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Home My WebLink AboutAlaska Railbelt Regional Integrated Resource Plan (RIRP) Study Draft Executive Summary December 2009BUILDING A WORLD OF DIFFERENCE®1TTTaneAlaska Railbelt Regional Integrated Resource Plan (RIRP)Study Draft Executive Summary December 2009 BLACK &VEATCH .Building a world of difference.cotssamnniste)7WentawWetAmeye*aeeeF.|reeee"%'ww.YFSoarH:'t4esie.¥ DISCLAIMER ALASKA RIRP STUDY DISCLAIMER STATEMENT In conducting our analysis and in forming the recommendations summarized in this report,Black & Veatch Corporation (Black &Veatch)has made certain assumptions with respect to conditions,events, and circumstances that may occur in the future.In addition,Black &Veatch has relied upon information provided by others.Black &Veatch has assumed that the information,both verbal and written,provided by others is complete and correct;however,Black &Veatch does not guarantee the accuracy of the information,data,or opinions contained herein.The methodologies we utilized in performing the analysis and developing our recommendations follow generally accepted industry practices.While we believe that such assumptions and methodologies,as summarized in this report,are reasonable and appropriate for the purpose for which they are used,depending upon conditions,events,and circumstances that actually occur but are unknown at this time,actual results may materially differ from those projected.Such factors may include,but are not limited to,the ability of the Railbelt electric utilities and the State of Alaska to implement the recommendations and execute the implementation plan contained herein,the regional and national economic climate,and growth in the Railbelt region. Readers of this report are advised that any projected or forecasted financial,operating,growth, performance,or strategy merely reflects the reasonable judgment of Black &Veatch at the time of the preparation of such information and is based on a number of factors and circumstances beyond our control.Accordingly,Black &Veatch makes no assurances that the projections or forecasts will be consistent with actual results or performance. Any use of this report,and the information therein,constitutes agreement that:1)Black &Veatch makes no warranty,express or implied,relating to this report,2)the user accepts the sole risk of any such use,and 3)the user waives any claim for damages of any kind against Black &Veatch.The benefit of such releases, waivers,or limitations of liability shall extend to the related companies,and subcontractors of any tier of Black &Veatch and the directors,officers,partners,employees,and agents of all released or indemnified parties. Black &Veatch December 2009 DRAFT REPORT ACKNOWLEDGEMENTS ACKNOWLEDGEMENTS The Black &Veatch project team would like to thank the following individuals for their valuable contributions to this project. Alaska Energy Authority Steve Haagenson,AEA Executive Director Jim Strandberg,Project Manager Bryan Carey,Project Manager David Lockard,Geothermal and Ocean Energy Program Manager ALASKA RIRP STUDY Doug Ott,Hydroelectric Program Manager James Jensen,Wind Program Manager Jim Hemsath,Deputy Director,Development Christopher Rutz,Procurement Manager Sherrie Siverson,Administrative Assistant Railbelt Utilities (numerous management personnel from the following Railbelt utilities) Anchorage Municipal Light &Power Chugach Electric Association City of Seward Electric System Advisory Working Group Members Norman Rokeberg,Retired State of Alaska Representative,Chairman Chris Rose,Renewable Energy Alaska Project Brad Janorschke,Homer Electric Association Carri Lockhart,Marathon Oil Company Colleen Starring,Enstar Natural Gas Company Debra Schnebel,Scott Balice Strategies Jan Wilson,Regulatory Commission of Alaska Golden Valley Electric Association Homer Electric Association Matanuska Electric Association Jim Sykes,Alaska Public Interest Group Lois Lester,AARP Marilyn Leland,Alaska Power Association Mark Foster,Mark A.Foster &Associates Nick Goodman,TDX Power,Inc. Pat Lavin,National Wildlife Federation -Alaska Steve Denton,Usibelli Coal Mine,Inc. Tony Izzo,TMI Consulting Additional Individuals That Provided Substantive Input to Project Alan Dennis,Alaska Department of Natural Resources Bob Butera,HDR,Inc. Bob Swenson,Alaska Department of Natural Resources David Burlingame,Electric Power Systems, Inc.(EPS) Dick Schober,Seattle-Northwest Securities Corporation Harry Noah,Alaska Mental Health Lands Trust Office Harold Heinze,Alaska Natural Gas Development Authority Jeb Spengler,Seattle-Northwest Securities Corporation Joe Balash,Alaska Governor's Office Ken Fonnesbeck,HDR,Inc. Ken Vassar,Birch,Horton,Bittner,Cherot Kevin Banks,Alaska Department of Natural Resources Mark Myers,Alaska Department of Natural Resources Paul Berkshire,HDR,Inc. Stephen Spain,HDR,Inc. Black &Veatch DRAFT REPORT December 2009 ACKNOWLEDGEMENTS ALASKA RIRP STUDY Purpose and Limitations of the RIRP e The development of this RIRP is not the same as the development of a State Energy Plan;nor does it set State policy.Setting energy-related policies is the role of the Governor and State Legislature.With regard to energy policy making,however,the RIRP does provide a foundation of information and analysis that can be used by policy makers to develop important policies. Having said this,the development of a State Energy Policy and or related policies could directly impact the specific alternative resource plan chosen for the Railbelt region's future.As such,the RIRP may need to be readdressed as future energy-related policies are enacted. e This RIRP,consistent with all integrated resource plans,should be viewed as a "directional”plan.In this sense,the RIRP identifies alternative resource paths that the region can take to meet the future electric needs of Railbelt citizens and businesses;in other words,it identifies the types of resources that should be developed in the future.The granularity of the analysis underlying the RIRP is not sufficient to identify the optimal configuration (e.g.,specific size,manufacturer,model,location,etc.)of specific resources that should be developed.The selection of specific resources requires additional and more detailed analysis. e The alternative resource options considered in this study include a combination of identified projects (e.g.,Susitna and Chakachamna hydroelectric projects,Mt.Spurr geothermal project,etc.),as well as generic resources (e.g.,Generic Hydro -Kenai,Generic Wind -GVEA,generic conventional generation alternatives,etc.).Identified projects are included,and shown as such,because they are projects that are currently at various points in the project development lifecycle.Consequently,there is specific capital cost and operating assumptions available on these projects.Generic resources are included to enable the RIRP models to choose resource types,based on capital cost and operating assumptions developed by Black &Veatch.This approach is common in the development of integrated resource plans. Consistent with the comment above regarding the RIRP being a "directional”plan,the actual resources developed in the future,while consistent with the resource type identified,may be:1)the identified project shown in the resource plan (e.g.,Chakachamna),2)an alternative identified project of the same resource type (e.g.,Susitna);or 3)an alternative generic project of the same resource type.One reason for this is the level of risks and uncertainties that exist regarding the ability to plan,permit,and develop each project.Consequently,when looking at the resource plans shown in this report,it is important to focus on the resource type of an identified resource,as opposed to the specific project. e The capital costs and operating assumptions used in this study for alternative DSM/EE,generation and transmission resources do not consider the actual owner or developer of these resources.Ownership could be in the form of individual Railbelt utilities,a regional entity,or an independent power producer (IPP). Depending upon specific circumstances,ownership and development by IPPs may be the least-cost alternative. Black &Veatch 2 December 2009 DRAFT REPORT TABLE OF CONTENTS ALASKA RIRP STUDY Table of Contents 1.0 Executive Summary ...........eeceeeseecssesecceesseeeeescecesceececaceesseeeeessceesescceeeesacessesecerssseeeenseeeeseeeeees 1-1 1.1 Current Situation Facing the Railbelt Utilities...eee eeeeeseecseeeseseseeeeeenaeeeees 1-1 1.2 Project OVerVieW 0...ee eeeeteesceseeeseeteeeseerseeceeeseenseeeseeesescaeeseesseseaeessesessesssseeeesueeeges 1-3 1.3 Evaluation ScemariosS...........ccccccsecesesecesseeesceesecceseceeseeesanecescersneeseseeseseeessecesnseseesensesens 1-7 14 Summary of Key Input Assumptions.........ces eseseseseesseeeeecescesseeesecesecsssesseseesoeeenes 1-8 1.5 Susitna Analysis..........ceeeesseccsscesseeecsccesacecsneecssevsnsescsceseseecssceeceeeeseaacessesessesessesensesonea 1-8 1.6 Transmission Analysis ............escccscccsescsseccesecescceseeceseeeseneecensesseensnecsanessseeessaeenseseeaes 1-9 1.7 Summary of Results...ee eeeeseeseeceeecseeesseeseesenesaeeeseceseevseeeseccneecsesessseseeseeneneee 1-11 1.7.1 Results of Base Cases oo...eee eescsscessseesssesesseeessecesseccsssecseessnseoesnesensaees 1-12 1.7.2 Sensitivity Cases Evaluated ............eeceeeesccceseeceessseceeeseeeetseceessseeeeesseetensees 1-14 1.7.3 Summary of Results -Economics and Emissions ..............:cccesceceseeeeseeees 1-14 1.7.4 Results of Transmission AnalySis ...........::ccccsseceeeeeeceeseeeeceseeeeeeeeeesseeeeensees 1-17 1.7.5 Results of Financial Analysis 0.0.0...ee eceesscceeceeceeereneecesseeeseossssaseseeseaaens 1-20 1.8 Implementation Risks and Issues...........ecceesceeseeeesceeeeneesseceeseseesceceseecesaeeeaaeeseeeessaane 1-22 1.8.1 General Risks and Issues ...........ce eeeesceeeecceseeceeeeesneteneeeseresesesesseenseesesaeoes 1-22 1.8.2 Resource Specific Risks and ISsues.............cessccececeeesenecceereesseeceeeeessseeeeoeers 1-23 1.9 Conclusions and Recommendations ..0.........eeccecesscceeseeceeeeeneeeeeeceeetenaceeeseceesseeeeeenaes 1-25 1.9.1 Conclusions 200...eee eeeceeeeceesecceseeeseceesceeeseeeeneeseeessesessceseseesessesesaesesseonsaens 1-25 1.9.2 -Recommendations ...........:.cesescccesneeceseeceesceeessaceeessaceessaaeecesaneeesseeeessseeseesee 1-28 1.10 Near-Term Implementation Action Plan (2010-2012)o0....eee eeeeeesseeeeseeeeeeeees 1-35 1.10.1 General ACtions .0........ci ce eecceeeeeeeeeeseeeesseceesenceesesaeesenaeeesseanecsneeeesssneseesaseres 1-36 1.10.2 Capital Projects...cecscecessceceseceeceeneeeeeceecesaeeeesaceesesneeeceaeeessseeeesaeeesonaes 1-38 1.10.3 Supporting Studies and Activities 2.0.0.0...cece ceeeeesecceeseeceeeseeeceneereeeeeeens 1-39 1.10.4 Other Actions..........ceccececesceceseceeessneceeseceeeeaeeesecaneceseaceestsaeeessseescesneesseaeeeoees 1-40 Black &Veatch TC-1 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.0 EXECUTIVE SUMMARY In response to a directive from the Alaska Legislature,the Alaska Energy Authority (AEA)was the lead State agency for the development of a Regional Integrated Resource Plan (RIRP)for the Railbelt Region.This region is defined as the service areas of six regulated public utilities,including:Anchorage Municipal Light & Power (ML&P),Chugach Electric Association (Chugach),Golden Valley Electric Association (GVEA), Homer Electric Association (HEA),Matanuska Electric Association (MEA),and the City of Seward Electric System (SES). The purpose of this document is to provide the results of the RIRP study.This section includes the following subsections: e §©Current Situation Facing the Railbelt Utilities e Project Overview e Evaluation Scenarios e Summary of Key Input Assumptions e =Susitna Analysis e Transmission Analysis e Summary of Results e Implementation Risks and Issues e Conclusions and Recommendations e Near-Term Implementation Plan (2010-2012) Some Definitions Three Discrete Tasks e REGA means "Railbelt Electrical e REGA study determined the business structure Grid Authority”for future Railbelt generation and transmission e GRETC means "Greater Railbelt (G&T) Energy &Transmission Company”e GRETC initiative is the joint effort between e RIRP means "Railbelt Integrated Railbelt Utilities and AEA to unify Railbelt G&T Resource Plan”e RIRP is the economic plan for future capital investment in G&T and in fuel portfolios that GRETC would build,own and operate 1.1 Current Situation Facing the Railbelt Utilities The Railbelt generation,transmission,and distribution infrastructure did not exist prior to the 1940s.At that time,citizens in separate areas within the Railbelt region joined together to form four cooperatives (Chugach, GVEA,HEA,and