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HomeMy WebLinkAboutFinal Report Development of Markets for Electricity in the Alaska Electric Light & Power 1979) JUN 001 CLIENT PRIVATE DEVELOPMENT OF MARKETS FOR ELECTRICITY IN THE ALASKA ELECTRIC LIGHT AND POWER COMPANY SERVICE AREA O lOliral Final Report October 1979 Prepared by: E. M. Kinderman, Project Leader G. Crooks K. Gerlach C. Hostetter N. Teater Prepared for: | Internat Alaska Electric Light and Power Company SRI International Project No. 7749 333 Ravenswood Ave. ¢ Menlo Park, California 94025 (415) 326-6200 * Cable: SRI INTL MPK * TWX: 910-373-1246 CONTENTS LIST OF ILLUSTRATIONS. . . 2... 2 2 « « « tn LIST! OF TABLES tate ie tale Ti II III ' IV » » Vv vI VII INTRODUCTION, . . 2 1. 5 2 ew eo ALASKA ELECTRIC LIGHT AND POWER AND THE SNETTISHAM POWER PROJECT . . . . 2 2 2 2 « « THE AELP SERVICE AREA . ....... Regional” Characteristics). 2) 2) 0 « EconomicPrActivitlesimersmc src enteins Natural Resources ....... «oe Transportaclon sar.wh.iikeleiilomieileaielstonine MARKETS FOR ELECTRIC POWER. .. Tndustrial Activities tail ciel icderiet 6 Mining and Ore Processing. ... Forest Products. ..... «se Fisheries and Fish Processing. Other Activities: 2161.) ) 11s) 10) 6 Constraints to Industrial Development Vand Use Status wl suiouioul suis cuore Availability of Markets. .... Environmental Considerations . . Commerce, Government, and Residential Ceres Ut tel lla | el is [owl (alls |e) nl el i Transportation. . . . . . «+» « « « e SPECIFIC MARKET OPPORTUNITIES .... Industrial. . 2... 2. eee ee eee Commerce, Government, and Residential TranspoLreat lon lelleielleeiielel elle isis MARKETING PLANS . . . 2. 2 «© © © eo e SUMMARY AND CONCLUSIONS ....... ids Lit Ltt 10 10 10 i 11 ES 13 13 13 15 15 16 16 17 18 18 20 21 21 28 35 36 41 3 10 LT 12 ILLUSTRATIONS Projected Electric Power Sales--AELP. ........ Electric Energy Use, 1974--Trillions of Btu... . Production of Nitrogen, Oxygen, and Ozone from Air. . TABLES Energy Generation by AELP and Energy Received from the Snettisham Project. . . 2... 1. «eee eee ve Historical Requirements for Power in the AELP Service AE CB ees es ene aii ee a) See ee wT sl al] @ we Current Full Recovery Cost Snettisham Power. .-= 52sec em ewe ew ee Projected Full Recovery Cost Snettioham Fowler, « s/6\|\k ¢ «& © |«|\e\\4 # © wlle|le|@ & 0 1977 Direct Cost of Delivered Electricity ...... 1985 Projected Range of Direct Costs for Delivered EVeECtricity |i] = ct fm liislile & ve @ Jalliiisiie w a oileilllal se ws @ AELP 1977 Sales to Customers. . .......6446-4 Juneau Population Growth. . ... 1... 6. ee eee Industrial Electricity Use. .......4.+.s-see-8 Direct Heating Costs and Payback Periods for Heat Pump Assisted Hot Air Furnace, Juneau Typical. ...... Direct Heating Costs and Payback Periods for Electric Furnace and Heat Pump Combinations. ......... Partial List of Heat Pump Suppliers ......... iii 22 26 N Oo OO @ 32 33 39 I INTRODUCTION This report identifies potential markets for electricity in the Juneau area and suggests plans by which the Alaska Electric Light and Power Company (AELP) can penetrate these markets. The company has access to substantial quantities of hydroelectric power at relatively low cost. The price of this power must be raised by the supplier, the Alaska Power Administration (APA) in 1986, unless the demand increases. To avoid or reduce this increase, which would have an unfavorable effect on AELP, its customers, and Juneau, as well as sur- rounding communities, the company requested SRI International (SRI) to evaluate markets and to prepare a plan that would result in an accelerated growth of electricity demand in the company service area. In the following sections, SRI presents a brief analysis of the oper- ations, rate structure, and requirements of AELP and its supplier, APA. This is followed by a general description of the company service area, with emphasis on those factors important to electricity demand. The de- scription leads to suggested general market areas. In the final sections, these market areas are analyzed, and promising market areas are selected. Marketing plans are then outlined for these areas. II ALASKA ELECTRIC LIGHT AND POWER AND THE SNETTISHAM POWER PROJECT AELP is an investor-owned utility serving the cities and surrounding territories of Juneau and recently Haines, Alaska, These service areas have approximate (late 1978) populations of 22,000 and 2,000, and the company in 1978 had 7,400 and 550 customers, respectively, in the two boroughs. Because Haines is separated from the major operation in Juneau and is not linked to the principal supplier, APA, the discussion and analysis of this report will concentrate on the Juneau service area. In addition to AELP, a small rural electric association, Glacier Highway Electric Association (GHEA) serves approximately 750 customers in the Borough of Junea. GHEA also consumes APA power. AELP and GHEA inter- change power as required and can be considered as one system for load man- agement. AELP operates three hydroelectric and two diesel electric generating facilities. These units have a combined name plate rating of 26,272 kW, of which 24,672 are available year-round. The diesel units represent 18,272 kW of this total. The combined peak load of the two systems for the winter of 1977-78 was 23,380 kW or 95% of their combined firm system generating capacity. Thus, the AELP-GHEA generating capacity is not large enough to carry peak loads reliably. The maximum demand in low demand months (May and June) was approximately 16,500 kW, and the minimum monthly demand ranged between 5,300 and 9,000 kW during 1977. AELP has preferentially used the cheaper hydropower from the Snettisham hydroelectric project of APA or from its own hydro projects. It retains the diesel generators as a reserve capacity to supply AELP customers with essential power should transmission line or other failures interrupt the Snettisham service. The diesels can also be used for voltage control. The Snettisham contribution to the AELP/GHEA system is shown in Table l. Table 1 ENERGY GENERATION BY AELP AND ENERGY RECEIVED FROM THE SNETTISHAM PROJECT (Me gawatt-Hours) Year System Generation Energy Received 1975 73,486 ° 20,040 1976 51, 289 48, 440 1977 43,051 64, 722 Source: AELP report to the Federal Energy Regulatory Commission The Snettisham project is located 28 air miles from Juneau. The 42- mile, 138-kV transmission line to the Juneau area includes a 3-mile- underwater link, The current capacity of the project is 46,000 kW and an additional generator will be added to bring its total capacity to 73,000 kW in the mid- to late-1980s. At that time, the firm annual generation will be 274 million kWh, an increase from 168 million kWh. Nonfirm gener- ation will rise from a current level of 43 to 53 million kWh. Electricity sales in the AELP service area have grown at a steady rate (about 8%/y) in the Juneau area over the past several years (see Table 2). This growth is expected to continue if the capital of Alaska remains in Juneau. Thus, by 1985 current consumption of about 110 million kWh in the Borough could reach 170 million kWh, with a range of 140 to 195 million kWh (5% and 10%/y average growth, respectively). This growth is illustrated in Figure l. At present (1977 data), AELP is supplying 43 million kWh from its hydroelectric generating facilities and purchasing the remainder from APA. As the demand for power increases, AELP will improve its transmission ‘ and distribution facilities and add additional stand-by power. Because as stand-by generating capacity is expensive, it is desirable for the company to sell interruptible electricity services. Table 2 HISTORICAL REQUIREMENTS FOR POWER IN THE AELP SERVICE AREA™ Peak Demand Number of Sales Quantity | Month of Year Customers (kWh) (MW) Occurrence 1973 5,670 74, 966,470 pt ND 1974 5, 806 75, 831,097 ND ND 1975 5,959 85, 210, 640 20 December 1976 6,335 89,441, 273 20 January December 1977 6, 868 95,486, 138% 23.8 December 1978¢ 7,248 53,042,641 -- “In 1978, GHEA and AELP sales were 102,601,922 kWh. typ = No data. January through June, The cost of power produced by APA is important to any analysis of AELP markets. APA furnishes slightly less than 60% of the power used by AELP and slightly more than 60% of the electricity used by the Borough of Juneau. Any changes in APA charges for power will have an important effect on AEPL rates, APA has estimated that if the current charge of $0.0156/kWh was main- tained through 1985 and then raised to $0.0245/kWh, and