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HomeMy WebLinkAboutAEA Board Minutes March 1 2023Alaska Energy Authority BOARD MEETING MINUTES Wednesday, March 1, 2023 Anchorage, Alaska 1. CALL TO ORDER A LAS KA ENERGY AUTHORITY Chair Pruhs called the meeting of the Alaska Energy Authority to order on March 1, 2023, at 8:31 am. A quorum was established. 2. ROLL CALL BOARD MEMBERS Members present: Chair Dana Pruhs (Public Member); Vice -Chair Bill Kendig (Public Member); Albert Fogle (Public Member); Adam Crum (Commissioner DOR); Julie Sande (Commissioner DCCED); Bill Vivlamore (Public Member); and Randy Eledge (Public Member). 3. AGENDA APPROVAL MOTION: A motion was made by Vice -Chair Kendig to approve the agenda, as presented. Motion seconded Mr. Fogle. The motion to approve the agenda passed without objection. 4. PRIOR MINUTES — January 18, 2023 MOTION: A motion was made by Mr. Fogle to approve the prior minutes of January 18, 2023, as presented. Motion seconded by Vice -Chair Kendig. The motion to approve the minutes of January 18, 2023, passed without objection. S. PUBLIC COMMENTS (2 minutes per person) There were no members of the public online or in -person who requested to comment. 6. NEW BUSINESS A. Cook Inlet Gas Supply Challenges — Overview and Discussion i. 2022 Cook Inlet Gas Forecast Presentation to Senate Resources Committee ii. DNR 2022 Cook Inlet Gas Forecast • • �. �. 813 W Northern Lights Blvd, Anchorage, AK 99503 - Phone: (907) 771-3000 - Fax: (907) 771-3044 • Email: info@akenergyauthority.org iii. Railbelt Electric Energy System and Energy Transition Presentation Curtis Thayer, Executive Director and Secretary -Treasurer, informed that the Board packets under 6A. contain three documents: the Alaska Department of Natural Resources (DNR) 2022 Cook Inlet Gas Forecast presentation to the Senate Resources Committee, the DNR Cook Inlet Forecast, and the Railbelt Electric Energy System and Energy Transition presentation to the Senate Resources Committee. Mr. Thayer commented that the Gordian knot challenges of not having enough gas supply or potentially not having enough gas supply under contract in the Cook Inlet have occurred over the past 15 to 20 years. Mr. Thayer explained that the State has pulled many different levers, including incentives. The gas purchase contract is between the producer and the gas company on the Railbelt. The Regulatory Commission of Alaska (RCA) approves the contract. AEA does not have statutory or regulatory ability regarding the gas supply issue in Cook Inlet. Mr. Thayer discussed that AEA has become a more active observer, as he has been working with the utilities, the Governor's Office, DNR, and RCA in understanding the challenges. Mr. Thayer noted that DNR says that there is gas in the Cook Inlet, but there are not producers to produce the gas. He gave a brief overview that for seven years in the early 2000's, the RCA never approved a gas contract. The result of this was that the big producers left Cook Inlet, and the plant and export facility closed. This greatly impacted the utilities. Mr. Thayer discussed that there are currently three producers in Cook Inlet: Hilcorp Alaska, Hex LLC, and BlueCrest. These companies are very small compared to the large companies, such as Marathon and Conoco, that previously operated in Cook Inlet. Mr. Thayer explained an aspect of pricing. He noted that the State entered into an agreement with BlueCrest regarding their base contract, which was higher than it was in the past. The utilities requested Henry Hub pricing from RCA, and RCA rejected the request, which put into question the value of Cook Inlet gas and investment returns. The State stepped in and spent a billion dollars in tax credits. Subsequently, the State vetoed the tax credits. This changed the economics of pending gas supply contracts between utilities and producers. As a result, the pending contracts dissolved. Mr. Thayer informed that Homer Electric Association (HEA) is in the most immediate need within two years. Enstar's need is the furthest out, due to their gas storage ability. Mr. Thayer discussed his understanding is that the utilities are working with the producers in Cook Inlet to extend gas production beyond 2030. This plan would have to be approved by RCA. Mr. Thayer commented that any type of progression into renewables would include the transitional fuel of natural gas for the next 20 years. He discussed the need for transmission line upgrades in order to access additional renewable energy. Mr. Thayer continued the discussion noting that the Fairbanks gas utility is currently reviewing contracts to ship liquefied natural gas (LNG) directly from the North Slope to Fairbanks, thus bypassing Cook Inlet. He