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Home My WebLink AboutAEA 2018 Report to Alaskans-2018-A2018 REPORT TO ALASKANS LETTER FROM THE BOARD CHAIR LETTER FROM THE EXECUTIVE DIRECTOR UNAUDITED FINANCIAL HIGHLIGHTS 2018 ANNUAL REPORT / PAGE 2 For AEA’s complete FY2018 Audited Financial Statements, go to akenergyauthority.org or call 907.771.3000 BALANCE SHEETS June 30, 2018 June 30, 2017 Assets: Restricted Investment securities and cash 1,212,214 1,157,603 Loans, net 17,968 11,283 Capital assets, net 369,188 374,937 Receivables and other assets 5,766 7,244 Total Assets 1,605,136 1,551,067 Liabilities and net position: Liabilities Bonds payable 85,179 53,495 Other bond liabilities 1,256 1,533 Payables and other liabilities 29,774 34,829 Total liabilities 116,209 89,857 Net position 1,488,927 1,461,210 Total liabilities and net position 1,605,136 1,551,067 REVENUES, EXPENSES AND CHANGES IN NET POSITION Operating revenues: Federal grants 3,505 5,992 Revenue from operating plants 21,482 18,698 State operating and capital revenues 16,063 25,419 Interest on loans 296 292 Other operating revenues 144 22 Total operating revenues 41,490 50,423 Operating Expenses: Grants and projects 30,496 36,776 Power cost equalization grants 26,196 25,853 Interest expense 2,371 2,652 Plant operating 6,772 4,330 General and administrative 4,454 4,703 Provision for loan losses 15 154 Loss on disposal of asset (51) - Depreciation 15,594 10,809 Other project expenses - - Total operating expenses 85,847 85,277 Operating loss (44,357) (34,854) Investment Income, net 79,345 114,443 State of Alaska reappropriations and transfers (10,067) (13,556) Capital contributions 2,796 - -- Increase (decrease) in net position 27,717 66,033 (in thousands) 2018 ANNUAL REPORT / PAGE 3 ALASKA ENERGY AUTHORITY AEA’s is to reduce the cost of energy in Alaska. AEA’s is the delivery of core services and critical projects for improving energy safety, reliability and affordability. mission work AEA has positive in nearly every community and for ratepayers across Alaska. impact 40years more thanserving AEA was established in 1976 as an independent and public corporation of the State of Alaska with the explicit purpose of assisting with the development, operations and financing of around the state. energy projects 2018 IMPACT SUMMARY Number of Railbelt homes powered by Bradley Lake Hydroelectric Project 56,000 Millions of dollars saved over the debt payment period for the Battle Creek project due to low cost interest subsidies accessed by AEA that are available only to a government entity 18 Millions of dollars saved by Golden Valley Electric Association members because of the cheaper power transmitted from Southcentral generation facilities by the Alaska Intertie 27.4 Millions of dollars saved in reduced energy bills in total by about 83,000 rural Alaskans due to Power Cost Equalization 24.1 Number of rural Alaska communities assisted with utility operations and where no electrical emergency occurred 72 Millions of diesel equivalent gallons displaced by the 73 Operational Renewable Energy Fund projects 30.4 Millions of federal dollars leveraged 9.7 Number of communities in which energy infrastructure work was ongoing or completed 56 2018 ANNUAL REPORT / PAGE 4 Number of communities that experienced and which AEA responded to an electrical emergency 6 2018 ANNUAL REPORT / PAGE 5 BRADLEY LAKE HYDRO The Bradley Lake Hydroelectric Project is located 27 air miles northeast of Homer on the Kenai Peninsula and has 120 MW of installed capacity. The project consists of a 125-foot high, concrete- faced, rock-filled dam structure; three diversion structures; a 3.5-mile long power tunnel and vertical shaft; generating plant; interior substation; 20 miles of transmission line; and a substation. The power generation potential of Bradley Lake was first studied by the U.S. Corps of Engineers in 1955. AEA, then the Alaska Power Authority, assumed responsibility for the project in 1982. The project was declared in commercial operation on Sept. 1, 1991 and has been producing power since. Total project costs, including major capital improvements as of June 30, 2015, are $328 million. In FY2018, financing was secured for and construction began on the West Fork Upper Battle Creek (WFUBC) diversion project, which will increase the amount of clean, low cost energy from Bradley Lake by about 10%, or 37,00MWh – enough to keep the lights on in a Homer sized community for a year. AEA performed an Invitation To Bid for the project and received six bids in November 2017. The lowest response bid was $36.5m by Orion Marine Construction. Financing was secured in December 2017 with low cost interest subsidies available only to a government entity, which is anticipated to save approximately $18m over the debt payment period. The Contractor mobilized to Bradley Lake Hydroelectric Project in April 2018 and started construction activities for the Diversion Project. The project will be completed in 2020. The project was funded through legislative appropriations and AEA revenue bonds that are being repaid by the participating utilities. Bonds are expected to be retired in July 2020, after which the participating utilities will be obligated to pay AEA up to $12.5 million annually for deposit into the Railbelt Energy Fund. The Bradley Lake Project Management Committee (BPMC) generally manages the project, subject to AEA’s non-delegable rights, duties and responsibilities. 