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Home My WebLink AboutRural Energy Action Council, Findings & Action Recommendations, April 2005 ural Energy Action Coun _ Findings and Action Recommendations for Governor,Frank Murkowski ““April 15, 2005 re Rural Energy Action Council (REAC) a aie Created by Governor Frank H. Murkowski , Headquartered at: ; vinap eeshicdisihin AIDEA / Alaska Energy Authority : 813 W. Northern Lights Boulevard Anchorage, Alaska 99503 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Findings and Action Recommendations for Governor Frank Murkowski April 15, 2005 Prepared for: Rural Energy Action Council (REAC) Created by Governor Frank H. Murkowski February 7, 2005 Prepared by: AIDEA / Alaska Energy Authority 813 W. Northern Lights Boulevard Anchorage, Alaska 99503 (907) 269-3000 (907) 269-3044 FAX Toll free in Alaska (888) 300-8534 For an online version of this publication, go to www.aidea.org/RuralEnergyActionCouncil.htm Page 1 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Rural Energy Action Council Members Nels A. Anderson, Jr., Co-Chair Dillingham - Southwestern Alaska Edgar Blatchford, Co-Chair Anchorage - Alaska Department of Commerce, Community and Economic Development Commissioner Andy Baker i Kotzebue - Northwest Alaska Baker Professional Services Owner Mike Barry Anchorage - AIDEA/AEA Chairman of the Board Ernie Baumgartner McGrath - Interior Raven Technology Services Owner Bob Martin Juneau — Southeast Bureau of Indian Affairs Chief Engineer Gene Peltola Bethel —- Western Alaska Yukon Kuskokwim Health Corporation President & Chief Executive Officer Orie Williams Fairbanks - Interior Doyon, Limited President & Chief Executive Officer Alaska Energy Authority Mike Harper Deputy Director of Rural Energy Page 2 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Table of Contents Messageifromithe Co-Chairs Leena aes 4 Governor Murkowski’s Directive ..0.........0....ccccccccesssessesseesseeseesesseeneeseeseessesseeseestensees 6 Energy Policy Task Force statement .....0.0.0..0......ccccccccccscsscsesessesessesesesseseeeeseseseeseees 8 A. Mission BB Goal ee ee ee EEA MELEE ELEC eh Hees Executive/Summiany/ of Actions ERC En Issue: Power Cost Equalization (PCE) Program Funding and Intent Mu Issue: Power Cost Equalization (PCE) Endowment Fund...............:::.::ccceeeseeeeseeeeee Issue: Bulk Storage Operations and Maintenance ..................ccceeceseseseeeeseseeeeeeeeeeeee 12 Issue: Scope of Bulk Fuel Upgrade Projects...... 13 Issues) (Bulk: Puel| Cooperatives\ sn. ctncsccrsscrsetesc scence crescent cn ener 14 Issue: High Cost of Bulk Fuel in Rural Alaska.......0.0.0.0.c.cccceseceseseseeeeeeeeeeeeseneeeees 15 Issue: Diesel Powerhouse Efficiency Improvements ml, Issue: Alternative Energy................0:ccccseeseeeeees aoa! Issue: Energy Conservation iene cee ee oil Issue: Low Income Home Energy Assistance Program (LIHEAP)... bale Issue: Energy Funding for School Districts ...........0.0..:eeeee 24 Issue:} Rural Energy Centers soe rie cscsecrceenc et oceenteacce neces 25 Staff ReECOgnitlo eee ee een nee ney ne LEE nO EEEL 26 Acknowledgements... WT NEO eee ee eee eee es se eT EEL 28 DDeNCi Ces ee TLE 29 Appendix A: PCE Blue Ribbon Committee Executive Summary Appendix B: Tabled PCE Recommendations Appendix C: Rural Alaska Fuel Services, Inc. Appendix D: Sample of the Price of Fuel Appendix E: AEA Energy Fuel Survey Appendix F: Financing Bulk Fuel Appendix G: Comparison of Recently Installed Energy Systems Appendix H: Summary of Coal Resources of Alaska Appendix I: Alaska’s Coal Resources Appendix J: = Wind-Diesel Hybrid Systems in Alaska Appendix K: Alaska Rural Energy Plan, Vol. II, Section 3, pages 3-38, 39, 40 Appendix L: Energy Star — Energy Smart: RurAL CAP Page 3 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Message from the Co-Chairs Nels A. Anderson, Jr. Commissioner Edgar Blatchford Dear Governor Murkowski: It is my pleasure to transmit this report that you commissioned February 7 to look into a number of recommendations that you could use to help bring down the cost of energy in Rural Alaska. The Rural Energy Action Council, made up of eight members from across the state, worked diligently to give you a number of action items that you could use immediately. We met two times by teleconference and three times face to face to discuss all of the issues you named for study in the press statement that authorized the creation of the Rural Energy Action Council. On behalf of the Rural Energy Action Council, | would like to thank you for your leadership in bringing the need for low-cost energy to the attention of Alaskans. As you stated in your press statement, your address to the AFN Convention last fall, and in your State of the State address, that low cost energy is a vital part of making sure that economic development occurs in all parts of Alaska. We looked closely at PCE, conservation measures, alternatives to diesel, the creation of fuel coops, and cost of energy for our schools. We hope that these recommendations will help assist in getting low cost energy delivered to our villages across Alaska. We kept in mind your goal of producing a number of recommendations that you could use immediately. PCE is one of those items that if funded before the end of the session would have the most dramatic effect on taking the sting out of ever increasing costs of energy for people in the villages of Alaska. We also noted your efforts to get one-time grants to our villages to help them get the money they need for fueling their villages next year. Page 4 Rural Energy Action Council ‘Findings and Action Recommendations for Governor Frank Murkowski We also felt it necessary to look at a number of initiatives that would need to begin very quickly so that they can start producing results next year. A case in point, we felt that the various state and federal agencies could start moving their approval process for fuel loans to early in the year. This would allow our villages to have funds available for early spring delivery and perhaps give the villages a tactical advantage in purchasing when the price of heating fuel and diesel is moving down after demand slacks off with warmer weather. We are hoping that these recommendations can be taken seriously and that many of them will be adopted as part of your administration's strategy to bring down the cost of energy in Rural Alaska. Co-Chair Blatchford and | would like to thank all of the agencies, AIDEA-AEA personnel, the Denali Commission, RurAL CAP, AVEC, the Department of Commerce, Community and Economic Development and so many others who worked to make this report possible. Also, you could not have picked a better Rural Energy Action Team to work on this task for you. Each of the members took their jobs very seriously, gave up valuable time from their normal duties, and made very valuable contributions to the mission you gave us. If it were not for these contributions, the report would not be as credible as we think it turned out. I’m encouraging Governor Murkowski to use all means at his disposal to have a strong public outreach effort to advance these actions. The Rural Energy Action Council will stand strongly behind him. Finally, thank you Governor for allowing those of us that live in Rural Alaska to advise you on an issue that has long remained in the background for too long. We hope that your leadership on this matter will help all of us focus on the need to come up with practical solutions to bringing low cost energy to villages across the state. It is a great challenge and the opportunities for success are greatly increased by your commitment to making sure that low cost energy is addressed in your administration. Sincerely, Vek. Virdron fy Nels Anderson, Jr. Co-Chair Members of REAC: Commissioner Edgar Blatchford, Co-Chair Bob Martin Ernie Baumgartner Gene Peltola Andy Baker Orie Williams Mike Barry Page 5 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Governor Murkowski’s Directive Early in February, the Governor requested a report from the group by April 15, 2005, on short-term proposals to reduce & the high cost of energy in rural communities. The group was to analyze and make recommendations in several areas, including: e incentives to lower energy delivery costs 8 | regional supply and distribution centers cooperative fuel purchases power plant operational efficiencies consolidation of energy providers a review of Alaska Energy Authority (AEA) programs acceleration of renewable energy efforts, and energy conservation measures. REAC was to build on the work done in 2003 by the Alaska Energy Policy Task Force (EPTF) for the 23rd Legislature (see Mission and Goals following page and go to the link http://www.aidea.org/EnergyTaskForce.htm for a complete copy of the EPTF Non-Railbelt Report). REAC was also to use other information to devise short-term and practical proposals that reduce the cost of energy in rural Alaska. According to the Governor, “The operative word in this group is ‘action’.” The Governor, in his address to the October 2004 Alaska Federation of Natives convention, is quoted: e To advance solutions to these problems | am announcing today that our Department of Commerce, under Edgar Blatchford’s leadership, will work with regional organizations such as RuralCAP, AITC, village organizations, University of Alaska, the state, the federal government, and the Denali Commission to coordinate efforts to lower the cost of energy for our state and focus on making our state and villages energy self-sufficient by 2010. e Another thing about the high cost of fuel in rural Alaska is that some rural communities were threatened with heating fuel shortages this winter. e BECAUSE OF THIS PROBLEM WITH THE HIGH COST OF ENERGY IN RURAL ALASKA | AM ANNOUNCING TODAY THAT | WILL PURSUE A NEW ASSISTANCE PROGRAM FOR OUR SMALL VILLAGES IN NEED. e lam very aware of difficulties in many small rural Alaska villages with limited funding available for local services. The high price of fuel, oil & gasoline has put an almost insurmountable burden on these small communities and their residents. Page 6 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski We have a bright future ahead in rural Alaska o A future that includes a quality education and good jobs for our young people. o A future that makes low cost energy available to villages. The Governor, in his State of the State address in January 2005, included the following comments: | also propose $6.5 million dollars to offset high energy costs in smaller cities, along with 20.7 million dollars to fully fund Power Cost Equalization. This will mark the first year since creation of the endowment that the PCE program has been fully funded. This will lower fuel costs in rural Alaska and create new jobs, thereby strengthening their communities. We’ve had some success in dealing with high energy costs. We acted when the Bush caucus came to us last June with concerns about a number of rural communities having difficulty purchasing winter fuel. We developed a plan that helped even the most financially-strapped villages, and more importantly, a plan that will help the villages better manage their own winter fuel programs going forward. Tonight, | renew the commitment | made at the Alaska Federation of Natives convention in October to aid rural Alaska in obtaining lower-cost energy to sustain jobs. | have asked the Department of Commerce, Community, and Economic Development and the Alaska Energy Authority to establish a work group from rural Alaska to recommend ways to lower its energy costs, building on the significant Rural Energy study* done by the Alaska Energy Authority in April 2004 and the work done by the Alaska Energy Task Force you created in 2003. | thank former Legislator Nels Anderson for his leadership in pushing for lower cost energy and greater employment in rural Alaska. And a thank you tribute to the late Harvey Samuelson—a great Alaskan. *Go to http://www.aidea.org/AEAdocuments/REPV1ExecutiveSummary.pdf fora complete copy of the Alaska Rural Energy Plan Executive Summary. Page 7 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Energy Policy Task Force statements A. Mission “Electricity is essential to meeting Alaska’s economic, environmental, and educational development goals. The State will conduct its activities affecting energy in such a manner as to: Promote reliable and secure electric power systems Promote the lowest cost for consumers Stimulate the economy Provide employment opportunities for Alaskans Improve the quality of life for all Alaskans Promote workforce development, including training Alaskans, for Alaska’s utility sector. Enhance the State’s social, cultural, economic and environmental assets B. Goals (Listed in no particular order) Achieve sustainability. Develop Alaska’s position as a leader in competitively priced and reliably available electricity. Develop Alaska’s electrical infrastructure while maintaining competitively priced energy. Ensure security of physical and cyber energy infrastructure. Promote research, development and demonstration of clean and renewable energy technologies. Promote conservation and energy efficiency across all of Alaska. Develop Alaska as a world leader in using and exporting competitively priced and reliably available fossil fuels. Ensure standardized and consistent permitting and regulatory