commented on discussions by the four utilities regarding solutions that Alaska Energy Authority Page 2 of 10 include a natural gas pipeline off the North Slope. These types of discussion have occurred for years, but no decisions regarding projects have been made. The utilities are also discussing the possibility of using the Marathon plant as an import facility for Cook Inlet. The cost would be borne by consumers. Mr. Thayer noted that he will keep the Board informed regarding the continued discussions among DNR, RCA, and the utilities. He believes that utilities may soon announce small contract extensions. Commissioner Crum commented that the presentation to the Senate Resources Committee on January 301h is worthwhile following. DNR has been tasked to put forward the current tax regime of Cook Inlet compared to other fiduciaries around the state. He noted that the Legislature is evaluating the tax regime within the review of the overall need of getting energy to the Railbelt. Chair Pruhs expressed appreciation to Mr. Thayer for the presentation. He discussed his understanding of the Cook Inlet issue with supply and demand, and that one company is controlling 80% to 90% of the gas supply. Chair Pruhs commented that he would like to focus on the future to support that the money spent by the State and the money spent on required projects ties into the maximum benefit for the rate payer. He discussed the recent $160 million of bonding for upgrades between Anchorage and Homer. Chair Pruhs reiterated that he wants to ensure that the money spent to develop the Intertie system is spent efficiently. He requested that AEA is kept apprised of the utilities' plans and how it connects to the capital project plan to help the Railbelt utilities. Mr. Thayer explained that AEA's ownership of the Alaska Intertie's 170 miles from Willow to Healy saves the Fairbanks community $35 million to $40 million a year, which exceeds PCE. This means that it is cheaper for the community to buy power on the Railbelt than it would be for Fairbanks to produce power. Chair Pruhs discussed the single line to Fairbanks from a dynasty standpoint. The single line becomes increasingly critical as Fairbanks continues to rely on Southcentral gas and power supply, and at some point, will determine whether or not there should be a second line or redundancy for long-term planning. Chair Pruhs opined the scenario of what would happen if the single line became inoperable. Mr. Thayer commented on AEA's mission to lower the cost of energy. He suggested that the mission going forward could include having safe, reliable, and redundant power at a low cost. Mr. Thayer discussed that redundancy is necessary and costs are incurred when lines are added. Vice -Chair Kendig commented that reliability is just as important as affordability. Chair Pruhs expressed his hope that the cost of utility bills do not double in five years. He noted that the mission statement and the valuable suggestions to revise the mission statement could be reviewed during the August strategic planning retreat. Chair Pruhs requested that AEA is kept apprised of the ongoing discussions and asked Commissioner Crum to provide Mr. Thayer with any pertinent information. Commissioner Crum agreed, and explained that the Cook Inlet gas Alaska Energy Authority Page 3 of 10 supply issues and challenges are complex. There were no additional questions. 7. OLD BUSINESS - None 8. DIRECTOR COMMENTS A. Annual Report Mr. Thayer noted that included in the Board packet is the 2022 Annual Report that was produced entirely in-house. It was sent to the Legislature yesterday. Chair Pruhs commented that the Annual Report is very nice. Mr. Thayer informed that the front picture is the South Fork Hydroelectric Plant, a small hydro project in Eagle River owned by a husband -and -wife team. AEA financed the hydro expansion, which provides power for 800 homes. The power is sold through MEA. Mr. Thayer noted that he could schedule a field trip to tour the facility. Chair Pruhs expressed support. B. PCE Report Mr. Thayer discussed that even though there is not a statutory deadline for the Power Cost Equalization (PCE) Reports, the target date is March 15t. The information in the report is structured by community and includes the average annual PCE payment per customer. The report is provided to the Legislature and to rural Alaskan communities. Mr. Thayer expressed appreciation to Tim Sandstrom, AEA, for his efforts in developing the report while short a staff member. Chair Pruhs asked how the PCE rate is calculated. Mr. Thayer explained that the RCA establishes the PCE rate. It is based on the cost of electricity in Anchorage, Fairbanks, and Juneau. The PCE floor rate this year was