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HomeMy WebLinkAboutDRAFT Meeting Minutes August 13, 2010 Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 1 of 10 Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Fairbanks Governor‟s Office Conference Room and AEA Boardroom 1:00 pm to 4:00pm 1.) Call to Order The Renewable Energy Fund Advisory Committee convened at 1:00 PM. Chairman Vince Beltrami presided over the meeting in Anchorage with Mr. Posey Co-Chairing from Fairbanks. 2.) Roll Call: Committee Members AEA Staff Other Participants Chair Vince Beltrami (Anchorage) Steve Haagenson (Fairbanks) Representative Paul Seaton (phone) Chris Rose (phone) Mike Harper (Anchorage) Jim Posey (Fairbanks) Peter Crimp (Fairbanks) Brad Reeve (Fairbanks) Butch White (Fairbanks) Jodi Mitchell (Fairbanks) Jim Strandberg (Anchorage) Senator Lyman Hoffman (Fairbanks) Chris Rutz (Anchorage) Representative Bill Thomas (phone) Shauna Howell (Anchorage) 3.) Public Comments Homer Representative Paul Seaton referred to his letter to AEA dated August 13, 2010, objecting to the new cost/benefit criteria established for funding under RE Fund Round IV applications. He said that due to the weighted nature of the cost/benefit analysis favoring widely established renewable energy technology, AEA is setting up the potential to exclude all future hydrokinetic projects from being funded. Mr. Haagenson stated this matter will be discussed under Agenda Item #10, specifically as to what technical and economic feasibility mean in evaluations. 4.) Agenda Comments There were no agenda comments. 5.) Approval of Meeting Minutes – June 8, 2010. The minutes will be available prior to the next meeting. 6.) Reimbursement Rules Mr. Crimp distributed forms to be submitted by the REFAC members for travel cost reimbursement. 7.) Review Recommendations from 6/8/2010 Meeting Mr. Haagenson referred to the document “Committee Recommendations,” compiled at the June 8, 2010 meeting and provided an update on the written recommendations: 1) Incorporate Deployment Targets; 2) Define Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 2 of 10 Criteria for when a Project is Stalled (we will need to get directions from the Legislature regarding stalled projects. Our goal is to get projects constructed); 3) Heat Recovery (this has been followed in our RPSU programs, is there another heat source we should be using); 4) submit Letter to RCA regarding Bethel Electric Utility Acquisition (the letter was sent to the RCA by Mr. Haagenson after his discussion with Chairman Pickett and following a visit to Bethel to talk to the City Manager about the City‟s potential acquisition of the Utility, which would be a last option. TDX has a signed purchase agreement and will present it to the RCA in 2011); and 5: Advertise RFA ASAP (this has been completed and the Applications are due September 15). Mr. White stated a public notice was posted in early July and email notifications were sent out requesting comments. The RFA was issued July 21, also with email notifications. Senator Hoffman said he believed an additional action item was discussed at the last meeting but was not listed on the recommendations list – that AEA would set aside funds to support experimental renewable energy projects. Mr. Rose and Mr. Haagenson concurred and stated it could be discussed further under either Agenda Item 9 or 10. Mr. Posey was concerned that there may not be enough funds in the Emerging Energy Technology Fund to cover projects such as tidal energy and maybe Legislature should increase the funds. Senator Hoffman stated the Legislature supports this fund. Mr. Rose asked if Mr. White could explain how the deployment projects have been incorporated into the Round IV process. Mr. Crimp stated requirements for the projects have not been acted on and would require further discussion. Mr. White stated our present 80 (construction)/20(recon and feasibility) is an internal target and is not firm but just a guideline. Mr. Haagenson pointed out that this concept was intended to be incorporated into Round V, as stated in the recommendations. 8.) Project Update Mr. Crimp referred to the Juneau Energy Meeting RE Fund Update document included in the meeting handout. AEA staff presented the RE Fund Update and program implementation to the Governor‟s office in early August. He said we are close to getting the Round III grants out and are implementing a new project management system, being more structured in dealing with milestone tasks to automate as much as possible. No Round III grants are out yet, but most are in draft status. Although the grant agreements were written by July 1, it‟s taking time to coordinate all steps. He said they are moving along fast and should be out in two weeks. Mr. Posey stated it‟s important to keep the monies moving. Mr. Crimp stated by the end of the construction season, about $40-$50 million is expected to be spent. As of July 27th, $32.2 million has been expended. Most funds will be obligated by start