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Susitna-Watana Hydroelectric Project Document
ARLIS Uniform Cover Page
Title:
SuWa 287
Susitna-Watana Hydroelectric Project: benefit-cost and economic impact
analyses
Author(s) – Personal:
Michael Fisher, Leah Cuyno, Patrick Burden, Terri McCoy
Author(s) – Corporate:
Northern Economics
AEA-identified category, if specified:
Benefit-cost and economic impact analyses
AEA-identified series, if specified:
Series (ARLIS-assigned report number): Existing numbers on document:
Susitna-Watana Hydroelectric Project document number 287
Published by: Date published:
Anchorage, Alaska : Northern Economics, [2015] March 31, 2015
Published for: Date or date range of report: Prepared for Alaska Energy Authority
Volume and/or Part numbers:
Final or Draft status, as indicated:
Document type: Pagination:
ii, 4, 25 p.
Related work(s): Pages added/changed by ARLIS:
Notes:
All reports in the Susitna-Watana Hydroelectric Project Document series include an ARLIS-
produced cover page and an ARLIS-assigned number for uniformity and citability. All reports
are posted online at http://www.arlis.org/resources/susitna-watana/
Susitna-Watana Hydroelectric Project:
Benefit-Cost and Economic Impact
Analyses
Prepared for
Alaska Energy Authority
March 31, 2015
Prepared by
Preparers
Team Member Project Role
Michael Fisher Lead Analyst, Benefit-Cost Analysis
Leah Cuyno Lead Analyst, Input-Output Analysis
Patrick Burden Project Director, QA/QC Lead
Terri McCoy Editor
Please cite as: Northern Economics, Inc. Susitna-Watana Hydroelectric Project: Benefit-Cost and
Economic Impact Analyses. Prepared for Alaska Energy Authority. March 31, 2015.
Contents
Section Page
Executive Summary .............................................................................................................................. ES-1
1 Introduction ............................................................................................................................. 1
2 Benefit-Cost Analysis of the Proposed Susitna-Watana Hydroelectric Project ............................... 2
2.1.1 Energy Savings .................................................................................................................... 2
2.1.2 Retirement of Older Generation Facilities ........................................................................... 3
2.1.3 Reduction of Power Outages .............................................................................................. 3
2.1.4 Reduction in Greenhouse Gas Emissions ............................................................................. 5
2.1.5 Capital Costs....................................................................................................................... 5
2.1.6 Operations and Maintenance Costs .................................................................................... 6
2.1.7 Benefits and Costs Considered but Not Included................................................................. 6
2.2 Discount Rate ..................................................................................................................... 8
2.3 Findings .............................................................................................................................. 8
2.3.1 Sensitivity Analysis .............................................................................................................. 9
3 Economic Impacts of the Proposed Susitna-Watana Hydroelectric Project .................................. 12
3.1 Approach ......................................................................................................................... 12
3.1.1 Direct Effects .................................................................................................................... 13
3.1.2 Multiplier Effects: Indirect and Induced ............................................................................ 13
3.2 Findings ............................................................................................................................ 14
3.2.1 Economic Impacts of Pre-Construction Activities and other Program Spending .................. 14
3.2.2 Economic Impacts of Construction Spending ..................................................................... 15
3.2.3 Economic Impacts of Operations and Maintenance Spending ........................................... 23
4 References .............................................................................................................................. 25
Table Page
Table ES-1. Benefit-Cost Analysis Findings and Benefit-Cost Ratio ...................................................... 2
Table ES-2. Estimated Local Spending and Associated Multiplier Effects of Project Spending (2014 $). 3
Table 1. Estimated Cost-per-Outage-per-Customer for the U.S., 2014 Dollars .................................... 4
Table 2. Modified Estimated Cost-per-Outage-per-Customer for the U.S., 2014 Dollars ..................... 4
Table 3. Estimated Number of Railbelt Energy Customers by Type, 2014 ........................................... 4
Table 4. Social Cost of CO2 Emissions ................................................................................................ 5
Table 5. Summary of Capital Costs ..................................................................................................... 6
Table 6. Benefit-Cost Analysis Findings and Benefit-Cost Ratio ........................................................... 9
Table 7. Sensitivity of Benefit-Cost Ratio to Railbelt Utility Heat Rate ............................................... 10
Table 8. Sensitivity of Benefit-Cost Ratio to Changes in Construction Cost ........................................ 10
Table 9. Sensitivity of Benefit-Cost Ratio to Higher Energy Generation ............................................. 11
Table 10. Sensitivity of Benefit-Cost Ratio to Discount Rate .............................................................. 11
i
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Table 11. Estimated Multiplier Effects of Pre-Construction and Other Program Spending .................. 15
Table 12. Estimated Multiplier Effects of Project Spending during Construction................................. 22
Table 13. Estimated Indirect and Induced Business Sales, Jobs, and Labor Income Resulting from
Construction Spending by Activity in 2014 $ .............................................................................. 23
Table 14. Estimated Multiplier Effects of Project Spending during the Operations Phase in 2014 $ ... 24
Figure Page
Figure 1. Framework in Evaluating the Economic Impacts of Project Spending .................................. 13
Figure 2. Estimated Total Annual Direct Manpower Estimates during Construction ........................... 17
Figure 3. Estimated Direct Manpower Requirements for the Permanent Access Road Contract ......... 17
Figure 4. Estimated Direct Manpower Requirements for the Rail Offloading Facility Contract .......... 18
Figure 5. Estimated Direct Manpower Requirements for Camp Civil Works ...................................... 18
Figure 6. Estimated Direct Manpower Requirements for the Camp Construction ............................. 19
Figure 7. Estimated Direct Manpower Requirements of the Main Civil Works Construction .............. 20
Figure 8. Estimated Direct Manpower Requirements for Turbine and Generators Supply Contract .... 20
Figure 9. Estimated Direct Manpower Requirements for Transmission Line and Interconnection
Construction .............................................................................................................................. 21
Figure 10. Estimated Direct Manpower Requirements for Site and Reservoir Clearing ....................... 21
Figure 11. Estimated Direct Manpower Requirements of All Services Contracts ................................ 22
ii
Executive Summary
The Alaska Energy Authority requested Northern Economics to evaluate the economic merits of the
proposed Susitna-Watana Hydroelectric Project. To evaluate the economic merits of the project, both
a benefit-cost analysis and an economic impact analysis were conducted.
The benefit-cost analysis determines whether the expected benefits of the project are going to outweigh
the costs of the project over the project life. This analysis looks at the first 50 years of operations, though
the project life is expected to be much longer. The proposed project is anticipated to provide benefits
(cost savings) achieved primarily through the offset of generation costs resulting from hydroelectric
energy vis-à-vis existing hydrocarbon-based generation systems, and reduction of greenhouse gas (GHG)
emissions. The costs of the proposed project include both the capital and operations and maintenance
costs over the life of the project. Other potential benefits associated with the construction and operation
of the project were also identified.