processes. Establish Alaska as a national leader in developing energy projects using its natural resources, including its workforce. Develop viable local solutions to provide cost-effective electric energy for small, geographically remote Alaskan communities. Page 8 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Executive Summary of Actions REAC believes the following areas offer the best strategies and instruments to achieve short term success in lowering the cost of energy in rural Alaska. For each, more detailed background, findings and recommendations follow. For the purposes of this report, short-term is defined as within one year, i.e., before April 15, 2006. OaAPON= ON 10. wus Fully fund the Power Cost Equalization (PCE) program. Front-load the PCE endowment. Create a bulk fuel operator technical assistance program. Including downstream tanks and pipes into upgrades. Support the creation of regional bulk fuel cooperatives. Enable single and cooperative applicants to receive higher loan limits for the bulk fuel revolving loan program. Improve power plant operational efficiencies and remote capabilities. Increase support for alternative energy systems, such as coal, in- stream, wind and gas projects. Accelerate renewable energy programs and implement energy conservation measures. Continue Low Income Home Energy Assistance Program (LIHEAP) funding and programs. Create a new line-item for energy funding for school districts. Items of interest that came up during deliberations, but require a longer term, are listed: Economic study of impacts of high cost of fuel in rural Alaska on net migration to urban Alaska Set up regional energy centers on rural campuses Fund feasibility study to examine links with the Railbelt Energy Grid Set up a fuel price reporting system for “non-PCE” communities Divest the State of rural energy infrastructure Transportation and distribution systems. Page 9 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Power Cost Equalization (PCE) Program Funding and Intent Recommendation #1: Fully Fund PCE Rationale: Rising fuel costs need to be addressed Action: Advocate for full funding, Gather support Funding Required: Fully fund PCE at $21.5 Million Background: SLA 1993 reads, “(a) the legislature finds that adequate, reliable, electric service at affordable rates is a necessary ingredient of a modern society and a prosperous developing economy. The legislature further finds at the current stage of social and economic development in the state, direct participation by the state is necessary to assist in the development of a regional electric transmission infrastructure and to assist in holding rates in high cost service areas to affordable levels. “The legislature recognizes the high cost of electric power in rural Alaska and intends that funding for Power Cost Equalization from the general fund and from the power cost equalization and the rural electric capitalization fund remain at a minimum of $17,000,000 annually through the year 2013. The legislature further intends that this long-term commitment to the power cost equalization program will permit and encourage the electric utility industry and its lenders to develop the plans, make the investments, and take other actions that are necessary or prudent to meet the needs of residents in rural Alaska.” (SLA 1993) The PCE program pays a portion of approximately 30% of all kWh’s sold by the participating utilities. In the past three years, the program has been funded at the $15.7 million dollar level. With program demand exceeding $15.7 million each year, pro-rata reductions have been necessary. This program currently does not provide PCE benefits to school facilities and commercial buildings. Governor Frank Murkowski mentioned during his 2005 State of the State address that it would take $20.7 million to fully fund the PCE program. An additional $1 million would ensure coverage of the growing number of residential homes and families, along with the increasing fuel expenses across rural Alaska. See Appendix A to review the PCE Blue Ribbon Committee Executive Summary (1999). See Appendix B for Tabled PCE Recommendations. Page 10 ts Rural Energy Action Council ‘Findings and Action Recommendations for Governor Frank Murkowski Issue: Power Cost Equalization (PCE) Endowment Fund Recommendation #2: Fully fund the PCE Endowment Fund Rationale: Capitalization ensures long-term sustainability of fund at sufficient levels Action: State of Alaska and the Federal Government contribute to the Fund Funding Required: $15 million annual deposit for 7 years to the Fund by the State and Federal Government (combined contribution = $210 Million) The following table shows that the Fund would need $210 million of capitalization at earning rate of 5.5% to fund the annual PCE cost of ~$21.5 million. PCE ENDOWMENT FUND CAPITALIZATION ESTIMATE Status - January 31, 2005 PCE Endowment Fund MV at 6/30/04 179,303,474.00 Earnings through 1/31/05 11,707,227.00 Withdrawals through 1/31/05 (8,886,316.00) Remaining withdrawal amount: FY 2005 MV at 1/31/05 182,124,384.00 11,369,100 7% FY 2004 2,200,000 supp YTD Earnings Rate (annualized) 11.19% (8,886,316.00) Remaining withdrawals estimated for FY 2005 (4,682,784.00) 4,682,784 Assuming capitalization of endowment at 7/1/05 MV at 1/31/05 182,124,384.00 Estimated Earnings for FY2005 (February - June 2005) 5,175,380.00 assumes an earnings rate of 7% Remaining withdrawals estimated for FY 2005 (4,682,784.00) Estimated MV at 7/1/05 182,616,980.00 Capitalization 210,000,000.00 Estimated MV after capitalization 392,616,980.00 % of MV 21,593,933.90 5.5% available for program (not taking into account three year monthly average MV calculation) Page 11 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Bulk Storage Operations and Maintenance Recommendation #3: Create a State-funded Bulk Fuel Operator/Owner Technical Assistance Program Rationale: Specialized technical assistance supports sustainability efforts Action: Advocate for full funding of new program Funding Required: Minimum $300,000 Background: Tank farm operators and power plant operators currently receive training at the Alaska Vocational Technical Center (AVTEC). Other vocational and technical training facilities in Alaska that offer alternatives to regionally based training include the Alaska Technical Center (ATC) in Kotzebue, the llisagvik College in Barrow, and the Southwest Alaska Vocational Educational Center (SAVEC) in King Salmon. Training qualified tank farm operators helps reduce Operations and Maintenance (O&M) costs and long term repair and replacement costs by extending the useful life of the facility. Qualified operators also help control local fuel costs by reducing the amount of fuel lost through leaks and spills. At this time, AEA does not have a technical assistance program to help local tank farm owner/operators address maintenance and repair issues that arise at their facilities and provide some ongoing, facility specific training. Yet, AEA currently operates a circuit rider program to provide technical assistance to village electric utilities. This program would provide technical assistance and support for minor repair and O&M issues, as well as help give advice in following the procedures and practices set out in the business plans. One existing program is called the Rural Alaska Fuel Services (RAFS), Inc., a private, not-for-profit service company for Alaska’s small tank farms. The RAFS mission is “to provide bulk fuel tank farm services in rural Alaska in such a manner as to achieve sustainability and meet all state and federal regulatory requirements.” See Appendix C for additional background on RAFS, Inc. Page 12 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Scope of Bulk Fuel Upgrade Projects Recommendation #4: Initiate a program to upgrade residential fuel storage, day tanks and piping systems in rural Alaska Rationale: Inadequate and often incompatible downstream facilities defeats purpose of owning code-compliant bulk fuel tank farm facility Action: Advocate for a new program Funding Required: Minimum $1 Million Background: The Denali Commission funds bulk fuel upgrades, but the program is limited to bulk fuel tank farms and intermediate tanks. Down stream facilities such as day tanks, individual residence fuel storage and piping, etc, are beyond the scope of this program. In many cases, these downstream day tanks and residential fuel systems are inadequate. Some day tanks lack overfill protection, such as high level alarms and automatic shut off switches. Many residential fuel systems are constantly losing fuel because of leaks. Some of these leaky systems are the result of using components that were never intended for that purpose. In addition to the environmental damage to a community, fuel lost through leaks and spills has a very definite economic impact on the community. Fuel that is lost through leaks and spills must be replaced to meet the community's fuel needs. Therefore, some portion of a community's fuel inventory is purchased twice. Rural communities must get full value for the fuel that is purchased. Implementing this recommendation would save on mobilization and demobilization costs if upgraded in conjunction with the Denali Commission funded project and allow these down stream upgrades to be accomplished at the lowest possible cost. The upgrades under this new program involve teacher housing and multi-family dwellings where threaded piping is commonly seen. Overfill protection at residential heating oil tanks may include such things as: double wall tanks, filters, flex hose, and improvements with venting, fill connections, gauges and float fill warning system. Page 13 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Bulk Fuel Cooperatives Recommendation #5: Develop bulk fuel cooperatives Rationale: Reduce the cost of fuel delivered and used; bulk fuel purchases provide opportunities for discounted rates Action: Direct DCCED to establish cooperatives Funding Required: Eight cooperatives at $50,000 each. 8 x $50,000 = $400,000 for start-up, support services, technical assistance, etc. Background: A bulk fuel cooperative is a consolidation of a stand-alone or a consortium of substantial fuel buyers in rural Alaska, including such user groups as school districts, village corporations, city governments and tribal governments. A single entity representing two or more sites would need to be organized in participating geographical areas, and would be responsible for the management of bulk fuel purchases on behalf of the cooperative members. Based on previous work done with cooperatives, it is anticipated that eight (8) entities could be developed initially. This would include: Kodiak, Aleutians, Bristol Bay, Bethel area, Lower Yukon, Bering Straits, NANA, and the Yukon Flats area. Bulk fuel cooperatives may save money by purchasing bulk fuel, a service that the Bureau of Indian Affairs offers through the Alaska Resupply Operation (go to http://www.access.gpo.gov/nara/cfr/waisidx_98/25cfri42_98.html for more information). An existing facility with excess storage capacity is Adak’s 22 million gallon facility, owned by the Aleut Corporation and available for bulk fuel storage. The Western Alaska’s Fuel Buying Group helped several members find a fuel vendor that sells and delivers fuel at a rate much cheaper than what it would have cost the utility by ordering fuel independently. The coop has proven that there are benefits to ordering in bulk and in large quantity, something that is nearly impossible to undertake as one utility or a community of users. A representative of the Nushagak Electric and Telephone Cooperative touted that the Coop has been able to order fuel at as much as one dollar cheaper than other alternatives. However, as more fuel vendors become “street smart” with regard to bulk purchases, financial savings may be harder to get. Having large storage capacity definitely helps a utility in ordering a year’s worth of fuel. Despite the praises of this particular success, there have been many disappointing, but not completely failed attempts at creating cooperatives. Calista Corporation created a subsidiary called the Western Alaska Village Enterprises (WAVE), a distributor of goods for village merchandise stores that expanded into selling fuel at discounted rates under WAVE Fuels. Due to the enormous expenses involved in operating the business, its service downsized from a region-wide area to operating a gas and fuel service station, NorthStar Gas based in Bethel. Should the business stabilize and grow, WAVE plans to expand its business into other regions in the future. Page 14 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: High Cost of Bulk Fuel in Rural Alaska Recommendation #6: Under Alaska Energy Authority’s (AEA) Bulk Fuel Revolving Loan Fund (AS 42.45.250), allow the maximum amount borrowed by cooperatives formed under AS 10.15 to be based on the number of eligible communities that belong to the cooperative, and increase the loan limit above $300,000. Rationale: Increased bulk fuel storage capacity and rising fuel costs has resulted in communities needing more financial resources to purchase bulk fuel; the formation of cooperatives may allow volume discounts for bulk fuel purchases. Action: Amend AS 42.45.250 (e) to allow the maximum loan amount to cooperatives formed under AS 10.15 to be based on the