of session. Mr. Crimp stated Reynolds Creek Hydro for example was approved for a $9 million loan but did not have financing in place for the project. They have since come up with a plan and now have a grant in place. He stated that by end of year, 50 projects will be completed (23 are construction projects). We are on track to complete many projects this year. Rounds I and II projects will be in place to save 2.5 million gallons of fuel per year for 2011, and 5.5 million gallons of fuel by 2012, etc. Our message to the Governor has been that a lot of construction projects will be completed this year and many more next year. Senator Hoffman asked if there was an estimate on dollars per year in savings, which would show more of an impact for the program. Mr. Crimp stated 2/3 of the annual fuel savings is diesel and 1/3 is natural gas. Mr. Rose stated it would be helpful to show private and federal matching funds that go into the projects so the Legislature can see that the projects are not only funded by the RE Fund. 9.) Strategic Grant Making Discussion Mr. Rose suggested we be more strategic with the money we have. He asked if the committee would want to start to focus on spending the funds on driving innovation or splitting it between heat and electricity. He suggested that the committee should consider coming up with an agreement to pursue a certain area of technology, such as wind diesel, where we direct the project funds and not just accept any and all projects. He said we should dedicate a portion of the RE Fund towards heating and concentrate on emerging technologies such as tidal and wave power. Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 3 of 10 Mr. Crimp stated it makes a lot of sense to follow The Pathway to implement these technologies; however, biomass and waste heat are untapped in the rural communities. We are just skimming the surface for projects we can come up with and maybe we should take the initiative to just figure out the issues. We could implement a „before the fact‟ allocation or just take action and do the recon and feasibility (outside the realm) of the RE Fund. One of these projects is a GARN in a box wood heating system, a stick-fired clean burning container. We are working on one in partnership with Stebbins. It costs $200,000 for a modular wood heater with circulating pumps and a heat exchanger on skids to bring to a community with a wood supply to feed it. Mr. Posey said it would be better to go with emerging technologies or emerging deployment of technologies and pick a few pilot projects, as many communities still have not applied and we should be careful to follow Legislative direction. Mr. Rose agreed that efficiency projects should come before heat projects to be effective and we should consider what tradeoffs we want to make and which projects we want to pursue. Mr. Reeve agreed and said we are on the mark as to where the costs are for rural residents and you have to look at both, perhaps by implementing a solar thermal village pilot project using funds outside our pool we can cover a lot of ground. Our goal is to reduce the costs of energy in the communities with heat, energy and conservation. Mr. Haagenson agreed. Mr. Posey said we didn‟t want to end up with „stovepipe projects‟. We need as much integration as we can and look at what‟s best for each region. The program was designed with the qualification that 80% goes to rural Alaska. Mr. Reeve discussed a solar project done for Kotzebue elders. It was well-organized. Efficiency, training, technology, etc. can all be pooled together to make something stronger. Mr. Rose agreed and wondered if there was a way to provide an incentive program for communities that do a lot with energy efficiency for heating projects. Mr. Crimp asked him if he was suggesting that when proposals are ranked that we would give more points to communities with an EE plan. Mr. Rose affirmed and said it could work for electricity, too. Senator Hoffman asked if Mr. Haagenson could check if the Committee could make that change within the confines of the law. If not, we should make that a Committee recommendation to Legislature. Mr. Haagenson agreed and said he was not sure you can do that under the statues today. This is a higher level direction to get from Legislature; originally they said we had to follow the State Energy Plan. Like the Pathway, it could be different than that, but you have to show that it‟s better. Chair Beltrami asked who was directing the Emerging Energy Technology Fund (EETF) and when would the funds be disbursed. Mr. Haagenson stated Denali Commission asked AEA to manage (their) $3 million, that we will work with their advisory committee when we put our committee together which will be similar to theirs. We are actively working on the Denali Commission portion. Chair Beltrami stated we should not have to wait around for another fund if we can be making a difference in reducing heating costs, etc. we should have some kind of way to address deployment of the other fund towards more concrete pilot project concepts. Mr. Rose said he didn‟t think the EETF would disburse money until next spring. We are probably the only game in town presently for tidal and wave power projects. Mr. Crimp stated that in terms of developing the EETF, Neil McMahon is managing the program for AEA and is working with Mr. White. We have been talking to potential committee members and are looking at issuing a joint RFP as soon as we can get all the details ironed out with the Denali Commission and their federal requirements. Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 4 of 10 We should get the RFP out later in the fall with funds issued in spring giving us a jump on the construction season. It‟s logical again to go back to the Pathway to look at what the research needs are for the state, what technological information needs to go forth, and what projects we will fund. That should be a common theme driving the funds. Mr. Rose asked if we should continue the discussion about possibly cutting percentages out of the fund with feasibility and reconnaissance studies vs. construction 80-20. We should also continue discussing 25% heat (or something along those lines) as we proceed to Round V. Senator Hoffman agreed, but stated it should be more in dollar amount targets, rather than percentages. Representative Thomas questioned if HB152 allowed this, or do we need to go back and change it to allow EETF and change the HB152 path. Suddenly we‟re going for heating personal homes. Maybe that‟s where we put the money in for EETF. Mr. Rose said before the EETF, this Committee said there were no other funds for tidal and wave projects. Could we say as an Advisory Committee, we want to do so much heat and so much wind? He thought HB152 would allow us to do that; it allows us to do heat already, we‟re just not strategically focusing on anything. Mr. Rose didn‟t think we have to change HB152 for this Committee to say we‟d like to have set a broad target just like we have for construction. The emerging technology questions are different. Chair Beltrami agreed. He said a portion of the heating projects fall under standard renewable definitions, so the emerging projects have trouble fitting under that umbrella. He agreed in terms of incorporating targets. Mr. Posey asked if we had a number as to what the target would be. Senator Hoffman suggested we discuss this at a future date. Mr. Haagenson suggested we wait until the Round IV applications come in to see if that gets us to where we want to go. If it doesn‟t we can make a recommendation to shift the numbers around. Mr. Rose suggested AEA make recommendations based on the Pathway. He said if we‟re spending twice as much money on fuel oil as we are for diesel and electricity, it seems that a pretty high number towards heat is justified. Chair Beltrami agreed. Mr. Crimp said the next agenda item would be the benefit to cost ratio discussion. As far as coming towards targets, it makes sense to take into account that the higher the economics are, generally that means more diesel is displaced. If you put a target on it, then you‟re constraining the project selection to move away from benefit to cost ratio and you may end up with projects that are less economic in order to get more heating projects. That‟s a concern approach to think about. To counter that, Senator Hoffman said that in Western Alaska what other projects are there (when the cost of heating is so high). If those communities don‟t end up with projects they will continue to have high heating costs after the program is over. Mr. Haagenson said it will depend on how we define economic feasibility. You can have a much more feasible project on heat than on PCE. Key will be how you measure the financial feasibility. Mr. Rose asked if the cost benefit ratios come out higher in heating projects. Mr. Crimp affirmed and said they generally have lower capital costs. Mr. Haagenson said capital costs are lower, but you have to pay for fuel which is not cheap, so the cost reduction isn‟t as much as you would expect and will drive the benefit-cost ratio much lower. Mr. Rose said we might want to tie efficiency work to somehow give people enough points if they‟ve done efficiency. Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 5 of 10 10.) Benefit to Cost Ratio Regulation Applicable to Round IV Mr. Haagenson said that when we evaluate and throw out projects, we must make sure the project is not economically or technically feasible as stated in the benefit to cost ratio regulation. We need to decide what those terms mean. Mr. Crimp said in the last round we were getting a number of projects that did not appear to be economically feasible and a lot of time was expended on them. It seemed logical that we should more tightly define what was economically feasible, and the approach we took was to put out a benefit to cost ratio with some unintended consequences. The benefit to cost ratios we threw out were for construction. Then it seemed