MEA)and two municipal utilities (ML&P and SES)to provide electric power to the consumers and businesses within their service areas.Collectively,these utilities are referred to as the Railbelt utilities. Black &Veatch 1-1 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY The independent and cooperative decisions made over time by utility managers and Boards,as well as the State,in a number of areas have significantly improved the quality of life and business environment in the Railbelt.Examples include: The evolution of the business and operating environment,and changes in the mix of Infrastructure Investments -the State and the Railbelt utilities have made significant investments in the region's generation and transmission infrastructure.Examples include the Alaska Intertie and Bradley Lake Hydroelectric Plant. Gas Supply Investments and Contracts -ML&P took a bold step when it purchased a portion of the Beluga River Gas Field,a decision that has produced a significant long-term benefit for ML&P's customers and others within the Railbelt.Additionally,Chugach was able to enter into attractive gas supply contracts.These decisions have resulted in historical low gas prices which have significantly offset the region's inability to achieve economies of scale in generation due to its small size. Innovative Solutions -GVEA's Battery Energy Storage System (BESS)is one example of numerous innovative decisions that have been made by utility managers and Boards to address issues that are unique to the Railbelt region. Joint Operations and Contractual Arrangements -over the years,the Railbelt utilities have joined together for joint benefit in terms of coordinated operation of the Railbelt transmission grid and have entered into contractual arrangements that have benefited each utility. stakeholders,presents new dynamics for the way decisions must be made.This Current changing environment poses significant challenges for the Railbelt utilities and,indeed,Situation all stakeholders.In fact,it is not an overstatement to say that the Railbelt is ata +Limited redundancy historical crossroad,not unlike the period of time when the Railbelt utilities were *Limited economies originally formed.of scale *Dependence on Categories of issues facing the Railbelt utilities include:fossil fuels e Uniqueness of the Railbelt region *LimitedCookInlet e Cost issues an StorageeNaturalgasissues«Aging G&T©Load uncertainties infrastructure e Infrastructure issues +Inefficient fuel use °Future resource options *Difficult financingePoliticalissues»Duplicative G&TeRiskmanagementissuesexpertise Table 1-1 provides a listing of the issues within each of these categories.A detailed discussion of these issues is provided in Section 3. Black &Veatch 1-2 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Table 1-1 Summary Listing of Issues Facing the Railbelt Region Uniqueness of the Railbelt Region |Load Uncertainties Political Issues e Size and geographic expanse ©Stable native growth e Historical dependence on e Limited interconnections and ©Potential major new loads State funding redundancies e Proper role for State Cost Issues Infrastructure Issues Risk Management Issues e Relative costs -Railbelt region e Aging generation ¢Need to maintain flexibility versus other states infrastructure ¢Future fuel diversity °Relative costs -among Railbelt °Baseload usage of inefficient |«Aging infrastructureutilitiesgenerationfacilities+7:. ;;-e Ability to spread regional«Economies of scale e Operating and spinning risks reserve requirements Natural Gas Issues Future Resource Options e Historical dependence e Acceptability of large hydro e Expiring contracts and coal e Declining developed reserves ¢Carbon tax and other and deliverability environmental restrictions *Historical increase in gas prices ¢Optimal size and location of new generation andePotentialgassuppliesandpricesCevgecegPPPtransmissionfacilities e Limited development - renewables e Limited development - DSM/EE programs 1.2 Project Overview The goal of this project is to minimize future power supply costs,and maintain or improve on current levels of power supply reliability, through the development of a single comprehensive RIRP for the of.. Railbelt region.The intent of the RIRP project,as stated in the AEA Minimize regional power request-for-proposal,is to provide:supply costs,and maintain or e An up-to-date model that the utilities and AEA can use as a improve current reliability,ascommondatabaseandmodelforfutureplanningstudiesandopposedtomuanimiZingPower analysis.supply costs for any individual e Anassessment of loads and demands for the Railbelt electrical utility. grid for a time horizon of 50 years including new potential industrial demands. e Projections for Railbelt electrical capacity and energy growth,fuel prices,and resource options. e An analysis of the range of potential generation resources available,including costs,construction schedule,and long-term operating costs. e Aschedule for existing generating unit retirement,new generation construction,and construction of backbone redundant transmission lines that will allow the future Railbelt electrical grid to operate RIRP Objective Function Black &Veatch 1-3 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY reliably under open access tariffs,and with a postage-stamp rate for electric energy and demand for the entire Railbelt as a whole. A long-term schedule for developing new fuel supplies that will provide for reliable,stable priced electrical energy for a 50-year planning horizon. A short-term schedule that coordinates immediate network needs (i.e.,increasing penetration level of non-dispatchable generation,such as wind)within the first 10 years of the planning horizon,consistent with the long-term goals. A short-term plan addressing the transition from the present decentralized ownership and control to a unified G&T entity that identifies unified actions between utilities that must occur during this transition period. A diverse portfolio of power supply that includes,in appropriate portions,renewable and alternative energy projects and fossil fuel projects,some or all of which could be provided by independent power producers (IPPs). Current Situation Limited redundancy Limited economies of scale Dependence on fossil fuels Limited Cook Inlet gas deliverability and storage Aging G&T infrastructure Inefficient fuel use Difficult financing Duplicative G&T expertise ARIRP Study Plan that economically schedules what,when, and where to build,based on available fuel and energy supplies 50-year time horizon Competes generation, transmission,fuel supply and DSM/energy efficiency options Includes CO,regulation Includes renewable energy projects Arrives at a plan to build future infrastructure for minimum jong-run cost to ratepayers Considers fuel supply options and risks e Acomprehensive list of current and future generation and transmission power infrastructure projects. The alternative resource options considered in the RIRP analysis are shown in Table 1-2. Black &Veatch conducted the REGA study for the AEA and the final report was released in September 2008. That study evaluated the feasibility of the Railbelt utilities forming an organization to provide coordinated unit commitment and economic dispatch of the region's generation resources,generation and transmission system planning,and project development.As a result of that study,legislation was proposed to create GRETC with a 10-year transition period to achieve these goals.This RIRP is based on the GRETC concept being implemented from the beginning of the study's time horizon. Black &Veatch had primary responsibility for conducting this Railbelt RIRP.In addition to Black &Veatch, three other AEA contractors (HDR Inc.,Electric Power Systems,Inc.,and Seattle-Northwest Securities Corporation)played important roles in the development of the RIRP.Each contractor has prepared a report summarizing their work,which are included in Appendices A through C. HDR updated work from the mid-1980s on the Susitna Hydroelectric Project and developed the capital and operating costs,as well as the generating characteristics,for several smaller-sized Susitna projects.HDR'sworkwasusedbyBlack&Veatch in the Strategist®and PROMOD®modeling discussed below. Electric Power Systems,Inc.(EPS)evaluated the system stability of the transmission and generation plans developed. Black &Veatch 1-4 DRAFT REPORT December 2009 SECTION 1 EXECUTIVE SUMMARY Table 1-2 ALASKA RIRP STUDY Alternative Resource Options Considered Demand-Side Management/Energy Efficiency (DSM/EE)Measure Categories Conventional Generation Resources Renewable Resources Residential e =©Appliances e Water Heating e =.Lighting e =Shell ® Cooling/Heating Commercial e Water Heating e Office Loads e Motors e =Lighting e =Refrigeration Simple Cycle Combustion Turbines «LM6000 (48 MW) e LMS100 (96 MW) Combined Cycle e 1x]6FA (154 MW) e 2X1 6FA (310 MW) Coal Units e Healy Clean Coal e Generic -130 MW Hydroelectric Projects e §Susitna e Chakachamna e =Glacier Fork e Generic Hydro -Kenai e Generic Hydro -MEA Wind e BQ Energy/Nikiski e =Fire Island e Generic Wind -Kenai e Generic Wind -GVEA Geothermal e Mt.Spurr Municipal Solid Waste e Generic -Anchorage e Generic -GVEA Other Resources Included in Sensitivity Cases e Modular Nuclear e Tidal Seattle-Northwest Securities Corporation (SNW)developed the financial model used to determine the overall financing costs for the portfolio of generation and transmission projects developed as part of this project,and evaluated the impact of some financial options that could be used to address financing issues and mitigating related rate impacts. Additional information regarding Black &Veatch's approach to the completion of this study is provided in Section 2. Black &Veatch 1-5 DRAFT REPORT December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Purpose and Limitations of the RIRP e The development of this RIRP is not the same as the development of a State Energy Plan;nor does it set State policy.Setting energy-related policies is the role of the Governor and State Legislature.With regard to energy policy making,however,the RIRP does provide a foundation of information and analysis that can be used by policy makers to develop important policies. Having said this,the development of a State Energy Policy and or related policies could directly impact the specific alternative resource plan chosen for the Railbelt region's future.As such,the RIRP may need to be readdressed as future energy-related policies are enacted. *This RIRP,consistent with all integrated resource plans,should be viewed as a "directional”plan.In this sense,the RIRP identifies alternative resource paths that the region can take to meet the future electric needs of Railbelt citizens and businesses;in other words,it identifies the types of resources that should be developed in the future.The granularity of the analysis underlying the RIRP is not sufficient to identify the optimal configuration (e.g.,specific size,manufacturer,model,location,etc.)of specific resources that should be developed.The selection of specific resources requires additional and more detailed analysis. e The alternative resource options considered in this study include a combination of identified projects (e.g., Susitna and Chakachamna hydroelectric projects,Mt.Spurr geothermal project,etc.),as well as generic resources (e.g.,Generic Hydro -Kenai,Generic Wind -GVEA,generic conventional generation alternatives, etc.).Identified projects are included,and shown as such,because they are projects that are currently at various points in the project development lifecycle.Consequently,there is specific capital cost and operating assumptions available on these projects.Generic resources are included to enable the RIRP models to choose resource types,based on capital cost and operating assumptions developed by Black &Veatch.This approach is common in the development of integrated resource plans. Consistent with the comment above regarding the RIRP being a "directional”plan,the actual resources developed in the future,while consistent with the resource type identified,may be:1)the identified project shown in the resource plan (e.g.,Chakachamna),2)an alternative identified project of the same resource type (e.g.,Susitna);or 3)an alternative generic project of the same resource type.One reason for this is the level of risks and uncertainties that exist regarding the ability to plan,permit,and develop each project.Consequently, when looking at the resource plans shown in this report,it is important to focus on the resource type of an identified resource,as opposed to the specific project. e The capital costs and operating assumptions used in this