601,000 Alaskans benefit from the stable, low price power from Bradley Lake: 518,000 directly through use of this power, and 83,000 indirectly through PCE payments that are in part determined by the cost of power in the Railbelt 2018 ANNUAL REPORT / PAGE 6 ALASKA INTERTIE The Alaska Intertie transmission line is a 170-mile long, 345 kV transmission line between Willow and Healy that is owned by AEA and operates at 138 kV. The Intertie interconnects Golden Valley Electric Association (GVEA), the utility that serves areas north of the Alaska Range, with Southcentral Alaska utilities. Although the Alaska Intertie allows resources north and south of the range to be shared to improve reliability, the GVEA storage battery and generation resources have been used to send emergency power south to minimize catastrophic network-wide outages. Constructed in the mid-1980s with $124 million in State of Alaska appropriations, this AEA-owned asset is associated with no debt. There are significant cost savings resulting from the exchange of economy energy and sharing of reserve generation capacity between the Anchorage and Fairbanks load centers. GVEA ratepayers achieved savings in excess of $27 million in 2018. The operation of the Intertie is governed by the Alaska Intertie Agreement entered into in 1985, amended in 1991 and again in 2011. The parties to this agreement are AEA, GVEA, Municipal Light & Power, Chugach Electric and Matanuska Electric Association. Each of these entities also has a seat on the Intertie Management Committee (IMC), the entity with the responsibility for operating and managing the Alaska Intertie. Through AEA’s leadership role as an IMC member and the only participating member with step-in rights on financial decisions regardingregarding the intertie, AEA is uniquely positioned to ensure that ratepayers for the entire electrically interconnected Railbelt region are treated similarly, without regard to a specific utility’s individual service territory. 2018 ANNUAL REPORT / PAGE 7 POWER COST EQUALIZATION The Power Cost Equalization (PCE) payments reduce the unit cost of power to residential and community customers of eligible utilities. The pre-PCE the cost of electricity in rural communities can be three to five times higher than for customers in more urban areas of the state. The program’s purpose is to equalize power costs to near the average cost of power in Anchorage, Fairbanks and Juneau. The Alaska Energy Authority calculates and issues the annual payments, and provides technical assistance to utility clerks who need help preparing PCE reports. Residential and community facility buildings in nearly 200 communities are eligible for the reduced rate. The PCE program is funded by earnings of the PCE Endowment Fund. AS 42.45.085 provides that five percent of the PCE Endowment Fund’s three-year monthly average market value may be appropriated to the PCE program. It has only been in recent years that the five-percent draw on the endowment has been sufficient to fully fund PCE payments. Additionally, because of recent statutory changes made regarding how excess PCE earnings are used, in FY2018 the PCE Endowment fully funded program administrative costs, contributed $30 million to local governments through the state’s community assistance program, and also provided $25 million total for a combination of Renewable Energy Fund and Rural Power System Upgrade projects. In response to concerns raised by rural utilities about the need for faster payment processing and more simplified reporting, in FY2018 AEA developed an on-line PCE reporting portal. The new portal will be beta tested in early FY2019 and a three-phased launch is expected later in FY2019. This new tool will be an option for utilities – it will not be mandatory. The PCE Web Portal will allow utilities to submit monthly reports directly to a form on the web. Benefits of the portal include easier submission of the PCE reports, savings on postage, a faster turnaround for payment, and convenient access to historic Utility Monthly Reports (UMR’s) in digital form. 195 COMMUNITIES 91 ELECTRIC UTILITIES 83,000 ALASKANS 