The economic impact analysis (also known as input-output analysis), on the other hand, provides
information on potential direct, indirect, and induced employment, labor income, and economic
output (or business sales) effects of the project during pre-construction, construction, and operations.
These economic impacts are generated as a result of local spending associated with the various phases
of the project. The IMPLAN™ input-output model was used for estimating the indirect and induced
effects of the project; the indirect and induced effects are collectively referred to as the multiplier
effects. The direct effects of the project are based on the detailed estimates of project costs that were
prepared as part of the Engineering Feasibility Report (AEA 2014A).
The following are the highlights of the findings of the benefit-cost analysis:
Energy savings, in the form of reduced energy costs from other forms of power generation, is the primary
benefit of the project; over the first 50 years of operation (2028–2077) these savings, expressed in 2014
dollars, total $11.2 billion. The project’s capital and operations and maintenance costs amount to
$4.7 billion in 2014 dollars. This results in a benefit-cost ratio (BCR) of 2.39 using a three percent
discount rate for energy savings.1 Additional benefits of the project include retirement of older
generation facilities, reduction in GHG emissions, and reduction in the frequency of power outages.
Retirement of older generation facilities that are no longer needed as backup capacity is estimated to
have a net present value of $345 million, which increases the BCR to 2.46. Greenhouse gas emission
reductions and the reduction in the frequency of power outages have greater uncertainty around the
benefit estimates. If the benefits from these two items are included in the analysis, along with energy
savings and retirement of older generation facilities, the BCR would increase to 3.07. The estimated
benefits and costs are summarized in Table ES-1.
1 Alaska Energy Authority has used a three percent discount rate for the analysis of other renewable energy
projects, so that same discount rate is applied here. A discussion of how this determination was made is provided
in Section 2.2. Using a different discount rate will change the benefit-cost ratio. On the basis of energy cost
savings alone, the project has a benefit-cost ratio of 1 or higher for a discount rate of up to 7.6 percent.
ES-1
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Table ES-1. Benefit-Cost Analysis Findings and Benefit-Cost Ratio
Category Net Present Value (2014 $)
Benefits
Energy Cost Savings 11,179,771,428
Plant Retirement 344,988,357
Reduction in Power Outages 1,134,539,814
GHG Emission Reduction 1,698,678,912
Total Benefits 14,357,978,511
Costs
O&M 489,522,530
Capital 4,195,681,789
Total Costs 4,685,204,319
Benefit-Cost Ratio
Energy Cost Savings only 2.386
Energy Cost Savings and Plant Retirement 2.460
Energy Cost Savings, Plant Retirement, and GHG Emission Reduction 2.702
All Benefits 3.065
Additional energy generation (beyond the estimated annual energy production of 2,800 GWh) would
improve the economics; each additional 50GWh generated would increase the BCR by 0.044.
The following are the highlights of the findings of the economic impact analysis:
The proposed project will provide jobs for many decades, throughout the pre-construction,
construction, and operations phases of the project. These jobs will include the direct jobs associated
with licensing activities, planning, engineering, construction, and environmental mitigation, as well as
operations and maintenance of the hydroelectric facilities. In addition, the proposed project will
generate indirect and induced jobs resulting from the stimulus effects of project spending, as Alaska
businesses benefit from purchases of goods and services, and as workers spend their money in the local
economy.
It is estimated that the pre-construction and non-construction activities could support up to 5,000 total
direct jobs for the entire period, from 2010 to 2028. On an annualized basis, this would mean about
260 direct jobs a year. Indirect and induced jobs associated with these activities are expected to add
up to about 3,800; or about 205 jobs on an annualized basis.
It is estimated that the entire construction period would require a direct construction workforce of over
12,000. Peak construction workforce is estimated to be 1,155 in year 2025. Indirect and induced jobs
associated with construction spending are estimated to add up to over 11,000 over the entire
construction period, or an annual average of about 1,300.
It is estimated that the operations phase of the project would require about 24 to 28 permanent year-
round staff at the site. Indirect and induced jobs associated with the operations phase are expected to
be about 100 jobs per year. A project of this magnitude is expected to benefit numerous Alaska
businesses involved in the construction, engineering and technical services, environmental services,
business support, camp operations, logistics (air transportation, rail transportation, water transportation,
truck transportation, warehousing, and storage) sectors, as well as all retail and wholesale trade sectors.
ES-2
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
The total estimated local spending for each of the spending categories is shown in Table ES-2.
Approximately $800 million of local spending is projected for pre-construction (licensing and design
costs) and other program costs, over $2.6 billion of local spending during construction, and annual local
spending of $26.5 million during operations.
This potential local spending is projected to create multiplier effects in the state economy. These
multiplier effects are summarized in the table below.
Table ES-2. Estimated Local Spending and Associated Multiplier Effects of Project Spending (2014 $)
Project Spending Category
Local
Spending ($)
Multiplier Effects
Business
Sales ($) Jobs
Labor
Income ($)
Spending on Licensing/Design and
Other Program Costs
814,148,500 551,245,700 3,870 204,254,400
Construction Spending 2,658,465,300 1,837,133,150 11,305 627,307,200
Operations Spending $26,500,000 18,494,000 105 6,435,000
Source: Northern Economics estimates
Note: Operations spending in this table does not include $40 million in spending for additional environmental
monitoring which is anticipated for the first 5 years of project operations.
ES-3
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
ES-4
1 Introduction
The Susitna-Watana Hydroelectric project is a large dam project designed to provide long-term stable
power for the Alaska Railbelt region. The project as proposed will generate 50 percent of the Railbelt’s
electric demand when it comes online. The proposed project would include construction of a dam,
reservoir and related facilities; transmission lines connecting into the Railbelt transmission system; and
an access road.
The Alaska Energy Authority (AEA) is currently working on the permitting process with the Federal
Energy Regulatory Commission (FERC). As part of this process, a multitude of studies have been
conducted since 2011. In 2014, AEA completed the Engineering Feasibility Report that incorporated
results of prior engineering and environmental studies. The report provides details of the project’s
conceptual design including the construction plan and project costs.
AEA tasked Northern Economics with evaluating the economic merits of the proposed project using the
Engineering Feasibility Report results. This study involves both a benefit-cost analysis (BCA) and an
economic impact analysis (or input-output analysis). The benefit-cost analysis will show whether the
expected benefits of the project are going to outweigh the costs of the project over the project life. The
proposed project is expected to provide benefits (cost savings) achieved through the offset of generation
costs resulting from hydroelectric energy, retirement of older generation facilities, reduction of
greenhouse gas (GHG) emissions, and other items vis-à-vis existing hydrocarbon-based generation
systems. The costs of the proposed project would include both capital and operation and maintenance
costs over the life of the project. This analysis involved reviewing AEA materials on estimated project
costs and the results of the energy modeling that served as the basis for quantifying the estimated savings
in power generation and the other project benefits. A spreadsheet model was developed to calculate
the net present value of the project benefits and costs.