logical that before you would go for final design and construction, in order to be economically feasible you ought to be able to show a benefit to cost ratio of .8. Given the fact we are requiring robust feasibility analysis to be done before moving to final design, according to the RFA, the applicants weren‟t able to show they had reasonably good benefit to cost ratio that they were after. For feasibility projects he said it was somewhat more difficult. We thought it was logical to be more lenient so we went down to .6, given how sure we were going to be about data and results. Mr. Haagenson said Committee previously advised that we should not hardwire a benefit to cost ratio so we left it open and took away points in the evaluation; today we‟d like to talk about ways to do it. Now that they‟re approved, the regulations say we must reject an application that‟s not technically or economically feasible. We have the ability to define what technological and economically feasible are. The clear one we think about is total project cost or benefit and we need to divide those two numbers. Or we could divide State grant funds to look at it from the State‟s perspective. If we look at it from the utility/user aspect, it would be their funds they put in – any match funds divided by total benefit. There‟s different ways to craft this number looking at it from different perspectives. Just looking at it benefit to cost may not capture what we‟re trying to do here. How does the group visualize: 1) technical feasibility and 2) economic feasibility. Mr. Posey said he thought technical and economic were combined and not two things. Mr. White read the regulation: “Per 3AAC 107.645(b), the Authority will reject applications it determines under (a) of this section not technically and economically feasible or not provide sufficient public benefit.” Mr. Posey commented that we should not take on projects that fall within the ambit of what DOE funding does for Emerging Technology that would benefit the world greater audience than Alaska, unless we choose to change it. Part of that was to refrain from funding projects that nobody else would fund or benefit Alaskans. We have a limited amount of money and we‟re doing very good getting it out the door. The regulations say, economically and technically – and being the operative word, we should stick to that and he would not propose changing it. Mr. Reeve commented that this all lends itself back to what is Emerging Technology and how it‟s defined. We need projects that are going to develop and not be left with off the shelf technology that doesn‟t work. Emerging Technology and whether it‟s feasible or not has to come into a definition. Maybe we‟re the only group that can define it at this point because it plays in with our having to be technically and economically feasible. Ms. Mitchell agreed and said it seemed there is an optimal range in technological advancement we could be interested in funding. Mr. Haagenson stated the regulations don‟t define what those terms mean. The terms are clearly in the regulations but if you define it and say no we‟re going to use this definition, or we can use that definition to apply – there‟s some wiggle room available to us. Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 6 of 10 Chair Beltrami commented on the point of economic feasibility. When we were talking earlier about the millions of gallons of fuel saved corresponding dollars, it sounds like the payback on our current projects is only a few years away. That‟s better than the terms of any other kind of loan out there. Some may not have a quick payback, but they are economically feasible, particularly if it‟s a good risk, an emerging type project that falls under our goal and ends up working in the long run. We need to dial that in to what our range is. Mr. Rose said part of it is focused on very discreet projects. We have recommended awarding money to tidal projects because there were no other funds, but we really need to be strict on giving money to projects that are economically and technically feasible. The problem has been, as with ORPC, they were actually recommended for $2 million of funding and they were going to leverage $4.5 million of money for the project, then they got cut in the veto. At the same time, the EETF was passed and now they are finding themselves cut out.. All other projects we might consider “emerging” need to go into the EETF, which there are two problems with – at least for tidal and wave: 1) the fund is relatively small, and 2) we don‟t see the money being disbursed anytime soon. We have money being left on the table possibly with a project like ORPC where they have $4.5 million in private money that they could put together into this project if we can get them State money. He asked Mr. Haagenson that rather than trying to make an exception to what we all agree has to be some kind of delineation at some point, and continue to fund tidal and wave, is there any other money in AEA‟s budget to do