number of eligible communities belonging to the cooperative. Amend AS 42.45.250 (e) (1) to increase the maximum loan amount above $300,000. Funding Required: Amending AS 42.45.250 (e) will not have a fiscal impact on the Bulk Fuel Revolving Loan Fund. Amending AS 42.45.250 (e)(1) may have a fiscal impact and require additional capitalization of the Bulk Fuel Revolving Loan Fund, but to determine the fiscal impact will require additional information that is not available at this time. Background: Rising costs of bulk fuel for delivery to rural communities combined with increased bulk fuel storage capacity in some communities, has created a situation where the ability to pay for bulk fuel deliveries is becoming increasingly difficult, especially the decrease in revenues being experienced by rural communities (See Appendix D for Sample of the Price of Fuel and Appendix E for AEA Energy Fuel Survey). One potential method to lower the cost of bulk fuel is the formation of cooperatives that are comprised of multiple communities. Consolidation of bulk fuel purchases and the resulting increase in the volume of fuel purchased may lead to a lower delivered cost. In addition, the increase in fuel costs, even with a volume discount, coupled with increased storage capacity in some communities has lead to the bulk fuel “invoice” amount being an amount such that the current maximum loan amount under AS 42.45.250 (e)(1) requires the borrower to have a larger down payment when cash resources are more scarce. AEA’s Bulk Fuel Revolving Loan Fund currently provides communities with a population of 2,000 or less the opportunity to finance bulk fuel purchases in accordance with AS 42.45.250 and 3 AAC 106.300 — 106.365. Under AS 42.45.250 (e)(1), a borrower is currently limited to a maximum loan of $300,000. The maximum loan amount of $300,000 to a single borrower precludes a cooperative that may for example be comprised of ten (10) eligible communities, each with a need to purchase $300,000 in fuel, from obtaining a bulk fuel loan of Page 15 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski sufficient size to cover the cost of the bulk fuel purchase. Increasing the loan maximum amount to $650,000 for each applicant under the current eligibility criteria will help alleviate some of the financial challenges faced by the applicants. A higher loan amount means communities needing reduced cash resources to consummate a bulk fuel purchase. With regard to the increased loan amount of $650,000, AEA expressed reservations as to whether this is the appropriate loan amount and the impact any increased loan amount would have on the Bulk Fuel Revolving Loan Fund without further capitalization of the Fund. See Appendix F for Financing Bulk Fuel, which provides a list of known existing loan programs for fuel in Alaska. Page 16 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Diesel Powerhouse Efficiency Improvements Recommendation #7: Fund energy efficient generators/automated switchgears Rationale: Reduce powerhouse fuel usage by installing efficient systems Action: Support Denali Commission and advocate for State of Alaska funding to improve rural powerhouses in rural communities Funding Required: $225Kx50 = $11.25M; $100Kx50 = $5M; $140Kx20 = $2.8M Background: There are three components to reducing fuel usage in rural powerhouses & communities (see Appendix G for Comparison of Recently Installed Energy Systems): 1. Installation of automatic demand level paralleling switchgear with remote monitoring. This type of switchgear starts and stops different size generators automatically to match the proper size unit with the load demand of the community. In the past, communities would run a generator large enough to handle the peak loads throughout the day, however, community loads drop down to 50% and some times 25% of the rating of the generator, wasting a significant amount of fuel. The automated switchgear brings a smaller, more fuel efficient generator on line and turns off the larger generator for most of the day and night. The switchgear monitors the load 24 hours a day and does not need an operator on duty to switch generators. The new switchgear continuously monitors the fuel efficiency of each generator and the overall powerhouse fuel consumption. Remote monitoring helps maintain the maximum fuel efficiency and assures that the proper maintenance schedules are followed, extending the overall life of the generators. Cost of the new switchgear for a powerhouse with 3-4 generators rated between 40kW - 500kW is estimated at $150,000 plus installation at about $75,000, for a total cost of $225,000 per site. Estimated saving in fuel: 10%-20% annually. 2. Installation of properly sized generators to meet the load profile of communities. This means installing anywhere from 3 to 4 different size generators in order to be able to run the most efficient unit to match the loads as it changes during the day. Most community loads drop off during the night and pick back up throughout the day and are lower in the summer time as school is out. By installing different size generators, the most fuel efficient generator for the load is selected. This is done using the above mentioned switchgear. Typical cost for new generator equipment is between $25,000 — $75,000 depending on the kW rating need, plus installation cost on $20,000 to $30,000 per unit. 3. Installation of heat recovery systems where economically feasible. The average cost of installing heat recovery in an AEA designed system is between $60,000 - $160,000. Utilization of heat from the powerhouses is limited by the proximity of other facilities that can use the recovered heat. Typically, buildings have to be within 800 feet of the powerhouse. The fuel savings to the communities can run from 5,000 gallon a year up to as high as 25,000 gallons per years. Page 17 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Alternative Energy Recommendation #8: Adopt an aggressive position supporting alternatives Recommendation #8a: Support the application for the In-Stream Project at Eagle and urge early and positive action by the Federal government Rationale: Alternative energy projects potentially competitive with diesel generation Action: Implement policy to support development and construction of alternative energy projects by the Administration and in the legislature Funding Required: Utilize existing programs to further these goals Recommendation #8b: Include alternative routes for the natural gas transportation system to facilitate delivery of propane to markets along the highway at one or more “off-take” sites Rationale: Reduce cost of energy to rural consumers; attract an “anchor tenant” to fund major share of infrastructure; fuel 60 megawatts required to transform Donlin Creek Joint Venture Action: Governor or a State agency remains active in the negotiation process Funding Required: Utilize existing state agency resources Recommendation #8c: Institute a large project permit process to convene a multi-agency state and federal team to accelerate coal resource development Rationale: Coordinate all state and federal permits to ensure that the most efficient and effective strategies are identified to expedite the permitting process Action: Create cabinet subcommittee of DNR, DCCED, DEC and the Attorney General office to oversee and streamline the permitting process for energy projects; inform the public of efforts Funding Required: Utilize existing state agency resources Recommendation #8d: Support the Northwest Alaska Energy Plan Recommendation #8e: Support the study of Beluga Coal Field and Integrated Gasification Combined Cycle technology Rationale: Open other resources with cheap coal-fired energy Action: Encourage industry and stakeholders to develop one of Alaska’s largest resources Funding Required: Unknown private resources Recommendation #8f: Establish statewide policy and funding support for deployment of wind-diesel systems Recommendation #8g: Fund large-scale purchase of wind turbine generators, towers, and control systems Rationale: Reduce dependence on diesel fuel; large procurement creates a stable market for system vendors, O&M suppliers, and a critical mass of equipment in the field Action: Funding is required from the State to match other funding sources Funding Required: $3-5 million initial installation Page 18 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Background: While the overriding energy generation fuel is diesel and will continue to be diesel for the foreseeable future, it is imperative for key executive and legislative leaders to adopt an aggressive position to seek out alternatives that will be competitive in the mid to long term such as gas, coal, wind small hydro, run of the river hydro, biomass, geothermal and perhaps shallow gas. Small Natural Gas: The Alaska Department of Natural Resources (DNR), Division of Geological and Geophysical Survey and Division of Oil and Gas, and the U.S. Department of Energy Arctic Energy Office should be the lead on small natural gas development issues since they deal with fossil resource exploration and development. AEA can provide input to energy markets and costs. There are a number of applicable reports from Arctic Slope NW Arctic Coal Project, including a delivered coal cost assessment. Hydro, Geothermal, and Biomass: These are site-specific resources around which AEA maintains programs. Currently we are trying to make our database on existing and potential hydro more accessible to the public through a geographic web interface. Meanwhile, RCA is working on streamlining permitting for small hydro. The geothermal program is supporting resource assessment in the Akutan and Chena Hot Springs areas, while the biomass program has just completed a statewide solicitation for developing modern wood combustion systems in rural areas. Statements of interest were received from 15 communities--six appear to be promising. . Nuclear: USDOE Arctic Energy Office has been the lead on the Galena project. Currently, the project is in the Nuclear Regulatory Commission process, the most appropriate forum for assessing development issues. Coal: The Alaska's State Geologist estimates there could be as much as five and a have trillion ton of coal in place in our state (See Appendix H: Summary of Coal Resources of Alaska). Streamlining the permitting process for large coal projects encourages resource development. It is desirable to tie large projects to local power distribution (as an anchor tenant) when power generation capability supports increased energy supply and reduces costs for local use. Cost of affiliated power distribution and consumption should not be a burden to the anchor tenant. Northwest Alaska has a huge deposit of Northwest Arctic Coal five miles inland from the Chuckchi Sea that is stranded. The Deadfall Syncline coal deposit contains resources adequate to support a mining operation of one million tons per year for 20 years. The Deadfall Syncline coal is some of the best in the world. It is high in Btu/lb (12,770), low in sulfur (0.2%) and low in moisture Page 19 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski (4.6%). A Northwest Alaska Energy Plan should include a coal power plant to generate power and a transmission line to power the Red Dog Mine. Also, the plan should include a road to transport the mined Arctic coal to tidewater for export. This could also open up to other resources in the NW area with cheap coal-fired power energy. Emma Creek Energy Project by Usibelli Coal Mine Inc. is a proposal for a $421 million, 2OOMW power plant at its mine near Healy. Emma Creek coal has 7,200 Btu/lb and sulfur content of 0.2%. Beluga Coal Field (Beluga) and Integrated Gasification Combined Cycle (IGCC) technology: The main opportunity for DOE Clean Coal funding is |GCC. In Alaska, IGCC would be difficult to justify until it is more proven, considering Alaska’s high costs and distances from suppliers. It may, however, be worthwhile doing a Phase || DOE-funded scoping study at Beluga. IGCC may have a lot of benefits at Beluga because of the unique combination of facilities and resources in that location including coal, gas, a fertilizer plant, high voltage transmission lines, gas turbines that will at some point need repowering, nearly depleted oil wells, pipelines, and possibly a coal drying facility. Because an IGCC plant can gasify a wide range of feedstocks and manufacture a wide range of products including electricity, there may be economic development benefits associated with an IGCC plant at Beluga that make the project economic. This combination of resources and facilities all in reasonable proximity and connected by pipeline, may allow IGCC benefits to be optimally exploited. See Appendix | for more information on Alaska’s Coal Resources, a pamphlet designed by the DNR. Wind: Coastal Alaska includes many communities with excellent wind resources for power generation. Where diesel fueled power generation can be displaced by renewable energy sources like wind or small hydro, villages can save funds by using less fuel. Integrating wind energy into existing diesel systems requires higher upfront capital costs than traditional power plants. Careful assessment of local wind resources must precede development to assure cost-effective projects. See Appendix J for background information on Wind-Diesel Hybrid Systems in