The economic impact analysis provides information on potential job, income, and economic output
effects of the project. The analysis involves determining potential local spending by sector by year and
quantifying employment, income effects, and local business effects using the IMPLAN™ input-output
model. The model inputs included itemized capital and operating costs by year, and assumptions
regarding potential local spending. Local spending generates a stimulus effect on the state’s economy
and creates an increase in economic activity, jobs, and labor income.
The remainder of this report is divided into three main sections:
• Section 2 presents the approach and findings of the BCA
• Section 3 presents the approach and findings of the economic impact analysis
• Section 4 provides references used in the analyses
1
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
2 Benefit-Cost Analysis of the Proposed Susitna-Watana
Hydroelectric Project
This section describes the approach and findings for the BCA of the project.
Benefit-cost analysis is used to compare the present value of all benefits and all costs from a proposed
action to determine if the benefits exceed the costs. It is commonly used to compare alternatives, in
this case the comparison is the total cost of energy with and without Watana. BCA is incremental, in
that it considers the incremental changes in benefits and costs as a result of Watana being constructed
and put into operation. The result of a BCA is a benefit-cost ratio (BCR), which expresses the ratio of
the present value of benefits to the present value of costs. A BCR of 1 or higher indicates an
economically feasible project.
The analysis considers four primary benefits:
1) The change in cost of energy to consumers in the system;
2) Operating expense savings from retirement of older generation facilities;
3) Reduction in the frequency of power outages;
4) Reduction of greenhouse gas emissions.
The analysis identifies additional sources of benefits, but these benefits have not been quantified and
are only addressed qualitatively in this report. These additional benefits include:
1) Deferral of additional generation capacity;
2) Coordination with a natural gas pipeline project;
3) Reduction in the production of coal ash;
4) Other environmental benefits and costs
The analysis considers two types of costs:
1) Annual operations and maintenance costs;
2) Capital costs
The analysis does not consider the economic impacts of the project on the Railbelt and the State of
Alaska, nor does it include consideration of the effect that different financing plans could have on the
project’s cash flows.
2.1.1 Energy Savings
Energy savings are calculated based on the energy demand and generation capacity assumptions used
in the 2014 Engineering Feasibility Report (AEA 2014a). Railbelt energy demand forecasts from the
report were used for the years 2014, 2024, 2034, and 2044; energy use for other years of the analysis
was interpolated and extrapolated using compound annual average growth rates between the years
included in the report. Overall energy use was then allocated to four sources (coal, gas and oil, wind,
and hydro) in 2024 as identified in the Engineering Feasibility Report.
In 2028, Watana would come online and its energy would reduce the contribution of energy from
natural gas and oil.
2
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Over time, annual generation from wind and existing non-Watana hydroelectric was forecasted to
remain stable (AEA 2014a). The Engineering Feasibility Report forecasted the installed capacity for coal
and gas/oil sources, which was used to scale estimates of energy consumption over time. Gas and oil
generation was assumed to be the balancing factor between annual energy use and generation from
each source. This forecasting process was completed for the with-Watana and without-Watana
alternatives.
The benefit associated with energy savings was estimated based on changes in the contribution of
energy from coal and gas/oil generated energy to energy produced by Watana. Natural gas price
forecasts from the AEA (2014) report were used for 2029, 2039, 2049, and 2059, with other years
interpolated or extrapolated using compound annual average growth rates based on those four years.
Gas/oil costs are conservative in that the costs are based on natural gas prices and no estimate is
developed for the cost of oil that would be consumed. An average energy price for coal-fired generation
in 2013 (National Mining Association 2014) was used for that source, with 2.75 percent annual
escalation.
The present value of energy savings is $11.2 billion in 2014 dollars.
2.1.2 Retirement of Older Generation Facilities
AEA (2014a) estimates savings from the retirement of older generation facilities that would otherwise
need to be maintained as standby units in the without-Watana case. Those savings in fixed operating
costs were estimated at $16.5 million annually in 2024, $18.3 million annually in 2034, and
$23.1 million annually in 2044. This analysis shifts those savings by four years to reflect the beginning
of full operations in 2028 instead of 2024. Annual savings for 2030–2038 and 2040–2048 are
interpolated from the estimates in AEA (2014a). Annual savings for 2050 and later years (through the
end of the analysis period in 2077) are assumed to remain fixed at $23.1 million. The present value of
savings attributed to retirement of older generation facilities is $345 million in 2014 dollars.
2.1.3 Reduction of Power Outages
Power outages can have a substantial financial impact on customers. A report published by Berkeley
National Laboratories (LaCommare and Eto 2004) presents past estimates of the cost of power outages
on the United States and a newer regression model for estimating the economic effects of power outages
to residential, commercial, and industrial customers, based on factors such as the duration, season, time
of day, and location of the outage. The impacts are modest per type of user and represent the time and
cost required to reset digital clocks in a house for residential customers for example, reboot the cash
registers in a commercial establishment, and restart a production line for an industrial customer for
other examples.
The increased reliability of hydroelectric power could lead to a reduction in the number of generation-
related outages in the Railbelt.2 Based on estimates presented in the Engineering Feasibility Report (AEA
2014a), Watana could lead to two fewer outages annually for all customers in the Railbelt than the
without-Watana case. The two outages are assumed to be a 0-second outage (sufficient to require
computer reboots) and a sustained outage as described in the Berkeley report.
2 Note that this analysis does not include the benefits from or costs of improvements to the transmission system,
which is treated as independent from the project.
3
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
LaCommare and Eto (2004) estimated the costs to residential, commercial, and industrial customers in
the Pacific region of 0 second and sustained outages. Those estimates, inflated to 2014 dollars, are
shown in Table 1.
Table 1. Estimated Cost-per-Outage-per-Customer for the U.S., 2014 Dollars
Duration Residential Commercial Industrial
0 second 2.37 795 2,475
Sustained interruption 3.22 1,382 5,410
Source: LaCommare and Eto (2004), Alaska Department of Labor & Workforce Development (2014), and
Northern Economics, Inc. analysis
Given that Alaska’s industrial users are likely of a different scale than most other industrial users in the
Pacific Region, this analysis uses the commercial rate for industrial users. This results in the modified
cost per outage shown in Table 2.
Table 2. Modified Estimated Cost-per-Outage-per-Customer for the U.S., 2014 Dollars
Duration Residential Commercial and Industrial
0 sec 2.37 795
Sustained interruption 3.22 1,382
Source: LaCommare and Eto (2004), Alaska Department of Labor & Workforce Development (2014), and
Northern Economics, Inc. analysis
An estimate from the Energy Information Administration (2015) suggests there are 214,227 residential,
29,832 commercial, and 535 industrial customers served by the Railbelt utilities, as summarized in
Table 3.
Table 3. Estimated Number of Railbelt Energy Customers by Type, 2014
Utility
Count of Customers by Type
Residential Commercial Industrial
GVEA 38,223 6,357 505
MEA 55,441 3,803 0
CEA 70,004 9,294 7
MLP 24,357 6,380 0
HEA 26,202 3,998 23
Total 214,227 29,832 535
Source: Energy Information Administration (2015) and Northern Economics, Inc. analysis
Applying the modified estimated cost per outage for each type of outage to the number of energy
customers on the Railbelt yields an annual benefit from avoided outages of $67.3 million, beginning
with Watana’s first full year of operations in 2028. The present value of this benefit in 2014 dollars is
$1.1 billion. It is important to note that the analysis has not assumed any changes in the number of
customers by type, and therefore this estimate understates the potential future benefits.