if sales were in- creased to 182,000,000 kWh from 1986 onward, the Snettisham project 8 would completely pay for itself by 2035. SRI has calculated that at full recovery, the interest (3%) and amor- tization (50-year) charges would amount to $3,004,646 in each of the 50 § SRI International interpretation of data contained in APA's Snettisham Power Repayment Study for Fiscal Year 1978, 200 — 190 180 170 160 g 140 130 120 SALES — millions of kilowatt-hours 110 100 80 70 = | | = | 1973 1975 1977 1979 1981 1983 1985 FIGURE 1 PROJECTED ELECTRIC POWER SALES — AELP years, This is $0.0385/kWh for the 76 million kWh sold in 1978 by APA to AELP and GHEA. Operating and maintenance (O&M) expenses for the Snettisham project were $585,787 in 1978. For FY 1976 and FY 1977, they were $517,288 and $570,117, respectively. Assuming an average of $560,000 for O&M, the O&M component of current sales is $0.0074/kWh, With alloca- tion for indirect and administrative expenses of $100,000 to the Snettisham project (The total administrative expense in FY 1976 of APA was $301,000.), the full recovery cost of Snettisham power would be as shown in Table 3. Table 3 e CURRENT FULL RECOVERY COST SNETTISHAM POWER (Dollars per Kilowatt-Hour) Debt service and retirement 0.0385 O&M 0.0074 Administration 0.0012 Total 0.0471 If current trends in power demand continue, then Snettisham power sales would reach 97 to 152 million kWh in 1985 (assuming AELP would continue to generate about 43 million kWh in its own facilities). With nominal increases (6%/y) in O&M and administrative expenses, the full recovery cost in 1985 would be as shown in Table 4, Table 4 PROJECTED FULL RECOVERY COST SNETTISHAM POWER (Dollars per Kilowatt-Hour) kWh Use Low High Debt service 0.0310 0.0198 O&M 0.0077 0.0049 Administration 0.0015 0.0010 Total 0.0402 0.0257 Because both APA's and SRI's calculations include numerous assump- tions about the future, the differences in their conclusions are not sur- prising. All the calculations emphasize the need for higher sales if AELP is to avoid substantial increases in electric rates, Higher sales of APA power, whether to AEPP or to others, will keep APA and thus AELP prices down. Sales by AELP have the further advantage of reducing the kWh cost of AELP transmission and distribution (T&D), and administration. As shown in Table 5 AELP's cost of power production in 1977 from hydroelectric resources was $617,978 for approximately 41 million kWh. This is a direct average production cost of $0.015/kWh ($0.0165/kWh for electricity delivered), a reasonable match to the $0.0156/kWh charged by APA, Table 5 * 1977 DIRECT COST OF DELIVERED ELECTRICITY (Dollars per Kilowatt-Hour) Generation Other Cost Cost Total AELP Hydropower 0.0165 0.0095 0.0260 Diesel 0.0980 0.0095 0.1075 APA (Snettisham) 0.0170 0.0095 0.0265 Weighted average 0.0194 0.0095 0.0289 “Including company use and line losses of 11.2%. The remainder of the AELP 1977 production of approximately 2.2 million kWh was furnished by diesel units at a cost of $203,627 or $0.090/kWh (0.098 kWh for electricity delivered). This very high cost is attributed to the fact that these facilities were not fully utilized. However, fuel costs alone were $0.031/kWh delivered, or one-third of the total. (Current fuel costs are even higher.) T&D and general expenses added $908,790 or $0.0095/kWh to the direct cost of all electricity delivered in 1977. AELP reported T&D expense was low because maintenance was deferred in anticipation of the substantial new T&D construction program now under way. If Snettisham power were better utilized and the full cost of that power were charged, the direct cost of electricity could be that shown in Table 6, Table 6 1985 PROJECTED RANGE OF DIRECT COSTS FOR DELIVERED ELECTRICITY” (Dollars per Kilowatt-Hour)t Low Demand High Demand Generation Other Generation Other Cost Cost Total Cost Cost Total AELP Hydropower 0.0248 0.0097 0.0335 0.0248 0.0069 0.0317 Diesel 0.1696 0.0097 0.1673 0.1676 0.0069 0.1745 APA (Snettisham)* 0.0433 0.0097 0.0530 0.0279 0.0069 0.0348 Weighted average 0.0398 0.0097 0.0495 0.0288 0.0069 0.0359 “Including utility use and line losses; all new power requirements from Snettisham; hydropower, direct costs escalated at 6%/y, diesel at 10%/y, debt service unchanged. Excludes indirect costs such as debt service and return on investment. APA (Snettisham power purchased on full cost recovery basis). The increased use of electricity will obviously reduce the direct power costs. Inflation will drive up all costs, but the Snettisham power costs will be least affected. If AELP can increase its sales at a rate of 10%/y instead of the 8% it has achieved recently and thus use larger amounts of Snettisham power, it can hold the average increase in direct power costs to about 3,3%/y between 1978 and 1985.8 The electricity demand patterns experienced by AELP vary little with the seasons. The system is winter peaking, the 1977 peak demand was 23.38 MW in December and the minimum demand was 11.04 MW. The ratio of peak to minimum was 2.12. In the low demand month of June, the peak demand was 16.78 MW and the minimum 8.07 MW, for a ratio of 2.08. Exam- - ination of typical daily load patterns shows a more pronounced peak for “the winter months at the 6 PM reading. Consumption is relatively low § The increase will be more pronounced in 1985 when Snettisham power rates are readjusted, between 10 PM and 8 AM, There are no industrial customers, as shown in the record of sales in 1977 (Table 7). Table 7 AELP 1977 SALES TO CUSTOMERS Millions kWh Percent Residential 38.702 40.5 Commercial, small 29.553 31.0 Commercial, large (or industrial) -- -- Public street and highway Oo7 12 0.7 Public authorities” 26 .520 27.8 Total 95.486" 100.0 * School district, state and federal government, etc. Does not add because of rounding. Three-shift industrial operations would reduce the peak-to-valley ratios and generally improve the use of facilities. Operations that require more power during the summer months will also improve facility use. III THE AELP SERVICE AREA Regional Characteristics Juneau is located in Southeast Alaska, about 900 air miles north- west of Seattle and less than 600 air miles southeast of Anchorage. Downtown Juneau is less than 35 air miles from Canada. The Unified City and Borough of Juneau occupy a very large area, but residential and com- mercial development is confined to a narrow coastal strip and to adja- cent river and glacial valleys. Of a total area of 3,108 ma, about half is ice cap and water. The mountainous terrain is heavily forested, and much of the City and Borough are part of the Tongass National Forest. Juneau has a mild but moist climate, as does all of Southeast Alaska. Weather in the region is dominated by maritime influences, with the rugged terrain producing microclimactic variations in temperatures and precipitation. Monthly average temperatures range from 25°F in January to 55°F in July. Low temperature extremes of -20°F have occurred in December, January, and February, and maximum readings above 80°F have occurred in May through August. Average annual precipitation varies greatly from location to location because of topographic influences, Downtown Juneau receives about 56 in./y of precipitation. The most severe weather occurs in December through March, when snowfall averages from 18 to 26 in./mo. Economic Activities As the capital of Alaska, Juneau's economy is dominated by govern- ment employment. Of the 1976 area population of about 19,200 persons, 9,614 persons were employed; of this figure, 57.8% were working in federal, state, or local government. State government, in fact, has been the major reason for economic growth in Juneau for nearly 20 years. The city has grown especially rapidly since 1970, with the addition of new jobs in the state government as a result of Alaska oil resource de- velopment. 