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HomeMy WebLinkAboutAEA Board Meeting Minutes Oct 22 2024 813 W Northern Lights Blvd, Anchorage, AK 99503  Phone: (907) 771-3000  Fax: (907) 771-3044  Email: info@akenergyauthority.org REDUCING THE COST OF ENERGY IN ALASKA AKENERGYAUTHORITY.ORG Alaska Energy Authority BOARD MEETING MINUTES Tuesday, October 22, 2024 Anchorage, Alaska 1. CALL TO ORDER Clay Koplin, Chair, called the meeting of the Alaska Energy Authority to order on September 10, 2024, at 9:01 am. 2. ROLL CALL BOARD MEMBERS Members present: Clay Koplin (Public Member); Duff Mitchell (Public Member); Adam Crum (Commissioner DOR); Julie Sande (Commissioner DCCED (Arrived Late)); Ingemar Mathiasson (Public Member); Jenn Miller (Public Member); Robert Siedman (Public Member); and Tony Izzo (Public Member). A quorum was established. 3. AGENDA APPROVAL Curtis Thayer, Executive Director, noted that the auditors are in attendance today. He requested to move Item 8A. Alaska Energy Authority 2024 Draft Financial Statements and the auditors’ presentation before Item 7. Old Business. There was no objection to approving the agenda with the modification. 4. PRIOR MINUTES – September 10, 2024 MOTION: A motion was made by Mr. Izzo to approve the prior minutes of September 10, 2024. Motion seconded by Vice Chair Mitchell. Vice-Chair Mitchell corrected a typographical error on page 4 of the minutes: IGA should be IRA. Vice Chair Mitchell requested to clarify and add to his comments in that same paragraph. The last sentence should read: “Mr. Mitchell expressed his willingness to serve as Vice Chair for AEA officer balance of utility and non-utility interests.” There were no objections. A roll call was taken, and the motion to accept the minutes of September 10, 2024, as amended, passed unanimously. 5. PUBLIC COMMENTS (2 minutes per person) There were no members of the public online or in-person who requested to comment. Alaska Energy Authority Page 2 of 12 6. COMMITTEE REPORTS – None 8. NEW BUSINESS A. Alaska Energy Authority 2024 DRAFT Financial Statements Mr. Thayer requested Bikky Shretha, BDO, present the AEA 2024 Draft Financial Statements included in the packet. Mr. Shretha expressed appreciation to the staff for their assistance beyond their normal duties in providing the required information for the audit. All requested records and information was freely available for inspection, and management cooperation was excellent. He explained that BDO is substantially completed with AEA’s audit for the year ended June 30, 2024, and only minor changes to the Draft Financial Statements are anticipated. Mr. Shretha defined that the objective of the audit is to provide reasonable assurance that the financial statements are free from material misstatements. BDO expects to issue an unmodified, clean opinion on both the audit of the financial statements and the compliance audit of the federal programs. Mr. Shretha reviewed there were no major changes to the accounting rules that were applied in the financial statements. However, AEA’s movement of the funds from the Treasury’s management to Alaska Permanent Fund Corporation’s (APFC) management shifted the status of investments from a pooled asset to multiple different categories of investments, each with individual disclosures. Mr. Shretha highlighted another difference from last year is that the portion of the investments that are managed by Alaska Permanent Fund Corporation are audited by other auditors. Reference and input from those audits, such as investment balance and investment revenue, are included in the financial statements. Mr. Shretha reported no corrected or uncorrected misstatements, and no findings regarding internal control over financial reporting. Chair Koplin opened the floor for members to ask questions. Mr. Izzo noted that he could not find the words “clean” or “unqualified” within the draft opinion. He requested clarification. Mr. Shretha explained that the nomenclature changed about 12 years ago. The term “qualified” remains, but rather than “unqualified,” the description is now “unmodified,” which would be an unmodified or clean opinion. Vice Chair Mitchell asked if Mr. Shretha’s PowerPoint can be incorporated into the information provided for the public. Mr. Shretha indicated that the information presented is not finalized. Once the information is finalized, Mr. Shretha will provide it. Vice Chair Mitchell commented that the information would be helpful to the public. He asked Mr. Alaska Energy Authority Page 3 of 12 Shretha if it is accurate to summarize the audit findings as such: AEA’s funds are safe, secure, and well-managed. Mr. Shretha noted that there were no findings to report within the audit. All information within the financial statements were presented in accordance with the accounting rules and government auditing accounting standards. Vice Chair Mitchell asked Mr. Shretha if he