study for alternative DSM/EE,generation and transmission resources do not consider the actual owner or developer of these resources.Ownership could be in the form of individual Railbelt utilities,a regional entity,or an independent power producer (IPP). Depending upon specific circumstances,ownership and development by IPPs may be the least-cost alternative. Black &Veatch 1-6 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.3 Evaluation Scenarios Black &Veatch,in collaboration with the Advisory Working Group that was assembled by the AEA for this project,developed four Evaluation Scenarios;Black &Veatch then developed a 50-year resource plan for each of these Evaluation Scenarios. The primary objective of these Evaluation Scenarios was to evaluate two key drivers.The first driver was to look at what the impacts would be if the demand in the region was significantly greater than it is today;of primary interest was to see if higher demands would result in greater reliance on large generation resource options and allow for more aggressive expansion of the region's transmission network. The second driver was to determine the impact associated with the pursuit of a significant amount of renewable resources over the 50-year time horizon. As aresult,Black &Veatch evaluated the four Evaluation Scenarios shown in Figure 1-1. Figure 1-1 Evaluation Scenarios %Base Case Scenario 1A Scenario 1B o 3} Le sSs High Growth Scenario 2A Scenario 2BCase Least Cost Force 50% Level of Renewables by 2025 (Energy) The key assumptions underlying each Evaluation Scenario include: e Scenario 1 -Base Case Load Forecast Current regional loads with projected growth All available resources -fossil fuel,renewables,and DSM/EE Probabilistic estimate of gas supply availability and prices Deterministic price forecasts for other fossil fuels Emissions including COQ);costs Transmission system investments required to support selected resources Scenario 1A -Least Cost Plan Scenario 1B -Force 50%Renewables e Scenario 2 --Large Growth Load Forecast o Significant growth in regional loads due to economic development efforts or large scale electrification (e.g.,economic development loads,space and water heating fuel switching,and electric vehicles)00000000Black &Veatch 1-7 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Base case resources,fuel availability/price forecasts and CO,costs Transmission system investments required to support selected resources Scenario 2A -Least Cost Plan Scenario 2B -Force 50%Renewables0000 1.4 Summary of Key Input Assumptions The completion of this RIRP required the development of a large number of assumptions in the following categories: e Section 4-Description of Existing System,including information on existing generation resources, committed generation resources,and the existing Railbelt transmission network. e Section 5 -Economic Parameters,including inflation rates,financing rates,present worth discount rate,interest during construction rate,and fixed charge rates. e Section 6 -Forecast of Electrical Demand and Consumption,including 50-year peak demand forecasts and net energy for load requirements. e Section 7 -Fuel and Emissions Allowance Price Projections,including price forecasts for various fuels and emission allowance price projections. e Section 8 -Reliability Criteria,including the region's planning and operating reserve margin requirements. ¢Section 9 -Capacity Requirements,including the region's capacity requirements over the 50-year planning horizon. e Section 10 -Supply-Side Options,including an overview of the supply-side resource option input assumptions used in this study,including both conventional technologies and renewable energy options. e Section 11 -DSM/EE Resources,including a summary of the methodology and assumptions that Black &Veatch used to evaluate potential DSM/EE measures. e Section 12 --Transmission Projects,including an overview of the transmission projects required to improve the overall reliability of the region's transmission network and connect the generation resources included in the alternative resource plans that were developed as part of this project. 1.5 Susitna Analysis HDR was contracted by the AEA to:1)update previous cost estimates,energy estimates,and schedules that were developed in the 1980s,2)develop smaller-sized alternatives to better match the Susitna resource with the capacity and energy needs of the region,and 3)evaluate the resulting economics of the project. According to an earlier HDR report,dated March 16,2009',several project development alternatives were considered in the 1980s: e Watana.This alternative consists of the construction of a large storage reservoir on the Susitna River at a site named Watana,with an 885-foot-high rock filled dam,and a powerhouse containing six turbines with a total installed capacity of 1,200 MW. e Low Watana.This alternative consists of the Watana dam constructed to a lower height of 700 feet, along with a powerhouse containing four turbines,with a total installed capacity of 600 MW. '"Susitna Hydroelectric Project.Project Evaluation.Interim Memorandum.Final;”Prepared for AEA by HDR and Northern Economics;March 16,2009. Black &Veatch 1-8 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY e Watana/Devil Canyon.This alternative consists of the full-height Watana development,plus a second reservoir located downstream at a site called Devil Canyon.This downstream reservoir would re-regulate river flow and be impounded by a 646-foot-high concrete dam.The Devil Canyon powerhouse would have an installed capacity of 680 MW.After the FERC license is issued,these two dams and powerhouses would be constructed sequentially without delays.The combined Watana/Devil Canyon developments would have an installed capacity of 1,880 MW. e Staged Watana/Devil Canyon (low height Watana,plus Devil Canyon,plus full-height Watana). This alternative would ultimately result in the same configuration as the previous alternative,but the Watana dam would be initially constructed to the lower height and the Watana powerhouse would only have four out of the six lower-head turbine generators installed.The Watana construction crew would demobilize and move downstream to construct the Devil Canyon dam and powerhouse,then either demobilize again,delay further construction,or return upstream to complete the Watana dam to its full height and install the remaining two units.The staged capacity of Watana would increase from 600 MW to 1,200 MW for a total project capacity of 1,880 MW. ¢Devil Canyon.This alternative consists of the Devil Canyon dam,without Watana dam,with a Devil Canyon powerhouse containing four turbines,with a total installed capacity of 680 MW.Note that Devil Canyon was intended to be a regulating dam,paired with the Watana reservoir.Without the larger upstream Watana reservoir,the Devil Canyon alternative would have minimal storage for providing power in winter. As the RIRP process defined the future Railbelt power requirements,it became evident that lower-cost options,that were a closer fit to the needs of the Railbelt region,should be sought.HDR's revised Susitna alternatives are presented in Table 1-3.Each alternative is described below. e Lower Low Watana.This alternative is a lower dam and corresponding smaller project than the Watana option.The height of the dam is about 50 feet less than the original Low Watana project. e Low Watana (Non-Expandable).This alternative represents the same sized dam as the original Low Watana project except that the dam is constructed with a smaller base,essentially eliminating the option to increase its height in the future. e Low Watana (Expandable).This is the same alternative as the original Low Watana project. Watana.This is the same alternative as the original Watana project. e High Devil Canyon.This alternative is a dam between the original Watana and Devil Canyon projects.With this configuration neither the original Devil Canyon or Watana projects would be possible. In addition to developing smaller projects,HDR evaluated cost reduction measures for the original Low Watana (Expandable)and Watana alternatives.For the revised list of alternatives,only Low Watana (Expandable)and Watana allow for the ultimate development of the Susitna River comprised of High Watana and Devil Canyon. The detailed results of the HDR Susitna study are provided in Appendix A.This report provided the basis for the Susitna-related input assumptions that were used in the RIRP modeling. 1.6 Transmission Analysis An important element of this RIRP was the analysis of transmission investments required to integrate the generation resources in each resource plan,ensure reliability and enable the region to take advantage of economy energy transfers between load areas within the region. Black &Veatch 1-9 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Table 1-3 HDR Analysis of Watana and High Devil Canyon Alternatives Low Watana Lower Low (Non-Low Watana High Devil Watana Expandable)(Expandable)Watana Canyon Gross Head (ft)495 557 557 734 729 Net Head (Max Flow)481 543 543 729 707 (ft) Maximum Plant Flow 10,700 14,500 14,500 22,300 14,800 (cfs) Number of Units 3 4 4 6 4 Nameplate Capacity 380 600 600 1200 800 (MW) Firm Capacity (98%)170 245 245 380 345 (MW) Min,Capacity (MW)65 75 75 100 100 Average Annual 2,000 2,600 2,600 3,700 3,900 Energy Production (GWh) Dam Height*(ft)650 700 700 885 855 Cost (2008 $)$4,100,000,000 $4,500,000,000 |$4,900,000,000 |$6,400,000,000 $5,400,000,000 Maximum Pool 1,950 2,014 2,014 2,193 1,750 Elevation (ft) Minimum Pool 1,850 1,850 1,850 2,065 1,605 Elevation (ft) Tailwater Elevation 1,456 1,457 1,457 1,459 1,022 (Max Flow) (ft) Usable Storage (acre-1,536,200 2,704,800 2,704,800 3,888,500 2,254,700 ft) *Height of dam crest above foundation.Foundation elevation assumed to be 1,325'for Low Watana and 895'for High Devil Canyon as defined in the 1982 Acres feasibility study. **Cost estimated by R&M. Black &Veatch DRAFT REPORT December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY The fundamental objective underlying the transmission analysis was to upgrade the transmission system over a 10-year period to remove transmission constraints that currently prevent the coordinated operation of all the utilities as a single entity. The study included all assets 69 kV and above.These assets,over a transition period,would flow into GRETC and form the basis for a phased upgrade of the system into a robust,reliable transmission system that can accommodate the economic operation of the interconnected system.The transmission analysis also assumed that all utilities would participate in GRETC with planning being conducted on a GRETC basis.The common goal would be the tight integration of the system operated by GRETC. Potential transmission investments in each of the following four categories were considered: e Transmission projects to connect new generation projects to the grid (Generation Interconnections) e Transmission projects to upgrade the grid required by the new generation projects (Generation Upgrades) e Replacement projects that need to be done because of age and condition (Replacement) e Upgrade projects to the grid to implement the GRETC concept,based on existing generation (GRETC) The results of Black &Veatch's transmission assessment are discussed later in this section. 1.7 Summary of Results The purpose of this subsection is to summarize the results of Current RIRP Study the RIRP analysis.We begin by Situation *Plan that economically providing a summary of the «Limited redundancy schedules what,when,adbasecaseresultsforeachofthe;; , .:+Limited economies on available fuel andfourEvaluationScenarios.We of scale energy supplies then Provide ho ear'd *Dependence on ¢50-year time horizon RIRP summary of the economic an i-ty Its f lb fossil fuels *Competes generation,Resultsemissionresutsoraase.