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HomeMy WebLinkAboutAPA4037T 14.:!S .S8 A23 DO.31 J._Ri 30,_980 -1- The House Power Alternative Study Carmittee was established by the Legislative Cetmeil in August 1979 to supervise the $200,000.appro- priation contained in Chapter 76,SIA 1979.The legislation mandates canpletion of a study which discusses the assumptions of the Sustina Hydroelectric Project and the feasibility of alternatives for power generation such as coal,natural gas and small hydro.The appropria- tion was originally directed to the Legislative Research Division. Because several roonths of time were lost due to the agency's demise, the study has been sanewbat restructured to best meet the require- ments of the legislation.We have attempted to plan our work to coordinate with that of the Alaska Power Authority as proposed in the fall of 1979. The Ccmni.ttee had been guided by the belief that a project of the magnitude of Sustina deserves thoughtful,objective review.The State of Alaska has never before attempted public works planning or construction on this scale.Although we recognize that hydroelectric power is generally superior to fossil-fuel generated forms,Sustina's huge capital costs point out the need for scrutiny £rem those not intimately involved with the project's construction.The question is .. not only if Sustina will be built,but at what pace and size once the decision to procede is made. There are several areas that interested parties have pointed to as deserving greater attention.Although the Camrittee's concerns have -2- focused on the econanics of the project,we will mention sane of the other problem areas.The next few paragraphs highlight these gaps in present knowledge. Power market demand analyses which include current data,and use state of the art analytic techniques,have not yet been performed. The estimate of future power market demand is vital to the project, since the cost of the dam can only be repaid by selling the generated power.If the demand for electric power is less than the capacity of the dam,either consumers 'Will have to pay inordinately high charges for the use of electricity,or the state will have to bailout the largest public works proj ect ever attempted in Alaska. The uncertainty of the existing demand proj ections is compounded by the uncertainty of the cost estimates for the proj ect.Sustina will be one of the largest hydroelectric proj ects ever attempted in a sub-arctic region,and will be constructed in an active seismic area. These engineering problems,which may be solvable with proper effort and money,take on a special significance when one considers the effect of cost overruns.·Preliminary economic.analysis have shown the project to be the lowest-cost alternative for power generation in the nm if cost overruns are modest.Prior experience with large-scale sub-arctic construction is limited,but the conclusions that can be drawn fran it are unsettling. Previous studies that have evaluated the costs and benefits of alternative means of generating power in the Railbelt area have been conducted with less than total rigor.Questions of discounting,cost -3- overruns,backup capacity and finandng costs have been treated crytically,.i£at all.This previous work,by the Batelle Insti- tute and the Alaska Power Administration,did fulfill its assigned task--pointing out the best alternative for more detailed study. The Phase I feasibility study that will provide the foundation for the decision to build the project nust contain a fully rigorous cost-benefit analysis. T):le legislative and executive branches of government have only begun to consider possible financing options.Should those who will benefit fran the proj ect,or the entire state,be required to pay for it?Perhaps the cheapest method of financing would be general obligation bonds,approved by the voters,backed by the full faith and credit of the state.The state can earn a return on surplus cash that is greater than our cost of borrowing L.'"l such a situation. If the costs of the project are met from the general fund,and re- paid into the general fund as the power is sold,the citizens of the state will be foregoing.use of the cash while paying more for the project in the long nm -without being required to approve such a plan.In either case,the costs of the project would be subsidized by the entire state for the benefit of Railbelt consumers of electricity. If the project were financed with revenue bonds,to be repaid from the sale of Sustina power,the market would fix the real costs of the project by evaluatmg the likelihood of repayment.The greater the confidence with which the market views the proj ects chance of success,the lower the interest rate on the revenue bonds.A gua- ._-~---------.,.-----~--_..