10 Although gold mining and lumber mills were important to the economy in the past, these activities no longer contribute. Gold mining ceased in the 1940s, and lumber mill operations closed down in the early 1960s. Therefore, basic employment outside the government sector is limited to a modest amount of summer tourism, fishing, and fish processing. In the past, salmon fishing provided a sizable part of the economic base of the region; it has decreased, however, largely because of declines in the stock of salmon. In 1976, those working in the three basic areas out- side of government were estimated to constitute only 4% of the employed. The remaining jobs in the region are accounted for by activities in support of federal and state government, secondary construction and manu- facturing, transportation, communications, and wholesale and retail trade. Natural Resources Natural resources include timber, minerals,.and fisheries. A: sub- stantial quantity of timber is available for potential exploitation in the Tongass National Forest. Various companies have explored the economic and technical feasibility of harvesting wood and manufacturing pulp in the Berners Bay area north of Juneau. Minerals include zinc, lead, copper, silver, nickel, molybdenum, and iron, Although gold mining was once an important economic activity, it may not be profitable to mine it today. However, other potentially economical deposits of minerals may exist; two nickel-copper deposits in Southeastern Alaska could be of economic importance for Juneau. Within the Borough, iron deposits are found in the Snettisham region. Historically, commercial fishing pro- vided a larger part of the economic base of the region than it does to- day, given the declines in stocks of salmon. Nonetheless, management programs of the State Department of Fish and Game may restore this re- source over the long term. Transportation Marine and air transportation are important to Juneau because the area has no land links with other parts of Alaska and Canada, Air service is provided several times daily to Anchorage, Seattle, and 11 intermediate points. Several air taxi services fly between Juneau and the other cities and small villages of Southeastern Alaska. Juneau is a deepwater port on the Gastineau Channel that separates the mainland from Douglas Island. Large ships must enter the channel from the south because of the limited clearance allowed by the Juneau-Douglas bridge and the shallow, silt-filled channel to the north of the city. Marine docking facilities can accommodate ferries and cruise vessels, commer- cial fishing vessels, and barges. Two marine carriers provide passenger and freight service, including containerized shipping, from Seattle. Development of large industrial activities will require further port development in the area. Automobiles predominate in local transportation, although buses are also used. The distances to be traveled are short because highways are limited to the coastal region and the few valleys. Average automobile travel is perhaps 8,000 mi/y, much of it on flat terrain, although hilly areas are found in downtown Juneau and on the valley sides. The restricted distances and generally level terrain suggest the use of electric driven vehicles. This is discussed later. 12 IV MARKETS FOR ELECTRIC POWER Industrial Activities Industrial development is frequently based on indigenous resources. Thus, mining and ore processing, manufacture of forest products, and fish harvesting and processing should be considered as potentials for the Juneau area. Some comments on these three industries as well as others and a discussion of constraints to industrial development are presented below. Mining and Ore Processing Currently, no economic ore deposits are known within the City and Borough of Juneau, and it is unlikely that any new ones will be found and developed in this limited areata Ore bodies do exist in the northern part of southeastern Alaska, however. These include the Brady Glacier nickel and copper deposit; the Klukwan and Snettisham iron deposits; the Yakobi Island nickel, copper, and cobalt deposits; and zinc, lead, sil- ver, copper, and gold deposits near Hawk Inlet on Admiralty Island. A plant for processing ore from the Snettisham deposit could be located on the Juneau side of the Taku Inlet to take advantage of ex- isting roads, housing, shipping, and communications. Such a plant would be a potential consumer of power from AELP, although the quantity re- quired would be relatively small. The main energy requirement in iron ore processing is for heat. Forest Products The proximity of the Tongass National Forest to the Juneau area suggests that a modern forest products industry may be economically * With the possible exception of the resumption of gold mining on Douglas Island. 13 feasible in the region. In the recent past, lumber companies have in- vestigated opportunities for establishing a pulp and paper mill or saw- mill in Juneau or near it. Juneau would be a logical location for a sawmill, and perhaps for a facility producing particleboard, chipboard, fiberboard, and similar products as well. Several small sawmills serving local markets operated in the city in the past. Furthermore, Alaska Timber Products recently applied for and received a permit to construct and operate a sawmill in Juneau. However, this latest plan is being held in abeyance because of an uncertain timber supply situation. Typical sawmill plant sizes in the Pacific Northwest and other parts of southeastern Alaska suggest that a mill in Juneau might be a medium sized facility producing 20 to 40 million board feet a year. A plant for manufacturing other wood products such as particleboard could ac- company a sawmill, but could not operate economically without the mill, because particleboard plants rely on the relatively cheap wastes of a sawmill. A sawmill in Juneau would be likely to purchase all of its electric power requirements, unless local electric power rates rose to prohibi- tively expensive levels. Some U.S. sawmills produce at least a portion of their own electricity with wood-fired steam generating units, but such equipment would not be economical for a sawmill that was not part of a larger, integrated forest products facility. At least three companies have explored the possibility of estab- lishing a pulp and paper mill in the Berners Bay region north of Juneau. Such a mill could have used timber drawn from an 8 billion board feet reserve set aside by the U.S. Forest Service. The latest company to investigate this opportunity was Champion International, Like its prede- cessors, Champion concluded that the project was not economically feasible; environmental restrictions, uncertain timber supply, and poor world markets were contributing factors. 14 Fisheries and Fish Processing Although commercial and recreational fish harvesting and processing have been traditional industries in Juneau and southeastern Alaska, the regional catch has been falling steadily because of declines in salmon stocks. The potential for revitalizing and expanding the fishing in- dustry primarily depends on hatchery and salmon management programs. A number of government agencies and individuals are involved in programs to construct new hatcheries or rehabilitate salmon habitats. For example, the Alaska Department of Fish and Game is constructing a large hatchery at Hidden Falls on the northeastern tip of Baranof Island. Funding for a similar sized facility to be located at Port Snettisham was approved in November 1978. Others may also be established in the near future. Because of its proximity to the Snettisham hydro plant, the fish hatchery proposed for that area would be a potential user of electric power for water temperature control and aeration. This proposed facility is outside of the AELP service territory and presumably would purchase Snettisham power from the APA, However, the sales would help reduce the cost of Snettisham power to AELP. Most fish processing and canning in Juneau takes place during the summer at the same time as the annual salmon catch, Demand for elec- tricity associated with this activity will somewhat increase if salmon runs increase as a result of hatchery programs and coastal management. Only two fish processing plants now operate in Juneau; the number of plants operating and/or the electric power sales could increase if fish catches grow. Commercial quick freezing of fish using nitrogen could be introduced to the Juneau fisheries and elsewhere in Alaska. Liquid nitrogen produc- tion is a potential consumer of electricity (see Section V). Other Activities Man-made resources--scrap aluminum and discarded lead storage bat- teries are examples--could be recovered from the Juneau area or from Alaska as a whole, The recovery operations are electric energy-intensive 15 (approximately 0.7 kWh/1b of aluminum). However, the dispersed nature of the resources and generally higher costs of Alaskan operations are likely to make such activities uneconomical (see Section V). Aluminum reduction has been suggested as an industrial activity. A large alumina reduction plant might be located on the Taku inlet. Such a plant would most