4
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
2.1.4 Reduction in Greenhouse Gas Emissions
Current estimates by AEA (2014b) suggest that the Watana project would reduce GHG emissions by
1.3 million metric tons (tonnes) of CO2 per year.
The social cost of GHG emissions is hotly contested and highly uncertain. However, some guidelines
are available for estimating the social costs of GHGs. The Environmental Protection Agency (EPA) (2013)
maintains estimates of the social cost of carbon, including costs to agriculture, human health, and
property damage due to flooding. The EPA’s estimated social cost of carbon for 2015–2055 is shown
in Table 4 with an additional estimate prepared by Northern Economics to adjust the costs to 2014 $.
Table 4. Social Cost of CO2 Emissions
Year
EPA Estimate of Social Cost of
Carbon, 3% Discount Rate, in
2011 Dollars Estimate in 2014 Dollars
($ per Tonne of CO2)
2015 39.00 41.05
2020 46.00 48.41
2025 50.00 52.62
2030 55.00 57.88
2035 60.00 63.15
2040 65.00 68.41
2045 70.00 73.67
2050 76.00 79.99
Source: EPA (2013), Alaska Department of Labor & Workforce Development (2014), and Northern Economics,
Inc. analysis
Applying the cost of GHG emissions to the estimated reduction of GHG emissions associated with the
Watana project, the net present value of benefits is $1.7 billion.
2.1.5 Capital Costs
Watana will incur up-front licensing, construction, and program costs through completion of the facility
in 2028. The BCA only considers those costs that will be incurred from the present (2015) through
2028. Licensing expenses incurred prior to 2015 (approximately $192 million) are sunk costs and are
not considered in a BCA. Table 5 summarizes these capital expenditures from the present (2015)
through 2028, based on the December 2014 Engineering Feasibility Report.
5
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Table 5. Summary of Capital Costs
Year
Capital Costs (2014 $)
Licensing/Design Construction Program Total
2015 90,000,000 90,000,000
2016 80,000,000 80,000,000
2017 80,000,000 80,000,000
2018 90,473,787 90,473,787
2019 138,893,704 102,780,023 241,673,727
2020 226,782,071 102,780,023 329,562,094
2021 639,826,619 102,780,023 742,606,642
2022 546,783,129 102,780,023 649,563,152
2023 405,651,442 102,780,023 508,431,465
2024 600,039,146 102,780,023 702,819,169
2025 647,784,230 102,780,023 750,564,253
2026 519,974,178 102,780,023 622,754,201
2027 197,681,439 102,780,023 300,461,462
2028 172,517,003 102,780,023 275,297,026
Source: AEA (2014c)
Note: Construction capital costs are based on an AACE Class 4 with elements of Class 3 incorporated. The
sensitivity of results to the uncertainty in costs is explored in Section 2.3.1.2.
2.1.6 Operations and Maintenance Costs
Operations and maintenance cost estimates were provided by AEA (2014d). The annual operations and
maintenance cost is estimated to be $26.5 million. An additional environmental monitoring cost was
included for the first five years, consisting of $10 million annually for the first three years and $5 million
for the fourth and fifth years.
2.1.7 Benefits and Costs Considered but Not Included
Additional benefits and costs were considered but not included in the BCA. These benefits and costs
are discussed in the following sections.
2.1.7.1 Deferral of Addition of New Generation Capacity
In addition to savings from the retirement of older generation facilities, covered in Section 2.1.2,
Watana would create savings by deferring the addition of new generation capacity. The timing of when
additional generation capacity would be needed is uncertain, and capital costs for that additional
capacity have not been developed.
2.1.7.2 Coordination with a Natural Gas Pipeline Project
There is a potential for the Alaska LNG natural gas pipeline project to work in a complimentary fashion
with the Susitna-Watana Project. Susitna-Watana could be used to help power the compressor stations
and ancillary facilities for the liquefaction plant during the summer, allowing for higher generation in
summer and greater export of natural gas. This would permit Susitna-Watana to operate at a higher
head in summer, thus generating more energy. In winter, natural gas from the Alaska LNG pipeline
6
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
could help provide the firm energy that Susitna would otherwise provide, thereby allowing Susitna flows
to be reduced during that period. Susitna-Watana would be available to meet system power demands.
2.1.7.3 Coal Ash Reduction
A recent report by Information Insights and Sustainable Alaskan Materials (2014) indicates that six coal-
fired plants operating in Fairbanks produce more than 110,000 tons of coal combustion products
annually, an amount that is expected to increase to 170,000 tons once two new facilities come online
in the next few years.
Disposal of coal ash uses space in landfills, contributing to the eventual closure and replacement of
those landfills. If coal ash were to be reduced, it would increase the life of the existing landfills and defer
their closures and opening of new areas. This would have a positive financial impact on the entities
maintaining these landfills.
Above and beyond this basic issue of landfill use, regulatory changes anticipated in the near future could
bring additional costs to landfill operators. Information Insights and Sustainable Alaskan Materials (2014)
indicate that under one regulatory scenario, the Fairbanks North Star Borough (FNSB) could incur
$20 million up front, $10 million per landfill cell, and $10 million annually to construct and operate a
modern lined coal ash landfill. It is not known what regulatory changes will occur or how the increased
costs might be distributed between the FNSB and the landfill users.
Since the cost of coal-fired electricity is likely to be lower than that of Watana, at least initially, utilities
are not expected to retire their coal-fired plants.
However, during the construction phase of the project, there is the potential for locally produced coal
ash to be used to make cement for the dam and other structures. Use of local materials could slightly
reduce the cost of the project, and reduce the time before a new coal ash landfill would be required,
thereby deferring the FNSB’s future capital costs, and potentially reduce the operating costs during the
construction phase. The 2014 report by Information Insights, Inc. and Sustainable Alaskan Materials
indicated that Alaska coal ash has a high unburned carbon content that would need to be removed
prior to using the ash in Portland cement. There are no estimates of the volume of locally-produced
coal ash, following carbon removal that may be competitive with imported coal ash so it is not possible
to monetize these potential benefits at this time.
2.1.7.4 Other Environmental Benefits and Costs
Environmental effects of the project are still being evaluated but the potential exists for both adverse
and beneficial effects on fish and wildlife, the natural environment, and human use of the resources of
the Susitna River basin. Until the environmental studies for the project are completed, it is not possible
to estimate the dollar value of such effects, and even then the monetary effects of the project on the
environment will be subject to great uncertainty.
2.1.7.5 Debt Costs
The BCA considers costs when they are incurred and is calculated independent of the financing
arrangements used to cover the licensing, construction, and program costs. If financing arrangements
were to be factored in, the effect of financing would depend on the discount rate used in the analysis.