approximately 19 cents. The rate is capped in statute at 75 cents for a maximum of 750 kilowatts. The difference between the rate and the cap is what the State subsidizes in rural Alaska. Mr. Thayer complimented the PCE team on the reformat of the payment structure within the organization. The new process controls eliminated the backlog and brought the 300 past due payments current to -date. Mr. Thayer explained that RCA determines which communities are eligible for PCE and AEA follows their direction. Chair Pruhs asked if Southeast Alaska has the least expensive cost of power. Mr. Thayer agreed that Juneau is the least expensive, followed by Anchorage, and Fairbanks. He explained that lowering the cost of energy on the Railbelt lowers the floor rate, which increases the payments to rural Alaska. The current formula is established in statute. There were no additional questions or comments. C. Owned Assets Update Mr. Thayer discussed that the Owned Assets Update includes information about the Alaska Intertie and the Bradley Lake Hydroelectric Project. Removal of the 69 kV Sterling to Quartz Line has begun. The bid came in on budget and remains within budget. Mr. Thayer informed that AEA Alaska Energy Authority Page 4 of 10 bonded $166 million of required project work in December, and 65% of the proceeds are dedicated to transmission work and 35% of the proceeds are dedicated to battery energy systems. Chair Pruhs inquired as to the specifics regarding a target for a reserve amount or for battery hours. Mr. Thayer explained that the Department of Law determined that the battery energy systems are required project work. AEA will provide funding for a certain parameter of the battery system, a base model, and the community must pay for any upgrades or enhancements. AEA will own the base model and the utility will own any upgrades. Mr. Thayer noted that a Tesla system was installed in Kenai. He discussed the possibility of taking a field trip to walk through their battery storage area. This is one of the areas that the Bradley Project Management Committee (BPMC) is reviewing to possibly purchase. Commissioner Crum asked how the minimum aspect and need is determined among the communities and if the negotiation is amicable. Mr. Thayer informed that these types of conversations are new. He commented that the utilities are working well together. Chugach (CEA) and Matanuska Electric Association (MEA) are even discussing the possibility and plausibility of sharing a battery. Mr. Thayer informed that AEA will consider working with Department of Law during the negotiation stage of the arrangements. He reported that the cost of the batteries has continued to increase from the budgeted amount. This is a major cause of concern. Chair Pruhs asked if the rate payers pay for both the base model battery system and any upgrades the utilities select. Mr. Thayer agreed. He explained that each utility has different specifications for their system operations. Mr. Thayer commented that staff is pursuing funding within the Federal Infrastructure Bill to help offset the battery costs for the rate payers. There were no additional questions or comments. D. Railbelt Reliability Council (RRC) Update Mr. Thayer invited Bryan Carey, Director of Owned Assets, to provide the RRC update. Mr. Carey discussed that the RRC is currently undergoing the process with RCA to transition from organizational development to mission work. He informed that the web page contains information and helpful links regarding the RRC. Mr. Carey reviewed the general timeline for activities. Staff is currently seeking initial office space to house the Chief Executive Officer (CEO), who will be hired later this year. The CEO will then hire additional staffing. Next year, the first order of business is the Integrated Resource Plan. The Plan will take approximately two years to complete and will examine all future Railbelt projects and transmission capability. The data will be available to be organized based on different parameters and variables entered. This will provide relevant information regarding different scenarios and combinations of projects. Mr. Eledge asked if AEA developed the algorithms for the Integrated Resource Plan. Mr. Carey informed that in 2010, AEA developed an Integrated Resource Plan in connection to the Susitna Project. The new Integrated Resource Plan will be developed by the RRC, which has 13 Board members. AEA holds one seat on the Board and will be able to provide input regarding what scenarios the Plan will be able to produce. Alaska Energy Authority Page 5 of 10 Mr. Thayer explained that the RRC was established in State statute about three years ago. Its structure and governance has been in development since