likely be served by APA directly. However, the power requirements of a modern plant far exceed the nominal Snettisham capacity. Most new alumina reduction plants operate with two or more pot lines with a capacity of 80 to 100,000 tons/y aluminum, Such a capacity would be beyond Alaska's ability to use the product. Currently, 7.5 kWh of ac power are required for each pound of aluminum produced, Thus, requirements for a single pot line are nearly 10 times the current firm capacity of the Snettisham project, and 2 to 3 pot lines are usually installed at each plant. Improvements in the efficiency of alumina reduction are anticipated. When they are commer- cialized after 1985, they are not likely to reduce the requirements by more than one-third. Moreover, reduction plants are now being sited in locations where long-range power costs are in the range of $0.02 to $0.03/ kWh. Delivered Snettisham power would not have a large competitive ad- vantage. In addition, the shipping costs could well be higher than for other areas because of the distance from the open sea. Constraints to Industrial Development The most important constraints to industrial development in the Juneau area appear to center around three issues: ¢ Land use issues and resource availability ¢ Availability of markets for products ¢ Environmental considerations. Land Use Status The availability of both timber and mineral resources remains ques- tionable because of unresolved land use issues. The U.S. Forest Service 16 must restrict the use of roadless areas under its jurisdiction until their suitability for wilderness status has been evaluated under the Roadless Area Review and Evaluation (RARE II) program. Admiralty Island, for example, is now classified as a national monument. Because the island contains much of the readily available local timber resource in the area, this classification will virtually rule out a Northern Tongass lumber industry. Also at issue are specific provisions of the Alaska Native Claims Settlement Act. This 1971 Act provides for land and mone- tary entitlements for Native Alaskans, As land title transfers begin to take place, it is possible that timber may be made available from Native lands. However, the timber supply is uncertain enough that construction of any kind of wood processing plant is likely to be delayed until re- source availability is established (i.e., after 1980). Mineral development is subject to similar delays because the federal government holds surface rights to lands on which minerals in the region are located. Ore development has been prohibited on national monument lands (Brady Glacier deposits) or retarded on lands administered by the Forest Service. Availability of Markets An important consideration for new industrial ventures in Juneau is the size and availability of markets. Operations of major size could well require markets outside of Alaska. The size of the local popula- tion and, in fact, the state population of only 420,000, suggest that major Juneau plants would have to export to other markets. For example, existing lumber and pulp and paper plants in Southeast Alaska ship al- most all of their production to Japan. Some sawmill products are also shipped to the lower 48 states, and there are even some exports to Europe. Major pulp mills in Southeast Alaska are located in Ketchikan and Sitka, but exist mainly because the U.S. Forest Service contract required that local employment opportunities be provided. The cancellation of a proposed forest products plant at Berners Bay by Champion International prompted some experts to predict that it is highly unlikely that a third 17 pulp mill will be located in Southeast Alaska. However, given the size and importance of the Japanese market, that market could be influential in determining the economic feasibility of a major Juneau lumber products or pulp and paper facility. Likewise, the only available market for the output of an iron ore mine located at Snettisham would be Japan. Ores from an Alaskan deposit would have to be competitive with the high-quality, low-cost ores al- ready being shipped to Japan from Brazil and Argentina. Industry experts at SRI point out that Alaskan ores would therefore have to be rich, and the production volume quite large--around 10 million ton/y--to be compet- itive in world markets. Environmental Considerations Considerable environmental opposition to the development of heavy industries in the Juneau region has been expressed. A smelter, pulp plant, or similar facility would have considerable difficulty locating in most of the geographically feasible areas in the Juneau Borough be- cause of public opposition. A sawmill, particleboard, or similar plant might be the only kind of suitably "clean" new industry that would be both economically feasible and acceptable to the current population of Juneau. Environmental opposition extends to other areas as well. Opposition to mining, for example, exists in part because of past industry abuses. Champion International also encountered negative reaction to its proposal to build a pulp and paper mill in the Berners Bay region north of Juneau, Developers of new industrial facilities would also need to conform with objectives of the Juneau area coastal zone management plan, as well as with wilderness preservation programs of the U.S. Forest Service and Bureau of Land Management, as mentioned earlier. Commerce, Government, and Residential Activities (Housin In addition to major industrial activity, public service, commercial, and residential activities offer market opportunities. They now represent 18 the entire demand for electric power in the Juneau area. With the limited opportunities for industrial growth projected above, these markets should be carefully examined for additional potential. In December 1976, 5,973 dwelling units served a population of 19,196. Of these units, 53.4% were owner-occupied, and of those, 17% were mobile homes. A chronic and general shortage of housing exists in the area, with vacancy rates falling consistently at less than 1%. For the most part, housing is sound and modern. Only an estimated 4.6% of the units need replacement or upgrading. Buildings are heated largely by fuel oil because no natural gas is available for space heating; 24 houses are heated by electricity. Residential and commercial demand will normally grow as the principal employers--the state and federal government do. Population growth as pro- jected by Wilbur Smith and Associates and Holman-McDowell Associates in 1977 is shown in Table 8. SRI has made rough projections of housing unit requirements from these population data. A straightforward projection of Table 8 JUNEAU POPULATION GROWTH (Capital Remains) * Population New Housing Units Needed Period 1980 21,973" 1,140° to 1980 1990 30,474 3,000 1980-1990 1995 36,546 2,500 1990-1995 2000 43,826 3,000 1995-2000 “assumes occupancy drops from 3.2 per unit in 1976 to 2.9 in 2000, varea population estimated at 23,000 in early 1979. Includes 275 upgraded or replacement units to achieve 100% sound housing. Sources: Wilbur Smith and Associates Harman McDowell Associates SRI International 19 electricity demand by population growth (3.5%/y) suggests an increase in electric power demand by more than 10 million kWh/y by 1985, This would be a 25% increase in residential sales over 1977. However, conservation efforts may severely limit this growth. Even though the residential demand growth will be limited, the new housing units to be constructed (perhaps 3,000 by 1985 in the Borough) open a market for homes served more fully by electricity. This possi- bility is discussed in Section V. SRI assumes a nominal growth in government employment of 3%/y to 1985. (This contrasts to recent growth rates of 5.7%/y in 1974-1977.) This growth may give rise to additional electricity use of over 6 million kWh/y by public authorities. This increase is more than 20% of 1977 sales to public authorities. Again, conservation efforts in government buildings are likely to restrict this growth and could even produce a net reduction in electricity demand. Transportation The average electric vehicle traveling 8,000 mi/y will consume 4,000 kWh. Transfer of the entire private and government passenger vehicle fleet of approximately 9,000 units to electric battery operation would have substantial impact on AELP electricity sales. Conversion of only one-fourth of the total fleet, would result in an increased consumption of almost 9 million kWh or 6% to 10% of current AELP load by 1985-1990, 20 V