feels that AEA is well-situated for the anticipated continued growth of receipt of federal funding. Mr. Shretha noted that three federal programs were subjected to the current fiscal year audit. No findings were reported, and compliance requirements were met. BDO has no concerns regarding the current fiscal year. He explained that future programs may have different compliance requirements and rules that will need to be addressed at that time. Mr. Siedman asked if the external audits discussed by Mr. Shretha will be available to the public. Mr. Shretha responded that question should be directed to management. Mr. Thayer highlighted that the completed audit will be posted to the AEA website. He noted that APFC also posts their completed audit to their website. Mr. Thayer clarified that the Department of Revenue no longer manages AEA’s funds. Approximately two years ago, the Legislature changed AEA’s management of funds to APFC. This is the first year that change has taken effect. Mr. Thayer commented that AEA’s net position for government activities and non-government activities make AEA one of the largest State corporations, exceeding the Alaska Railroad. Mr. Shretha directed members’ attention to page 18 of the Draft Financial Statement to highlight the approximately $1 billion of governmental activities, and approximately $600 million of business-type activities, totaling approximately $1.7 billion in assets. The two major asset categories are Investments, and Cash and Cash Equivalents. The majority of those assets are restricted. Commissioner Crum reiterated that the Legislature moved the management of the Power Cost Equalization (PCE) Program’s investments to APFC. The annual meeting of APFC was approximately four weeks ago. Commissioner Crum sits on the Board of Trustees. The external auditor’s report was formally adopted and is available to the public. Commissioner Crum explained that assets managed by APFC are subject to the asset allocation as determined by APFC Trustees. He explained that AEA can view the allocation of the funds, the returns on the funds, but AEA will have no input as to how the funds are invested. Commissioner Crum highlighted that AEA created a functional Audit Committee at the previous meeting, who will maintain regular engagement during the year with the auditors. He commended BDO for their work on this audit and their transparent process with staff prior to the formation of a functional Audit Committee. Chair Koplin asked Mr. Shretha to provide a high-level summary of the audit. Alaska Energy Authority Page 4 of 12 Mr. Shretha reviewed the fiscal year-end total net position was approximately $1.4 billion, of which approximately $1 billion was in governmental activities and approximately $399 million was in the business-type activities. Mr. Shretha discussed the results of the operations of the governmental funds as shown on page 22, the business-type assets and liabilities on page 23, and the results of the operations of the business-type activities on page 24. The disclosures related to the investments begin on page 38. There were no additional questions. MOTION: A motion was made by Ms. Miller to accept AEA FY2024 Draft Financial Statements, as presented. Motion seconded by Vice Chair Mitchell. A roll call was taken, and the motion to accept AEA FY2024 Draft Financial Statements passed unanimously. 7. OLD BUSINESS Mr. Thayer recommended discussing the legal matters related to the BESS Service Agreements in executive session. MOTION: A motion was made by Vice Chair Mitchell to enter into executive session to discuss the legal matters related to the BESS Service Agreements. Motion seconded by Ms. Miller. A roll call was taken, and the motion to go into executive session passed unanimously. EXECUTIVE SESSION: 9:33 am – Discuss legal matters related to the BESS Service Agreements The Board reconvened its regular meeting at 10:13 am. Chair Koplin advised that no action was taken while in Executive Session. He indicated that a conflict of interest was declared for Mr. Izzo, who is a Railbelt utility manager involved in the direct negotiations with AEA. Chair Koplin requested that an overview of the action item be presented to the public. A. Battery Energy Storage Systems (BESS) Service Agreements Mr. Thayer explained that the following resolutions authorize the purchase of the BESS and related services from the Railbelt utilities for required project work at Bradley Lake. In 2022, $166 million of bonds were approved for required project work at Bradley Lake. The Bradley Lake Management Committee (BPMC) and the AEA Board selected transmission work and battery storage as the two key components of required project work. Mr. Thayer informed that there is approximately $90 million of required project work already in process. He noted that through consultations with the BPMC, bondholders, and Department of Law, it was determined that