then. Mr. Carey explained the background of the development of the RRC. He noted that individual utilities build different plants with different generation sources. The intent of the RRC is to provide effective planning and savings for the Railbelt utilities as a whole. The total savings are expected to exceed the cost of the RRC. There were no other questions. E. Renewable Energy Fund (REF) Program Update Mr. Thayer discussed that the REF is in Round 15. There were 33 applicants totaling $31 million. AEA is currently evaluating the applications and will make recommendations to the nine -member Renewable Energy Fund Advisory Committee (REFAC). The REFAC guidelines are set within statute. Within the Governor's Budget, there is a placeholder of approximately $7.5 million. The final number will not be known until REFAC makes their recommendations to the Governor and to Legislature, who will then make the appropriations. Chair Pruhs asked if there is an average appropriation amount based on the prior rounds. Mr. Thayer discussed that there is not an average. He explained that when the program began in 2010, the goal was $50 million a year for five years, for a total of $250 million. That amount of funding was never achieved and for several years, and during the previous Administration, no funding was given to the REF Program. Two years ago, the round was conducted and utilized $4.7 million of remaining program funds. Last year, the round was conducted with a total of $15 million. Mr. Thayer stated that the application is organized by technology and by region. One of the weighted criteria factors for evaluation is the cost of energy for the applicant community. Approximately 80% of approvals are within rural Alaska. Mr. Thayer discussed that a prior report of the program revealed that the program has saved 30 million gallons of diesel fuel in rural Alaska. AEA has recently contracted with a third -party to conduct an updated evaluation of the program since inception to better identify the success of the program. Results are expected within a few months and will be shared with the Board and with the Legislature. There were no other questions. F. Electric Vehicle Update Mr. Thayer noted that AEA is operating off of the State's Vehicle Infrastructure Implementation Plan that has been approved by the Federal Department of Energy. A round of requests for applications (RFA) is out for identifying charging station sites along the alternative fuel corridor from Anchorage to Fairbanks. In the future, the rounds will be expanded to include the Kenai Peninsula and the Marine Highway System. A 20% match is required per applicant. Chair Pruhs asked which department identified the corridor from Anchorage to Fairbanks. Mr. Thayer explained that the corridor was determined by the Federal Department of Transportation (DOT) and in coalition with the Federal Department of Energy (DOE). Chair Pruhs asked if it would be advantageous to have electrification in communities that do not have access to a transportation infrastructure. He gave examples of charging sites in Cordova or Valdez. Mr. Thayer Alaska Energy Authority Page 6 of 10 indicated AEA has raised those concerns and other concerns with DOE and with the congressional delegation because the parameters disqualify rural Alaska, including hub communities. The sites for this particular program must be on a federally recognized highway corridor. The phased sections are Anchorage to Fairbanks, Homer to Anchorage, Tok to Glennallen, and the Marine Highway System. Mr. Thayer explained that grants for rural Alaska could be sought via a competitive process with other states. He commented that the size of the electrical chargers for the grants total 600 kV, which is more than some of the rural communities' power can accommodate. Mr. Fogle expressed appreciation for the update. He asked for information on who will monitor the charging stations to ensure they are active and operational, similar to the inspectors who survey gas stations. Mr. Thayer discussed that the grant agreement contains a requirement that the charging stations are maintained at a 97% operational standard and include a warranty. That information is shared with AEA to include in the grant monitoring that is submitted back to the federal government. Mr. Thayer noted the increase in electric vehicle registration from June 2022 to January 2023, as shown in the included chart. A member asked if the registration information could be delineated by community. Mr. Thayer stated that staff could try to obtain that information from Department of Motor Vehicles (DMV). He commented that it took a very long time to obtain the current information. Mr. Eledge asked if staff has reviewed the