SPECIFIC MARKET OPPORTUNITIES Industrial The industrial opportunities described in Section IV are examined in more detail here. As a first step in this examination, manufacturing and process activities were reviewed to identify those with at least two of the following characteristics: ¢ Based on local resources e High electricity demand per unit of product e High electricity demand overall e Accessible markets. Activities with low or quickly amortizable capital costs were also con- sidered because normal growth in power demand could saturate the ex- panded Snettisham production by 1990 or 1995, The general pattern of electricity use in U.S. industry is shown in Figure 2, Table 9 indicates the importance of electricity use in specific industrial activities; the electricity use per dollar value of product shipped is presented in rank order for 23 three-digit SIC codes. The situation differs in the Juneau area: no industrial use of electricity now occurs. Resources of the Juneau area could supply some aspects of the second, fourth, fifth, sixth, and seventh ranked indus- trial segments of Table 9. All are linked to forest products, Further- more, direct lumber production is in twenty-second place. Even though difficulties are associated with expanded forest production-extraction activities (see Section IV), these passed the first screening. Two electricity-intensive activities related to second ranked SIC 281 could be applied to Juneau (or Alaska) use, These are: 21 cz MINING 0.1 373.8 ELECTROLYSIS SELF ELECTRIC GENERATION UTILITIES = = 6674.2* 311.0 6363.2 MANUFACTURING CONSTRUCTION AGRICULTURE COMMERCE HOUSEHOLDS 102.7 45.4 MACHINE DRIVE LIGHT REFRIGERATION TRANSPORTATION = = 6178.6 13.3 OTHER > = 6489.1 DIRECT SPACE HEAT/ HOT WATER CoSENS a * Amounts do not balance because losses and electricity imports are not fully considered. FIGURE 2 ELECTRIC ENERGY USE, 1974 — TRILLIONS OF Btu’s SIC Code 333 281 324 263 266 262 261 286 331 322 222 221 249 287 228 326 332 325 339 282 329 242 224 Table 9 INDUSTRIAL ELECTRICITY USE Product Primary nonferrous metals (includes aluminum) Industrial inorganic chemicals (includes chlorine, gases, pigments) Cement, hydraulic Paperboard mills Building paper and board mills Papermills, excluding building paper Pulpmills Industrial organic chemicals Blast furnace, basic steel products Glass, pressed or blown Weaving mills, man-made fiber Weaving mills, cotton Miscellaneous wood products Agricultural chemicals Yarn and thread mills Pottery and related products Iron and steel foundries Structural clay products Miscellaneous primary metal products Plastics materials, synthetics Miscellaneous nonmetallic mineral products Sawmills and planing mills Narrow fabric mills 23 Electricity Intensity (kWh/$-value of product shipped) 9.07 8.81 sate 3.27 3.12 2.95 2.55 1.55 1.40 1.27 1.26 1.22 1.21 1.18 1.11 1.11 1.10 1.05 1.05 0.94 0.83 0.82 0.79 Rank 1 wo On DU FF WwW DY NNN NFP RP BP BP Pe Pe ee ON FOU MN AUF WHR O (1) Chlorine and chlorate production for sterilization and especially for wood pulp bleaching (2) Nitrogen and oxygen production; with nitrogen liquefied for fish preservation, and oxygen used in fish hatcheries and as ozone in pulp bleaching and for waste sterilization. Only two activities beyond those directly related to Juneau and Alaskan resources and current manufacturing were considered. Aluminum production by electrolytic reduction (the major part of SIC 333) was considered to be attractive, even though the electric capacity require- ments seem to make large-scale operations unfeasible at this time. Another electrochemical activity, reduction of secondary aluminum and lead, survived the preliminary screening. The activities are rela- tively energy-intensive and could be performed in low-cost facilities. The activities that survived screening are: (1) Wood processing related (2) Hatchery and fishing related (3) Alumina reduction (4) Chlorine and chlorate production (5) Secondary aluminum and lead (6) Liquid nitrogen and oxygen. These activities are discussed more fully in the following paragraphs. Of the activities listed, (3) and (4) were eliminated, primarily because the electricity demand was too large or because market and cost factors were judged to be unfavorable. Activity (5) was eliminated because of market and cost factors. Wood processing, hatchery and fishing, and liquid nitrogen-oxygen production were judged most promising. Alumina reduction and chlorine production require 7.5 and 1,52 kWh/1b of product, respectively. Modern alumina reduction plants are based on two or more pot lines that produce 80 to 100,000 ton/y of aluminum, Re- quirements for a single pot line are nearly 10 times the current gener- ating capacity of the Snettisham hydro unit. Moreover, for alumina reduction, producers are now expecting to pay $0.030/kWh or less for electric power in new plants. 24 Chlorine and chlorate production would require relatively low capital investment and could be amortized in 10 years. However, a modern chlorine plant should produce 100 ton/day for a 330-day year to be competi- tive. The electric power requirement would be a steady 14 MW or 111 million kWh/y (90% on-stream operation). This energy consumption added to the current AELP demand of more than 110 million kWh would raise the required Snettisham production well above the current firm generating capacity. Eight chlorine plants are now operating in British Columbia, Oregon, and Washington, They are currently purchasing power at rates competitive with those likely to be available from AELP. The development of a secondary aluminum and lead recovery business was considered. This industry would not be so energy-intensive as alumina reduction or chlorine production. Nor would it require large facilities, and the capital investment could be amortized quickly. Although SRI did not examine the resources available in detail, the small population in the Juneau area and the wide dispersal of Alaskan population makes economical collection of an adequate supply unlikely. In this instance, also, competition by facilities in the Pacific Northwest states that currently enjoy comparable electricity costs and that have fewer collec- tion and distribution problems would be a significant deterrent to the establishment of a facility in Juneau. A lumber mill, if established, would most likely produce cant (squared off logs) rather than finished lumber. SRI experts have estimated that the facility would be medium to large with a productive capacity of 20 to 40 million board feet per year. The mill would operate one shift per day, 230 days per year. The electricity requirement would be 1 to 2 million kWh/y for a cant mill and 3 to 5 million kWh for a finished lumber mill. This is an interesting but not a dominant market possi- bility for AELP. The one-shift operation expected would add to the peak load requirement of: the AELP system. Fish hatcheries could constitute small to significant consumers of electricity. The pumping of fresh water, if required, is a relatively small need. In management of egg hatching and/or the accelerated growth 25 of captive fish to the 1- to 2-lb size range (to be sold as a food specialty), additional electric heating could be used. The heat could be added through resistance heaters or large-scale heat pumps. ~ The variables controlling electrical requirements are so large that SRI has not been able to estimate potential needs reliably. Demand could range from less than 1 MW to several MW, and sales might reach several million kWh/y. Some of the fisheries' demand might be managed to use off-peak power--an advantage for AELP, The liquid nitrogen production suggested is linked to local resource use. Liquid nitrogen freezing can produce superior quality fresh frozen fish. Oxygen produced simultaneously can be used as a base for producing ozone, which is useful for sterilizing municipal water supplies and can also be used to purify municipal wastes. Finally, either oxygen or ozone can replace chlorine and chlorates as bleaching agents for pulp in Ketchecan, Sitka, and elsewhere along the coast. The electricity requirements for these products are illustrated in Figure 3. 1 Pound of Air N oO. 0.8 I 03 Ib SEPARATION 0.24 kWh OZONATION (2% O.) From Gas: 0.8-1.0 kWh] From Liquid: 0.06 kWh LIQUEFACTION 0.054 kWh LIQUEFACTION 0.24 kWh FIGURE 3. PRODUCTION OF NITROGEN, OXYGEN, AND OZONE FROM AIR The primary products, liquid nitrogen, and gaseous or liquid oxygen can be used locally or in a service area readily served by coastal trans- portation from Juneau. It is likely that markets for both nitrogen and oxygen must be developed simultaneously for commercial feasibility. 