2018 ANNUAL REPORT / PAGE 8 RURAL UTILITY ASSISTANCE AEA provides soup to nuts technical assistance to rural utilities with the primary objectives of ensuring infrastructure lasts its full economic life, preventing catastrophic electrical emergencies, and building community self-sufficiency. In FY2018, with grant funding from USDA, AEA initiated utility business management assistance. This addition to AEA’s utility technical assistance portfolio is the final piece in a a comprehensive package intended to improve efficacy within the rural utility assistance program. AEA’s Rural Training Program trains community operators with the skills to operate their energy infrastructure, helping utilities keep their facilities code- compliant and managed sustainably. In FY2018, 42 operators from 30 communities completed training in Bulk Fuel Operations, Power Plant Operations, and Advanced Power Plant Operations in AEA’s training courses at AVTEC. An additional 26 students from eight communities received on-site itinerant training in bulk fuel operations. Communities received training 38 AEA’s Circuit Rider program assisted 103 eligible utilities in FY2018 by providing remote monitoring, training, technical consultation, on-site assistance, and minor repairs to their power systems. The Circuit Rider and Technical Assistance programs provide essential preventative assistance to reduce the number of emergency responses that are needed due to power outages in communities. Communities received assistance 103 AEA provides power-related emergency assistance services to rural Alaska communities as required by AS 42.45.900 and 3 ACC 108. Electrical emergency assistance, provided when there is risk to life or property due to power failure, was provided to six communities during FY2018: Akhiok, Arctic Village, Chefornak, Hughes, Kwethluk, and Netwok. Communities assisted with electrical emergencies 6 “There was a lot of concern in the community regarding everyone’s freezers being off for extended time – had AEA not been able to respond so quickly there would definitely have been issues with food spoiling. On behalf of Hughes and Tanana Chiefs Conference, we greatly appreciate AEA’s support.” -TCC Rural Energy Coordinator, May 2018 Hughes powerhouse operator during May 2018 electrical emergency 2018 ANNUAL REPORT / PAGE 9 RURAL BULK FUEL UPGRADES Rural Alaska is energized primarily by liquid fuels: diesel for power generation and heating, and gasoline for transportation. Rural villages are located either along rivers or on the coast, so fuel is primarily delivered by barge. Delivery is seasonal and limited by sea or river ice, water levels, or ice road availability. Villages of a few hundred people must store hundreds of thousands of gallons of fuel to meet their annual energy needs. Many of rural Alaska’s bulk fuel facilities were built in the 1950-60s. They were not built to national standards or in compliance with current regulations, and some of them are at the end of their useful lives. Yet they continue in service until upgraded or replaced, in some cases posing risks to personal safety and the surrounding environment. AEA’s Bulk Fuel Upgrade (BFU) program builds and repairs code-compliant fuel storage facilities in Alaska communities under 2,000 people. These facilities help decrease the per-unit cost of fuel by allowing the community to purchase in bulk quantities. Moreover, the facilities protect local public health and the environment by preventing spills and contamination. In the two decades, AEA has performed 118 bulk fuel upgrades, and another 5 are currently in design or construction. In FY2018, AEA completed four Bulk Fuel Upgrade (BFU) projects, in Kake, Shishmaref, Edna Bay, and Port Alsworth. Additional BFU design and construction work was done in the following communities: Kasaan, Kipnuk, Holy Cross, Mertarvik, Tatitlek, and Tuluksak. Kipnuk Bulk Fuel Tanks 118 BFU projects completed since 2000 $122 MM Federal dollars leveraged since 2001 2 Average number of times/year rural communities buy fuel 2018 ANNUAL REPORT / PAGE 10 RURAL POWER SYSTEM UPGRADES AEA’s Rural Power Systems Upgrade (RPSU) program builds and retrofits code-compliant facilities in communities of less than 2,000 people, providing stable and reliable power. Generally, the efficiency improvement in diesel generation is between 10 and 20 percent, with some improvements as high as or even exceeding 30 percent. Upgrades may include efficiency improvements, power house upgrades or replacements, line assessments, demand-side improvements, heat recovery and repairs to generation and distribution systems. The Denali Commission is AEA’s federal funding partner, which requires a state match of 50 percent or 20 percent for nondistressed or distressed communities, respectively. Working