Alaska. The Alaska Rural Energy Plan of 2004 recommends roughly a $30 Million effort over five years towards installing wind-diesel systems in rural communities (see Appendix K: Alaska Rural Energy Plan, Vol. Il, Section 3, pages 3-38, 39, 40). This effort consists of three components: Resource Assessment, Final Feasibility/Preliminary Design, and Wind Services Procurement. Page 20 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Energy Conservation Recommendation #9: Adopt an aggressive position supporting energy conservation and power generation efficiency Recommendation #9a: Aggressively pursue cost-effective lighting and heating upgrades in schools and other community facilities statewide Rationale: Quick payback (varies by project) Action: Continued funding of Denali Commission’s Village End Use Efficiency Program or similar Funding Required: $3.7 million for 139 communities Recommendation #9b: Replace low efficiency generation units with electronically controlled units and exploit heat recovery alternatives Rationale: Quick payback (varies by project) Action: Install automated switchgear where fuel and labor savings justify cost Funding Required: Varies by location Recommendation #9c: Assess Power Generation and End Use Efficiency Alternatives Rationale: offers support; reports may be used to apply for funding Action: Establish an on-going source of funds to use for audits Funding Required: $15-25,000 per community x 10 = $150,000 - $250,000 Recommendation #9d: Fund Energy Star - Energy Smart Program Rationale: Disseminating energy efficiency information saves energy dollars Action: Provide a 3-year grant to RurAL CAP for their program Funding Required: $80K one-time start-up; $300K annual grant x 3 years Recommendation #9e: Create low interest loans for energy efficient projects for community buildings, schools, businesses and residences. Rationale: Provides businesses and communities the boost needed; quick payback helps pay off loan. Action: Create a low interest loan fund for energy efficient projects. Funding Required: similar to the Bulk Fuel Revolving loan fund. Recommendation #9f: Fund Alaska Housing Finance Corporation (AHFC) Weatherization program at previous level of $6.5 Million Rationale: Weatherization ensures safety and health. Action: Fund weatherization at previous level ($6.5 Million) Funding Required: $6.5 Million Page 21 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Recommendation #9g: Review Design Engineering for Water & Sewer Construction. Rationale: construction practices for water and sewer exacerbate the energy challenges by improperly designed heat trace that increase cost with no to little beneficial consumer use. Action: Review Design Engineering for Water & Sewer Construction. Funding Required: AEA staff funded through several U. S. Department of Energy programs would be able to provide an engineering review. Background: The 2004 Energy Policy Task Force reported that efforts to use energy resources more efficiently can reduce energy costs and benefit the environment. Energy efficiency is broader than simple energy conservation, or eliminating unnecessary energy use. Efficiency involves achieving necessary goals, while minimizing energy requirements. Efficiency should not compromise comfort, performance, or productivity, but rather meet those requirements through more proficient means. We recognize that in the short period since the Energy Policy Task Force made their findings and recommendations, the price of oil has surpassed $50 per barrel during the spring of 2005. This is resulting in an increase to most Rural Alaska villages of 30 to 40% for fuel oil and gas. In recent weeks, against a backdrop of huge spikes of per barrel costs and OPEC decision to reduce production, the Chairman of one of America’s largest oil companies said the least painful way to deal with this is CONSERVATION. Prices are higher, so there’s added incentive to be energy efficient. Energy Star — Energy Smart: The activities included in such a figure involves lighting, some level of appliance replacement and also the day-tank issue. See Appendix L for details about the RurAL CAP Energy Star — Energy Smart Program. Page 22 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Low Income Home Energy Assistance Program (LIHEAP) Recommendation #10: Publish a guide on financing & buying enough home heating fuel Rationale: Effective and timely use of LIHEAP funding; ordering enough fuel during barge delivery; ensure availability of adequate storage containers for the community and homes Action: AEA & LIHEAP collaborate to identify financing options to upgrade home energy sources/supplies (tanks, generators, water tanks, etc.), create a resource list of fuel distributors Funding Required: $150,000 - $250,000 Background: The State of Alaska has two major energy assistance programs for Alaskans: PCE with an annual budget of $15.7 million, and LIHEAP with approximately $6.0 Million per year through the State Department of Health and Social Services and approximately $3.0 million through the Regional Non Profit Corporations. e While the PCE program reimburses Utilities for PCE credit applied to customer bills, the LIHEAP program makes direct payment to the income eligible individuals to assist with their heating bill. e While the state budget benefits from high oil prices, many individual low- income households struggle to pay for their home heating oil. e In some communities, insufficient bulk fuel storage prevents the community from acquiring enough fuel to last through the winter. Communities expect LIHEAP to make late summer eligibility determinations, so individual residential tanks can be filled to ensure enough supply for the winter. These requests precede: the LIHEAP federal funding level, beginning of the October 1 federal fiscal year, and the beginning of LIHEAP season. Bush Alaska transportation schedules do not necessarily match program funding patterns. e Problems with low river levels hamper barge fuel delivery. Certain residents expect LIHEAP to make late summer eligibility determinations. Consumers need ways to increase capacity and get more fuel delivered and stored earlier in the summer during high water levels. e Communities with credit issues are limited in their ability to get bulk fuel loans, so they want LIHEAP to commit to a specified subsidy amount for the village. As eligibility is household based and the new federal budget is unknown, this is not possible. However, LIHEAP may provide previous year estimates. e Energy efficiency improvements, such as replacing leaky 55 gallon drum household storage containers, replacing old heaters with high efficiency models, or replacing electric hot water heaters with high efficiency on-demand models can help individuals and the entire community reduce energy demands. Page 23 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Energy Funding for School Districts Recommendation #11: Separate energy related expenses from education foundation formula Rationale: Dedicating education funding on classroom activities may improve education measurement scores Action: Advocate for the creation of a new funding method to support energy costs separate from the education foundation formula Funding Required: Unknown Background: There may be a direct link between energy costs and student achievement. “A school district may spend as much as 23% of its total operating fund budget on energy. Budget shares equaling such a large portion of the total operating fund require a separate analysis when creating a cost-of-education index.” (Bradford Tuck, A Review of Alaska School District Cost Study, January 2004) As Alaskans, predominantly rural areas, experience increase in fuel costs, school districts are allocating more money for energy at the expense of our students across the state who are not doing well in their education measurement scores. More and more of the foundation formula dollars go to energy related expenses, depriving resources for classroom expenses, teacher salary and benefits, and other direct education mission costs. As a result, some districts experience up to 45% turnover rates of its educators. The School Districts need to have a separate budget for heating and lighting of the schools across the state. Governor Murkowski, in his State of the State Address in 2005, quoted two rural leaders for mentioning that “the high cost energy is a major obstacle to a healthy and robust rural economy. They said many villages pay more than $5.00 a gallon for gasoline, $5.00 a gallon for heating fuel, and up to 50 cents a kwh for their electricity. Many rural Alaskans are moving into hub communities because they cannot afford the high cost of heating fuel, gasoline, and electricity. This is to the detriment of keeping village schools open and building rural and village economies.” If high energy expenses may be jeopardizing the very existence of rural schools, then Alaskan need to assess ways to ensure that the doors to school facilities remain open for years to come. Page 24 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Issue: Rural Energy Centers Recommendation #12: Establish Rural Energy Centers at the University of Alaska (U of A) Rural Campuses or other equally equipped venue within the U of A Rationale: Decentralize research and development efforts relating to energy Action: Collaborate with the University of Alaska to develop plans, etc. Funding Required: Unknown Background: The purpose of the centers is to decentralize all research and development of conservation, oil and gas development initiatives, and alternatives that will reduce use of diesel in regions across the state. Presently, if people need useful energy information, they must access it at urban-based central organizations in Anchorage, Fairbanks or Juneau. Rural schools and the general public needs readily available access to new ideas, new wind energy generators, more efficient use of current diesel generators, conservation, and the use of coal and other alternatives to diesel. The Governor and his administration would work with the Denali Commission and the University of Alaska to get these energy centers set up by working with the Rural Campuses to find the best way to establish this program. Page 25 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Staff Recognition As a principal staff to the Rural Energy Action Council, | wish to acknowledge all Alaska Energy Authority (AEA) Rural Energy Group staff and Alaska Industrial Development & Export Authority (AIDEA) staff who contributed to this report. Peter Crimp Jim McMillan Sara Fisher-Goad Chris Mello Rebecca Garrett Monica Moore Becky Gay Kris Noonan Terri Harper Bernie Smith Jolene John Bruce Tiedeman Lenny Landis Sue Weimer Reuben Loewen Additionally, | want to recognize Al Clough, Deputy Commissioner of the Alaska Department of Commerce, Community and Economic Development (DCCED) for all his support. From the Denali Commission, | want to thank Al Ewing, Executive Director, Cindy Roberts, Program Manager/Liaison from DCCED, and Rayna Swanson, Liaison from RurAL CAP/Assistant to the Energy Program Manager, for their valuable insights on the programs for rural energy that the Denali Commission administers. Mike Harper Deputy Director — Rural Energy Group Page 26 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Acknowledgements Bernice Joseph, Dean of the College of Rural Alaska, University of Alaska Fairbanks, Alaska Bill Griffith, Acting Village Safe Water Engineer, Department of Environmental Conservation, Village Safe Water, Anchorage, Alaska Brad Reeve, Manager, Kotzebue Electric Association, Kotzebue, Alaska Brian Connors, Community Development Division Director, RurAL CAP, Inc., Anchorage, Alaska Bruce Buzby, Geologist, Alaska Department of Natural Resources, Anchorage, Alaska Dave Jensen, The Aleut Corporation Del Conrad, Executive Director, Rural Alaska Fuel Services, Inc., Anchorage, Alaska Henry Strub, Board Director, Nushagak Electric & Telephone Cooperative, Dillingham, Alaska Mark Foster, Principal, Mark A. Foster & Associates (MAFA), Anchorage, Alaska Mary Riggen-Ver, Program Coordinator, Department of Health and Social Services, Division of Public Assistance, Juneau, Alaska Meera Kohler, President & CEO, Alaska Village Electric Cooperative, Anchorage, Alaska Scott Goldsmith, Economics Professor, University of Alaska Anchorage, Institute of Social and Economic Research (ISER), Anchorage, Alaska Scott Waterman, Energy Program Management, Alaska Housing Finance Corporation, Anchorage, Alaska Shaen Tarter, Vice President, Yukon Fuel Company, Anchorage, Alaska The Denali Commission Wallace Robertson, Seattle Support Center “Alaska Resupply Operation”, Bureau of Indian Affairs, Seattle, Washington Page 27 Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski Acronyms AAC Alaska Administrative Code AEA Alaska Energy Authority AFN Alaska Federation of Natives AHFC Alaska Housing Finance Corporation AIDEA Alaska Industrial Development & Export Authority AITC Alaska Inter-Tribal Council AML Alaska Municipal League AML-JIA Alaska Municipal League — Joint Insurance Arrangements AS Alaska Statute ATC Alaska Technical Center AVEC Alaska Village Electric Cooperative AVTEC Alaska Vocational Technical Center BFRLF Bulk Fuel Revolving Loan Fund BFU Bulk Fuel Upgrade Program BIA Bureau of Indian Affairs Btu British thermal