the remaining undesignated Alaska Energy Authority Page 5 of 12 amount of approximately $20 million would be included in the Grid Resilience and Innovation Partnerships (GRIP) match for the High-Voltage Direct Current (HVDC) line across Cook Inlet. The approximate amount remaining, and intended for the purchase of BESS and related services in the three Alaska regions was $58 million. Meanwhile, the BESS costs increased dramatically, and the available funds were not able to cover the purchase of even one BESS for one region in the state. Staff has been working diligently with Department of Law and the utilities over the last six months to find language within the bond covenants that would allow $30 million for the GRIP match, and $28 million to be divided among the utilities for the BESS that will help offset the cost for the ratepayers. There were no questions from members. Chair Koplin opened the floor to public comments regarding this agenda item. Mr. Izzo requested to comment. Chair Koplin noted that due to the conflict of interest in his position as a Railbelt utility, Mr. Izzo is commenting as a Railbelt utility manager and not as an AEA Board member. Mr. Izzo reiterated that he is speaking as the CEO of the Railbelt utility Matanuska Electric Association (MEA) and not as an AEA Director. He advised that he was recused from the discussion during executive session and will recuse himself from any action AEA will take regarding this issue. Mr. Izzo stated that he completely agrees with Mr. Thayer’s comments outlining the mutual goals of AEA and the Railbelt utilities, particularly to ensure that the agreements maintain the availability of investment tax credits and increased savings. Discussions are ongoing and the outcomes are forthcoming. Mr. Izzo recommended that the Board wait to act on the resolutions until the outcomes are considered. There were no other comments. MOTION: A motion was made by Vice Chair Mitchell to table all BESS agreements, and to call for a special meeting once the modifications and conclusions are presented. Public comments can be made at the special meeting, if necessary. Motion seconded by Mr. Siedman. A roll call was taken, and the motion to table all BESS agreements passed, with Mr. Izzo abstaining. i. Resolution 2024-13 – Authorizing Purchase from Alaska Electric & Energy Cooperative of Battery Energy Storage System (BESS) or Related Services ii. Resolution 2024-14 – Authorizing Purchase from Chugach Electric Association of Battery Energy Storage System (BESS) or Related Services iii. Resolution 2024-15 – Authorizing Purchase from Golden Valley Electric Association of Battery Energy Storage System (BESS) or Related Services iv. Resolution 2024-16 – Authorizing Purchase from Matanuska Electric Association of Battery Energy Storage System (BESS) or Related Services Alaska Energy Authority Page 6 of 12 B. Board Meeting Schedule Chair Koplin indicated that determination was made at the first Board meeting to hold regular quarterly meetings, while recognizing the need for occasional interim meetings as needed to address time-sensitive and impactful items. The meetings will follow the same structure and agenda format. There were no questions. 8. NEW BUSINESS B. Resolution 2024-17 – Renewable Energy Certificates Mr. Thayer explained that Resolution 2024-17 authorizes the Executive Director to create and sell Renewable Energy Certificates (RECs) for the Bradley Lake Hydro Project. The RECs represent the environmental and renewable attributes of energy generated from renewable sources, such as wind, solar, hydro, or biomass. While the electricity itself cannot be physically differentiated once it enters the grid, RECs serve as a certification of the renewable origin of the energy produced. The market for RECs began in the late 1990s, and the current REC market is well-established and growing. RECs is a key tool for achieving carbon reduction and renewable energy goals. RECs can be sold directly or through a broker to either the end-user or wholesale. Using a broker reduces the administrative burden and eliminates the need to develop knowledge of the market. However, this option incurs brokerage fees and hands over control of the REC to the broker. Mr. Thayer explained that AEA’s Bradley Lake produces 400,000 MW of power per year, and RECs have never been sold. AEA has statutory authority to create and sell RECs under AS 44.83.080. The statute grants AEA broad authority to manage alternative energy projects, enter into contracts for the sale of power, and promote energy efficiency. The resolution authorizes the Executive Director to enter into all contracts necessary to achieve the creation and sale of the RECs, including a contract with a broker, if that option is selected through the request for proposal (RFP) process. Mr. Thayer disclosed that conversations have occurred with two vendors in Alaska, which clearly indicates