«Limited Cook Inlet transmission,fuel supply *Increasedcasesandsensitivitycases.This gas deliverability and DSM/energy DSM/energy is followed by a summary of the and storage efficiency options efficiency results of the transmission +Aging G&T ,|°Includes CO,regulation |*Increased analysis that was completed infrastructure "|»Includes renewable "|renewables and,finally,the results of the *Inefficient fuel use energy projects *Reduce financial analysis.More detailed |-Difficult financing *Arrives at a plan to build on natural gasinformationregardingthe:Duplicative G&T future introngrunefor to ;:;-"°IncreaseresultsoftheRIRPstudyisexpertiseratepayerstransmissionprovidedinSection13.Considers fuet supply options and risks Black &Veatch 1-11 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.7.1 Results of Base Cases In this subsection,we provide summaries of the base case results for each of the following four Evaluation Scenarios: e Scenario 1A -Base Case Load Forecast -Least Cost Plan Scenario 1B -Base Case Load Forecast -Force 50%Renewables Scenario 2A -Large Growth Load Forecast -Least Cost Plan Scenario 2B -Large Growth Load Forecast -Force 50%Renewables We begin with a summary of the impact that DSM/EE measures have on the region's capacity and annual energy requirements.This is followed by summary graphics and information for each of the four Evaluation Scenarios.Detailed model output for each of the base cases are provided in Appendices F-I. 1.7.1.1 DSM/EE Resources As discussed in Section 11,Black &Veatch screened a broad array of residential and commercial DSM/EE measures.Based on this screening,21 residential and 51 commercial DSM/EE measures were selected forinclusionintheRIRPmodels,Strategist®and PROMOD®,as potential resources to be selected. Based upon the relative economics of these screened residential and commercial DSM/EE measures,they were selected at the maximum limits in each of the four Evaluation Scenarios.As discussed in Section 11, these maximum limits were based on technology adoption curves for DSM/EE studies from the BASS model;additionally,DSM/EE measures are treated by Strategist®and PROMOD*®as a reduction to the load forecast from which the alternative supply-side options are considered for adding generation resources. As can be seen in Figure 1-2,DSM/EE measures result in a significant impact on the region's capacity and energy requirements.After the initial program start-up years,DSM/EE measures reduce the region's capacity requirements by approximately 8 percent.A similar level of impact is also shown for annual energy requirements. Figure 1-2 Impact of DSM/EE Resources -Base Case Load Forecast Demand (MW)|Energy Requirements (MWh) [--_Without DSM/EE]--Without DSM/EE 4,400 -With DSM/EE 8,000,000 -With DSMWEE [J _ 7,000,0001,200 3 g a1eeee26,000,0001,000 |2 --2 ee I =5,000,000 !=800 £z ©4,000,000 }a Z 600 |3 8 &3,000,000 400 |4@ 2,000,000 |------_ 200 i c '4 4.000,000 SEESSSSBBRSZERSEB |CTS PRR BREE STEER EESRBS&RkKRKRRBKRKRKRKRAQ RSRR STFS agCsg i Sages F¥HwWHwHO.seeae s |RRRRRRRRRRRRRRRRA :Year Black &Veatch 1-12 December 2009 DRAFT REPORT SECTION1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.7.1.2 Results -Scenario 1A Base Case Figure 1-3 Results -Scenario 1A Base Case Capacity By Resource Type |=Ocean Tidal 1600 Wind 7000 Energy By Resource Type @ Municipal Solid Waste|-_-|1400 1 &Geothermal e000 1200 Tw Ocean Tidal é 5000 BWindz1000E@Muricipal Solid Waste =4000 =Geothermal2avog a g Hydro é 600 w 3000 m Purchase Power w FuetOil 400 2000 m@ Nuclear m Coal 200 1000 @ Natral Gas Q 0EFERRLAILSSETEZBRB rPERRRAR 3238888esPf$888 8 =F FERSRRRBEBSB 883 8 8RRRRSNSAAARRORNORROSeeaesSseeeeedge228 1.7.1.3.Results -Scenario 1B Base Case Figure 1-4 Results -Scenario 1B Base Case 1600 Capacity By Resource Type Energy By Resource Type m Ocean Tidal :;@ Ocean TidalaWird'im Wind =@ Municipal Solid Waste:Ay @ Muricipal Solid Waste >3 Geothermal ¢.@ Geothermal f 1 Hydro ro)|Hydro La §Purchase Power y @§Purchase Power e =Fuel O}a m Fuel Oil '@ aw Nuckear @ Nuclear w Coal wCoal Natural Gas SNatualGas ZFERRERER RBS PERBEE ssa 888888283522888RRRRRRERRERRAERRRREAARRRRRANN&R AR AON NOR OR _ 1.7.1.4 Results -Scenaric 2A Base Case Figure 1-5 Results -Scenario 2A Base Case Capacity By Resource Type3000 44000 Energy By Resource Type 2500 12000 1 _'8Ocean Tidal a @ Ocean Tidal 2000 a Wind 10000 Wind =lm Municipal Solid Waste @ Municipal Solid Waste 2 i @ GeothermalA1500F1Hydro =&|Purchase Power°4000 =FuelOil m@ Nuclear 500 Coal @ NaturalGas oO -o ”w =oo a aad e Oo n o a N wo o -lod [=J ld aEERESERS2222228eeaeSssSeeeasie22s Black &Veatch 1-13 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.7.1.5 Results -Scenario 2B Base Case Figure 1-6 Results -Scenario 2B Base Case 3500 Capacity By Resource Type aao00 Energy By Resource Type 3000 12000 |#Ocean Tidal ™Ocean Tidal |2500 w Wind 10000 a Wind=uw Municipal Solid Waste =Municipal Sold Waste >2000 |@ Geothermal @ 8000 §Geothemal 8 "Hydro 8 1 Hydro a 1500 ™Purchase Power ui 6000 =Purchase Power$©Fuel Oil a @ Fuel Oil 4000 m Nuclear 4000 a @ Nuclear L w Coal gee,ey @Coal500"fm Natural Gas 2000 §a .i @ Natural Gas 0 o® 1.7.2 20532056205920202020:20:20:20.2032203520382041204420472050205320562059oes8 Sensitivity Cases Evaluated The following sensitivity cases were evaluated: 1.7.3 Scenario 1A Without DSM/EE Measures Scenario LA With Committed Units Included Scenario 1A Without CO,Costs Scenario 1A With Higher Gas Prices Scenario 1A With Fire Island Scenario 1A Without Chakachamna Scenario 1A With Chakachamna Capital Costs Increased by 75% Scenario 1A With Susitna (Lower Low Watana Non-Expandable Option)Forced Scenario 1A With Susitna (Low Watana Non-Expandable Option)Forced Scenario 1A With Susitna (Low Watana Expandable Option)Forced Scenario 1A With Susitna (Low Watana Expansion Option)Forced Scenario 1A With Susitna (Watana Option)Forced Scenario 1A With Susitna (High Devil Canyon Option)Forced Scenario 1A With Modular Nuclear Scenario 1A With Tidal Summary of Results -Economics and Emissions In this subsection,we provide a comparative summary of the economic and emissions results for all of the base cases and sensitivity cases. 1.7.3.1 Summary of Results -Economics Table 1-4 summarizes the economic results,including: Cumulative present value cost e Average cost e Renewable energy in 2025 e Total capital investment Black &Veatch 1-14 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Table 1-4 Summary of Results -Economics Cumulative Renewable Present Value Average Cost Energy in 2025 Total Capital Case Cost ($000)(¢per kWh)(%)Investment ($000) Scenarios Plan 1A $12,924,812 4.60 49.17%$10,034,684 Plan 1B $12,916,210 4.59 54.78%$10,014,163 Plan 2A $20,977,580 4.29 53.57%$18,226,355 Plan 2B $21,506,536 4.40 55.55%$22,174,689 Sensitivities 1A Without DSM/EE Measures $13,261,877 4.40 51.10%$9,791,215 1A With Committed Units Included $13,863,265 4.93 32.03%$9,592,461 1A Without CO,Costs $10,401,631 3.70 14.36%$8,684,957 1A With Higher Gas Prices $14,944,729 5.31 61.94%$9,797,961 1A With Fire Island $12,964,719 4.61 54.78%$10,502,023 1A Without Chakachamna $13,273,472 4.72 22.80%$9,179,428 1A With Chakachamna Capital Costs Increased $13,273,472 4.72 22.80%$9,179,428 by 75% 1A With Susitna (Lower Low Watana Non-$15,208,996 5.41 54.70%$13,166,343 Expandable Option)Forced 1A With Susitna (Low Watana Non-Expandable $14,898,313 5.30 60.18%$14,742,083 Option)Forced 1A With Susitna (Low Watana Expandable $15,437,027 5.49 60.18%$15,273,597 Option)Forced 1A With Susitna (Low Watana Expansion $15,943,324 5.67 61.58%$15,901,641 Option)Forced 1A With Susitna (Watana Option)Forced $16,281,157 5.79 61.82%$16,049,421 1A With Susitna (High Devil Canyon Option)$16,238,375 5.77 61.82%$16,016,000 Forced 1A With Modular Nuclear $12,590,556 4.48 49.05%$9,864,041 1A With Tidal $12,198,214 4.34 59.10%$10,051,986 Black &Veatch 1-15 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.7.3.2 Summary of Results -Emissions Table 1-5 summarizes the emissions-related results of all of the base and sensitivity cases.The following information is provided for each case: e CO,emissions e NO,emissions e SO,emissions DRAFT REPORT Table 1-5 Summary of Results -Emissions ICase CO,(tons)NO,(tons)SO,(tons) Scenarios Plan 1A 176,204,623,551 222,216,367 36,328,052 Plan 1B 169,439,541,486 216,377,884 33,078,058 Plan 2A 287,320,716,438 281,021,636 240,492,147 Plan 2B 250,459,659,924 245,372,307 74,838,100 Sensitivities 1A Without DSM/EE Measures 181,207,564,318 181,207,564,318 |181,207,564,318 1A With Committed Units Included 219,645,268,063 350,850,044 272,682,069 1A Without CO,Costs 222,613,806,040 294,549,974 382,983,114 1A With Higher Gas Prices 166,406,292,550 248116046.4 267852556.4 1A With Fire Island 166,934,231,133 223442326.3 38607718.2 1A Without Chakachamna 219,109,779,504 222,591,795 34,949,762 1A With Chakachamna Capital Costs 219,109,779,504 222,591,795 34,949,762 Increased by 75% 1A With Susitna (Lower Low Watana Non-158,703,320,276 209,771,548 35,377,946 Expandable Option)Forced 1A With Susitna (Low Watana Non-127,589,064,780 207,145,332 37,742,698 Expandable Option)Forced 1A With Susitna (Low Watana Expandable 127,589,064,780 207,145,332 37,742,698 Option)Forced 1A With Susitna (Low Watana Expansion 140,911,597,135 207,888,578 37,953,070 Option)Forced 1A With Susitna (Watana Option)Forced 138,140,275,780 208,616,774 39,419,567 1A With Susitna (High Devil Canyon 134,779,936,034 208,259,687 39,406,754 Option)Forced 1A With Modular Nuclear 162,857,677,754 223,697,768 37,028,776 1A With Tidal 153,908,430,292 212,576,692 33,361,540 Black &Veatch 1-16 December 2009 SECTION 1 EXECUTIVE SUMMARY 1.7.4 Results of Transmission Analysis Table 1-6 lists the recommended transmission system expansions and enhancements that resulted from our transmission analysis.More detailed information on each of the identified transmission projects is provided in Section 12. ALASKA RIRP STUDY Table 1-6 Recommended Transmission Projects No.|Transmission Projects Type Cost ($000)Priority 1 Soldotna -University New Build (230kV)$161,250 1 2 Soldotna -Quartz Creek Upgrade (230kV)$84,000 l 3 Quartz Creek -University Upgrade (230kV)$112,500 1 4 Lake Lorraine -Douglas New Build (230kV)$46,200 2 5 Douglas -Healy Upgrade (230kV)$12,000 2 6 Douglas -Healy New Build (230kV)$252,000 3 7 Beluga -Pt.Mackenzie New Build (230kV)$67,700 3 8 Douglas -Teeland Upgrade (230kV)$37,500 3 9 Healy -Gold Hill Upgrade (230kV)$145,500 4 10 |Healy -Wilson Upgrade (230kV)$145,500 4 11 |Soldotna -Bradley Lake Upgrade (115kV)$61,800 4 12 |Daves Creek -Seward New Build (115 kV)$28,000 4 13 |Eklutna -Lucas New Build (230kV)$13,300 5 14 |Lucas -Teeland Upgrade (230kV)$26,100 5 15 Lucas -Teeland New Build (230kV)$26,100 5 16 |Pt.Mackenzie -Plant 2 Replacement (230kV)$32,200 6 Black &Veatch 1-17 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY A diagram that shows the location of the recommended transmission system enhancements is shown in Figure 1-7. Figure 1-7 Location of Recommended Transmission Projects Mew23004OMARACHARMAADRSors The following issues result from our transmission analysis: e We were unable to complete a stability analysis based upon our recommended transmission system configuration prior to the development of this Draft Report.This analysis is required to ensure that the recommended transmission system expansions and enhancements result in the necessary stability to ensure reliable electric service over the planning horizon.The results of the stability analysis may result in some modifications to our recommended list of transmission projects.This analysis is currently underway by EPS and the results will be included in the Final Report. Black &Veatch DRAFT REPORT 1-18 December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY e In addition to the transmission lines listed above,other projects were considered that could contribute to improving the reliability of the Railbelt system.These projects generally fall into one or more of the following categories: o Providing reactive power (static var compensators -SVC) o Providing or assisting with the provision of other ancillary services (regulation and/or spinning reserves) co Assistance in control of line flows or substation voltages o Assistance in the transition and coordination of transmission project implementation (mobile transforms or substations) Several of these projects have been identified and discussed while others will result from the transmission reliability assessment to be done by EPS.Potential projects in this category include: o Substation capacitor banks Series capacitors SVCs Battery energy storage systems Mobile substations that could provide construction flexibility during the implementation phase e Projects that could facilitate or complement the implementation of other projects (e.g.,wind),were of particular interest during project discussions.These projects,if implemented,could smooth the transition and adoption by the utilities of the GRETC concept.One such project was the BESS that could much provide needed frequency regulation and potentially some spinning reserves when non-dispatchable projects,such as wind,are considered.A BESS was specified that could provide frequency regulation required by the system when wind projects were selected by the RIRP.The BESS was sized in relation to the size of the non-dispatchable project to be 50 percent of the project nominal capacity for a 20-minute duration.Although the performance of the BESS has not yet been analyzed,the costs for each such system were included in the analysis. e The Fire Island Wind