If the discount rate is less than the effective financing rate, financing would have a detrimental effect on
the economic feasibility of the project. Conversely, if the discount rate is greater than the effective
financing rate, financing would have a positive effect on the economic feasibility.
7
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
2.2 Discount Rate
The discount rate is used to “discount” or reduce the value of future dollars to their present equivalent
and is an integral part of the time value of money concept and benefit-cost analysis.
Discount rates may be chosen based on a variety of factors. For example, federal government agencies
take guidance from Circular A-94 (OMB 1992) and Circular A-94 Appendix C (OMB 2014), which set
rates of:
• 7 percent real discount rate for “benefit-cost analyses of public investments and regulatory
programs that provide benefits and costs to the general public”
• 1.7–3.4 percent nominal discount rates, depending on length of term (3–30 years) for nominal
cash flows typical of lease/purchase analysis
• 0.1–1.4 percent real discount rates, depending on length of term (3–30 years) for constant-
dollar cash flows typical of cost-effectiveness analysis
A publication by the U.S. Fish and Wildlife Service (1998) outlining FERC standards for economic
analysis of hydroelectric projects suggests that the default discount rate should be 10 percent, though
rates as low as 7 percent have been used. A review of selected private entities’ filings with FERC shows
that the discount rates have typically been in this 7–10 percent range.
Benefit-cost analyses conducted for the Alaska Energy Authority’s renewable energy grant program have
used a 3 percent discount rate.
The rates presented in the preceding paragraphs reflect public entities. In a private context, the
weighted average cost of capital is typically used as the basis for an entity’s discount rate. This approach
could be applied to Watana by using the average interest rate for the project’s chosen financing plan.
There is also the social argument that discount rates for projects of this nature should be 0, reflecting
no discounting of future dollars, because any positive discount rate devalues the benefits that could be
afforded to future generations. It is also argued that discounting places an emphasis on consuming
resources for the benefit of the present generation rather than later generations.
After reviewing potential discount rates, Northern Economics decided to use a discount rate of 3
percent, coupled with a sensitivity analysis discussed in Section 2.3.1.4 to determine the effect of the
discount rate on the benefit-cost ratio (BCR).
2.3 Findings
The analysis finds that the BCR of the Watana project, using the approach and assumptions discussed
earlier in this section, is 2.39 for energy cost savings alone. This means the net present value of benefits
provided by energy cost savings amounts to 239 percent of the net present value of costs incurred by
the project.
Table 6 summarizes the benefits, costs, and BCR for this analysis.
8
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Table 6. Benefit-Cost Analysis Findings and Benefit-Cost Ratio
Category Net Present Value (2014 $)
Benefits
Energy Cost Savings 11,179,771,428
Plant Retirement 344,988,357
Reduction in Power Outages 1,134,539,814
GHG Emission Reduction 1,698,678,912
Total Benefits 14,357,978,511
Costs
O&M 489,522,530
Capital 4,195,681,789
Total Costs 4,685,204,319
Benefit-Cost Ratio
Energy Cost Savings only 2.386
Energy Cost Savings and Plant Retirement 2.460
Energy Cost Savings, Plant Retirement, and GHG Emission Reduction 2.702
All Benefits 3.065
Note: Capital costs are less than $5.6 billion due to the exclusion of sunk costs and discounting to 2014 dollars.
2.3.1 Sensitivity Analysis
Changing assumptions will result in a change to the BCR. This section discusses the impact of changes
to three assumptions: the average heat rate for Railbelt utilities, additional power sales from Watana,
and the discount rate used in the analysis.
2.3.1.1 Average Heat Rate for Railbelt Utilities
The analysis assumes an average heat rate for Railbelt utilities using natural gas based on the PROMOD
results and calculated by AEA (Ott 2015). The with-Watana average heat rates for gas generation for the
years 2029–2059 was estimated to be 7,664 British Thermal Units per kilowatt hour (BTU/kWh). The
without-Watana average heat rates for gas generation for the years 2049–2059 was estimated to be
7,631 BTU/kWh. These heat rates were applied to all years for the with and without-Watana cases.
Table 7 shows the effect of a different without-Watana heat rate on the BCR.
9
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Table 7. Sensitivity of Benefit-Cost Ratio to Railbelt Utility Heat Rate
Heat Rate
(BTU/kWh)
Benefit-Cost Ratio
Energy Cost
Savings Only
Energy Cost
Savings and Plant
Retirements
Energy Cost
Savings, Plant
Retirements, and
Reduction in
Outages All Benefits
7,631 2.386 2.460 2.702 3.065
8,000 2.540 2.614 2.856 3.218
8,500 2.748 2.822 3.064 3.427
9,000 2.957 3.031 3.273 3.635
9,500 3.165 3.239 3.481 3.844
10,000 3.374 3.448 3.690 4.052
10,500 3.582 3.656 3.898 4.261
11,000 3.791 3.864 4.107 4.469
11,500 3.999 4.073 4.315 4.678
12,000 4.208 4.281 4.523 4.886
12,500 4.416 4.490 4.732 5.095
2.3.1.2 Uncertainty in Construction Costs
The analysis uses construction costs estimated to AACE Class 3 and Class 4 levels (see Table 5). Higher
or lower construction costs would affect the benefit-cost ratio, as illustrated in Table 8. As seen in the
table, while the benefit-cost ratio varies with changes in construction costs, it still remains favorable with
costs in excess of 150 percent of the December 2014 estimate.
Table 8. Sensitivity of Benefit-Cost Ratio to Changes in Construction Cost
Adjustment to
Construction Cost from
Base (%)
Benefit-Cost Ratio
Energy Cost
Savings Only
Energy Cost
Savings and
Plant Retirements
Energy Cost
Savings, Plant
Retirements, and
Reduction in
Outages All Benefits
-50 3.566 3.676 4.038 4.580
-40 3.245 3.345 3.675 4.168
-30 2.977 3.069 3.371 3.824
-20 2.750 2.835 3.114 3.532
-10 2.555 2.634 2.893 3.282
0 2.386 2.460 2.702 3.065
+10 2.238 2.307 2.534 2.874
+20 2.107 2.172 2.386 2.706
+30 1.991 2.052 2.254 2.557
+40 1.887 1.945 2.136 2.423
+50 1.793 1.848 2.030 2.303
10
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
2.3.1.3 Additional Power Sales
If Watana were able to exceed the forecast energy generation assumed in this analysis, the displaced
generation from natural gas plants would boost the BCR. Table 9 shows the BCR for the base generation
forecast, plus an additional 50-300 gigawatt hours (GWh) annually. Each additional 50 GWh per year
would contribute $207.6 million of benefits. Note that this would have to be a sustained increase in
energy generation in order to realize this level of benefit.