26 Quick fish freezing would require nitrogen production approximately 2 months each year (or longer if fish raising extended the fishing season). Currently, southeastern Alaska produces 23 million 1b/y of fresh frozen salmon and halibut. Quick freezing of the entire southeastern catch would require average production approaching 500,000 to 600,000 1b/day of liquid nitrogen during the season. The 600,000 1b/day (300 ton) production would require about 8.6 MW of continuous power during the season, for a con- sumption of 12.5 million kWh. Gaseous oxygen would be produced simul- taneously without additional power consumption. If the oxygen were lique- fied, the power requirements would increase by 1.7 MW and the consumption by about 2.4 million kWh, If markets for oxygen were developed, it would be required on a year- round basis; most of the nitrogen (produced simultaneously) would be dis- carded for 10 months. Production of gaseous oxygen from the plant at full capacity (150,000 1b/day) would require a capacity of 1.1 MW for an additional 290 days, or an additional 7.6 million kWh/y. Producing the ‘game quantity of liquid oxygen would increase the requirements to 2.8 MW with a total electricity demand of 19.5 million kWh. Thus, the maximum capacity demand for the plant would be 11.4 MW in summer and 3.9 MW for the rest of the year. Minimum capacity demand would be 1.1 MW. Maximum sales would be 32 million kWh, Smaller demand and sales are probable, however, because it is unlikely that the entire catch would be quick frozen. Nevertheless, this plant at any size should be attractive to AELP, The major capacity demand would occur in the summer months when AELP demand is low. Also, the 24-hour-a-day operation would act to raise the low capacity requirement in off peak hours. The market for oxygen as a sterilant of municipal water and liquid wastes is likely to be small. The use of oxygen or ozone as a bleach for pulp could be larger, Oxygen treatments have apparently been used com- mercially and the use of ozone is in an experimental stage. These agents could supplant at least some of the chlorine, hypochlorite, and/or chlorine dioxide commonly used. The quantity to be used will depend on the wood used and the whiteness desired. The use of a nominal 1% to 2% 27 of oxygen by weight would translate to the capability of treating 75 to 150 ton/day of pulp. The desirability of this facility will be determined by the price differential that could be demanded by the higher quality of the fish produced, against the higher cost of the freezing process; and by the relative environmental advantage--cost disadvantages of ozone bleaching of pulp. The extent of the market will be determined by these factors and the balance between the advantage of Juneau production (smaller shipping loss) and potential lower production cost in the Pacific North- west. Commerce, Government, and Residential Activities The continued growth of government and service activities, including tourism, will be accompanied by growth in residential housing. This general market offers opportunity for increased sale of electricity. Increased government activity could require new buildings. These could be designed to use electrical heating. Direct electrical resistance heating at $0.026/kWh would be marginally competitive with heating oil at $0.80/gal.” Resistance heating alone would not suffice. Application of heat pumps is indicated, although large heat pumps are in a development stage. Some flexibility could be gained through off-peak operation of the pumps with central storage in heated rocks or water, The storage area would best be collocated with the building being heated. The use of storage would imply some loss of heating efficiency, but the load could be adjusted so that much of the power demand was concen- trated at nights and weekends. The application would be use- and site- specific, but SRI has not analyzed this prospect in detail. As discussed in detail in the evaluation of residential markets, a supplemental heat source, probably oil, would be required for very cold periods and those when power delivery is interrupted. * This price or one higher is soon likely to be asked for heating oil in the Juneau area. 28 Electric space heating for residential application seemed, on first inspection, a good potential market. SRI has examined this possibility carefully and has concluded that it could provide AELP with its needed markets. It is AELP's best market opportunity. As pointed out in Section IV, the housing stock is expected to grow by 2,000 to 2,500 units in the period to 1985. SRI has analyzed the heating requirements of a "typical" Juneau home. It is a wood frame structure with one story above the ground and a partially heated base- ment. The walls and ceilings are insulated. Windows are double pane. The heating requirements of this house are equivalent to that for the average Juneau dwelling (approximately equal to the total domestic heating oil use in Juneau in 1976 divided by the total number of houses), This house currently uses 1,332 gal of fuel oil at a 1978 price of about $0.55/gal to produce 79 million Btu of useful heat. Because of recent and prospective raises in the price of crude oil in the early 1980s, the price for heating oil is expected to approach or exceed $0.80/gal. Thus, the typical owner will soon spend more than $1,000/y for heating. The typical new Juneau house may use hot water or hot air circulating heat systems. Older dwellings generally use circulating hot water sys- tems. Electric heating may be applied directly in room heaters, and either directly or in combination with other fuel for homes heated by circulating systems. The most economical and secure way to apply the electric heating is through use of a heat pump that can be supplemented by oil-fired heat. The system required for the typical house will use a 2.5-kW com- pressor motor to drive the heat a It will also use a 1- to 2-kW electric resistance preheater. In this heat pump operation, the sensible heat contained in air outside the house and the heat produced by the pre- heater, is raised in temperature in the heat pump. This heat is trans- ferred through a heat exchanger to the hot air heating/ventilating system. * The heat pump system is rated at a 15-year useful life. Compressors may need replacement in 5 years. The cost of replacement has been in- cluded in the economic calculations. 29 In the preferable system, a separate oil-fired furnace is also installed to heat the air. This furnace can be brought into operation whenever the weather is too cold for the heat pump system to operate efficiently or when the electricity supply is interrupted. (The heat pump system drops in efficiency as the temperature differences between external and the circulating air increases. In the calculations below, SRI has assumed the system cuts off the heat pump and transfers to an oil-fired furnace when external temperatures drop to 32°F.) Other electrical heating systems were considered, but they are not recommended, All electric systems are vulnerable to interruption. Direct electric heated hot water systems are currently much more expen- sive than oil heated ones, Heat pumps cannot be used effectively for hot water systems because the temperatures in these systems are typically high (about 180°F), and the heat pump efficiency is low if it must pump heat to these temperatures. Temperature requirements for hot air systems are less severe (about 110°F), and the heat pump can operate more effec- tively in hot air systems. SRI has calculated the approximate costs of heating with alternate systems for a 15-year lifetime. Payback times (i.e., the time required for complete payment for the investment through fuel savings) were also calculated, These were calculated by assuming varying costs of elec- tricity, varying costs of the heat pump installation, and of money (in- terest rates), The calculations also evaluated the costs and payback for heating oil costing $0.55 and $0.80/gal. The calculational program used was one used by General Electric Company. The weather data used in the calculation were detailed information about St. Johns, Newfoundland, whose weather extremes and general patterns are quite similar to those of the city of Juneau. (The Borough has several climates.) For these calculations, heating oil initially at these two prices : * was assumed to escalate in real dollar terms at 10%/y from 1979. Elec- tricity was escalated at 5% from base values of $0.03, $0.04, and $0.05/kWh. *In other studies, SRI has estimated that world prices of oil will esca- late at 2%-3%/y in constant dollar terms. 