Project is a 54 MW maximum output wind project.Each wind turbine will be equipped with reactive power and voltage support capabilities that should facilitate interconnection into the transmission grid.Current plans are to interconnect the project to the grid via a 34.5 kV underground and submarine cable to the Chugach 34.5 kV Raspberry substation.There has been some discussion regarding the most appropriate transmission interconnection for the Fire Island Project and detailed interconnection studies have not been completed.The timeframe for implementing this project in order to qualify for available grants under the American Recovery and Reinvestment Act of 2009 (ARRA)could preclude more detailed transmission studies and consideration of alternatives to the currently proposed 34.5 kV interconnection.An option to consider if Fire Island is constructed is to lay cables from Fire Island to Anchorage insulated for 230 kV and review a transmission routing for the new Southern Intertie that would begin at the Soldotna 230 kV substation to Bernice Lake substation along the Kenai cost line then via submarine cable across the Cook Inlet to Fire Island.The interconnection would then use the 230 kV submarine cable previously laid over to the Anchorage coast then into the University 230 kV substation. e The recommended transmission system expansions and enhancements can not be justified based solely on economics.However,in addition to their underlying economics,these transmission projects are required to ensure the reliable delivery of electricity throughout the region over the 50-year planning horizon and to provide the foundation for future economic development efforts.o0o00Black &Veatch 1-19 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.7.5 Results of Financial Analysis It will be difficult for the region to obtain the necessary financing for the DSM/EE,generation and transmission resources included in the alternative resource plans that were developed.The formation of a regional entity with some form of State assistance will help meet this challenge. Figure 1-8 summarizes the cumulative capital investment required for each of the four base cases. Figure 1-8 Required Cumulative Capital Investment for Each Base Case Cumulative Capital Investment o>$25,000,000 8 --Scenario 1ASs-Scenario 1A - =) B.$20,000,000 -Scenario 2A {-- r=-Scenario 2B _ oi=oo@$15,000,000$ £ £$10=$10,000,000 +--= 6 --_------g -|(9) =$5,000,000 3E _Z”3 |$0 TT T T T T 7 T qT qT T T TT T T T T T T t qT T T T -Oownr Or OW HY Dwr OwWOMmYe-Y Ori inewnwnonr r Ory YO OY DD |SSSBSBSRNSASSABSBGHNBeBBeBeBe_gGCsaeseag BREESEoOoOooocolUmcrtmlCUcUODUCUCUDWCUCUOOUCONUCUNUCUCOOUCODUCDUCNDSSCDCSoOoolUmDmlmUlUCOUCODUUCUCUCOD |NNNN NNN NNN NNN NN NN NN NN NN NN Year | To assist in the completion of the financial analysis,AEA contracted with SNW to: e Provide a high-level analysis of the capital funding capacity of each of the Railbelt utilities. e Analyze strategies to capitalize selected RIRP assets by integrating State and federal financing resources with debt capital market resources. ¢Develop a spreadsheet model that utilizes inputs from this RIRP analysis and overlays realistic debt capital funding to provide a total cost to ratepayers of the optimal resource plan. The results of the financial analysis completed by SNW are provided in Appendix C. Important conclusions from SNW's report include: e The scope of the RIRP projects is too great,and for certain individual projects,it is reasonable to conclude that there is no ability for a municipality or cooperative utility to independently secure debt financing without committing substantial amounts of equity of cash reserves. e Figure 1-9 helps to put into context the scope of the required RIRP capital investments relative to the estimated combined debt capacity of the Railbelt utilities.The lines toward the bottom of the graph represent SNW's estimate of the bracketed range of additional debt capacity collectively for the Railbelt utilities,adjusted for inflation over time. Black &Veatch 1-20 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Figure 1-9 Required Cumulative Capital Investment (Scenario 1A)Relative to Railbelt Utility Debt Capacity $10,000,000,000 Capital Expenditures JS$7,500,000,000 $5,000,000,000 High Debt Capacity $2,500,000,000 $0 PVTTTTTTPTTrrTery Tre rTrrrrrvrTrr+rrr rrr rrr rrr rrr riri©e TT atthe OME TAN MN Mae rFerereaoaemMmueana ant Wt NN NN OH 1 MN TF TF ere oonyws oo o oc co oF Cc eo oF OoFCUmUOWUlUcUOOUCUUCUCOUCUCUCOOUO NNN NN NNN NN NNN NN NON Source:SNW Report included in Appendix C. e A regional entity,such as GRETC,with "all outputs”contracts migrating over time to "all requirements”contracts will have greater access to capital than the combined capital capacity of the individual utilities,and will have lower-cost access to debt capital than the utilities would have on their own. e There are several strategies that could be employed to lower the RIRP-related capital costs to customers,including: [e) 3° Ratepayer Benefits Charge -A charge levied on all ratepayers within the Railbelt system that would be used to defer borrowing for infrastructure capital. "Pay-Go”Versus Borrowing for Capital -A pay-go financing structure minimizes the total cost of projects through the reduction in interest costs.A balance of these two funding approaches appears to be the most effective in lowering the overall cost of the RIRP,as well as spreading out the costs over a longer period of time. Construction Work in Progress (CWIP)-CWIP is a funding technique that allows for the recovery of interest expense on project construction expenditures through the base rate during construction,rather than capitalizing the interest until the projects are on-line and generating power. State Financial Assistance -State financial assistance could take a variety of forms;for the purposes of this project,SNW focused on State assistance structured similarly to the Bradley Lake project.The benefits of State funding include:repayment flexibility,credit support/risk mitigation,and potentially lower cost of capital. Black &Veatch 1-21 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY e The overall objective of SNW's analysis was to identify ways to overcome the funding challenges inherent with large-scale projects and develop strategies that could be used to produce levelized power cost rates over the useful life of the assets being financed.With these challenges in mind, SNW developed separate versions of its model to capture the cost of financing under a "base case” scenario and an "alternative”scenario.The base case financing model was structured such that the list of RIRP projects during the first 20 years would be financed through the capital markets in advance of construction and that the cost of the financing would be immediately passed through to the ratepayers;the projects being financed in the second half of the 50-year period would be financed through "pay go”capital,as debt service coverage from previous years has grown to sufficient levels to allow the balance of the reserve to pay for the projects as their construction costs come due..The alternative model was developed with the goal of minimizing the rate shock that may otherwise occur with such a large capital plan,and levelizing the rate over time so that the economic burden derived from these projects can be spread more equitably over the useful life of the projects being contemplated. e In both the base and alternative cases,SNW transferred the excess operating cash flow that is generated to create the debt service coverage level,and using that balance to both partially fund the capital projects in the early years and almost fully fund the projects in the later years.In the alternative case,SNW also included:1)a Capital Benefits Surcharge ($0.01 per KWH)over the first 17 years,when approximately 75 percent of the capital projects will have been constructed,and 2)State assistance,structured in a manner similar to the Bradley Lake model (SNW assumed that the State would provide a $2.4 billion zero-interest loan to GRETC to provide the upfront funding for the Chakachamna project,only to be paid back by GRETC out of system revenues over an extended period of time,and following the repayment of the potentially more expensive capital market debt). e Under the base case,the maximum fixed charge rate on the capital portion aloneis estimated to cost $0.13 per kWH,while theaverage fixed charge rate over the 50-year periodis $0.07 per kWh.In the alternative case,the maximum fixed charge rate on the capital portion aloneis $0.08 per kWH,while the average fixed charge rate over the 50-year period is $0.06 per kWh,not including the $0.01 consumer benefit surcharge that is in place for the first 17 years. e The formation of a regional entity,such as GRETC,that would combine the existing resources and rate base of the Railbelt utilities,as well as provide an organized front in working to obtain private financing and the necessary levels of State assistance,that would be a necessary next step towards achieving the goal of ensuring future reliable energy for the Railbelt region. 1.8 Implementation Risks and Issues There are a number of general risks and issues that must be addressed regardless of the resource future that is chosen by stakeholders,including the utilities and State policy makers.Additionally,each alternative DSM/EE,generation and transmission resource type has its own specific risks and issues.Section 14 includes a detailed discussion of these general and resource-specific implementation-related risks and issues. 1.8.1.General Risks and Issues General issues and risks related to the implementation of the RIRP include the following: e Organizational,including: o The lack of a regional entity with the responsibility for implementing the RIRP will lead to suboptimal solutions,resulting in higher costs,lower reliability and the inability to manage the successful integration of DSM/EE and renewable resources into the Railbelt system. o To date,the Railbelt utilities have not been able to take full advantage of economies of scale for several reasons.Absent taking a regional approach to future resource planning and development, this reality will continue. Black &Veatch 1-22 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY 1.8.2 ALASKA RIRP STUDY oO Fuel supply risks,including the future deliverability and price of natural gas. o Risks resulting from the inadequacy of the current regional transmission network. o Market development risks and issues,including the need to implement a competitive power procurement process to encourage the development of generation projects by IPPs,and the potential for large load increases. o Financing and rate issues,related to the ability of the region to finance the capital investments identified in the RIRP and the need to mitigate the rate impact of those investments. o Legislative and regulatory issues,including the potential impact that a State Energy Plan and the passage of energy-related policies could have on the RIRP. Resource Specific Risks and Issues Table 1-7 provides Black &Veatch's assessment of the relative magnitude of various categories of risks and issues for each resource type,including: Resource Potential Risks -the risk associated with the total energy and capacity that could be economically developed for each resource option. Project Development and Operational Risks -the risks and issues associated with the development of specific projects,including regulatory and permitting issues,the potential for construction costs overruns, actual operational performance relative to planned performance,and so forth.This category also includes non-completion risks once a project gets started,the risk that adverse operating conditions will severely damage the facilities resulting in a shorter useful life than expected,and project delay risks. Fuel Supply Risks -the risks and issues associated with the adequacy and pricing of required fuel supplies. Environmental Risks -the risks of environmental- related operational concerns and the potential for future changes in environmental regulations. Fundamental RIRP-Related Risks and Uncertainties General «Regional implementation of RIRP elements *Financial capability of Railbelt utilities DSM/Energy Efficiency (DSM/EE) ¢Lack of Alaska-specific information *Total achievable resource potential ¢Long-term reliability of savings ¢Funding source Generation Resources -Conventional «Natural gas supplies,deliverability and prices ¢Future emissions regulations (including CO.) Generation Resources -Renewables ¢Total economic resource potential *Optimization of potential sites ¢Project completion risks associated with large hydro