTHEAST ENERGY FUND 439,285,180 295,378,840 734,664,020 93,028,000 4,945,200 191,630,658 4,560,549 294,164,407 Page 13 of 13