initial interest. Mr. Thayer discussed that it is possible to utilize RECs from as far back as 2019, even though older RECs are not as valuable as newer and future credits. He discussed that the older RECs that may be available could potentially sell for up to $700,000. Future RECs are worth more, with 2025 RECs anticipated to sell for $400,000, 2026 RECs anticipated to sell for $600,000, and 2027 RECs anticipated to sell for over $800,000. Further information is necessary to determine if the anticipated numbers are reflective of today’s market. Mr. Thayer highlighted that the Dixon Diversion would increase the RECs by approximately 50%. Mr. Thayer commented that deliberations with the Board and the Governor’s Office would occur to determine how to best utilize this unique opportunity and the earnings to benefit AEA programs. Staff recommends approval of Resolution 2024-17. Alaska Energy Authority Page 7 of 12 MOTION: A motion was made by Vice Chair Mitchell to approve Resolution 2024-17 for discussion purposes, to authorize the creation and sale of Renewable Energy Certificates for Bradley Lake Hydroelectric Project, as presented. Motion seconded by Ms. Miller. Ms. Miller applauded the Executive Director and the team for finding this new revenue source that can benefit Alaskans. She expressed support for the RFP process and bidding for the RECs. Vice Chair Mitchell echoed Ms. Miller’s comments. He recommended that the timing and the sale of the RECs is optimized. Similarly, he noted that smaller utilities, smaller municipalities, and individual owners could be eligible for RECs, and are not participating for a variety of reasons. Vice Chair Mitchell suggested that AEA’s Executive Director and staff provide leadership to bundle the RECs for those entities to optimize their economies of scale and to work toward lowering the cost of energy for Alaskans. Mr. Siedman agreed with the previous comments and expressed support for the resolution. He requested that the RFP process is not solely structured as commission-based or lowest bidder, and that the process include the important quality of the bidders to sell the RECs. Mr. Siedman asked that his comments are taken into consideration. There were no further comments. A roll call was taken, and the motion to approve Resolution 2024-17 passed unanimously. 9. DIRECTORS COMMENTS A. Response to Board Question Mr. Thayer noted that the memorandum and report regarding the Renewable Energy Fund (REF) question is included in the packet. There were no questions. B. Bradley Lake Update and Video Mr. Thayer showed the Bradley Lake video, which will be available to the public after the meeting. Staff’s intent is to create similar videos highlighting Dixon Diversion and GRIP. The Bradley Lake video is part of the presentations for the Legislature. Mr. Thayer expressed appreciation to staff for their fantastic job. Mr. Izzo echoed the accolades to staff. Mr. Thayer discussed that Bryan Carey, AEA, authored the included Bradley Lake Hydroelectric Update. Mr. Thayer outlined the key components of the report. Much work was conducted during the summer that was focused on the Dixon Diversion. The Board of Consultants visited Bradley Lake. This was required by the Federal Energy Regulatory Commission (FERC). The rock appears to be good quality for tunnel boring. Mr. Thayer reviewed the request in the Governor’s budget to fully fund the Dixon Diversion and to move the project forward for completion in 2030. Federal tax credits are anticipated to help offset the $340 million cost of the Dixon Diversion. Alaska Energy Authority Page 8 of 12 Mr. Thayer noted the record high lake levels since this summer. He listed the contributing factors, and informed that the levels are currently below spill level. There were no questions. C. GRIP 3 Update Mr. Thayer discussed that Jim Mendenhall, AEA, authored the included GRIP Update. AEA has formally accepted the project award from Department of Energy (DOE). The initial budget is $14.7 million. The pre-award costs were approved. Additionally, AEA submitted a notice to proceed with contractor Stantec to provide the initial project plan and schedule, HVDC conceptual design, HVDC cable preliminary design, critical environmental issues analysis, and preliminary cost estimate. The hope is to have substantial information available in February. There were no questions. D. SSQ Line Update Mr. Thayer discussed the Sterling to Quartz Substation (SSQ) transmission line upgrade update included in the packet. The project is scheduled for the next five years due to the management of the outages during the upgrade work. Mr. Thayer reported that Chugach Electric Association (CEA) is conducting upgrades and scheduling outages concurrent to the SSQ work. Because of the overlap of projects, AEA has contracted with CEA for the design, procurement, and oversight of the construction. The initial bids have come in lower