30 Cost of the heat pump addition was $2,000 and $3,000 above the $3,500 cost of the oil-fired hot air furnace. Interest rates were 10.25% and 12%. The entire cost of the installation was financed by borrowing. The economic performance of the oil furnace heat pump combination is shown in Table 10. A similar comparison for an all-electric system is shown in Table 11; this latter system is vulnerable to outage and is not recommended. The oil furnace-heat pump combination requires only 302 gal of fuel oil instead of 1,332, but also consumes 9,433 kWh of electricity. Straight payback periods range from 4.8 to 7.6 years. If present value is assumed, the range is 5.5 to 8.4 years. Thus, if rising electricity demand in other sectors reduced the availability of electricity for home heating, the owner could disconnect the heat pump after 5 to 8 years without loss of his investment, A 5-year payback period is generally acceptable to residential customers. If significant market penetration were achieved, the principal dif- ficulty, from the AELP operational point of view, would be the concentra- tion of the heat load in winter months when AELP demand is already at a peak, At the end of the 1980s, with the expected market penetration achieved, demand for residential space heating alone could raise the capacity requirement by 10 MW. The 3,000 new units to be built between 1980 and 1990 offer a good market for heat pump installations. At an expected average sale of 10,000 kWh per home, even a 25% penetration would result in sales of an additional 7.5 million kWh/y. Such penetra- tion seems likely in view of the favorable economics and short payback periods indicated by the sample inh The 25% penetration would result in an increase in peak load of 3-4 MW. The addition of heat pump-related capacity, together with normal increases in peak demand, could place a requirement to meet a peak capacity * Not all houses in the Juneau area will have equally favorable results. The changes in climate observed over short distances could make some areas more favorable and others less so for adoption of heat pumps. 31. ce Table 10 DIRECT HEATING COSTS AND PAYBACK PERIODS FOR HEAT PUMP ASSISTED HOT AIR FURNACE, JUNEAU TYPICAL Capital Electricity Heating Interest Direct Payback Period Cost Cost Oil Cost Rate Heat Cost Present (dollars) (dollars/kWh) (dollars/gal) (percent) (dollars) Straight Value Oil alone 3,500 733 -- -- Oil and heat pump 5,500 0.03 0.55 10,25 449 ee) 6.4 6,500 0.03 0.55 10.25 449 7.6 5,500 0.03 0.55 12.00 449 5.3 5,500 0.04 0.55 10.25 477 6.8 8.4 5,500 0.05 0.55 10,25 Doo 7.0 Oil alone 3,500 0.04 0.80 10.25 1,066 -- -- Oil and heat pump 5,500 0.04 0.80 10,25 810 4.8 5.5 ce Table 11 DIRECT HEATING COSTS AND PAYBACK PERIODS FOR ELECTRIC FURNACE AND HEAT PUMP COMBINATIONS * Capital Electricity First Year Payback Pepend Cost Cost Direct Heat Present (dollars) (dollars/kWh) Cost Straight Value Electric furnace 3,000 0.03 651 -- -- 3,000 0.04 868 -- —_ 3,000 0.05 1,085 oe ee Electric furnace and heat pump 5,000 0.03 371 a4? 10.0 5,000 0.04 495 4.8 5.4 5,000 0.05 619 4.4 5.2 * 1979. Compared with comparable electric furnace alone. * of as much as 70 MW on the combined Snettisham-AELP generation system. (Current plans will put about 100 MW on line.) AELP will be torn between efforts to raise demand by encouraging these installations in the early 1980s and discouraging them in later years. As the recommended installation consists of a heat pump supplement to an oil-fired furnace, it would be possible for AELP to control peak demand by regulating the use of the heat pump segment of the installation and thus to extend the number of houses using heat pumps. Voluntary pro- grams using radio or telephone requests to individual customers to turn off the heat pump might be feasible in a tightly knit community like Juneau. Remote control turn-off of the heat pump operated by AELP is an alternate, This latter approach is in an experimental stage among some lower 48 state wetiteies. In these instances, AELP would have direct control over customer cost of heating and thus might be required £ to offer a preferential rate. Installation of heat pump units in all of the projected 4,100 new homes for the Juneau area between 1978-1990 would result in an additional demand for an approximately 10 million kWh/y by 1990, A realistic market penetration would be one-fourth to one-third of the total. Retrofit of one-eighth to one-tenth of the approximately 7,000 housing units now existing would add about 0.7-0.9 million kWh more. Thus, the total market might be in the range of 11 to 14 million kWh/y. At this level, heat pump assisted space heating would add an approximate 5.6% to 10% in a 10-year period to AELP sales, or as much as an additional 1% per year. Larger penetrations might be achieved, as SRI has been conservative in its estimates. * This is the demand if all 750 heat pumps were to be turned on at one time. TRemote turn-off, turn-down is being tested. The customer will be switched from lower cost electricity to higher cost oil without full control over the decision. This retrofit market will generally be restricted to warm air heated systems, 34 Transportation The use of electric vehicles is a potential market for AELP with positive advantages. Its greatest advantage lies in the fact it could be adapted to use of off-peak power. It also would reduce the transport of petroleum products and thereby the risk of accidental spills that could pollute the area. However, development of electric vehicle use will require time. Demonstration of these vehicles under Juneau conditions will be required before Juneau citizens will buy them. Use of a few test vehicles by state or federal government agencies (by the Alaska Power Administration for example) in a carefully monitored program will develop information that will enable manufacturers to incorporate special features made neces- sary by Juneau's climate and the special driving requirements of Juneau's citizens. A successful demonstration of electric vehicle use alone is not suf- ficient. At present, much interest is being expressed about electric vehicles, but U.S. manufacturing capability for these vehicles is wines This manufacturing capability must therefore be developed, and the support network of dealers, repair personnel, and spare parts put in place before the Juneau citizen will purchase cars. Introduction would be easier if the test fleet could be expanded to serve a large portion of government needs, The large fleets necessary for state and federal operations would justify special training of mechanics and the maintenance of adequate stores of spare parts. The cooperation of Alaska Power Administration and other federal and state government agencies in establishing test programs based on Depart- ment of Energy objectives (and funding) should be solicited. * General Motors has announced a new battery system that might make elec- tric vehicles available in the mid- to late-1980s. 35 VI MARKETING PLANS The readily available markets for AELP electricity are limited to electric space heating, preferably with an oil furnace combined with an electric heater and an electric heat pump. This combination offers re- liability, lower cost, and simple reconversion to oil heat alone if the power demand exceeds the Snettisham supply. The primary use of heat pumps will be in residential applications. Public buildings may also use heat pump-storage systems, but this market is more speculative. Development of the residential market requires careful attention to installation and service. The desirability of careful attention to, or interaction with, if need be, the installers of heat pump equipment by the electric utility has been amply demonstrated in the experience of lower 48 state utilities that have encouraged heat pump use. Introducing new technologies to the traditional home supply market requires demonstration. The customer must see the unit in action and/or know someone who is pleased with the equipment or service, All-electric and heat pump supplied homes were introduced in the lower 48 states pri- marily through carefully designed demonstration programs. These introduction programs were accompanied by financial assistance to the builder/developer, and to the customer. Even after demonstration programs were successful, some cost sharing with and advertising for the builder/developer and preferential rates for the consumer of larger blocks of power were common. Cost sharing for all-electric units was generally minor, amounting to $50-$100 per home. This paid for a part of the additional insulation required. (In addition, the builder could frequently install low-cost, individual room resistance heat systems, instead of a more expensive central hot air system.) The market plan will require: ¢ Selection of one or more builders and/or heating and venti- lating contractors that will cooperate with AELP in a heat pump program. AELP would certify these builder/contractors. 