some stop-gap funding for tidal and wave power projects, until we can get the EETF up to fully support them. Mr. Crimp stated there are capital funds available for alternative energy and energy efficiency (the EE outreach, audits for commercial buildings, starting an industrial energy efficiency program, etc). Out of that we have funded the MET tower programs and things like a demo for state forestry to use a new kind of timber-typing software that can get at biomass energy resources quickly using satellite data. We use those funds to match federal funds whenever we can. A reasonable use of those funds would be for statewide hydrokinetic surveys – projects that would actually inventory state resources, shown in the Renewable Energy Atlas. There are also capital funds for planning. Mr. Haagenson asked if the Southeast tidal projects are funded by that, and Mr. Crimp said the RE Fund has addressed site specific/project specific necessary resource assessments. For the extents of statewide energy resources assessments, you could make a pretty good case that those funds should be used for that. We have been working with DNR on the Alaska Energy Inventory. That‟s where that data is supposed to go. We received $3 million from Legislature last year. Mr. Rose asked if those funds could be used for something like the Representative Seaton project – a feasibility study for the Kachemak Bay area – but not for a demo construction project like the ORPC project. Mr. Crimp said those funds could be used for that at AEA direction; however, they are limited when you‟re talking $2 million for a construction project like that. We would always need to do it in a competitive RFP. Mr. Rose reiterated his concern, that Alaska can and should be a leader in tidal and wave power; he also stated we have 90% of the country‟s tidal resources and half of the wave energy resources. We are stuck in a place where the RE Fund probably shouldn‟t be used for it, since we now have the EETF; but the EETF is not in place yet and there‟s not very much money in it. There‟s an incredible leadership opportunity that‟s just sitting there. We have to figure out some kind of way to stop-gap fund it, without shifting all the rules for this fund in order to make an exception for the time being. He said he felt strongly about this and was open to suggestions from the Committee as to how we can accomplish that. Mr. Haagenson stated one way would be to have them apply for the EETF through the Denali Commission and go through their evaluation process. We don‟t have a good solution on how to bend the rules to allow them to stay in that fund. It‟s embarrassing because in the last round (they) were approved for a project, and now we‟ll have to apologize because we have a different fund now, they‟ll have to reapply and start over. We are in a weird position. Mr. Rose agreed and said we need to have people understand that we are in that weird position. ORPC is a legitimate company, recognized as one of the leaders in the tidal energy business and we are lucky to have them operating in Alaska. If we lose this opportunity, we may lose their interest in investing in Alaska, which is a problem, especially for this project which they are looking to privately invest $4.5 million for an Anchorage area project. Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 7 of 10 Mr. Reeve commented that geothermal projects have had a real turn around in the last year or so. A zero budget on the federal DOE side previously, but didn‟t know if there was a change in kinetics as well. The geothermal federal budget went from zero to $365M in a year‟s time with AARA funding. Are there other funds that can be directed through the Denali Commission by our Washington, DC representatives? Mr. Posey commented the DOE is a worthy group. Our process should remain as pure as we can make it, sending (funds) to the Denali Commission as we look at what other funds may be available with the State to maybe match half of that or whatever Denali Commission may provide, we have the makings of something that will work. Let‟s talk it up and see what we can do between the two or three funds and try to keep it moving because we believe tidal is going to be an answer. We‟re not going to get any closer unless we encourage these people to continue to work. Chair Beltrami stated he would obviously push at the DC level. Mr. Reeve is also on the Energy Advisory Committee. When this fund was created at the Denali Commission, we said we don‟t need to have a parallel fund doing the same thing and was a big proponent for pushing on the emerging technology side. A lot of that ground work has already been laid over there and that‟s certainly an easy conversation to keep moving. Mr. Rose said there was general consensus that we should keep the regulation the way it is. We need staff to come up with what they are using as their definition of economic and technical feasibility. Strict guidelines will assist us in recommending future projects. He said he