in concert with the RPSU program, AEA also manages the State’s allocation through the Environmental Protection Agency’s (EPA’s) Diesel Emissions Reduction Act (DERA). Pending yearly funding from Congress, states can apply for DERA funds based on population. In addition to the state program, EPA also a tribal DERA program that awards funds competitively nationwide. The State of Alaska, through AEA, uses DERA funds exclusively to replace prime power diesel engines in rural Alaska. AEA selects communities for engine replacement through the DERA program based on current engine condition, redundancy, efficiency and engine eligibility. In FY2018, AEA completed five RPSU projects, in Kake, Nunam Iqua, Kongiganak, Kwigilliingok, and Port Alsworth. Additional RPSU design and construction work, including engine replacement with DERA funds, was done in the following communities: Akhoiak, Beaver, Circle, Chignik Lake, Clarks Point, Kipnuk, Mertarvik, Port Heiden, Stevens, Takotna, Tuluksak, and Twin Hills. Kipnuk powerhouse 86 RPSU projects completed since 2000 $98 M Federal dollars leveraged since 2001 15% Average efficiency improvement 2018 ANNUAL REPORT / PAGE 11 RENEWABLE ENERGY FUND The Renewable Energy Fund (REF) has funded 287 grants to assess, develop and/or construct renewable energy projects statewide. There are now 73 operating projects built with contributions from the Renewable Energy Fund, collectively saving more than 30 million diesel equivalent gallons each year. Annual renewable energy generation grows each year as more REF funded projects progress through the construction phase and become operational. Between 2008 and 2015 the legislature appropriated $257 million to the REF. In 2018, excess earnings from the Power Cost Equalization (PCE) fund were available to fund the Community Assistance Program ($30 million), the Rural Power System Upgrade (RPSU) program ($11 million) and the Renewable Energy Fund ($11 million). The $11 million appropriated to REF went to fund eight projects which had been previously recommended for funding: Chitina hydro construction, Wales heat recovery design and construction, Adak hydro feasibility, Koyuk heat recovery design, Shishmaref wind feasibility and design, Seward heat pump design and construction, Kake hydro construction, and a Mt. Village to St. Mary’s intertie design and construction. Unalakleet 73 Operational REF projects 56 REF projects in the pipeline $74 M Annual savings from displaced diesel 2018 ANNUAL REPORT / PAGE 12 POWER PROJECT FUND LOANS The Power Project Fund (PPF) loan program provides loans to local utilities, local governments or independent power producers for the development, expansion or upgrade of power facilities, including distribution, transmission, efficiency and conservation, bulk fuel storage and heat recovery. The loan term is related to the productive life of the project, but cannot exceed 50 years. Interest rates vary between a tax‐exempt rate at the high end and zero on the low end. The tax‐exempt rate is equal to the average weekly yield of municipal bonds for the 12 months preceding the date of the loan application. As of December 10, 2018 the rate was 4.04 percent. The interest rate can be adjusted downward in certain circumstances to improve financial feasibility. Loan requests of more than $5 million require legislative authorization to apply. In FY2018, AEA closed three PPF loans totaling $818,000 to complete construction funding for two diesel powerhouse improvement projects (Koliganek and Port Alswarth) and one biomass project (Tanacross). Total committed funds as of 6/30/18 were $9,787,223 with $18,136,985 in outstanding loans. Three projects that received PPF loans completed construction in FY2018 are: 1) King Cove’s Waterfall Creek hydro project was funded by a combination of an AEA REF grant, PPF loan and Alaska Municipal Bond Bank funds; 2) Venetie completed improvements to their diesel powerhouse; and 3) Newtok completed improvements to their diesel powerhouse. AEA expects demand for the loan program to continue to grow. 7.3 M Funds disbursed to construct projects in ‘18 6 Communities financed projects with PPF in ‘18 17 Active loans in FY2018 Waterfall Creek Hydro, King Cove Energy efficiency is a low-cost energy solution that is both quick to deploy and available in every community in the state. The Energy Efficiency program at AEA leverages federal State Energy Program (SEP) formula funds and has three primary components: (1) The Village Energy Efficiency Program (VEEP) provides grants to improve efficiency in public and community facilities in rural communities with high energy costs; (2) Alaska Energy Efficiency Partnership, a working group of more than 50 public, private, and non- profit organizations; (3) The development of financing markets and mechanisms to use an increasingly larger share of private dollars to complete efficiency statewide (e.g. Commercial Property Assessed Clean Energy, or C-PACE). 