and tidal «Integration of non-dispatchable resources ¢Environmental and permitting issues Transmission +Adequacy of backbone grid to move power and ensure reliability *Generation site-specific interconnections *Desired grid cannot be justified solely on economics ¢Siting and permitting issues Transmission Constraint Risks -the risk that the ability to move power from a specific generation resource to where that power is needed will be inadequate,an issue that is particularly important for large generation projects and remote renewable projects. Financing Risks -the risk that a regional entity or individual utility will not be able to obtain the financing required for specific resource options under reasonable and affordable terms and conditions. Regulatory/Legislative Risks -the risk that regulatory and legislative issues could affect the economic feasibility of specific resource options. Black &Veatch 1-23 DRAFT REPORT December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Table 1-7 Resource Specific Risks and Issues -Summary Relative Magnitude of Risk/Issue a a =g 2 2 =2 2 2 2 oan 4 x $r-]3 Ee)- °Ss =>i=)3}a4 az a2-¥2 ¢ot »ae 30 a eCy&S a.E 2s <62<3 Ss FE 5 e&3 a8 a oS =ae &3 22%aa Tc >a s Bb "Eb oe .cone em 3 a 2 mh Oo =Come.F) Resource me LAO i ml me BO ie i DSM/EE Moderate Limited N/A N/A N/A Limited -Moderate Moderate Generation Resources Natural Gas Limited Limited Significant Moderate Limited Moderate Moderate Coal Limited Moderate-Limited Moderate -Limited -Moderate -ModerateSignificantSignificant|Significant |Significant Modular Nuclear Limited Significant Moderate Significant Limited Significant Significant Large Hydro Limited Significant N/A Significant |Significant |Significant Significant Small Hydro Moderate Moderate N/A Moderate Moderate Limited -Limited Moderate Wind Moderate Moderate N/A Limited Moderate Limited -Limited Moderate Geothermal Moderate Moderate N/A Moderate Moderate -|Limited -Limited Significant Moderate Solid Waste Limited Moderate-N/A Significant Moderate Limited -Limited- Significant Moderate Moderate Tidal Limited Significant N/A Significant |Moderate-|Moderate-|Moderate -Significant |Significant Significant Transmission Limited Significant N/A Moderate N/A Significant Moderate - Significant Black &Veatch 1-24 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY 1.9 ALASKA RIRP STUDY Conclusions and Recommendations 1.9.1 Conclusions The primary conclusions from the RIRP study are discussed below. 1.The current situation facing the Railbelt utilities includes a number of challenging issues that place the region at a historical crossroad regarding the mix of DSM/EE,generation,and transmission resources that it will rely on to economically and reliably meet the future electric needs of the region's citizens and businesses.As a result of these issues,the Railbelt utilities are faced with the following challenges: oA transmission network that is isolated and has limited total transfer capabilities and redundancies. o The inability of the region to take advantage of economies of scale due to its limited size. o A heavy dependence on natural gas from the Cook Inlet for electric generation. o Limited and declining Cook Inlet gas deliverability. o Lack of natural gas storage capability. o The region's aging generation and transmission infrastructure. o A heavy reliance on older,inefficient natural gas generation assets. o The region's limited financing capability,both individually and collectively among the Railbelt utilities. o Duplicative and diffused generation and transmission expertise among the Railbelt utilities. 2.The key factors that drive the results of Black &Veatch's analysis include the following: o The risks and uncertainties that exist for all alternative DSM/EE,generation,and transmission resource options. o The future availability and price of natural gas. o The public acceptability and ability to permit a large hydroelectric project which is a greater concer,based upon Black &Veatch's discussions with numerous stakeholders,than the acceptability and ability to permit other types of renewable projects,such as wind and geothermal. co Potential future CO)prices that may result from proposed Federal legislation. o The region's limited existing transmission network,which limits:1)the ability to transfer power between areas within the region to minimize power costs,and 2)places a maximum limit on the amount of non-dispatchable resources that can be integrated into the region's transmission grid. ©The ability of the region to raise the required financing,either by the utilities on their own or through a regional G&T entity. o Whether the Railbelt utilities develop a number of currently proposed projects that were selected outside of a regional planning process. 3.The resource plans that were developed as part of this study for each Evaluation Scenario include a diverse portfolio of resources.If implemented,the RIRP will lead to: o The development of a resource mix resulting from a regional planning process. o Greater reliance on DSM/EE and renewable resources and a lower dependence on natural gas. o Amore robust transmission network. o More effective spreading of risks among all areas of the region. o A greater ability to respond to large load growth should these load increases occur.Stated another way,the implementation of the RIRP will provide a stronger foundation upon which to base future economic development efforts. Black &Veatch 1-25 December 2008 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 4.The cost of this greater reliance on DSM/EE and renewable resources is less than the continued heavy reliance on natural gas based upon the base case gas price forecast that was used in this analysis.This result is achievable if the region builds a large hydroelectric project.There are uncertainties,at this point in time,regarding the environmental and geotechnical conditions under which a large hydroelectric project could be built.If a large hydroelectric facility can not be developed,or if the cost of the large hydroelectric project significantly exceeds the current preliminary estimates,then the costs associated with a predominately renewable future would be greater than continuing to rely on natural gas. 5.Scenarios 2A and 2B were evaluated to determine what the impact would be if the demand in the region was significantly greater than it is today.In fact,the per unit power costs did go down.The cost of Scenario 2B was 3.7 percent lower than Scenario 1A;Scenario 2B was 1.3 percent lower than Scenario 1B. 6.Additionally,the implementation of a regional plan will result in lower costs than if the individual Railbelt utilities continue to go forward on their own.While the scope of this study did not include the development of separate integrated resource plans for each of the six Railbelt utilities,we did complete a sensitivity analysis to show the cost impact if the utilities develop their currently proposed projects (referred to as committed units)that were selected outside of a regional planning process; while this sensitivity case does not fully capture the incremental cost of the utilities acting independently over the 50-year planning horizon,it does provide an indication of the relative cost differential.Figure 1-10 shows the resulting total annual costs of the two different resource plans.In the aggregate,the cost of the Committed Unit Sensitivity Case was approximately 12.5 percent higher than Scenario 1A.The main conclusion to draw from this graphic is that there are significant cost savings associated with the Railbelt utilities implementing a plan that has been developed to minimize total regional costs,while ensuring reliable service,as opposed to the individual utilities working separately to meet the needs of their own customers. 7.There are a number of risks and uncertainties regardless of the resource options chosen.For example: 1)there is a lack of Alaska-specific data upon which to build an aggressive region-wide DSM/EE program,2)the future availability and price of natural gas affects the viability of natural gas generation,and 3)the total economic potential of various renewable resources is unknown at this time.In some cases,these risks and uncertainties (e.g.,the ability to permit a large hydroelectric facility)might completely eliminate a particular resource option.Due to these risks and uncertainties, it will be important for the region to maintain flexibility so that changes to the preferred resource plan can be made,as necessary,as these resource-specific risks and uncertainties become more clear or get resolved. 8.Significant investments in the region's transmission network need to be made within the next 10 years to ensure the reliable and economic transfer of power throughout the region.Without these investments,providing economic and reliable electric service will be a greater challenge. Black &Veatch 1-26 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Figure 1-10 Comparison of Results -Scenario 1A Versus Committed Units Sensitivity Case 3,000,000 2,500,000 -Scenario 1A With Committed Units 2,000,000 ---Scenario 1A Base Case 4,500,000 1,000,000 500,000 +AnnualCostofPower($000,000)9.The increased reliance on non-dispatchable renewable resources (e.g.,wind)will require a higher level of frequency regulation within the region to handle swings in electric output from these resources.An increased level of regulation has been included in Black &Veatch's transmission plan. Even with this increased regulation,however,the challenges associated with the integration of non- dispatchable resources will place a maximum limit on the amount of these resources that can be developed. 10.The implementation of the RIRP does not require that a regional generation and transmission entity (e.g.,GRETC)be formed.However,the absence of a regional entity with the responsibility for implementing the RIRP will adversely affect the region's ability to implement a regional plan and,in fact,Black &Veatch believes that the lack of a regional entity will,as a practical matter,mean that the RIRP will not be fully implemented.As a consequence,the favorable outcomes of the RIRP discussed above would not be realized.The interplay between the formation of a regional entity and the RIRP is shown in Figure 1-11. Black &Veatch DRAFT REPORT 1-27 December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Figure 1-11 Interplay Between GRETC and Regional Integrated Resource Plan Current RIRP Study REGA Study Situation *Plan that economically +Limited redundancy So ee ed *Limited economies on available fuel and :.of scale energy supplies Proposed Future Situation *Dependence on *50-year time horizon RIRP GRETC +Robust transmission fossil fuels +Competes generation,Results Formation ¢Diversified fuel supply ¢Limited Cook Inlet transmission,fue!supply *Increased +System-wide power ratesgasdeliverabilityandDSM/energy OSM/energy . and storage efficiency options efficiency *Spread risk *Aging G&T *Includes CO,regulation *Increased :+State financial assistance infrastructure "|.inciudes renewable -|renewables -->GRETC -Enabler |+Regional planning *inefficient fuel use energy projects +Reduce »Wise resource use ,...di di"Diettraning ||+A tn at car 1 *Repent geion+Duplicati aT ra ...grexpenice.S minimum long-run cost to *Increased Financing Options ;ratepayers transmission *Technical resources °Pre-funding of capital . *Considers fuel supply requirements +_New technologies options and risks *Commercial bond market ¢State financial assistance {Bradley Lake modet) ¢Construction-work-in-progress 10-Year Transition Period ) 1.9.2 Recommendations This subsection summarizes the overall recommendations arising from this study,broken down into the following three categories: e Recommendations -General e Recommendations -Capital Projects e Recommendations -Other 1.9.2.1 Recommendations -General The following general actions should be taken to ensure the timely implementation of the RIRP: 1.The State should work closely with the utilities and other stakeholders to make a decision regarding the formation of GRETC and to develop the required governance plan,financial and capital improvement plan,capital management plan and transmission access plan,and address other matters related to the formation of the proposed regional entity. 