understood that the $3.2M EETF will be administered by AEA, but didn‟t understand why the Denali Commission would have another chance to decide on the projects. Mr. Haagenson said AEA was asked to manage the EETF. The Denali Commission already have their rules in place, whereas our rules are not in place. We are not going to merge the funds together, they will be separate programs. Mr. Beltrami asked if AEA will be screening applications as well. Mr. Haagenson said that was correct. There will be similar applications and the procedures should be close to each other, but reiterated they will be separate programs with similar processes. Mr. Rose asked that since the EETF referenced getting the money from elsewhere, like federal funds, do we anticipate all future sources of funding might be administered by AEA separately and with separate criteria. Mr. Haagenson stated a final decision hasn‟t been made but the plan is to keep them separate. Chair Beltrami asked for Committee directives for staff. Mr. Haagenson asked if a hardwired benefit to cost ratio was set in Round 4 instructions. Mr. White responded that in the RFA .6 was set for feasibility and recon and .8 for design & construction. Mr. Haagenson said staff was instructed by the Committee that they did not want to have the benefit to cost ratio hardwired and now it is. Senator Hoffman said he did not think it should be hardwired and it should be a target for flexibility. We don‟t know what the projects are coming and if a project doesn‟t fit, our hands are tied. Mr. Haagenson reminded that the last step to go through is regional spreading, where hardwire may not work. What does a .8 benefit to cost ratio mean. Mr. Crimp pointed out that AEA has posted the economic review template on our website so applicants can see what all the different assumptions are. The benefits are the differences in over 20 or 30 years (the project life) – the proposed activity versus the status quo. We used common assumptions. Maybe it was the first REFAC meeting that we were instructed not to put in hardwired economic requirements. We took those to mean that the project should not be rejected that had a benefit cost of less than one. Our assumption is that at some point a project would need to be rejected because of poor economics. These were the places we drew the line .8 and .6. Perhaps we have not had sufficient discussion with the Advisory Committee and that‟s something that we need to bring up, make them less of a yes/no. We could still do that retroactively for Round IV RFA if necessary. Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 8 of 10 Mr. Haagenson said the LB&A was looking for a hardwired number above one. We‟re trying to focus on two different targets and not violate the Regulations. What it boils down to is what is economic and technical feasibility. There clearly is not a hardwired number in the regulations, but we will comply with and follow the regulations. It‟s given us wiggle room to define what the number is. If we agree today to put hardwired numbers in, we could do that. We have a lot of flexibility, but need a consistent definition for economic and technical so we‟re not violating regulations. Mr. Rose agreed that Legislative skeptics should feel good about the money being spent in the program. That‟s why we need an economic and feasibility number. He said we need to come up with a definition of what that actually means. In tidal power projects companies (like ORPC) need to have specific guidance so they will apply in Round IV. ORPC could still apply and assert that since only one third of the project is State money, they would want the State to look at the cost/benefit ratio relative to the amount of State money in, rather than relative to the total project cost. They could also say over the course of 20 years the price of natural gas could go up and although they are a demo project today, they could make electricity and could have a cost/benefit ratio of X over 20 years. They could make that argument if their economic feasibility is based on just the State‟s contribution. It‟s a crucial answer we need today so that companies (like ORPC) can decide whether or not it‟s worth investing the time to file another Application in Round IV. Senator Hoffman commented that the LB&A was concerned that many projects would flop and that the program would be a waste of money. It would be good if the gallons we‟re projecting to save in 2013 as shown on the graph could be converted to dollars and shown to them, they will be less skeptical. The numbers may be higher in the fourth and fifth rounds. Even without guidelines of a positive cost/benefit ratio, we are able to show that we are saving millions on an annual basis and in the end this program is going to pay for itself in seven to 15 years. He‟s less concerned about setting a hard number for the cost/benefit ratio knowing we‟re saving millions of dollars and say we should have a guideline that we will not approve negative cost/benefit ratio