2018 ANNUAL REPORT / PAGE 13 ALTERNATIVE ENERGY & ENERGY EFFICIENCY The alternative energy and energy efficiency programs have increased statewide knowledge and capacity around installation and operation of cost-effective efficiency projects and renewable systems by providing technical workshops, hands-on and online training, and technical assistance. Through strategic program development, stakeholder engagement, and policy analysis AEA is helping to build the renewable energy and energy efficiency markets, driving growth in the private sector. Since 2012, Alaska’s energy installed capacity has grown from 15.3 megawatts to 64.1 megawatts. This development has been strongly supported through AEA’s wind program and the Renewable Energy Fund. The Wind Program also supports the Alaska Wind Working Group and the formation of the Wind Advisory Group, AEA-led groups that meet regularly to discuss funding and policy changes needed to advance the industry in Alaska. AEA’s wind program also provides technical assistance to communities interested in evaluating their wind energy potential. Alaska Energy Authority’s program has provided funding for 20 operating woody biomass heating systems for schools and public buildings which reduces diesel fuel use and keeps money for fuel (wood) within the community. Along with the U.S. Forest Service, the program has provided funding for over 150 pre-feasibility studies to evaluate a community’s biomass potential and develop sustainable harvest plans. Biomass use in lieu of diesel is reducing diesel fuel consumption and creating local jobs. AEA’s program owns or assists approximately 70 projects throughout the state. Projects range from concepts to operational hydroelectric facilities. The hydro program is currently focused on improving efficiency and quality in development, lowering the cost of construction, and coordinating with other State agencies, federal agencies, municipalities, tribal entities, and private investors in analyzing, planning, and generally assisting hydroelectric development. wind biomass hydroelectric 2018 ANNUAL REPORT / PAGE 14 PROJECT DEVELOPMENT & FINANCE In light of a reduction in both State and federal grant funding for energy projects, AEA is focused on providing technical assistance and tools to assist communities in the transition from grant funded energy infrastructure to a more debt financed future. Support for community energy project development and finance covers the spectrum from identification and evaluation of cost-effective resource and technology options, assistance connecting with appropriate grant and funding options, to training and support for operations and maintenance to ensure that infrastructure lasts its full economic life. The project development and finance group at AEA provides direct assistance to communities to help them move to a financially sustainable energy system with reduced or no grant funded assets. AEA works with utilities and project developers to bring good, well-vetted, and cost-effective projects to the point of financing. Acting as a liaison between communities and AEA’s technical staff, the project development team identifies the resources needed to provide technical assistance and general technology-specific troubleshooting. To assist communities more readily, this group tracks potential funding opportunities (e.g. federal and private grants and loans) and works to put those funds to work in Alaska. While the need for community energy funding remains relatively constant, the availability of public funding to help meet that need is decreasing. Integrating all aspects of work within AEA’s portfolio, AEA’s project development and finance team is working to encourage private sector investment, prepare communities and utilities for using debt financing to implement projects, and facilitate technical assistance through the project lifecycle, from selection through final construction and ongoing operations. AEA is helping Alaska communities transition to a more dynamic project funding paradigm that, by doing so, will continue to build self-reliance and energy system sustainability into the future. SAFE, RELIABLE, & AFFORDABLE ENERGY SOLUTIONS ALASKA ENERGY AUTHORITY 813 West Northern Lights Blvd. Anchorage, Alaska 99503 Phone: (907) 771-3000 Fax: (907) 771-3044 Toll Free 888-300-8534 www.akenergyauthority.org Front cover: photo of the West Fork Upper Battle Creek Diversion Project construction activities in the foreground, Bradley Lake Hydroelectric Project in the background. Photo taken summer 2018. For more information, please contact Curtis W. Thayer AEA Executive Director