2.The State should establish certain energy-related policies,including: o The pursuit of large hydroelectric facilities o DSM/EE program targets o RPS (i.e.,target for renewable resources),and the pursuit of wind,geothermal,and tidal (which will become commercially mature during the 50-year planning horizon)projects in addition to large hydroelectric projects o System benefit charge to fund DSM/EE programs and or renewable projects Black &Veatch 1-28 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 3.The State should work closely with the Railbelt utilities and other stakeholders to establish the specific preferred resource plan.In establishing the preferred resource plan,the economic results of the various base cases and sensitivity cases evaluated in this study should be considered,as well as the environmental impacts discussed in Section 13 and the project-specific risks discussed in Section 14. 4.Black &Veatch believes that the Scenario 1B resource plan should be the starting point for the selection of the preferred resource plan as discussed below.Table 1-8 provides a summary of the specific resources that were selected,based upon economics,in the Scenario 1B resource plan during the first 10 years. Other projects selected in Scenario 1B after the first 10 years especially worthy of mention are the Mt.Spurr Geothermal Project in 2021 and Chakachamna Hydroelectric Project in 2025.Comparison of Scenarios 1A and 1B indicated they are identical until 2021 except for timing of the Anchorage LM6000 and the GVEA 1x1 7FA Combined Cycle.Scenario 1B selects Mt.Spurr in 2021;whereas, Scenario LA delays it until 2030.The earlier selection of geothermal in Scenario 1B enhances its fuel diversity.Chakachamna is selected in 2025 in both scenarios.As indicted in Section 13,the cost difference between Scenarios 1A and 1B is only 0.07 percent,which is well within the noise of the models. Another important consideration of the selection of a preferred resource plan is consideration of the sensitivity cases evaluated as presented in Section 13.Issues addressed through the sensitivity cases and considered in Black &Veatch's selection of a preferred resource plan include the following and are discussed in Table 1-9.Following that discussion,Table 1-10 provides a discussion regarding specific projects currently under development and their impact on the preferred resource plan. o What if CO,regulation doesn't occur? What is the effect if the committed units are installed? What if Chakachamna doesn't get developed? What would be the impact of the alternative Susitna projects? Should the Fire Island Wind Project be developed?0000There are several projects that are significantly under development that are considered in the preferred resource plan or in the sensitivity cases.These significantly developed projects include: o Healy Clean Coal Project (HCCP) o Southcentral Power Project o Fire Island Wind Project o Nikiski Wind Project These projects are discussed in Table 1-10. Black &Veatch 1-29 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Table 1-8 Resources Selected in Scenario 1B Resource Plan Project Discussion ; DSM/EE Resources The full level of DSM/EE resources evaluated was selected based upon their relative economics. Anchorage and GVEA MSW|The RIRP selected these units in the first two years of the planning period.Units Historically,mass burn MSW units such as those modeled,have faced significant opposition due to emissions of mercury,dioxin,and other pollutants.Other technologies which result in lower emissions,such as plasma arc,are not commercially demonstrated.The units included in the RIRP are relatively small (26 MWin total)and are not required to be installed to meet planning reserve requirements,but their base load nature contributes nearly 4 percent of the renewable energy.Detailed feasibility studies would be required to advance this alternative. Anchorage 1x1 6FA Combined Cycle The RIRP selected this unit for commercial operation in 2013.This unit is very similar in size and performance to the Southcentral Power Project being developed as a joint ownership project by Chugach and ML&P for 2013 commercial operation.The project appears well under development with the combustion turbines already under contract.The project fits well with the RIRP and the joint ownership at least partially reflects the GRETC joint development concept. Glacier Fork Hydroelectric The RIRP selected this project for commercial operation in 2015,the first year that it was available for commercial operation in the models.Of the large hydroelectric projects,Glacier Fork is by far the least developed. Glacier Fork has very limited storage and thus does not offer the system operating flexibility of the other large hydroelectric units.There is also significant uncertainty with respect to its capital cost and ability to be licensed.Because it has such a minimal level of firm generation in the winter, it does not contribute significantly to planning reserves,but does contribute about 6 percent of the renewable energy to the Railbelt.Detailed feasibility studies and licensing are required to advance this option. Nikiski Wind The RIRP selected this project in 2017.It is being developed as an IPP project and is well along in the development process.The American Recovery and Reinvestment Act of 2009 (ARRA)potentially offers significant financial incentives if this project is completed by January 1,2013. These incentives could potentially improve its competitiveness.As a wind unit,it has no impact on planning reserves,but contributes to renewable generation. Anchorage LM6000 Simple Cycle Combustion Turbine The RIRP selected this project in 2018.The unit can be dual-fueled,thus providing firm capacity in the event of any natural gas shortage.As a simple cycle combustion turbine unit,the lead time requirements are relatively short, leading to greater flexibility. GVEA 1x1 6FA Combined Cycle The RIRP selected this project for commercial operation in 2020 in GVEA's service area after natural gas is assumed to be available to Fairbanks. Baseload natural gas-fired combined cycle energy in GVEA's service area relieves import requirements on the Intertie.As a conventional unit,its schedule can be coordinated with the schedule for natural gas availability in Fairbanks. Black &Veatch DRAFT REPORT 1-30 December 2009 SECTION 1 EXECUTIVE SUMMARY Table 1-9 ALASKA RIRP STUDY Impact of Selected Issues on the Preferred Resource Plan Effect on Preferred Resource Issue Discussion Plan CO,The sensitivity case for Scenario 1A without CO,The preferred resource plan Regulation regulation selects the Healy Clean Coal Project instead |maintains the development of of Glacier Fork and Nikiski Wind in the first 10 years.Glacier Fork which has It also does not select Mt.Spurr.The sensitivity case significant uncertainty associated also delays Chakachamna until 2030.The sensitivity with it. case does not meet the 50 percent renewable target by 2025. Committed Installation of the committed units significantly The preferred resource plan Units increases the cost of Scenario 1A or 1B.The plan with |maintains the development of the committed units selects six wind units from 2019 Chakachamna which has through 2024 in response to CO,regulation.The plan significant uncertainty associated with the committed units eliminates Chakachamna and_|with it. does not meet the 50 percent renewable target by 2025. Chakachamna |Chakachamna could fail to develop because of licensing |The preferred resource plan or technical issues.Also,if the cost of Chakachamna maintains the development of were to increase to be equivalent to the alternative Chakachamna which has Susitna projects on a $/MW basis,it would not be significant uncertainty associated selected.The sensitivity case without Chakachamna for |with it. the first 10 years is identical to Scenarios 1A and 1B except the timing of Nikiski Wind and Glacier Fork are interchanged.The case does not meet the 50 percent renewable target by 2025 and is2.7 percent higher in cost than the preferred resource plan. Susitna None of the alternative Susitna projects are selected in The preferred resource plan the Scenarios 1A or 1B.The least cost Susitna option,|recommends pursuing the which is Low Watana,is 15.3 percent more than the development of a Watana project preferred resource plan and 12.2 percent more than the |until there is resolution on thecasewithoutChakachamna.The 50 percent renewable |development potential for Glacier requirement can not be met without Susitna if Fork and Chakachamna. Chakachamna is not available. Fire Island Fire Island was not in either Scenario 1A or 1B based The preferred resource plan is on its total cost.When a sensitivity case was virtually the same as the plan with conducted,which included consideration for the Fire Island. benefits from the ARRA and the $25 million grant for interconnection from the State,the cost of the Fire Island case was essentially equal to Scenario 1A (0.3 percent higher),which is within the feasible range for a purchase power agreement.The plan with Fire Island includes the same units for the first 10 years as the preferred resource plan with minor differences in timing and includes Chakachamna in 2025. Black &Veatch 1-31 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY Table 1-10 ALASKA RIRP STUDY Projects Currently Under Development Project Discussion Preferred Resource Plan Recommendation HCCP HCCP is completed and GVEA has Due to the operating cost risks associated with negotiated with AEA for its purchase.The |the possible enactment of CO,legislation, project is part of the least cost scenario Black &Veatch does not recommend that when CO)costs are not considered.While |HCCP be included in the preferred resource CO,regulation has been assumed in the plan at this time.HCCP is currently being RIRP,those regulations are not in place and |held in mothball status;Black &Veatchthereisnoabsoluteassurancethattheywill|recommends that this condition be maintained be in place.HCCP adds further fuel for the foreseeable future until such time as it diversity to the Railbelt,especially to becomes clear whether CO,regulations are GVEA who doesn't currently have access to |enacted and the resulting economic impact onnaturalgas,nor is there any other coal-fired |the plant can be determined. generation included in the preferred resource plan.As a steam unit,HCCP improves transmission system stability. Southcentral |The Southcentral Power Project is well Black &Veatch recommends the continued Power under development with the combustion development of the Southcentral Power Project turbines purchased.The timing and Project as part of the preferred resource plan. technology are generally consistent with the preferred resource plan.The project will improve the efficiency of natural gas generation in the Railbelt and permit the retirement of aging units. Fire Island Wind Project The Fire Island Wind Project is being developed as an IPP project with proposed power purchase agreements provided to the Railbelt utilities.The project may be able to benefit significantly from ARRA and the $25 million grant from the State for interconnection.When these benefits are considered,the project comes close to being part of the least cost scenario.Since the project is an IPP project instead of direct utility ownership,there are other factors such as risk of performance which may result in additional benefits. Subject to the successful negotiation of a purchase power agreement and successful negotiation of the interconnection and regulation issues,Black &Veatch recommends that it be part of the preferred resource plan in a time frame that allows for the ARRA benefits to be captured. Nikiski Wind Project The Nikiski Wind Project is an IPP project like Fire Island and has the same potential to benefit from ARRA. Like Fire Island,subject to successful negotiation of a purchase power agreement and successful negotiation of the interconnection and regulation issues,Black & Veatch recommends that it be part of the preferred resource plan in a time frame that allows for the ARRA benefits to be captured. Black &Veatch 1-32 DRAFT REPORT December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY In addition to these resources,Black &Veatch believes that Glacier Fork,Chakachamna and Susitna should be pursued further to the point that the uncertainties regarding the environmental,geotechnical and capital cost issues become adequately resolved to determine if any of the projects could actually be built. The State and Railbelt utilities should develop a public outreach program to inform the general public regarding the preferred resource plan,including the costs and benefits. The State Legislature should make decisions regarding the level and form of State financial assistance that will be provided to assist the Railbelt utilities and AEA,under a unified regional G&T entity (i.e,GRETC),develop the generation resources and transmission projects identified in the preferred resource plan. The electric utilities,various State agencies,Enstar and Cook Inlet producers need to work more closely together to address short-term and long-term gas supply issues.Specific actions that should be taken include: o Development of local gas storage capabilities with open access among all market participants as soon as possible. o Undertake efforts to secure near-term LNG supplies to ensure adequate gas over the 10-year transition period until additional gas supplies can be secured either in the Cook Inlet,from the North Slope or from long-term LNG supplies. o The State should complete a detailed cost and risk evaluation of available long-term gas supply options to determine the best options.Once the most attractive long-term supplies of natural gas have been identified,detailed engineering studies and permitting activities should be undertaken to secure these resources. o Appropriate commercial terms and pricing structures should be established through State and regulatory actions to provide producers with the incentive to increase exploration for additional gas supplies in the Cook Inlet or nearby basins.This action is required to provided the necessary long-term contractual certainty to result in additional exploration and development. 