unit CRA Community and Regional Affairs (a legislative committee) cs Committee Substitute DCCED Department of Commerce, Community & Economic Development DEC Department of Environmental Conservation DOD Department of Defense DOE Department of Energy DNR Department of Natural Resources EPTF Alaska Energy Policy Task Force HB House Bill HVAC Heating, Ventilation and Air Conditioning IGCC Integrated Gasification Combined Cycle K Thousand kW Kilowatt kWH Kilowatt Hour LIHEAP Low Income Home Energy Assistance Program Ip pound M Million MW Megawatt Non-PCE Communities not participating in the Power Cost Equalization Program NW Northwest O&M Operations and Maintenance OPEC Organization of the Petroleum Exporting Countries BIA Bureau of Indian Affairs PCE Power Cost Equalization program R&R Repair and Replacement RAFS Rural Alaska Fuel Services, Incorporated RCA Regulatory Commission of Alaska REAC Rural Energy Action Council RPSU Rural Power System Upgrade Program RurAL CAP Rural Alaska Community Action Program, Inc. SAVEC Southwest Alaska Vocational Educational Center SLA Session Laws of Alaska USDA United States Department of Agriculture USDOE United States Department of Energy WAVE Western Alaska Village Enterprises Page 28 Appendices Appendix A: Appendix B: Appendix C: Appendix D: Appendix E: Appendix F: Appendix G: Appendix H: Appendix I: Appendix J: Appendix K: Appendix L: Rural Energy Action Council Findings and Action Recommendations for Governor Frank Murkowski PCE Blue Ribbon Committee Executive Summary Tabled PCE Recommendations Rural Alaska Fuel Services, Inc. Sample of the Price of Fuel AEA Energy Fuel Survey Financing Bulk Fuel Comparison of Recently Installed Energy Systems Summary of Coal Resources of Alaska Alaska’s Coal Resources Wind-Diesel Hybrid Systems in Alaska Alaska Rural Energy Plan, Vol. Il, Section 3, pages 3-38, 39, 40 Energy Star — Energy Smart: RurAL CAP Page 29 Blue Ribbon Committee Power Cost Equalization Appendix A: PCE Blue Ribbon Committee Executive Summary (1999) INTRODUCTION The Power Cost Equalization program has paid a portion of the electrical bills of rural consumers since 1985. During this period, the PCE budget has averaged about $17.5 million per year. In 1993, the State legislature established a Power Cost Equalization and Rural Electric Capitalization Fund (the “PCE Fund”) with an appropriation of $66.9 million, and also enacted the following policy statement: Ch. 18, SLA 1993, Sec. 1. “FINDINGS AND INTENT. (a) The legislature finds that adequate, reliable, electric service at affordable rates is a necessary ingredient of a modern society and a prosperous developing economy. The legislature further finds at the current stage of social and economic development in the state, direct participation by the state is necessary to assist in the development of a regional electric transmission infrastructure and to assist in holding rates in high cost service areas to affordable levels. (b) The legislature recognizes the high cost of electric power in rural Alaska and intends that funding for power cost equalization from the general fund and from the power cost equalization and rural electric capitalization fund remain at a minimum of $17,000,000 annually through the year 2013. The legislature further intends that this long-term commitment to the power cost equalization program will permit and encourage the electric utility industry and its lenders to develop the plans, make the investments, and take other actions that are necessary or prudent to meet the utility needs of residents in rural Alaska.” Over the last several years, PCE outlays have been drawn exclusively from the PCE Fund, which will be nearly exhausted by the end of FY99. For PCE to continue beyond FY99, a renewed commitment will be needed by the 1999 legislature and by the Governor. In anticipation of this pivotal legislative session, the Governor convened a Blue Ribbon Committee to consider and recommend an overall policy on the future of PCE as well as specific proposals to implement that policy. The Committee membership was designed to reflect a variety of institutional perspectives by including members from the legislature, the public utilities commission, the Anchorage chamber of commerce, rural consumers, rural utilities, and the State’s industrial development agency. The Committee membership (in alphabetical order) is as follows: Blue Ribbon Committee Power Cost Equalization Blue Ribbon Committee Membership ~ The Honorable Al Adams Alaska State Senator Mr. Robert Beans, Chairman Alaska Village Electric Cooperative, Inc. Mr. Sam Cotten, Chairman Alaska Public Utilities Commission Mr. Joe Griffith, Chairman Anchorage Chamber of Commerce Ms. Nancy James Consumer representative from Ft. Yukon Mr. Robert Martin Jr., (former) General Manager Tlingit & Haida Regional Electrical Authority The Honorable Drue Pearce Alaska State Senator Mr. Walter Sapp, representative Four Dam Pool Project Management Committee Mr. Randy Simmons, Executive Director Alaska Industrial Development and Export Authority Mr. Dewey Skan, President Rural Alaska Community Action Program, Inc. Mr. Eric Yould, Executive Director Alaska Rural Electric Cooperative Association, Inc. Beginning in January 1998, the Committee reviewed the history, structure, and impact of PCE, the organizational and cost structure of rural electric utilities, and proposals that have been made to reduce rural power costs. The Committee then returned to the task of developing policy and program recommendations with respect to the PCE program. Blue Ribbon Committee Power Cost Equalization SUMMARY OF RECOMMENDATIONS The Committee has adopted the following recommendations: ne PCE or an alternative rate support program for high cost service areas should be extended into the future. Such rate support should be available only for: A. A “lifeline” supply of electric power for residential consumers. A lifeline supply is defined as one-half of the statewide average consumption per household each month. While this amount varies over the course of a year, the average monthly lifeline supply would be approximately 350 kWh. B. Electric power for community facilities that are directly related to public health and safety. A stable source of funding for PCE or an alternative rate support program should be established with the following major components: A. 60% of the annual debt service paid to the State by the Four Dam Pool — this would include the 40% now allocated to PCE plus the 20% now allocated to the Power Project Fund loan program. B. $20 million appropriated by the 1993 legislature as a loan for the Swan/Tyee intertie, based on a proposal from Ketchikan Public Utilities to forego the loan in exchange for State bonding of Swan/Tyee intertie costs. C. Proceeds of a universal service fund to be created from a surcharge on all electricity sold statewide by public utilities. A statewide organization or agency should be designated to establish standards for rural electric utilities with respect to financial management, physical plant, and system operations. No rural electric utility should continue to receive rate support or capital project grants from the State unless it is in compliance with these standards, is making clear and continuing progress in attaining compliance, or has entered into an agreement with an existing utility or utility organization whose operation is consistent with the standards. Blue Ribbon Committee Power Cost Equalization All Committee members recognize the challenge in gaining a consensus on future program funding as well as the amount of future benefits. For this reason, several options are presented in this report for consideration by the Governor afid the legislature: OPTION 1: Universal service fund. 1A. A lifeline supply of power is made available at 150% of the statewide average residential rate. (The 150% level is estimated at 17.0 cents per kWh.) 1B. Same as 1A except the lifeline rate is set at 100% of the statewide average residential rate. (The 100% level is estimated at 11.3 cents per kWh.) OPTION 2: General Fund endowment / extend modified PCE through 2013. OPTION 3: Declining general fund appropriations / extend modified PCE through 2010. OPTION 4: Further explore the potential for federal funding of PCE or an alternative rate support program. The potential funding options were debated at length by the Committee and ultimately put to a vote. Included in Attachment 1 are the questions included on the Committee ballot and the ballot results. Key results are as follows: ° A majority of Committee members recommend the creation of a universal service fund to provide limited rate relief in high cost service areas. 7 Of the 7 members favoring a universal service fund, a majority would set the lifeline rate at 150% of the statewide average residential rate. . Each of the options listed above is believed by a majority of the Committee members to be worthy of further consideration by the Governor and legislature. Appendix B: Tabled PCE Recommendations Recommendation # : Allow return on equity as an eligible cost for reimbursement Rationale: Improve efficiency incentives for utilities and consumers Action: Change PCE Regulations Funding Required: $ Recommendation # : Increase residential customer kWh monthly limits Rationale: Improve efficiency incentives for utilities and consumers Action: Change PCE regulations to increase kWh’s eligible and reduce percentage of (ceiling-floor) cost Funding Required: $ Recommendation # : Adjust cost reimbursement formula into a fuel / non-fuel component Rationale: Improve efficiency incentives for utilities and consumers; offset the highly volatile cost of diesel fuel Action: Change regulations to allow reimbursement of a high percentage of fuel cost compared to non-fuel cost Funding Required: $ Appendix C: Rural Alaska Fuel Services, Inc. Mission Statement “To provide bulk fuel tank farm services in rural Alaska in such a manner as to achieve sustainability and meet all state and federal regulatory requirements. ” SCOPE OF SERVICES RAFS: Rural Alaska Fuel Services is a not-for-profit corporation organized to contract for the operation and maintenance of rural Alaskan bulk fuel storage facilities constructed by the Denali Commission and granted to selected communities. A condition of the Denali Commission grants is that the newly constructed tank farms be maintained and operated in accordance with all applicable state and federal regulations. RAFS provides an alternative means of managing and safely operating rural tank farms, brings economies of scale and expertise to tank farm operations not usually available to individual communities, and ensures compliance with local, state and federal regulations, laws and standards. RAFS offers communities, village corporations, school districts and electric power generation cooperatives a means to achieve the Denali Commission’s goals of economic advantage, regulatory compliance and long term sustainability of rural bulk fuel storage facilities operating requirements. 1. Bulk Fuel Storage Facility Management and Administration 1.1. Oversee all affairs related to operating the bulk fuel storage facility. 1.2. Hire and supervise tank farm operating staff. 1.3. Maintain all facility records. 1.4. Provide tank farm accounting and financial services. 1.5. | Manage the Renewal and Replacement Fund. 1.6. Prepare operations and maintenance budgets. 1.7. Prepare operations and maintenance manuals. 1.8. Maintain Spill Preparedness and Countermeasures Contingency Plans. 1.9. Provide initial spill response services. 1.10. Contract for Tier II spill response services. 1.11. Manage bulk fuel storage facility inventory. 1.12. Liaison with government and regulatory agencies. 1.13. Prepare and submit necessary reports and documents. 6000 C St "Suite 201 “Anchorage, AK 99518-1731 (907) 562-285 Office / (907) 562-0435 Fax ttunneli@rafs net dconr: rafs net Bulk Fuel Storage Facility Operations Zale aD 2:35 2.4, 2.5. 2.6. Dae 2.8. a0 2.10. alas Inventory current tank levels. Unload fuel shipments from fuel barges and transfer to tank farm. Unload fuel shipments from aircraft and transfer to tank farm. Fill intermediate tanks as required. Dispense fuel to individual stakeholders. Provide regulatory training. Provide facility operations and maintenance training. Accomplish fuel testing protocols and maintain records. Conduct environmental oversight of the facility. Maintain facility security. Prepare and submit necessary reports and documents. Bulk Fuel Storage Facility Maintenance 3213 B2, eyey 3.4. BID: 3.6. Bae 3.8. 