Table 9. Sensitivity of Benefit-Cost Ratio to Higher Energy Generation
Watana Annual Energy
Generation (GWh/year)
Benefit-Cost Ratio,
Energy Cost Savings Only
Benefits, Energy Cost
Savings Only (Billions of 2014 $)
2,800 2.386 11.180
2,850 2.430 11.387
2,900 2.475 11.595
2,950 2.519 11.802
3,000 2.563 12.010
3,050 2.608 12.218
3,100 2.652 12.425
2.3.1.4 Discount Rate
Results of the BCA are highly sensitive to the discount rate used to discount benefits and costs to the
present. Use of a different discount rate affects the BCR due to the difference in timing of the benefits
(which occur later) and the costs (which are heavily weighted toward the earlier years). Table 10 shows
the range of BCRs that are estimated for the project under different discount rates. The analysis uses a
three percent discount rate, which results in a BCR of 2.386 for energy costs savings only. Using a lower
discount rate will maintain a BCR above 1. Increasing the discount rate above 7.6 percent will result in
a BCR of less than 1.
Table 10. Sensitivity of Benefit-Cost Ratio to Discount Rate
Discount
Rate (%)
Benefit-Cost Ratio
Energy Cost Savings
Only
Energy Cost Savings
and Plant
Retirements
Energy Cost Savings,
Plant Retirements,
and Reduction in
Outages All Benefits
0 4.821 4.974 5.457 6.244
1 3.777 3.896 4.276 4.878
2 2.985 3.078 3.380 3.844
3 2.386 2.460 2.702 3.065
4 1.932 1.991 2.187 2.474
5 1.584 1.632 1.794 2.023
6 1.316 1.355 1.489 1.676
7 1.105 1.138 1.250 1.404
8 0.938 0.966 1.061 1.190
9 0.804 0.827 0.909 1.017
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Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
3 Economic Impacts of the Proposed Susitna-Watana Hydroelectric
Project
This section presents the estimated economic impacts of the proposed Susitna-Watana hydroelectric
project. The proposed project is expected to generate significant positive impacts on the state economy.
These economic impacts are measured in terms of jobs, associated labor income, and economic output
(or business sales).
The proposed project will provide jobs for many decades, throughout the pre-construction,
construction, and operations phases of the project. These jobs will include the direct jobs associated
with licensing activities, planning, engineering, construction, and environmental mitigation, as well as
operations and maintenance of the hydroelectric facilities. In addition, the proposed project will
generate indirect and induced jobs resulting from the stimulus effects of project spending, as Alaska
businesses benefit from purchases of goods and services and as workers spend their money in the local
economy.
The following sections describe the approach used in this analysis and the major findings.
3.1 Approach
The economic impacts of the proposed project were evaluated by quantifying the direct, indirect, and
induced effects of projected project spending. This type of analysis is called input-output (I-O) analysis.
Input-output analysis is an economic tool used to measure the effects of an economic activity on a
region. In this case, the proposed project is going to create significant economic activities associated
with licensing activities, planning, engineering, construction, environmental mitigation, as well as
operations and maintenance of the hydroelectric facilities.
The I-O analysis is based on a model of the inter-industry transactions within a region; this particular
analysis is statewide in scope. The I-O model is a matrix that tracks the flow of money between the
industries within a specified economic region of interest. The model can measure how many times a
dollar is re-spent in—or “ripples through”—the economic region before it leaks out through purchases
of goods and services outside of the region. The I-O model yields multipliers that are used to calculate
the indirect and induced effects on jobs, income, and business sales/output generated per dollar of
spending on various types of goods and services in the study area.
To evaluate the economic impacts to the state, only the “local” (within the state) expenditures are used
in the model; the rest are considered leakages. More leakages mean smaller multipliers; and the larger
the local expenditures, the greater the multiplier effects. The multipliers for any given industry in any
given location are unique, based on industry composition and geographic area.
The IMPLAN™ software was used to develop the statewide I-O model for Alaska. IMPLAN uses specific
data on what inputs (goods and services) are needed by a particular sector to produce a commodity or
a service (or a road construction project for example) and data on what goods and services are available
locally to meet the supply needs. The IMPLAN software has economic data on these inter-industry
transactions for 528 economic sectors. The Alaska I-O model however, has 299 economic sectors (or
industries); several industries, particularly in the manufacturing sector, do not exist in Alaska. The most
recent (2013) IMPLAN data on multipliers for all the economic sectors in the statewide model were
applied.
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Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Figure 1 illustrates conceptually how the total economic impacts or benefits are determined.
Figure 1. Framework in Evaluating the Economic Impacts of Project Spending
Source: Northern Economics, Inc.
3.1.1 Direct Effects
The direct effects represent all the direct project spending associated with the pre-construction,
construction, and operations and maintenance of the hydroelectric facility. These are called direct
effects because they are the first round of spending that occurs within the economic region. The direct
effects for this particularly study were obtained from the detailed engineering study commissioned by
the AEA. The Engineering Feasibility Report (AEA 2014a) contained detailed information on estimated
project costs for all the phases of the project. The itemized project costs were reviewed and assumptions
regarding potential local content (or local spending) were made based on information from other major
construction projects in Alaska.
Local labor content for the construction activities was based on current residency data for the Alaska
construction industry, as reported by the Alaska Department of Labor and Workforce Development.
According to the latest residency data for the construction industry, 78 percent of the construction
workers are residents of Alaska (ADOLWD 2013).
3.1.2 Multiplier Effects: Indirect and Induced
Indirect effects result from the subsequent rounds of spending in the economy, particularly, all the
subsequent business spending that occurs in sectors that supply goods and services for the pre-
construction, construction, and operations activities.
Induced effects result from further shifts in spending for food, clothing, housing, entertainment, and
other consumer goods and services generated by the increase in labor income or personal income in
the region; this is sometimes referred to as payroll effects or household income effects.
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Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Indirect and induced effects are collectively referred to as multiplier effects. As noted above, the
multiplier effects are driven by the amount of local (or in-state) spending. The projected amount of local
spending associated with the project was used as inputs for the Alaska input-output model to generate
the estimated potential multiplier effects of the project.
3.2 Findings
This section presents the findings of the input-output analysis. The discussion of results is organized
according to the different types of project spending (or phases): 1) pre-construction and other non-
construction program spending, 2) construction spending, and 3) operations and maintenance
spending.
3.2.1 Economic Impacts of Pre-Construction Activities and other Program Spending
Total project spending on pre-construction activities and other program costs is estimated to amount to
$1.6 billion (2014 $). Project spending under this category includes:
• FERC licensing
• Administration and legal costs
• Initial camp and access
• Engineering design for licensing, detailed design, and engineering during construction
• Construction management
• Environmental monitoring during construction
• Geotechnical investigations
• Logistics for site investigation
• Quality control and inspection
• Environmental mitigation (including land costs)
• Owner insurance
Spending on the above activities started in 2010 and is expected to last through the end of the
construction phase. FERC licensing and engineering design activities are expected to occur through the
end of 2018, while spending for the other non-construction program costs would occur starting in year
2019 (when the construction phase is assumed to commence) through year 2028 (end of the
construction phase).
3.2.1.1 Direct Effects
It is estimated that total local spending (local business sales) associated with these activities would
amount to about $800 million (52 percent of total projected cost). Local contracts with companies
involved in the environmental and technical consulting services, legal services, architectural,
engineering, and related services, transportation services, insurance carriers, and construction
management are expected.