~----------~---- -4- rantee of such debt would distort borrowing costs.Agam,such a guarantee (similar in concept to a general obligation bond)would amount to a statewide subsidy for the project,without the benefits of a direct vote.The question of StJCh subsidy,which nonnally would seem unfair when only one region is receiving direct benefits,is cCiDPlicated because approximately two-thirds of the state's popula- tion lives in the area that would receive power from the project. The alternative sources of power for the Railbelt area have not been adequately explored.Sustina appears to be the best option; however,thorough analyses of the potential of natural gas,small- scale renewable energy sources and conservation/efficiency efforts have not been done.All of the alternatives to Sustina could po- tentially provide electricity to Railbelt consumers at a lI1lch lowrer cost than the dam.Until they have been given proper attention by independent specialists,their potential should not be dismissed. Other concerns exist because of the dam's location on a stream that generates a large portion of one of the lOOst valuable fisheries in the state.Although the dam will be built beyond the tributaries where salmon spawn,changes in stream flow levels,siltation and tanperature will effect the saltron nms.Again,adequate studies need to be perfonned before a decision on the Sustina project is reached. No comprehensive study program of the Sustina River fisheries has been started,although construction of the project has been contem- plated since statehood. -5- The placement of the dams in an active seismic area is·another reason for caution.The stresses that result from filling large reservoirs have been known to tr~gger earthquakes,and such earth- quakes could result in destructive flooding and loss of life.If the state is to attempt this project,it nust do so in full under- standing of the seismic risks and attendant design costs. Since taking full control of the project this past fall.the Alaska Power Authority has begun the process of designing a Phase I Plan of Study that 'Will fully evaluate the problem areas expressed above.The Carmittee's work has been designed to guide and $LIpport their efforts.to ensure the wisest planning and decision-making. The Ccmnittee is fortunate to have an excellent working relationship with the Power Authority.We have coordinated our study with the Authority as much as possible to prevent duplication of effort while providing criticisms of their work at the·rrost useful times. Briefly,the Ccmnittee has work in progress.or plans to canplete work in the following areas: 1.Power Market Demand 2.Potential for Conservation and Alternative Energy Sources 3.Potential of Natural Gas 4.Criteria for Evaluation of Proj ect Benefits and Costs 5.An Overview of the Policy,Management and Financing Issues Central to the Sustina Project. 6.General Tracking of Phase I Study Progress -6- A detailed description of the Comnittee I s work to date follows. 1.Power Market Demand Projections This section of the study is being performed .by the University of Alaska's Institute for Social and Econanic Research.The Alaska Power Authority has participated in the design and :funding of this analysis,and will use the results of ISER's \<iOrk for the power market demand section of the Sustina Phase I study. The ISER study will include a methodological review,data collect- ion and updating,econcmic projections,assessment of interfuel sub- stimtion possibilities,electricity use projections and an assessment of the probabilities of the various scenarios and proj ections .The Institute is using a combination of ecanonetric modeling and end use forecasting,the first t:iIDe that this approach bas been used in Alaska. This new (to Alaska)approach by ISER provides a IIDre accurate method of forecasting demand in a time of volatile energy prices. The Ccmnittee bas retained Energy Probe of Canada to work with ISER in evaluating the suitability of their rrodeling,and to provide the Cc:mni.ttee with an evaluation of ISER's work.A draft report by Energy Probe is available at this t:iIDe.The Corrmittee has also re- tained Brad Tuck,an econanist at the University of Alaska School of Business,to provide anassessrnent of the ISER.work. 2.Potential of Conservation and Renewable Energy This section of the study will evaluate the portion of power -7- demand that might be met by ilIIproved eonservation,ar efficiency in energy u.::~,~,and the use of small-scale,alternative energy sources. The Alaska Center far Policy Studies is managing this section of the study,which also includes an analysis of the end uses of energy in the Railbelt area.Various portions of this section are being per- formed by Mark Fryer and As soc .,The Federation for C<mnuni.ty Self- Reliance,the Alaska Public Interest Research Group and Richard Seifert. 3.Natural Gas This section of the study is being done tmder the direction of econanist Gregg Erickson.It will address the institutional limit- ations'on the future use of natural gas for power generation,the future price and availibility of natural gas,the efficiency of gas fired generations facilities and the potential for the use of natural gas in direct consumer applications. 