3293 3.10. Maintain maintenance and inspection logs and schedules. Test and inspect fuel pipelines. Test and inspect fuel storage tanks. Test, inspect and service fuel handling pumps and valves. Test, inspect and service marine headers and hoses. Conduct secondary containment inspection and maintenance. Conduct preventative maintenance tasks as scheduled. Accomplish equipment repairs, including replacement, when necessary. Clean storage tanks as required. Prepare and submit necessary reports and documents. Appendix D: Sample of the Price of Fuel Sample Price of Fuel in Rural Alaska Spring 2005 Rate Charged Per Gallon Private or Utility or | Community Schoo! Vendor Price at Seattle - OPIS $ 2.00 | $ 2.00 Transportation $ 0.55 | $ 1.28 Landed Cost $ 2.55 | $ 3.28 Operation and Maintenance Insurance $0.10 - 0.30 Billing, Collections $ 0.05 Inspection, Pressure Testing $ 0.02 Training, Audit $ 0.02 Delivery $ 0.05 City Tax $ 0.02 $0.26-0.46 $ 0.26 | $ 0.46 Interest on Loan $ 0.05} $ 0.15 Repair and Replacement $ 0.15] $ 0.15 Profit $ 0.10] $ 0.50 Total Cost to User or Consumer $ 3.11 | $ 4.54 pergallon _ per gallon Assumptions: enjoys quick pump time and has favorable credit. Private vendor has few factors as named above. Both operate tank farm in business like fashion Both set aside minimum amount for repair and replacement. Vendor seeks larger profit. Utility/School is member of large discount buying fuel cooperative within close proximity of supply, has adequate storage, orders large volumes, Utility/School enjoys favorable interest rate (5%); vendor must pay (15%) Appendix E: AEA Energy Fuel Survey (February 2005) Landed vs Retail Fuel Costs P. Crimp and M. Moore, AEA 4-05 #1 Heating Fue! Price Landed vs Retail ($/gal) Retail Retail = 0.8306 * Landed + 1.2197 R2 = 0.5104 Gasoline Price Landed vs Retail ($/gal) 6.50 6.00 | 5.50 5.00 4.50 } 4.00 Retail 3.50 3.00 250 } 2.00 F 1.50 1.50 2.00 2.50 3.00 3.50 4.00 450 Landed Retail = 0.9651 * Landed + 1.1036 R2 = 0.5445 Appendix F: Financing Bulk Fuel During the course of investigating various options for financing Bulk Fuel purchases for rural Alaska communities, it became apparent quickly that there are limited options: iE Bulk Fuel Revolving Loan Fund: State of Alaska, Alaska Energy Authority: Program provides loans to assist communities with populations under 2,000 for purchasing bulk fuel oil. Eligibility: municipalities, native corporations, non-profit corporations, community organizations, unincorporated villages, and traditional councils. Limited to $300,000 per borrower and not to exceed 90% of price with interest rate of zero for first loan and 5 % thereafter. Term is 9 months. Contact: Sue Weimer, AEA, (907) 269-3000. I. Bulk Fuel Bridge Loan Program: State of Alaska, Created by the Governor's Office and administered by the Department of Commerce, Community and Economic Development: if you cannot receive a loan under established programs, than this program may be available. Initially created as an emergency program until February 2007. Terms approximately the same as the terms and conditions of the state Bulk Fuel Revolving Loan Program. Contact: Al Clough, DCCED, (907) 269-2500. I. Alaska Resupply Operation: Federal Bureau of Indian Affairs, Seattle Support Center: Provides affordable transportation and service costs to the natives of Alaska, for the resupply of life-sustaining goods on a limited basis. This will enhance the economies of individuals, tribes, and cooperatives in their locale. Program originated in 1893 with US Coast Guard providing ships that carried goods to villages of Alaska seacoast. BIA ships made delivery up until 1984. At this time, Department of Defense administers the limited program. Contact: Wallace Robertson, (206) 764-3328. IV. Native American Bank Commercial Bank, owned by Native Americans including Alaska Native Group(s) seeks to assist with financing of Bulk Fuel for rural Alaskan Villages: This bank is working with Native Organizations in effort to utilize Federal Bureau of Indian Affairs program. Contact: Marvin Addams, (907) 646-1212 AEA Performance Metrics, Sample RPSU and End Use Efficiency Projects Compiled 2/1/05, P Crimp S xipueddy Rura! Power System Upgrade Projects $- $20,000 $40,000 $60,000 $80,000 $100,000 $120,000 Golovin Kokhanok Kotlik Total Old Gen Efficiency, kWh/gal 11.69 8.33 11.39 New Gen efficiency, kWh/gal 13.00 13.21 12.75 oO 11% 59% 12% ° FY04 generation, kWh 736,244 348,815 1,972,932 3 Gen fuel saving, gal/yr 6,347 15,452 18,476 40,275 c Community 2 Golovin Kokhanok — Kotlik Lighting x, FY02 fuel price, $/gal $ 150 $ 2.36 $ 1.62 RPSU RPSU RPSU___ Upgrades oa Gen fuel cost saving/yr $ 9,520 $ 36,468 $ 29,932] $ 75,919 Power Generation $ 9,520 $ 36,468 $ 29,932 $ 9,114 fo} Heating $15,000 $12,000 $ 75,000 s Additional Heat Recovery, gal 5,000 4,000 25,000 34,000 $ 24,520 $48,468 $104,932 $ 9,114 ° Heating Fuel Price, $/gal $ 3.00 $ 3.00 $ 3.00 =" Heating fuel cost saving/yr $ 15,000 $ 12,000 $ 75,000 | $102,000 a Total Fuel Cost Savings/yr $ 24,520 $ 48,468 $ 104,932 | $177,919 8 = = Lighting Upgrade Demonstration Projects | < (Aniak, Chuathbaluk, Kotzebue, and McGrath school buildings) Community Lighting 5 Upgrades Power Generation a Total energy savings, kWh 124,227 DS Efficiency gain over pre-project 13% — Retail power cost savings/yr $ 41,603 Kotlik RPSU oD Qa Gen fuel saving, gal/yr 9,114 m Gen fuel cost saving/yr $12,257 Kokhanok RPSU 3 4 a < Golovin RPSU n < | os ow 3 on Appendix H: Summary of Coal Resources of Alaska ALASKA'S COAL RESOURCE: HOW MUCH IS THERE? Alaska's coal basins contain a vast amount of coal, per- haps more than half as much coal as currently inferred for the rest of the United States. The following table, prepared by Alaska's State Geologist in 1983, indicates where the main coal regions are located and the best estimate of the upper range of coal those basins contain. TABLE 2-2. SUMMARY OF THE COAL RESOURCES OF ALASKA (in short tons). Identified Undiscovered Region Resources Resources Northern Alaska 150 billion to 4 trillion Cook Inlet~Susitna lowland 11 billion over 1.6 trillion a. Beluga and Yentna fields 10 billion to 30 billion b. Kenai field (including offshore deposits) 300 million to 100 billion® to 1.5 trillion> c. Matanuska field 100 million to 500 million d. Broad Pass field 50 million to 500 million Nenana trend 7 billion to 10 billion Jarvis Creek field 75 million to 175 million Other interior coal occurrences to 3 billion Bering River field 75 million to 3.5 billion Chignik Bay-Herendeen Bay fields 200 million to 3 billion over 160 billion over 5.5 trillion @To 2,000-foot depth. To 10,000-foot depth. 2-6 ALASKA’S COAL RESOURCES vaseerane Ccepdiaeeiahl food Community and Economic Development Appendix!: Alaska’s Coal Resources COAL RESOURCES AND RESERVES : ARCTIC OCEAN Nenana Province Northern Alaska Basin Hypothetical ‘Identified ,Gesomce, —- Resoue (1 “wanes, 1 panes) 13320 7390 3,630,000 136,100 Statewide Totals Hypothetical Identified Resource Resource (0* tomes) (10° tonnes) 3,716.20 154,970 Cook Iniet-Susitna Basin Hypothetical Identified Measued All Other Areas ade Sams) OEE) ad ites) Identified Messued 64.230 10,550 1,400 Reauee Reserves (10° tonnes) (10° tonnes) 8 Figure 2 Contents of this pamphlet compiled by staff of the State of Alaska, Department of Natural Resources, 2004. Photo credits: DNR - Mining Section staff. ALASKA'S COAL RESOURCES Alaska is host to some of the most extensive coal resources in the world. Total hypothetical coal resources in Alaska ex- ceed 5.5 trillion short tons. equal to about half the estimated coal resources of the United States. Alaska coals are mainly bituminous and sub bituminous and of Cretaceous to Tertiary age. Coal is widely distributed in Alaska Geologic formations that underlie about 9 percent of the state's land area. Major coal deposits occur in the Northern Alaska, Nenana, and Cook Inlet - Susitna provinces. The Nenana and Cook Inlet - Susitna provinces are economically important because of their prox- imity to the Alaska Railroad and the proximity of the Cook Inlet - Susitna province to tidewater. Alaska's coal resources are sufficient for domestic use and export for at least the next century and probably for two or three centuries based on current con- Sumption rates. Poker Flats Mine Runaway Ridge, 2003 Most of Alaska coals contain less than 0.5 per- cent sulfur. In addition, they often have good ash- fusion characteristics and low metallic trace-element and nitrogen contents. Although coal was undoubtedly used by native Alaskans before its discovery by Russian explorers in 1786, the first documented coal production occurred in 1855. Subsequent small-scale mining was common at numerous sites throughout the state. Before 1900, coal was used to fuel river steamboats and provide power for placer gold mines and canneries. In 1917, the Alaska Railroad provided access to the Matanuska field in southcentral Alaska with over 250,000 short torts of coal mined that year. Since World War I, over 20 million short tons of coal have been mined in the Healy Creek and Hosanna Creek fields and production in the Matanuska field has exceeded 7 Million short tons. Before World War II, underground coal mining was domi- nant, but a combination of underground and surface mining was common from 1943 until the early 1960's. Recent produc- tion has been entirely by surface mining. Alaska's coal produc- tion peaked at about 1.5 million short tons in 2001. Alaska coal is amenable to surface mining by dragline or truck-and-shovel methods. Rail costs from the Matanuska and Hosanna Creek fields to the port of Seward vary from $6 to $11/short ton, depending on distance. Coal loading costs at the port of Seward range from $4 to $5/short ton. Therefore, total rail transportation plus ship loading costs vary from $i0 to $16/short ton. With increased volumes of coal, these costs could decline significantly. Relative ocean-transport steaming time for Alaska coal compares favorably with other export coals in the Pacific Rim (fig.1). On the basis of handling and combustion characteristics, inherent low sulfur and nitrogen contents, and total dollar cost per Btu, Alaska coal can compete in the Pacific Rim market. COAL PROVINCES OF ALASKA Most coal resources of Alaska occur in regions that are defined geologically or geographically as provinces. These coal provinces are divided into sub provinces, basins, fields, districts, and occurrences. This hierarchy provides a general framework for categorizing all coal deposits in Alaska: ¢ Coal province - An extensive area that contains similar coal-bearing rocks. * Coal sub province - A relatively large area that forms a contiguous part of a coal province. Coal basin - An area that contains one or more coal fields or that forms a distinct part of a province. © Coal field - An area that has high resource potential and contains one or more known coal beds of mineable thickness. Coal district - An area that forms part of a coal field or an isolated area that has less probable resource potential than a coal field. Coal occurrence - A site where one or more typically thin, discontinuous coal beds crop out. Eight coal provinces are recognized in Alaska; of these, three - Northem Alaska, Cook Inlet - Susitna, and Nenana - contain most of the identified and hypothetical coal resources in the state. The remainder - Alaska Peninsula, Gulf of Alaska, Yukon - Koyukuk, Upper Yukon, and Seward Peninsula-have had historic production, contain some identified resources, and show potential for more discoveries. The magnitude of economic coal resources in the latter provinces is unknown. Other coai deposits occur outside the recognized provinces. These include the Copper River field and associated districts, southwest Alaska (Yukon-Kuskokwim region), south- east Alaska, and Kodiak-Trinity Islands. In addition, several areas that contain coal of uncertain quality and quantity have been denoted on the map as prospective coal basins (fig. 2). > A 3 ~~ =. ~Spronta FR Seatti— el N > oF ey Ps Te Les Angetes_ _ Te Singapore 6065 “ eGUAM os ae are Figure 1 ALASKA COAL PROVIN' LOCATION. Btufb RANK Dok 10,400 to Cook Inlet- Susitna Matanuska 13,200 Bituminous O25 7,600 to Cook Inlet- Susitna Beluga 8,000 Subituminous Oo 8,100to INorthem Alaska Cape Beaufort 12,700 Bituminous 0.2- 10,900 to Northem Alaska Deadfall Syncline 13.200 Bituminous Cc - Nenana Healy 7,800 Subituminous 0.4 COAL MINING ACTIVITES AND COAL EXPLORATION IN ALASKA *® The Nenana Coal Field is currently the only active coal producing field in the State of Alaska. Usibelli Coal Mine holds four active permits in this field: Poker Flats, Gold Run Pass, Two Bull Ridge and Rosalie. They produce on aver- age 1,200,000 tons of coal per year. A majority of their produc- tion is consumed by Alaskan markets, however, they also provide roughly 400,000 tons per year to overseas markets. Usibelli Coal Mine also holds two exploration permits in this field; Hoseanna/Emma Creek and Healy Valley exploration permits. e The Matanuska Coal Field is home to three exploration permits, with identified reserves at 150 million tons. The Wishbone Hill exploration permit is owned by Usibelli Coal Mine. Jonesville Mine exploration is owned by Knoll Acres Associates. Hobbs Industries holds the Castle Mountain exploration permit. e The Beluga Coal Field, in the Cook Inlet ~ Susitna coal province, has two active exploration permits, with identified and proven reserves of approximately 2 billion tons Placer Dome holds the Beluga exploration permit, while the Chuitna exploration permit is managed by DRven Corporation. ® The North Slope Coal Field, in the Northem Alaska coal province, is considered one of the largest coal fields in the United States. There are identified reserves of 150 billion tons, with hypothetical reserves topping 4 trillion tons. There is one permit issued in this field to Arctic Slope Regional Corporation, for Deadfall Syncline. This permit is currently in reclamation status and not considered active. Arctic Slope Regional Corporation also holds the only active exploration permit in this field for their Wester Arctic property. ALASKA COAL REGULATORY PROGRAM, ADMINISTATION