To date, an estimated 350 scientists, surveyors, archeologists, biologists and other specialists have
already been engaged and have traveled to the project site to study the surrounding environment, and
area (encompassing a total of about 186,000 acres). According to AEA’s Project Report to the
14
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Legislature, their studies are going to generate data on water, cultural, botanical, and other biological
resources including land mammals, birds and fish (AEA 2013). According to the AEA report, local small
businesses are already receiving direct economic benefits in support of the Project’s field activities. Local
restaurants, hotels and lodges, tackle shops, hardware stores, helicopter and fixed-wing aircraft
operators, boat operators, and other businesses are providing goods and services to field crews and the
project team. These kinds of effects are included in the multiplier effects discussed in the next section.
It is estimated that the pre-construction activities and other program spending could support up to
5,000 total direct jobs for the entire period, from 2010 to 2028. On an annualized basis, this would
mean about 260 direct jobs a year. The direct jobs for this category were estimated using IMPLAN data.
IMPLAN provides estimates of average number of part-time and full-time jobs per million dollars of
spending. Note that this approach is different from the approach used in estimating direct jobs for the
construction activities, which are based on detailed engineering estimates of manpower requirements.
3.2.1.2 Multiplier Effects
The estimated total multiplier effects associated with the pre-construction and program spending are
shown in Table 11. In addition to the direct business sales, it is projected that approximately
$551 million worth of indirect and induced economic output (or business sales) will be generated by
direct local project spending. About 3,800 indirect and induced jobs will be created with an associated
labor income of about $200 million.
These multiplier effects will be generated in various economic sectors across the state including the
technical services, trade, utilities, transportation, and hospitality sectors, and even the personal services
sector.
Table 11. Estimated Multiplier Effects of Pre-Construction and Other Program Spending
Multiplier Effects Amount (2014 $)
Economic Output (business sales), $ 551,245,700
Jobs (average number of full-time and part-time jobs) 3,870
Labor Income, $ 204,254,400
Source: Northern Economics estimates based on projected project cost data and IMPLAN model.
3.2.2 Economic Impacts of Construction Spending
The construction of the Susitna-Watana hydroelectric facility is estimated to cost about $4 billion (in
2014 $). The construction of this proposed large hydro project includes roads, a powerhouse and
related facilities, and the dam site itself. The construction period is assumed to start in 2019 and last
until 2028.
The cost estimates for the construction work and the associated support and supply chain activities were
divided into 12 construction contracts:
• Main access road construction
• Railroad offloading facility construction
• Site development (for the infrastructure)
• Supply and erect camp
• Main civil works construction
15
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
• Turbine and generator supply
• Transmission line and interconnection construction
• Site and reservoir clearing
• Air transport services
• Railroad operations
• Camp operations
• Medical services.
The Engineering Feasibility Report (AEA 2014a) contains detailed estimates of manpower requirements
(in man-hours), labor costs, materials costs, and equipment costs associated with the various
construction activities. This information was used to estimate the potential local economic impacts
during construction.
3.2.2.1 Direct Effects
Of the $4.09 billion in total construction spending, it is estimated that potential local spending could
amount to $2.66 billion; this represents roughly 65 percent of the total construction spending. While
the main civil works contractor and most of the specialty construction materials and equipment will be
sourced from outside companies with significant large dam construction experience, there is still a
significant portion of project spending that is expected to benefit local contractors and suppliers.
A construction project of this magnitude is expected to benefit numerous Alaska businesses involved in
the construction sector, engineering and technical services sector, environmental services, business
support sector, camp operations, the logistics sector—air transportation, rail transportation, water
transportation, truck transportation, warehousing, and storage—as well as all retail and wholesale trade
sectors.
Carpenters, welders, truck drivers, electricians, equipment operators, pipefitters, laborers, and other
trades will be needed for the entire construction period. Peak construction workforce is estimated to
be 1,155 in Year 9 of the program schedule, or Year 2025 based on the assumed construction schedule
(see Figure 2).
It is estimated that the entire construction period would require a total direct construction workforce of
over 12,000; the annual construction workforces for each of the construction activities are shown in
Figure 3 through Figure 11 below.
16
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Figure 2. Estimated Total Annual Direct Manpower Estimates during Construction
Source: AEA, 2014a.
The following figures show the direct manpower requirements for the various construction activities as
reported in the Engineering Feasibility Report.
Figure 3. Estimated Direct Manpower Requirements for the Permanent Access Road Contract
Source: AEA, 2014a.
1,155
0
200
400
600
800
1000
1200
1400
Year 4 Year 5 Year 6 Year 8 Year 9 Year 10 Year 12Labor UnitsYear of Program Schedule
229
0
50
100
150
200
250
7 - Year 3 11 - Year 3 3 - Year 4 7 - Year 4 11 - Year 4 3 - Year 5 7 - Year 5 11 - Year 5 3 - Year 6 7 - Year 6Labor UnitsMonth-Year of Program Schedule
17
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Figure 4. Estimated Direct Manpower Requirements for the Rail Offloading Facility Contract
Source: AEA, 2014a.
Figure 5. Estimated Direct Manpower Requirements for Camp Civil Works
Source: AEA, 2014a.
194
0
50
100
150
200
250
1 - Year 4 4 - Year 4 7 - Year 4 10 - Year 4 1 - Year 5Labor UnitsMonth-Year of Program Schedule
156
0
20
40
60
80
100
120
140
160
180
1 - Year 4 3 - Year 4 5 - Year 4 7 - Year 4 9 - Year 4 11 - Year 4 1 - Year 5Labor UnitsMonth-Year of Program Schedule
18
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Figure 6. Estimated Direct Manpower Requirements for the Camp Construction
Source: AEA, 2014a.
344
0
50
100
150
200
250
300
350
400
6 - Year 4 7 - Year 4 8 - Year 4 9 - Year 4 10 - Year 4 11 - Year 4 12 - Year 4 1 - Year 5Labor UnitsMonth-Year of Program Schedule
19
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Figure 7. Estimated Direct Manpower Requirements of the Main Civil Works Construction
Source: AEA, 2014a.
Figure 8. Estimated Direct Manpower Requirements for Turbine and Generators Supply Contract
Source: AEA, 2014a.
819
958
0
200
400
600
800
1000
1200
1 - Year 6 1 - Year 7 1 - Year 8 1 - Year 9 1 - Year 10 1 - Year 11 1 -Year 12 1 -Year 13Labor UnitsMonth-Year of Program Schedule
3
0
1
1
2
2
3
3
4
1 - Year 5 1 - Year 6 1 - Year 7 1 - Year 8 1 - Year 9 1 - Year 10 1 - Year 11Labor UnitsMonth-Year of Program Schedule
20
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Figure 9. Estimated Direct Manpower Requirements for Transmission Line and Interconnection Construction
Source: AEA, 2014a.
Figure 10. Estimated Direct Manpower Requirements for Site and Reservoir Clearing
Source: AEA, 2014a.