potential increases of power generation from charging stations within the hub communities and rural communities that are not connected by the road system. Mr. Thayer agreed that staff is considering those power source issues and concerns, as well as the equipment size requirements versus the community need. Mr. Eledge contemplated the additional amount of power that would need to be produced in the villages to electrify vehicles and to provide charging station services. Mr. Thayer discussed that there are different types of electric vehicle charging station types and technologies that could accommodate locations that do not have three -phased power. However, in the federal program discussed today, those types of chargers are not allowed. Mr. Thayer informed that Alaska is not the only state that has raised these types of issues. Wyoming has similar concerns, and conversations with DOE are ongoing. Commissioner Sande expressed appreciation to Mr. Thayer for proactively sending articles that address these issues. She particularly noted the article about Wyoming and the potential implications for Alaska. Commissioner Sande asked if Mr. Thayer will make suggestions to the Board regarding whether or not Alaska should provide the same response to DOE as Wyoming provided, that the model does not work for Alaska. Additionally, she asked Mr. Thayer to explain the role of AEA within the Governor's Energy Security Task Force in terms of evaluating information and the strategic plan. Mr. Thayer discussed that the Governor's Administrative Order (AO) No. 344 establishes the Alaska Energy Security Task Force. Membership will include the Commissioner of DNR, the Commissioner of DEC, the Executive Director of AEA, a representative from the University of Alaska, and nine public members, and five ex officio members. The Governor has not yet named all of the participants and no meetings have occurred. The goal of the Task Force is to develop a statewide and comprehensive policy on energy. Mr. Thayer assumes that Alaska Energy Authority Page 7 of 10 AEA's role will be to implement the policy as it pertains to AEA. Deliverables are due to the Governor in May and a final report is due in October. The plan will include both short-term options and long-term options that extend out 20 years. Commissioner Sande expressed appreciation to Mr. Thayer for his willingness to participate in that important conversation, as well as AEA's participation in the subcabinet. She believes that larger conversations regarding PCE are valuable. PCE has been powerful and has helped serve Alaskans well. At the time PCE was created, there were no discussions about renewable energy. One question to consider is if PCE is causing an unintended disincentive to investment and economic development. Additionally, PCE does not serve commercial businesses. She noted that these questions have not been addressed by AEA, and perhaps the Task Force can provide recommendations. Mr. Thayer noted that the Task Force also wants to utilize involvement from the 17 available National Labs for the analysis. There is also a potential role for AIDEA regarding the financing of upgrades. Mr. Thayer commented that it will be a herculean effort. Commissioner Sande discussed AEA's mission of reducing the cost of energy as it relates to a comment by a representative from DOE regarding the role of proper insulation in rural Alaska to reduce the consumption of energy. Mr. Thayer believes that AEA may host many of the Task Force meetings, and he will keep the Board informed as the process moves forward. He commented that the Governor is currently at Westinghouse reviewing nuclear reactors. Mr. Thayer indicated that no matter what source of power is determined, transmission lines are needed to transmit the power. Chair Pruhs commented that the electric vehicle industry is a new business line in which the State needs to heed caution. The trend indicates there will be additional electric cars, which puts pressure on a different infrastructure that will need possibly substantial investment. He noted that unfortunately, Alaska's situation is that there is not typically the volume to pay for the infrastructure that is needed. Chair Pruhs supports the creation of an energy policy. He discussed the possibility that on a short-term basis, more electric vehicles on the road will be at the expense of buying less fuel, thus increasing the fuel price for existing cars, as well as stressing the existing electrical infrastructure and increasing the cost of electricity. Chair Pruhs stated this is a balancing act and he wished Mr. Thayer luck. There were no additional questions. G. Bradley Lake Audit Mr. Thayer discussed that the annual Bradley Lake Audit has been