36 ¢ If possible, construction with limited AELP assistance or guarantees, of one or more new homes. ¢ Retrofit on the same basis of one or more air heated old homes, if AELP investigation indicates this is a sufficient market (see Section V). As part of its certification, AELP should insist that the builders/ contractors selected (or any making heat pump installations in the future) receive adequate instruction and information regarding design and instal- lation. AELP should also insist that these contractors maintain an ade- quate, specially trained service staff. In exchange for the certifica- tion AELP should be prepared to assume for the demonstration homes at least part of the extra first-time cost associated with the heat pump installation. AELP should also assume part of the sales costs for the first units, including advertising. The advertising and the publicity releases associated with the development would emphasize the savings and * payout indicated in Section V. AELP may wish to transfer any subsidy involved in the demonstration project to the purchaser in exchange for permission to monitor the units and/or to use the owner's experience as advertising for future sales. The subsidy could take the form of a direct cash transfer or assistance that would reduce the cost of the mortgage required. The subsidy program should be concentrated in the new home market, which is the most promising one. For follow-on units, AELP should be prepared to assist in builder/ contractor advertising for certified contractors. For retrofit installa- tions in particular, assistance in obtaining lower interest rates on home improvement loans, would undoubtedly help acceptance. Such an approach requires cooperation with the local financial institutions. Naturally, the feasibility of this approach depends on AELP's relations with these institutions. * More detailed calculation for typical dwellings actually sited or under construction in Juneau would best be done on a selected house basis by local mechanical engineers and architects. an SRI assumes that AELP will extend a special rate to these installa- tions. A sliding scale rate that moves from the all electric rate in the first year to an intermediate rate in later years, may be appropriate. Any rate schedule would require justification for an approval from the Alaska Public Utility Commission. In meeting the requirements for adequate design and proper installa- tion and maintenance, AELP will be able to receive help from design engineers and equipment suppliers. SRI has contacted some of the latter group. They are carefully watching potential heat pump markets such as Juneau, and are prepared to offer both advice and training. Direct costs of training courses will normally be borne by the heat pump supplier. The heating and ventilating contractor (and possibly AELP) will be re- quired to pay salaries and travel costs for sessions in the lower 48 states. Table 12 lists several heat pump suppliers, some of which have major supply installations in the Pacific Northwest. AELP can also assist in sales by offering small bonuses to the local companies that sell and install the new heat pump units. This will en- able the local supplying company to offer the unit at a lower price and still secure an adequate profit margin on first units when installation costs, and problems, are not fully understood, The same general sales/market approach described for residential heat pump markets applies to the commercial/government space heating market. Here, demonstrations may not be needed, but engineering advice and/or estimates on savings will be necessary. AELP may be required to pay for these services. SRI has not estimated the total costs of these programs. These costs will be determined by the degree of involvement AELP assumes (i.e., new housing, retrofit housing, commercial, government). The costs will also be determined by the success of the company and its executives in negotiating cooperative approaches to the markets. Given that APA has marketing activities and funds in its budgets, it is possible that it will assist AELP in its direct marketing efforts and will participate in other aspects of the program with contractors and the heat pump sup- pliers. 38 Table 12 PARTIAL LIST OF HEAT PUMP SUPPLIERS Airtemp Applied Machinery Company, Edison, New Jersey Bryant Air Conditioning, Indianapolis, Indiana Carrier Air Conditioning, Division of Carrier Corporation, Syracuse, New York Cematrol Sales Company, Edison, New Jersey Day and Night Air Conditioning, Indianapolis, Indiana Fedders Corporation, Edison, New Jersey Friedrick Air Conditioning and Refrigeration Company, San Antonio, Texas General Electric Company, Central Air Conditioning Department, Louisville, Kentucky International Heating and Air Conditioning Corporation, Utica, New York Lennox Industries, Inc., Marshalltown, Iowa Rheem Manufacturing Company, Air Conditioning Department, Fort Smith, Arkansas Supreme Aire, Inc., Santa Fe Springs, California The Trane Company, La Crosse, Wisconsin The Williamson Company, Cincinnati, Ohio An important aspect of the residential, commercial, and government market is its incremental nature. New demand can be added gradually and AELP sales efforts can be intensified or diminished as the situation re- quires. For example, assistance to installers might be offered early in a marketing program and withdrawn after sales have increased to the point that the local contractor/installer is confident of a profit and lower costs of installation. The gross sales revenue will depend on negotiated rates and on the market penetration achieved. An increase of 14 million kWh/y in sales by the late 1980s will mean an increase of $0.5 million (current dollars) in gross revenues and a nominal increase (instead of a projected much larger one) in the cost of electricity to the current customers of AELP. 39 Industrial markets are potentially valuable but depend on many other factors, including competition from cheaper electricity that is based on earlier hydroelectric power developments in British Columbia, Oregon, and Washington. AELP should not devote much marketing effort to this area, but should be ready to assist potential investors in the Juneau area. The active support of a local organization is frequently essential if "outsiders" are to get favorable action on requests for zoning permits/variances or municipal support services. 40 VII SUMMARY AND CONCLUSIONS AELP now receives electricity from APA at favorable rates. These rates, although sufficient to cover operating expenses, are not high enough to cover interest and retirement of bonded indebtedness, Larger electricity sales from the current and/or expanded APA Snettisham hydro- electric project can produce revenues large enough to permit full cost recovery to APA with relatively small increase in the APA rates to AELP, A few industrial ventures, of which a lumber mill, one or more fisheries, and a plant for manufacture of oxygen and nitrogen seem most promising, can contribute to electricity sales by AELP. However, space heating in the residential, commercial, and government sectors seems most promising. The most feasible and economic space heating will be in the form of hot air units using electric heat pumps combined with oil-fired furnaces. Savings with these units can be substantial, and payback to the owners could be achieved in less than 5 years. Successful marketing will require cooperation of AELP, local archi- tects, builders, and design engineers. Assistance and guidance can be obtained from heat pump suppliers in the lower 48 states. Proper expansion of this market can be achieved without greatly in- creased need for capacity. Low temperature conditions will result in transfer from electric to oil heating. Other ways can be used to control maximum demand. 41