AND ENFORCEMENT The Congress of the United States enacted the Surface Mining Control and Reclama- tion Act (SMCRA) in 1977. This Act provides for the establishment of a nationwide program to regulate surface coal mining and reclamation. It vests exclusive authority in the Department of the Interior, Office of Surface Mining and Reclamation Enforce- ment over the regulation of surface coal mining and reclamation within the United States. If a state wishes to assume exclusive jurisdiction over the regulation of surface coal mining and reclamation operations in the state, they must have state laws that provide for the regulation of surface coal mining and reclamation operations. The state regu- lations must be able to adequately demonstrate that the state has the capability of carrying out the provisions and meeting the purposes of SMCRA. In 1983, The State of Alaska enacted the Alaska Surface Coal Mining Control and Reclamation Act (ASCMCRA) to assume jurisdiction over all coal mining activities occurring within the state. Under ASCMCRA, the commissioner of the Department of Natural Resources has exclusive jurisdiction over surface coal mining and reclamation operations in Alaska. The purpose of the Act is to: ° protect society and the environment from the adverse effects of surface coal mining operations; . assure that the rights of surface land owners and other persons with an interest in the land are protected from such operations; . assure that reclamation of land on which surface coal mining takes place is accomplished as contemporaneously as practicable; ° assure that appropriate procedures are provided for public participation in the development, revision, and enforcement of regulations, standards, and reclama- tion plans or programs established under this chapter; . assure that the coal supply essential to the nation’s energy requirements and to its economic and social well-being is provided; and ° strike a balance between protection of the environment and other uses of the land and the need for coal as an essential source of energy. ALASKA DEPARTMENT OF NATURAL RESOURCES Division of Mining, Land & Water 550 West 7th Ave., Suite 920 Anchorage, AK 99501 Phone: 907-269-8650 Fax: 907-269-8930 Email: bruce_buzby@dnr.state.ak.us www.dnr.state.ak.us U.S DEPARTMENT OF THE INTERIOR Office of Surface Mining Evergreen Plaza Building 711 South Capitol Way, Suite 703 VOLATILE MOISTURE “MATTER FIXEDC ASH x 3-9% 32 45% 38-51% 44-24% 25 - 27% 33-34% 30-31% 10% > 2.5-7% 22-33% 35-56% 8-27% > 2.5 -8% 22-36% 35-56% 5.5 - 23% 26% 36% 29% 9% Phone: 360-753-9538 Email: gwaugh@osmre.gov Table within Appendix | - Alaska's Coal Resources ALASKA COAL VOLATILE PROVINCE LOCATION Btu/Ib RANK SULFUR MOISTURE MATTER FIXED C ASH ‘Cook Inlet - Susitna Matanuska 10,400 to 13,200 Bituminous 0.2% - 0.6% 3-9% 32 - 45% 38 - 51% 4-24% Cook Inlet - Susitna Beluga 7,600 to 8,000 ‘Subituminous < 0.2% 25 - 27% 33 - 34% 30-31% 10% Northern Alaska Cape Beaufort 9,100 to 12,700 Bituminous 0.2 - 0.4% 2.5-7% 22 - 33% 35 - 56% 8-27% Northern Alaska Deadfall Syncline 10,900 to 13,200 Bituminous 0.2 - 0.3% 2.5 - 8% 22 - 36% 35 - 56% 5.5 - 23% Nenana Healy 7,800 Subituminous 0.17% 26% 36% 29% 9% Appendix J: Wind-Diesel Hybrid Systems in Alaska REAC Wind-diesel costs and benefits short background As an example for wind-diesel hybrid system costs and fuel savings, let’s use Kongiganak as a typical community. This village has a little more than 300 people and uses around 1,350,000 kilowatt-hours (kWh) a year. A medium-sized wind system with the newest technology integrated with the upgraded existing diesel power system is currently estimated to cost $950,000. Based on models using the measured wind resource and village load, this system should provide roughly half of community electrical needs, displacing about 36,000 gallons of fuel a year. Assuming a fuel price of $2/gallon means $72,000 saved yearly in fuel costs. (950,000/72,000 = 13.2) Wind Turbines in the village-scale size range have manufacturer specified life spans of 20 to 30 years. Effective long-term operation and maintenance of wind-diesel systems in isolated communities is still a concern, and costs for O&M are still hard to quantify with certainty as the technology and installed systems don’t yet have a lot of operating history. Kotzebue Electric Association has been able to spread costs across several machines, and has found wind turbine maintenance to be less costly and time intensive than diesel engine generators. In a smaller village this may prove more difficult, and the required skills are more specialized. O&M costs will remain a concern until enough machines are installed around the State to support a base of technicians, local training, and vendor support. Figure 1. Typical Wind-Diesel Hybrid Power System #Turbines = KWh % of Production Excess KWh Energy Production 1 356000 26% 25000 2 713000 53% 174000 3 1069000 79% 377000 Based on Kongiganak Wind Resource Galions Dollars % fuel displaced Yearly saving 22000 ‘$44,000.00 22.92% 2 36000 $72,000.00 37.50% 3 47000 $94,000.00 48.96% Diesel Price Assumption $2.00 Installed cost 1 $510,000.00 2 _ $960,000.00 3. $1,355,000.00 Real Discount Rate 3% One Turbine NPV of fuel savings 2006 2007 2008 2009 2010 20112012 2013 ©2014-2015 2016 = 2017 2018 «= 2019S 2020» 2021) 2022S 2023 «2024 «= 2025 «2028. Equipment Operation and maintenance Fuel $ 44.000 $ 44,000 $ 44,000 $ 44,000 $ 44,000 $ 44,000 $44,000 $ 44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 Total $ 44,000 $ 44,000 $ 44,000 $ 44.000 $ 44,000 $ 44,000 $44,000 $ 44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 $44,000 NPV $678,261 NPV of Wind O&M 2005 2006 2007 2008 2009 2010 20H 2012 2013 2014 2018 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Operation $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5.000 $ 5,000 $ 5,000 $ 5,000 § 5,000 Total $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5.000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 $ 5,000 NPV $77,075 Two Turbines NPV of fuel savings 2006 2007 2008 2009 2010 2014 2012 2013 = 2014 = 2015 2018 = 20172018 =S 2019» 2020» 2021) 2022S 2023) 2024 «= 2025 «2028 Equipment Operation and maintenance Fuel $ 72,000 $ 72,000 $ 72,000 $ 72,000 $ 72,000 $ 72,000 $72,000 $ 72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72.000 $72,000 Total $ 72,000 $ 72.000 $ 72.000 $ 72,000 $ 72,000 $ 72,000 $72,000 $ 72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 $72,000 NPV — $1,109,882 NPV of Wind O&M 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2018 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Operation $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $10,000 $ 10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $ 10,000 Total $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $ 10,000 $10,000 $ 10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $10,000 $ 10,000 NPV $154,150 Three Turbines NPV of fuel savings 2006 2007 208 = 20082010 201 201e 2013 201d. 20S Oe 2017- 2018-2019» 020 2021» 2022) 20232024 «= 20252026 Equipment Operation and maintenance Fuel $ 94,000 $ 94,000 $ 94,000 $ 94,000 $ 94,000 $ 94,000 $94,000 $ 94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 Total $ 94,000 $ 94,000 $ 94,000 $ 94,000 $ 94,000 $ 94,000 $94,000 $ 94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 $94,000 NPV $1,449,012 NPV of Wind O&M 2005 2006 2007 = 2008» 2008 2010 gout. 2012 20120142015 2016 = 2017S 2018S 2019» 2029) 2021 2022) ozs 20242028, Operation $ 15.000 $ 15.000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $15,000 $ 15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 Total $ 15.000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $ 15,000 $15,000 $ 15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 $15,000 NPV $231,225 Benefit-Cost 1 Turbine 2 Turbines 3 Tubines Cost $ $10,000 $960,000 $1,355,000 Benefit-Cost Ratio 1.18 1.00 0.90 The major benefits of wind energy power generation come from direct displacement of diesel fuel. Electricity produced by the wind turbine generators represents fuel that does not have to be purchased, imported, and burned. Secondary benefits can also include reduced diesel engine run time and maintenance, excess energy for use in non-power applications such as space heating, and decreased emissions. However, tradeoffs exist in a wind-diesel system versus traditional power plants. For instance, standard diesel engines can also produce usable heat, so in valuing village wind power the displacement of diesel fuel is the main focus. Based upon a typical coastal western Alaska wind resource, one, two and three 100 kW wind turbines (like the one installed in Kotzebue) were modeled with a load profile for a southwest village of approximately 300 residents. The Northern Power machine used in the projection is more expensive than other available models, but represents the latest in wind turbine technology for village utility applications. Cost estimates at this point recognize that building wind turbine foundations in “warm” permafrost will be challenging and costly. Results are listed below. Production Estimates for Northern Power NW 100 Wind Turbines in Wind Power Class 6 Power Village = . Estimated Cost of System Usage en /yr) aa lt! ee Wind-Related Configuration (kKWh/yr) Components _| + Diesel-only System 1,350,000 1,350,000 96,000 $0 | Capital: $250,000 ; . Shipping: $30,000 1x NW100 Diesels: 1,019,000 | Yee: 74,000 Labor: $75,000 wind turbine 1,350,000 Wind: 356,000 in a and diesels Excess: 25.000 Savings: 22,000 Foundation: $100,000 a Other: $55,000 | Total: $510,000 Capital: $500,000 . : Shipping: $50,000 2 x NW100 ema, B1.0G8 Use: 60,000 Labor: $115,000 wind turbines | 1,350,000 Wind: 713,000 — and diesels Excess: 174.000 Savings: 36,000 Foundation: $170,000 . : Other: $125,000 Total: $960,000 Capital: $750,000 : . Shipping: $75,000 3 x NW100 Diets st SSE CVE Use: 49,000 Labor: $150,000 wind turbines | 1,350,000 Wind: 1,069,000 on ae andidicsele Excess: 377 000 Savings: 47,000 Foundation: $250,000 . , Other: $130,000 Total: $1,355,000 Operation and maintenance of complex wind power systems in isolation has the potential to be quite expensive, however, Kotzebue Electric Association has been successful in spreading O&M costs across several machines. Costs in the 2-3 cents/ KWh are probably high in the long-run, but appear reasonable at this point. For the purposes of this report, it is assumed that enough systems will be installed regionally that this can be accomplished. Long term economic projections for wind energy are difficult as feasibility is highly affected by the price of fuel as well as other assumptions for design of project and long-term O&M costs. Assuming a steady $2/gallon future fuel price and a 3% discount rate, the one turbine project is economic in simple cash flow projections with a Benefit-Cost Ratio of 1.18. [(Net Present Value of fuel savings - O&M) / Cost of project] Without valuing the excess energy or reduced expenses associated with the diesel engines, two wind turbines should be able to pay for themselves in fuel saved over their 20 year lifetime with a BC ratio of one. As village load grows, excess power from the wind can go towards more valuable power production making the system more economically attractive. Yearly fuel savings in a two turbine configuration is 36,000 gallons or about 37.5% of fuel used in power generation. Obviously, increased future fuel prices make this portion of electricity look better, and lower fuel prices make the wind portion economics less attractive. One important aspect of renewable energy from a village point of view is that once the wind-diesel system is working, the costs associated with that portion of power are low and relatively constant compared to the year-to-year price swings of diesel fuel. When considering a high penetration wind system with three wind turbines, excess energy and the ability to shut down diesel engines should be given some value as these characteristics are essential to the system, both operationally and economically. This type of system is much more complex, but in the model displaces over half the fuel used in community power generation, with significant amounts of excess energy produced as well. Under the simple assumptions of this report, only valuing displaced diesel, a three turbines system has a BC ratio of 0.9. A future fuel price of $2.20 makes this system break even without valuing excess energy or avoided expenses and O&M on diesel engine and generators. In summary, wind energy has high upfront capital cost and more complicated operating requirements. However, in a good wind regime with long-term fuel prices in the $2.00/gallon range wind-diesel hybrid systems can be an economically attractive alternative to standard diesel generator systems. Depending upon the system configuration, wind-diesel hybrids have the potential to displace a significant amount of fuel using a clean and locally available resource. Northwind 100 in Kotzebue Appendix K: Alaska Rural Energy Plan, Vol. ll, Section 3, pages 3-38, 39, 40 ‘Wino Power o Review of DOE Wind Energy Program Best Practices o Review of American Wind Association Best Practices o Review of Canadian and European Wind Energy Market Best Practices © Identification of key market failures which prevent or impede wind resource development relative to socially optimal economic investment, defined here as B/C>1.0, 15 years, 5 percent real discount rate. 3.5.1.2 Results of Market Reconnaissance Study Based on an economic analysis of individual PCE eligible communities, roughly 30 rural Alaska communities representing 15,000 residents, present attractive opportunities for wind resource development, with reconnaissance benefit/cost ratios ranging from 1.0 up to 1.7. These communities represent, in aggregate, a total benefit of $38.6 million and a total cost of $35.2 million. The potential net economic benefits from these communities are sufficient to justify a wind resource development program on the order of $35 million - including $1.6 million for detailed reconnaissance, preliminary design, and final feasibility plus $27.5 million for final design and construction contingent upon a finding of net economic benefits at the final feasibility analysis stage.”