completed, which included the SSQ Line and Intertie. The clean audit was presented to the BPMC. Mr. Thayer complimented the Finance Team and Controller. There were no questions. H. FY24 Budget Update Mr. Thayer advised that the information listed in blue within the FY24 Budget was discussed at the January Board meeting as part of the Governor's $74 million submitted budget. Supplemental Alaska Energy Authority Page 8 of 10 projects are listed in green and include a lump sum for the IIJA State Energy Plan and the Black Rapids Training Site funds, adding $15.6 million to AEA's budget. The Governor's Amended Budget listed in orange includes additional funding of $7.5 million forthe Renewable Energy Grant Round 15, $74.5 million from the Inflation Reduction Act for home energy performance and weatherization program in concert with Alaska Housing Authority, and $3.7 million for the IIJA Efficiency Revolving Loan Fund Capitalization. The total budget amount is $175.8 million dollars. Mr. Thayer noted this is AEA's largest budget. He discussed that at the time that the budget was $74 million, AEA requested five new employee positions: two project managers, an accounting position, a procurement position, and a grants administrator. The Governor's Office is moving forward with those positions on a temporary basis for up to five years. Since the January Board meeting, however, the AEA Budget has accumulated an additional $100 million of responsibility, and does not include the $166 million in bonding responsibility and the $40 million operating budget. Mr. Thayer believes that employee staffing positions will be an ongoing conversation. He gave the perspective that there are State agency departments that do not have this level of budget responsibility. Mr. Eledge commented that the additional responsibility impacts staffing tremendously. He asked how AEA is responding to staffing. Mr. Thayer reiterated that the Governor's Office is hiring for the five, five-year positions, and that further conversations will occur regarding increased staffing needs going forward, including back -office positions for the accounting and compliance requirements. He showed members a physical copy of the IIJA bill that includes all the funding opportunities available. The Governor's Office has an IIJA coordinator and applications are submitted to administer the funds available for Alaska. If the funds are competitive, then AEA or a different State agency is selected to complete the application as the lead agency based on time and efficiency. Mr. Thayer reported that of the four Grid Resilience and Innovation Partnerships (GRIP) Concept Papers that were discussed at the previous Board meeting, two of the Concept Papers, GRIP 1 and GRIP 2, totaling $600 million, were asked to advance to the application stage. Only about a third of the submittals were asked to advance. The status of GRIP 3, totaling $500 million, is unknown. These potential funding amounts add another layer to the staffing conversation. There were no additional questions. I. Legislative Update Mr. Thayer announced that he is traveling to Juneau tomorrow at the request of the House and Senate Co -Chairs. He noted that the Legislature has been very supportive. The legislative presentations are included in the packet, along with the summary of conversations engaged with legislative offices. J. IIJA Update Mr. Thayer indicated that the IIJA Update was discussed earlier in the meeting. Alaska Energy Authority Page 9 of 10 K. Community Outreach Mr. Thayer reviewed the Community Outreach report and highlighted the diversified team that has been traveling to different areas of the state is due to the nature of the workload. L. Articles of Interest Mr. Thayer indicated that he sent another article of interest not included in the packet, in which Bill Gates discusses that transmission is key to clean energy. M. Next Regularly Scheduled AEA Board Meeting Tuesday, April 11, 2023 9. BOARD COMMENTS Chair Pruhs thanked Mr. Thayer for his overview and comments. He expressed appreciation to staff for their efforts. Chair Pruhs asked Mr. Thayer if he is aware of any of the specifics regarding the timeline, location, support, and facilitation for the Governor's AO. Mr. Thayer responded that he does not have any of those specifics. Chair Pruhs commented that AEA is currently short- handed on staff, and he assumes that Mr. Thayer will communicate the lack of resources available. Chair Pruhs thanked the Board members for their attendance and their input. 10. ADJOURNMENT There being no further business of the Board, the AEA meeting adjourned at 9:43 am. Curtis W. Thayer, Executive Director / Secretary <<Z'•' PRAT CO co _ NL 19? Alaska Energy Authority Page 10of10