than expected. The draft schedule through 2028 is included in the report. Mr. Thayer expressed sensitivity to the permitted and scheduled outage of the southern intertie between January 7, 2025 and March 21, 2025. The contractor has indicated that there are contingencies that, if necessary, the line could be brought back into service within 24 hours. There were no questions. E. Railbelt Transmission Organization (RTO) Update Mr. Thayer reviewed the included RTO update. House Bill 307 created the RTO, and the first hearing with the Regulatory Commission of Alaska (RCA) was conducted. The RTO Working Group is focused on the RCA filings, and the Governance Committee has drafted an initial set of bylaws. The attorneys are reviewing the information. The bylaws need to be approved and submitted to the RCA by December 31, 2024. The RTO has scheduled meetings in November and in December. Officer elections have not yet occurred. Mr. Thayer expressed appreciation to Mark Ziesmer, AEA, for his efforts. There were no questions. F. Power Project Fund (PPF) Loan Update Mr. Thayer reviewed the included Loan Dashboard Report. There are 15 outstanding loans. As of the October report, there was one delinquency of $27,000, which has since been paid. The total loan program is approximately $40 million, and is comprised of an outstanding loan balance of approximately $31 million, an uncommitted cash balance of approximately $4.3 million, and loan commitments of approximate $5.4 million. There were no questions. Alaska Energy Authority Page 9 of 12 G. Power Cost Equalization (PCE) Update Mr. Thayer reviewed the included PCE Update. He noted that by statute, the PCE is managed by APFC. AEA tracks the investments and balances monthly. There were no questions. H. Rural Update Mr. Thayer reviewed the included Rural Update. There are 23 active Bulk Fuel Upgrade (BFU) projects. Each project costs an average of $11 million, resulting in over $1 billion in unmet funding needs for BFU projects. There are 40 active Rural Power System Upgrades (RPSU) projects. Each project costs an average of $6 million, which is almost double than what it cost five years ago. The unmet funding need for RPSU projects is over $300 million. The Circuit Rider representatives have travelled to Napaskiak, Port Heiden, and Teller to conduct training. No electrical emergencies occurred in September. There were no questions. I. Renewables Update Mr. Thayer reviewed the included Renewables Update. AEA, within its Renewable Energy and Energy Efficiency (REEE) Program, manages four biomass projects, four energy storage projects, two geothermal projects, seven hydroelectric projects, seven solar projects, and 24 wind projects in the state. Additionally, the REEE team manages 19 projects funded by other agencies. The update includes a description of each of the projects, the technology, title, grantee, and associated budget. Staff is awaiting the pending funding for the two Solar for All projects. There were no questions. J. Navision Update Mr. Thayer discussed the Navision upgrade to the computer system. Currently, AEA shares the platform with AIDEA, and is treated as one company. Funding for the upgrade has been requested within the Governor’s budget. The intent is to maintain the shared server while treating AEA and AIDEA as two separate companies, and creating individual modules based on specific programs. There were no questions. K. Governor Eklutna Decision Mr. Thayer informed that AEA was named in the 1991 Eklutna agreement. The Governor’s Eklutna Decision to move forward with the proposal is included in the packet for informational purposes. The process was open and transparent. Mr. Thayer discussed that AEA was also named in the Snettisham Project, even though AEA has no role in the project. AEA will be working with Alaska Power and Light and the other parties to define AEA’s role. Mr. Thayer highlighted that AIDEA now owns the project. There were no questions. L. FY25 Statutorily Required Reports Schedule Mr. Thayer discussed that the FY25 Statutorily Required Reports Schedule is included for Alaska Energy Authority Page 10 of 12 informational purposes. There were no questions. M. Community Outreach Mr. Thayer highlighted the Community Outreach document included in the packet. This time of the year is very busy. There were no questions. N. Articles of Interest The Articles of Interest are included in the packet. Mr. Izzo thanked Mr. Thayer for his updates. He emphasized the critical nature and appreciation for the recognition by AEA for being able to get Bradley Lake back on a 24-hour schedule. Mr. Izzo commented that his understanding of the gas situation is that not everything that is needed is under contract going into next year. Identification of the Railbelt shortfall is being determined. The goal is to achieve the vision of eliminating constraints and being able to move the lowest cost power across