1.9.2.2,Recommendations -Capital Projects Efforts should be undertaken to begin the development,including detailed engineering and permitting activities,of the following capital projects,which are included in Black &Veatch's recommended preferred resource plan. 8. 9. Develop a comprehensive region-wide portfolio of DSM/EE programs. Generation projects: Generic Anchorage MSW Project Generic GVEA MSW Project Glacier Fork Hydroelectric Project Chakachamna Hydroelectric Project Susitna Hydroelectric Project Projects under development (HCCP,Southcentral Power Project,Fire Island Wind Project,and Nikiski Wind Project)000000Black &Veatch 4-33 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY 10. ALASKA RIRP STUDY Transmission and related substation projects,including the following Priority 1 and 2 projects (note: the timing and priority of these projects may change based on additional detailed analysis): o Soldotna-University (new build) Soldotna-Quartz Creek (upgrade) Quartz Creek-University (upgrade) Lake Lorraine-Douglas (new build) Douglas-Healy (upgrade) Regional battery system for frequency regulation00000 1.9.2.3 Recommendations -Other Other actions,related to the implementation of the RIRP,that should be undertaken include: 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22. The State Legislature should appropriate funds for the initial stages of the development of a regional DSM/EE program,including 1)region-wide residential and commercial end-use saturation surveys, 2)residential and commercial customer attitudinal surveys,3)vendor surveys,4)comprehensive evaluation of economically achievable potential,and 5)detailed DSM/EE program design efforts. Develop a regional DSM/EE program measurement and evaluation protocol. If GRETC is not formed,some type of a regional entity should be formed to develop and deliver DSMLEE programs to residential and commercial customers throughout the Railbelt region,in close coordination with the Railbelt utilities. Likewise,if GRETC is not formed,some type of a regional entity should be formed to develop the renewable resources included in the preferred resource plan. Establish close coordination between the Railbelt electric utilities,Enstar and AHFC regarding the development and delivery of DSM/EE programs. Aggressively pursue available Federal funding for DSM/EE programs and renewable projects. The State and Railbelt utilities should work closely with resource agencies to identify environmental issues and permitting requirements related to large hydroelectric and tidal projects,and conduct the necessary studies to address these issues and requirements. Complete a regional economic potential assessment,including the identification of the most attractive sites,for all renewable resources included in the preferred resource plan. Develop streamlined siting and permitting processes for transmission projects. Develop a regional frequency regulation strategy for non-dispatchable resources. Develop a regional competitive power procurement process and a standard power purchase agreement to provide IPPs an equal opportunity to submit qualified proposals to develop specific projects. Federal legislative and regulatory activities,including those related to emissions regulations,should be monitored closely. Black &Veatch 1-34 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.10 Near-Term Implementation Action Plan (2010-2012) The purpose of this subsection section is to identify our overall recommendations regarding the near-term implementation plan,covering the period from 2010 to 2012.Our recommended actions are grouped into the following categories: General actions Capital projects Supporting studies and activities Other actions In many ways,this near-term implementation plan shown in Tables 1-11 through 1-14 serves two objectives. First,it identifies that steps that should be taken during the next three years regardless of the alternative resource plan that is chosen as the "Preferred RIRP”.Second,it is intended to maintain flexibility as the uncertainties and risks associated with each alternative resource plan become more clear and or resolved. Black &Veatch 1-35 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY 1.10.1 General Actions Table 1-11 Near-Term Implementation Action Plan -General Actions ALASKA RIRP STUDY Actions Category Description Timeline Est.Cost General Actions The State should work closely with the utilities and other stakeholders to make a decision regarding the formation of GRETC and to develop the required governance plan, financial and capital improvement plan,capital management plan and transmission access plan,and address other matters related to the formation of the proposed regional entity Establish State energy-related policies regarding: o The pursuit of large hydroelectric facilities o DSM/EE program targets o RPS (e.,target for renewable resources),and the pursuit of wind,geothermal,and tidal projects o System benefit charge to fund DSM/EE programs and or renewable projects The State should work closely with the Railbelt utilities and other stakeholders to establish the preferred resource plan,using the Scenario 1B resource plan as the starting point Glacier Fork,Chakachamna and Susitna should be pursued further to the point that the uncertainties regarding the environmental,geotechnical and capital cost issues become adequately resolved to determine if any of these projects could actually be built Develop a public outreach program to inform the public regarding the preferred resource plan,including the costs and benefits The State Legislature should make decisions regarding the level and form of State financial assistance that will be provided to assist the Railbelt utilities and AEA,under a unified regional G&T entity (1.e.,GRETC),develop the generation resources and transmission projects identified in the preferred resource plan 2010 2010-2011 2010 2010-2011 2010-2011 2010-2011 $6.8 million $0.2 million Not Applicable To be determined $0.1 million Not Applicable Black &Veatch DRAFT REPORT 1-36 December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY Table 1-11 (Continued) Near-Term Implementation Action Plan -General Actions Actions Category Description Timeline Est.Cost e The electric utilities,various State agencies,Enstar and 2010-2012 To be Cook Inlet producers need to work more closely together determined to address short-term and long-term gas supply issues; specific actions that should be taken include: o Development of local gas storage capabilities as soon as possible o Undertake efforts to secure near-term LNG supplies to ensure adequate gas over the 10-year transition period until additional gas supplies can be secured o The State should complete a detailed cost and risk evaluation of available long-term gas supply options to determine the best options;once the most attractive long-term supplies of natural gas have been identified, detailed engineering studies and permitting activities should be undertaken to secure these resources o Appropriate commercial terms and pricing structures should be established through State and regulatory actions to provide producers with the incentive to increase exploration for additional gas supplies in the Cook Inlet or nearby basins Black &Veatch 1-37 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.10.2 Capital Projects Table 1-12 Near-Term Implementation Action Plan -Capital Projects Actions Category Description Timeline Est.Cost Capital Projects e Develop a comprehensive region-wide portfolio of 2011-2016 $34 million DSMEE programs within first six years e Begin detailed engineering and permitting activities 2011-2016 Varies by associated with the generation projects identified in the project initial years of the preferred resource plan,including: o Generic Anchorage MSW Project Generic GVEA MSW Project Glacier Fork hydroelectric project Chakachamna Hydroelectric Project Susitna Hydroelectric Project Projects under existing development (HCCP, Southcentral Power Plant,Fire Island Wind Project, and Nikiski Wind Project) e Begin detailed engineering and permitting activities 2011-2016 Varies by associated with the transmission projects identified in project the initial years of the preferred resource plan, including: o Soldotna-University (new build) Soldotna-Quartz Creek (upgrade) Quartz Creek-University (upgrade) Lake Lorraine-Douglas (new build) Douglas-Healy (upgrade) Regional battery system for frequency regulationo0o0000ooo090 Black &Veatch 1-38 December 2009 DRAFT REPORT SECTION 1 EXECUTIVE SUMMARY 1.10.3 Supporting Studies and Activities Table 1-13 ALASKA RIRP STUDY Near-Term Implementation Action Plan -Supporting Studies and Activities Actions Category Description Timeline Est.Cost Supporting ° Studies and Activities The State Legislature should appropriate funds for the initial stages of the development of a regional DSM/EE program,including 1)region-wide residential and commercial end-use saturation surveys,2)residential and commercial customer attitudinal surveys,3)vendor surveys,4)comprehensive evaluation of economically achievable potential,and 5)detailed DSM/EE program design efforts Develop a regional DSM/EE program measurement and evaluation protocol The State and Railbelt utilities should work closely with resource agencies to identify environmental issues and permitting requirements related to large hydroelectric and tidal projects Conduct necessary studies to address resource agencies' issues and data requirements related to large hydroelectric and tidal projects Complete a regional economic potential assessment, including the identification of the most attractive sites,for all renewable projects included in the preferred resource plan Develop a regional frequency regulation strategy for non- dispatchable resources Develop a regional standard power purchase agreements for IPP-developed projects Develop a regional competitive power procurement process to encourage IPP development of projects included in the preferred resource plan 2010-2011 2012 2010-2011 2011-2012 2010-2012 201] 2011-2012 2011-2012 $1.0 million $0.1 million $0.2 million To be determined $1.5 million $0.5 million $0.2 million $0.2 million Black &Veatch DRAFT REPORT 1-39 December 2009 SECTION 1 EXECUTIVE SUMMARY ALASKA RIRP STUDY 1.10.4 Other Actions Table 1-14 Near-Term Implementation Action Plan -Other Actions Actions Category Description Timeline Est.Cost Other Actions e Forma regional entity (if GRETC is not formed)to 2010-2011 Subject to develop and deliver DSM/EE programs to residential and decision commercial customers throughout the Railbelt region,in regarding close coordination with the Railbelt utilities formation of GRETC e Establish close coordination between the Railbelt electric 2010-2011 $0.2 million utilities,Enstar and AHFC regarding the development and delivery of DSM/EE programs e Aggressively pursue available Federal funding for 2010-2011 $0.2 million DSM/EE programs e Forma regional entity (if GRETC is not formed)or rely 2011-2012 Subject to on IPPs to identify and develop renewable projects that are decision included in the preferred resource plan regarding formation of GRETC e Monitor Federal legislative and regulatory activities,Ongoing Not including those related to emissions regulations Applicable e Aggressively pursue available Federal funding for 2010-2012 $0.2 million renewable projects e Develop streamlined siting and permitting processes for 2010-2011 |$0.5 million transmission projects Black &Veatch 1-40 December 2009 DRAFT REPORT ee ee aeMASALPOMARPLEDSFOD,We,PS