43
0
5
10
15
20
25
30
35
40
45
50
1 - Year 6 1 - Year 7 1 - Year 8 1 - Year 9 1 - Year 10 1 - Year 11 1 - Year 12Labor UnitsMonth-Year of Program Schedule
103
0
20
40
60
80
100
120
1 - Year 5 1 - Year 6 1 - Year 7 1 - Year 8Labor UnitsMonth-Year of Program Schedule
21
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Figure 11. Estimated Direct Manpower Requirements of All Services Contracts
Source: AEA, 2014a.
Note: This includes the air transport services, railroad operations, camp operations, and medical services
contracts.
3.2.2.2 Multiplier Effects
The estimated total multiplier effects associated with all the local project spending during the
construction phase are shown in Table 12. In addition to the $2.6 billion in direct business sales for the
construction contracts, it is projected that approximately $1.8 billion worth of indirect and induced
economic output (or business sales) will be generated as a result of direct project spending. About
11,000 indirect and induced jobs will be created with an associated labor income of about $630 million.
On annualized basis, about 1,300 indirect and induced jobs are projected to be created per year during
the construction period.
Table 12. Estimated Multiplier Effects of Project Spending during Construction
Multiplier Effects Amount (2014 $)
Economic Output (business sales), $ 1,837,133,147
Jobs (average number of full-time and part-time jobs) 11,305
Labor Income, $ 627,307,182
Source: Northern Economics estimates based on projected project cost data and IMPLAN model.
Table 13 shows the estimated indirect and induced effects of the projected local construction spending
by activity. The potential for local content for the construction services, particularly the air transport
services, railroad operations, camp operations, and the site clearing is expected to be high. Even the
fabrication of the camp facilities is expected to be accomplished by Alaska businesses.
The Alaska Railroad Corporation is also expected to benefit from construction logistics associated with
transporting construction materials and equipment to the project site.
155
0
20
40
60
80
100
120
140
160
180
7 - Year 5 7 - Year 6 7 - Year 7 7 -Year 8 7 - Year 9 7 -Year 10 7 - Year 11 7 - Year 13Labor UnitsMonth-Year of Program Schedule
22
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Table 13. Estimated Indirect and Induced Business Sales, Jobs, and Labor Income Resulting from
Construction Spending by Activity in 2014 $
Construction Activity Business Sales ($) Jobs Labor Income ($)
Permanent Access Road 113,673,584 640 35,541,502
Railroad Offloading Facility 18,855,269 121 6,303,251
Site Development (Camp and Airstrip) 18,144,478 102 5,673,103
Supply and Erect Camp (Camp and Airstrip) 85,848,160 778 43,929,775
Main Civil Works 1,162,499,948 7,095 390,244,977
Turbine and Generator Supply 7,802,295 36 2,197,171
Transmission Line and Interconnection 76,013,661 489 26,269,929
Site and Reservoir Clearing 26,880,990 174 9,159,755
Air Transport Services 132,078,813 643 41,334,149
Railroad Operations 63,784,408 292 17,962,053
Camp Operations 117,265,500 839 43,741,939
Medical Services 14,286,040 96 4,949,579
Total 1,837,133,147 11,305 627,307,182
Annualized 204,125,905 1,256 69,700,798
Source: Northern Economics estimates based on projected project cost data and IMPLAN model.
3.2.3 Economic Impacts of Operations and Maintenance Spending
This section presents the long-term annual local economic impacts associated with the operations phase
of the proposed project.
3.2.3.1 Direct Effects
The annual operations and maintenance spending of the Susitna-Watana Hydroelectric facility is
estimated to amount to $26.5 million per year, except for the first five years, when additional costs for
environmental monitoring are anticipated. Environmental monitoring costs for the first three years are
expected to amount to $10 million per year (2014 $), and $5 million per year for years four and five of
the operations phase.
The project will create long-term jobs associated with operations of the facility. Based on the
Engineering Feasibility Report, a staff of 24 to 28 would be needed for operations at the site; note that
this is a preliminary estimate. Positions would include a plant manager, plant/engineer asset specialist,
electrical supervisor, operators, maintenance trade workers, planner, environmental coordinator,
administrative assistants, and security personnel.
3.2.3.2 Multiplier Effects
The estimated total annual multiplier effects associated with project spending during the operations
phase are shown in Table 14. It is projected that approximately $18.5 million worth of indirect and
induced business sales per year will be generated as a result of direct project spending on operations
and maintenance; that is after year five of operations. The first five years would generate higher
economic effects associated with environmental monitoring activities.
Approximately 100 indirect and induced jobs will be created per year with an associated labor income
of about $6.4 million per year.
23
Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
Table 14. Estimated Multiplier Effects of Project Spending during the Operations Phase in 2014 $
Multiplier Effects Year 1–3 Year 4–5
Year 6 and
beyond
Economic Output (business sales), $ millions 26.36 22.43 18.49
Jobs, average number of full-time and part-time jobs 162 134 105
Labor Income, $ millions 9.42 7.93 6.44
Source: Northern Economics estimates based on projected project cost data and IMPLAN model.
3.2.3.3 Additional Economic Impacts of the Proposed Project during Operations
The proposed project would change the cost of living and/or business operating cost within the Railbelt
region. The proposed project is expected to lower the cost of electricity to residential, commercial, and
industrial customers in the Railbelt region once the project comes online. The direct effect of this is the
change in local business activity occurring as a result of the change in household and/or business
operating costs. To calculate this, it is necessary to estimate the change in disposable household income
and business operating costs, and how they would affect consumer spending and business sales volume.
Lower monthly electricity bills would mean higher disposable income that could be spent in the regions
where the customers are located. This additional spending will generate additional multiplier effects
within the state. These economic effects would be difficult to quantify, however, given the differences
in the level of cost savings for each customer and the manner in which each customer would spend
their money. This typically requires economic modeling that is beyond the scope of this work.
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Susitna-Watana Hydroelectric Project: Benefit-Cost and Economic Impact Analyses
4 References
Alaska Department of Labor and Workforce Development. 2014. Consumer Price Index (CPI). Available
at http://laborstats.alaska.gov/cpi/cpi.htm. Last updated July 24, 2014.
Alaska Department of Labor and Workforce Development. Residency of Alaska Worker: 2012.
Available at http://laborstats.alaska.gov/reshire/nonres.pdf.
Alaska Energy Authority (AEA). 2013. Report to the Legislature 2013. Available at http://susitna-
watanahydro.org/annualreport13/annualreport.html.
Alaska Energy Authority. 2014a. 2014 Engineering Feasibility Report, Susitna-Watana Hydroelectric
Project. December 2014.
Alaska Energy Authority. 2014b. Greenhouse Gas Emissions, Susitna-Watana Hydroelectric Project
(draft report). December 9, 2014.
Alaska Energy Authority. 2014c. Susitna-Watana Cash Flow 2014-08-28 (spreadsheet). August 28,
2014.
Alaska Energy Authority. 2014d. Watana operations and maintenance cost estimates in e-mail from
AEA. December 29, 2014.
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