4.Overview Arlon Tussing and Assoc.has provided,as background docu:nent, a review of Alaska electric utilities and the regulatory framework in which they operate,with a brief history of the Sustina Hydroelectric Proj ect.'IUssing and Assoc.are also preparing a report for the Ccmnittee that will review the major policy issues of the Sustina project,and discuss the management and financing of electric power projects in Alaska. -8- 5.Additional Study Work Larry Kat:k:in,of Dynamic Research,canpleted an assessment of the geotechnical aspects of the Phase I Study plan.The Ccmnittee .plans to have an econa:ni.st prepare a short paper detailing methodo- logy for the assessment of the various power alternatives,socio- cultural impacts and fisheries studies. 6.Related Legislation The Corrmittee,in cooperation with House Resources,has designed a ccmprehensive energy conservation bill.The bill covers state government facility energy use,utility policy,and provides various mandates and incentives for increased energy efficiency in the re- sidential,corrmercial and industrial sectors.The legislation,entitled, "An Act Establishing A Stat~~ervation Policy",will be introduced by the first week of February.The Comnittee has actively participated in the design of the House of Representatives "energy package". House Bill 570 was introduced,and appropriates 7.5 million dollars to the Power Authority for fiscal year 1981,at which time the Authority expects to be ready to make a go!m go decision on the project.The bill also includes 90,000.dollars for continued leg- islative oversight of the Phase I study.The evaluation of power alternatives will be the pr:imary focus of the oversight.It cannot be performed tmtil later this year,when the Authority will be revieYl- ing all of the available alternatives in detail as part of the FERC -9- licensing procedure.An appropriation for University of Alaska geophysical work in the Susti.na River basin is also contained in HB 570. The program would provide experience for University geology students that would aid them in efforts to participate in Phase II of the Susti.na effort. 7.Participation in the Alaska Power Authority's Selection of a Private Firm to Carry Out the Phase I Plan of Study The Conmittee ananlyzed the three voluminous proposals submitted to the Authority by Acres Ameri98I1.International Engineering and Harza. Katkin.a geotechnical consultant.was retained by the Corrmittee to review the quality of the geotechni.cal aspects of the proposals. The Ccmnittee focused on the sections of the study dealing with power market demand projections.power alternatives.enviromental impacts and public participation. Rep.Rogers presented.detailed testimmy to the board of the Authority.The testimony strongly supported the choice of Acres American for several reasons: 1.Acres possessed the greatest experience with sub-arctic construction and planned to retain the most experienced firm in Alaska for geotechnical ~rk.. 2.Acres planned to spend a greater portion of the budget in- state than e:ny of the finns. 3.The Acres proposal contained the mst objective and detailed. studies of power market demand and power alternatives. 4.The Acres proposal provided for the rrost extensive and direct public participation process. 5.The Acres proposal provided for the most expert.objective check on the quality of seismic ~rk. -10- Concurring with the Camri.ttee analysis and other testim:my,the A.P .A.chose Acres to be the fi.:tm to carry out the Plan of Study.- lliere are over a score of state agencies and legislative ccmni.ttees investigating related energy questions.We have tried to keep every- one apprised of our work,and in t:IJrn have enjoyed the benefits of their ccmnents,as well as questions and suggestions fran the public. A draft of Power Alternatives Study will be submitted to the legislature on April 15,1980.A final report will not be available until May, because the power market de:nand work by ISER cannot be completed until then.A detailed breakdown.of our budget is attached. Any member of the legislature or public is welcane to contact the Ccmnittee for further information or copies of available reports.Inquires should be directed to Mark Wittow,Study Coordinator, c/o Rep.Malone,Pouch V,Juneau,Alaska 99811.The phone is 907- 465-3711/3799. House Power Alternatives Study Committee Budget Breakdown January 30 t 1980 Total Budget --$200 t OOO.Detailed information on each of these contracts is contained in the preceding status report. Contractual: 30 t OOO.+ (30 t OOO from the APA) Larry Katkin t Dynamic Research Corp. Geotechnical Analysis (report available) University of Alaska Institute for Social and Economic Research. Power Market Demand Forecast (detailed work plan available) Alaska Center for Policy Studies. Potential for Conservation and Renewable Energy Use (detailed work plan available) Gregg Erickson. Natural Gas Potential ArIon Tussing and Assoc. PolicYt Management and Financing Issues Energy Probe. Demand Analysis Review (preliminary report available) Brad Tuck. Demand Analysis Review. Sim Van der Ryn. Study Design Personal Services Mark Wittow. Study Coordinator (at standard A.A.rate) Travel $1100. 68 t 500. 20,000. 17,500. 10 t OOO. 6,000. 2,000. 10,500. 7 t 500.(reserved) i' The uncomitted portion of the study funding will be used for work on coal potential and critia for evaluation of costs and benefits.