° Figure 3-6. Rural Alaska Wind Energy Development Medium Penetration Scenario $40.0 }ret Benefits = $3.4 $35.0 ~ $30.0 Owind Resource Development O08&M Costs Capital Investment $25.0 $20.0 S Total Benefits | | | $15.0 $10.0 Present Value (Millions 2002$) $5.0 Total Benefits Total Costs 6° Total Cost = Capital + O&M + Wind Development Program Costs = $27.5M + $6.1M + $1.6M = $35.2M. All figures are expressed in present value 2002$, based on cash flow estimates over a15 year life using a 5% real discount rate. 7° See Figures 3-3 and 3-4: Wind Resource Assessment Program 3-38 Winp Power Table 3-7. Wind Resource Market Potential Study — Attractive Opportunities Wind Benefits Wind Costs Community Population (PV 2002$) (PV 2002$) Benefit/Cost Ratio 1 St. Paul 532 $2,999,207 $1,736,894 1.73 2 Atka 92 $550,296 $326,113 1.69 3 Pedro Bay 50 $504,504 $317,319 1.59 4 Platinum 41 $496,160 $314,400 1.58 5 Deering 136 $1,239,215 $799,781 1.55 6 Chefornak 394 $473,785 $325,063 1.46 7 Gambell 649 $1,151,536 $817,697 1.41 8 False Pass 64 $438,825 $324,611 1.35 9 Akutan 713 $437,244 $324,514 1.35 10 Nightmute 208 $420,263 $324,281 1.30 11 Kipnuk 644 $1,021,549 $815,891 1.25 12 Kwig 338 $401,829 $324,041 1.24 13 Kongiganak 359 $394,250 $319,830 1.23 14 Hooper Bay 1014 $1,284,827 $1,052,828 1.22 15 Perryville 107 $376,719 $317,304 1.19 16 Savoonga 643, $1,222,002 $1,035,531 1.18 17 Wales 152 $382,008 $323,732 1.18 18 Nunapitchuk 466 $1,444,802 $1,260,358 1.15 19 Chevak 765 $928,455 $814,585 1.14 20 Toksook Bay 532 $673,775 $594,993 1.13 21 Kokhanok 174 $348,507 $315,045 11 22 Akiachak 585 $872,608 $789,210 1.11 23 Point Lay 247 $1,853,265 $1,692,643 1.09 24 Kwethluk 713 $859,661 $789,011 1.09 25 Mekoryuk 210 $344,587 $323,200 1.07 26 St. George 152 $326,586 $318,105 1.03 27 Brevig 276 $330,412 $322,980 1.02 28 Unalaska 4283 $15,595,178 $15,375,554 1.01 29 Tununak 325 $325,808 $322,938 1.01 30 Egegik 116 $583,940 $581,032 1.01 31 Atmauluak 294 $319,491 $318,773 1.00 TOTALS 15,274 $38,600,000 $33,600,000 1.15 Source: MAFA Recon Model Ver 1.3 (2002), see Appendix A: Market Potential Estimate, Medium Wind Penetration, Medium Avoided Diesel Cost Scenario; Population (2000 Census) Another 17 communities representing 16,000 residents represent potentially attractive opportunities for wind resource development, with reconnaissance benefit/cost ratios ranging from 0.85 to 1.0. These communities represent, in aggregate, a total benefit of $53 million and a total cost of $58 million under the medium wind penetration scenario. While the benefit/cost estimates for these communities are less than one, they are within the margin of uncertainty associated with the market 3-39 Winn Power reconnaissance and warrant additional in-depth record and on-site reconnaissance to reduce the uncertainty of the potential value of wind resource development in these communities.”! Table 3-8. Wind Resource Market Potential Study — Potentially Attractive Opportunities Community Population Wind Benefits Wind Costs Benefit/Cost Ratio (PV 2002$) (PV 2002$) Kasaan 48 $311,238 $314,620 0.99 Sand Point 842 $2,634,315 $2,675,209 0.98 Anaktuvuk 314 $2,581,917 $2,630,706 0.98 Pilot Point 92 $309,671 $316,369 0.98 Craig’? 2809 $1,601,484 $1,647,319 0.97 Port Heiden 416 $557,638 $580,645 0.96 Quinhagak 595 $733,077 $792,739 0.92 Bethel”* 5471 $27,691,114 $30,257,244 0.92 Newtok 284 $294,578 $322,478 0.91 Nelson Lagoon 87 $287,696 $318,349 0.90 Goodnews Bay 256 $284,779 $316,002 0.90 Tenakee Springs 93 $275,948 $314,056 0.88 Shishmaref 556 $1,082,609 $1,234,753 0.88 St. Mary's 442 $1,598,195 $1,848,304 0.86 Kotzebue 2932 $10,498,880 $12,142,765 0.86 Old Harbor 276 $489,485 $576,007 0.85 Kake 745 $1,758,797 $2,080,121 0.85 Total 15,958 $52,991,423 $58,367,686 0.91 Source: MAFA Recon Model Ver 1.3 (2002), see Appendix E: Market Potential Estimate, Medium Wind Penetration, Medium Avoided Diesel Cost Scenario 7’ It is interesting to note that subsidized wind development has already begun in Kotzebue—a community with a benefit/cost ratio of 0.86 in the market reconnaissance study under the medium wind penetration case. An investment in additional reconnaissance in these communities is roughly equivalent to buying an option on the potential that the B/C for wind resource development in these communities will exceed one after further reconnaissance. The potential value of the option is not just that the wind resource may turn out to be sufficient to produce a project with a B/C>1.0. Scale and scope economies may be a consideration. For example, a particular community may be a regional center that is capable of servicing other communities with higher B/C ratios, bringing regional efficiencies to those communities and itself. Potential sources of regional efficiencies include on-site wind resource assessment, micro-siting considerations, knowledge of arctic design trade-offs, foundations, towers, wind turbines, controls and installation contracting, etc. 72 Please note that the wind resource market potential is based on potentially displacing less than half of the roughly 150,000 gallons of diesel fuel a year that is used to complement hydropower. 73 This is a particularly interesting case of a regional center with a significant diesel based cogeneration system. Given the potential economies of scale for development of a wind hybrid system with dump loads that could be used for the district heating system, further investigation may yield additional insight into the trade-offs and potential integrations between wind-diesel hybrids with cogenerated energy from both wind and diesel sources. In addition, Bethel’s potential to provide regional wind energy services to other communities in the delta warrants additional investigation. 3-40 Appendix L: Energy Star — Energy Smart: RurAL CAP Energy Star-Energy Smart: Bright Ideas for Alaska The Rural Alaska Community Action Program, Inc. (RurAL CAP) is seeking funding for a three-year project that will use market-based approaches to increase energy efficiency in homes and community buildings. The objectives of the program will be to: 1) inform rural residents of energy conservation opportunities and give them incentives to take advantage of those opportunities, 2) educate village stores about the availability of bulk energy efficient products and show them how to access the products so they can sell them locally, and 3) share information with local governing governments about how they can encourage and implement energy conservation in their community buildings (schools, washeterias, etc.) and what the benefits of such changes would be. RurAL CAP will work with energy conservation product suppliers and service companies in regional hubs (Dillingham, Bethel, etc.) and urban communities (Anchorage, Juneau, Fairbanks) in Alaska to develop a discount booklet for distribution in rural Alaska. The booklet will showcase existing suppliers of energy efficient products and service providers (those who do energy audits, product installations, etc.) to rural residents who likely would not otherwise know of these resources or where to buy them. The suppliers will provide a variety of incentives to motivate rural residents to buy their products or services instead of traditional products that have high energy needs. This will create a win-win situation in that suppliers will earn new business through this advertising and rural residents will save money over both the short term (due to the incentives) and the long term (due to the energy cost savings of the new products). The types of products that will be advertised in the discount booklet will vary depending on the target customer, but general topic areas will include products that: a Conserve Electricity, such as Compact Fluorescent Lamps (CFLs), efficient T-8 fluorescent tubes and electronic ballasts, residential motion sensors, refrigerator coil cleaners etc; a Save Home Heating Fuels, such as Toyotomi and Monitor-type home heating units, products for insulating and sealing homes; and, a Save Water, such as low-flow kitchen and bath fixtures. In the first year of the program, RurAL CAP will offer subsidized advertising rates to suppliers/service providers to encourage them to participate in the program. Each supplier/service provider will track the coupon codes so that new sales due to this program will be easily identified. Periodically, the supplier/service provider will report their new business statistics to RurAL CAP. RurAL CAP will use this information to recruit additional suppliers/service providers in the second year of the program. The advertising rate will be increased incrementally in the second and third years, thus increasing the overall input from advertisers into the cost of printing the booklet. By the end of the third year, RurAL CAP expects that the advertising fees will be substantial enough to sustain an annual production and distribution of the booklet. The booklet will also include energy conservation information, tips, and suggestions for homeowners, governments, renters, and landlords alike. The primary purpose of the information will be to motivate residents to invest in energy saving products for their homes. Disposal of compact fluorescent bulbs and other potentially hazardous wastes will be discussed in the booklet as well. RurAL CAP will work with Utilities statewide to distribute information about the booklets and perhaps even the booklets themselves, most likely with resident’s monthly bills or special mailings. RurAL CAP will also work with state and federal agencies to promote the booklet, making sure that residents hear the energy conservation message on a repeated basis throughout the year. Rural Alaskans may get a notification after they have been accepted as recipients of LIHEAP/energy assistance funds, then get the booklet in the mail with their electric bill, and hear PSAs about the booklet periodically on their local radio station. Another important strategy for increasing access to energy efficient products, especially those meeting the US EPA’s Energy Star standards, will be to develop an “E-Sales for Alaska Energy” website, to be hosted on RurAL CAP’s Alaska Environmental Resource Hub Online (AERHO). The discount booklet will live online. On this web-based sales and education portal the same residents, governments and suppliers will be able to access information and products devoted to energy conservation. They may also: 1) purchase products not available locally from advertisers in the booklet. Sales sites will include the same discounts and vendors as the booklet, and because of increased space will also be able to include more energy conservation products than the booklet does; 2) provide simple education and calculators for residents to figure out energy cost savings for electrical and heating systems. People often want to know, How quickly will I save what I invested in these expensive light bulbs?; 3) mirror the website of the vendor or retailer so that purchases are made from the seller and not from RurAL CAP. Mirrored sites will only contain energy conservation products, but will allow site visitors to access the vendor’s larger site; 4) provide links to Alaska-based energy auditors for government and business; and, 5) provide energy conservation education for homeowners, governments and retailers to increase knowledge about vital money-saving opportunities in Alaska. A major focus of the Energy Star-Energy Smart: Bright Ideas for Alaska booklet and website will be an “Alaska-only” requirement. The goal is to introduce Alaskans from all corners of the state to products and services readily available in Alaska. Where there are products only available Outside, we hope that enough interest is generated in-state to warrant retailers and wholesalers alike to begin to carry these products. Only when Alaskans begin to understand the tangible benefits of energy efficient products will they make efforts to buy them. Incentives such as those in this proposed project will help Alaskans to make that first step, as many products are expensive up-front. Only when there is a market demand will retailers be able to sell their products around the state, creating relationships with buyers and government alike, and opening the rest of their product lines to consumers. RurAL CAP aims to help Alaskans to buy Alaskan, saving energy for Alaska at the same time. For more information contact: Brian Connors, RurAL CAP Community Development Division Director at 279-2511 x339 or bconnors@ruralcap.com.