the Railbelt. Mr. Mathiasson commented that he is happy to hear the forward momentum on RECs in the state, and would like to see bundling of the smaller projects for the rural communities. There were no other questions or comments. O. Next Regularly Scheduled AEA Board – January 23, 2025 at 9:00 am Chair Koplin reiterated that the next regularly scheduled AEA Board meeting is on Thursday, January 23, 2025. MOTION: A motion was made by Vice Chair Mitchell to enter into executive session to discuss confidential matters related to the FY26 budget, that the immediate of which may have an adverse impact on the Authority. This is supported by the Open Meetings Act (AS 44.62.310), which allows a board to consider confidential matters in executive session. In this case, the Board believes that these are subjects, which would have an adverse effect upon the finances of AEA and are protected by law due to the rules protecting personal privacy and certain business information. Motion seconded by Ms. Miller. A roll call was taken, and the motion to go into executive session passed. 10. EXECUTIVE SESSION: 10:58 am – Discuss confidential information related to the FY26 budget. The Board reconvened its regular meeting at 11:33 am. Chair Koplin advised that the Board did not take any formal action on matters discussed while in Executive Session. 11. BOARD COMMENTS Vice Chair Mitchell believes this meeting has been very productive. He expressed appreciation to Alaska Energy Authority Page 11 of 12 all who participated. He is confident there is a pathway to resolve the BESS systems. Vice Chair Mitchell requested AEA staff to notify the Board regarding any upcoming energy legislation so that AEA can help facilitate forward movement. Vice Chair Mitchell sees the bulk fuel issues as an existential threat for the rural communities and requested staff to advise the Board of proactive ways to put forward and obtain congressional designated spending. He believes that a maintenance component and standard of performance needs to be included to prevent a recurrence of this situation. Vice Chair Mitchell commented on the advent of artificial intelligence (AI) and its effect on energy. Three Mile Island is being funded by Microsoft. Amazon is funding another nuclear program. He noted that Microsoft and Amazon will get 100% of the energy output for data centers. The Electric Power Research Institute (EPRI) released a white paper finding that 4% of the nation’s energy is used in data centers in 2024. By 2030, that number is expected to grow to 9.1%. Vice Chair Mitchell requested Board members to read Governor Dunleavy’s comments on KTOO from October 21, 2024 regarding these issues. Vice Chair Mitchell applauded Chair Koplin for pioneering data centers within powerhouses. Mr. Izzo expressed appreciation to Mr. Thayer, to Jennifer Bertolini, AEA, and to staff for their diligent efforts. Ms. Miller echoed and reiterated Mr. Izzo’s sentiments of appreciation. Mr. Mathiasson commented on the competency of staff and the information provided during this good meeting. He looks forward to the resolution of the BESS system and bringing it online. Mr. Mathiasson supports continued forward motion on the RECs. Mr. Siedman commented on today’s great meeting. He believes the Board is well-suited with experience to move AEA in a positive forward direction. Mr. Siedman agrees it is important to focus on the BESS resolutions. He commended the Board for tabling the resolutions to establish a clear understanding of leveraging federal money while protecting possible incentives. Mr. Siedman looks forward to a special Board meeting to reconvene on that issue. He emphasized the importance of fully funding the Renewable Energy Fund for the next fiscal year. He understands the labor market challenges, including inflation and competition, affecting the Solar for All program. Mr. Siedman reiterated Vice Chair Mitchell’s comments regarding the methodical increase of data centers. He envisions a potential opportunity for AEA to reach out to the big players in the industry and to dedicate a certain portion of the renewable energy investments to data centers that may offset costs. Lastly, Mr. Siedman commended Mr. Thayer and staff for their efforts regarding the RECs. He believes the future of that market will be lucrative, although somewhat volatile. Chair Koplin expressed appreciation for his time in Iceland and the opportunity for seeing their datacenters. He believes that the industry leaders, such as Amazon, Microsoft, and Google, will actively pursue Alaska’s resources. Chair Koplin commended the excellent Renewable Energy Fund history report. He complimented staff on the Bradley Lake video, and highlighted the project’s steady increase in value over its lifespan, including the current REC opportunities. Chair Koplin expressed excitement for the Dixon Diversion project and for the utilization of the Power Project