applications. Mr. Haagenson pointed out that the formulation for benefit to cost is really a project benefit to cost ratio and not user based. Mr. Rose asked if AEA will continue to analyze the cost/benefit ratio for economics on total project costs. Mr. Crimp affirmed this and said it‟s not AEA directly, but private economists under ISER guidance. He said when he mentioned REFAC decided to advise to AEA to consider removing the hardwire not allowing projects at .8 that could be considered, he overlooked the requirement in the regulations. Mr. Rose said he understands the regulations have to be changed for AEA to ignore the hard number and the only way to get around that would be to interpret economic and technical feasibility in a way other than we do now. In some ways you‟re providing a dis-incentive, i.e. the ORPC project – a project with a lot of outside money. If there‟s a lot of outside money coming in, the project cost is higher even though the State money is low. If you analyze the economic cost benefit based on total project cost, you‟re better off not having any outside money. Mr. Haagenson said previously when evaluating if there was a low benefit to cost ratio, we gave less points for it and if there was a high match, we gave higher points for that. My concern is the regulations say you must reject them if they‟re not economically feasible. In the Application on page 24 or 25 it says “we may recommend a portion of the funds be made available.” If it‟s not there, it‟s not going to get past Phase 2, we must reject it. We need to define that number. If we just leave it open and go points, we‟re back to where we were last time and we can say we‟ve evaluated if it‟s economically feasible or not. I‟m trying to figure out a way to meet the regulations that we wrote and get the right answer. Mr. Rose agreed with Senator Hoffman that if there was a way to not have that strictness and it gives us discretion at end of day to determine what we‟ll recommend Legislature to fund. Mr. Rutz stated the Stage 2 evaluation threshold had three criteria that need to be met - economic feasibility, technical feasibility, and public benefit. Those things need to be defined. The statute is currently worded that if we determine that a project is not technically feasible, economically feasible or not in the public interest we have Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 9 of 10 to reject it. The process is past the half-way point and we need to make sure that we‟re consistent, document it and everybody is treated the same way. It needs to be measured fairly. He said he and Mr. Crimp came up with the numbers. Senator Hoffman said as long as the cost/benefit ratio is positive the project can be considered by this Committee. Chair Beltrami agreed. He said some may show that they‟re a lot more economical, but just because they‟re less economical if they‟re positively and not negatively economic, then they are worth considering. Mr. Crimp thought we should discuss what negative versus positive means. If a benefit/cost is zero, then no benefit occurs to anyone. No matter what the cost is, there‟s no benefit. If a project has a benefit to cost ratio of one, then it breaks even. The money put into it breaks even with the benefit. If a project is a minus number, that means it costs money to operate the project – every year on average you‟re going to end up having to sink money into the project. Mr. Rose commented that .6 or .8 are still less than one, which means there‟s still not as much benefit as there is cost. Mr. Crimp said that was correct. That means there is less benefit than there is cost. Another way of putting it is you have a certain amount of benefit – say that‟s 8 and you have a certain amount of cost and that‟s 10, you can say over the project period 8 minus 10, that‟s what you will get out of the project, that -2 over the long run. That has to be multiplied times the cost in order to make real numbers. It‟s a negative number, you‟re in the hole. Senator Hoffman stated the problem he sees is there should be a number given to this on points and evaluate everything on points. He didn‟t think it was right to say that a project is going to be thrown out completely before the points are counted on the cost/benefit ratio. Mr. Haagenson proposed that we issue an addendum to remove that paragraph and go back to the point system of evaluation. We must have a way to evaluate these, the point system covers it. Mr. Crimp said if we took out that requirement, a project with a poor benefit to cost ratio would get a zero on that score -- ORPC got zero last time around for economic benefit. Their saving grace was that they had a high amount of match funds, so they ended up in the yellow – the second $25 million. Mr. Rose asked Mr. Haagenson if he was suggesting we ask these to be set out of the regulations and can we do this with an existing regulation of this size. Mr. Haagenson said that was negative, he suggests we take out the hardwired numbers and go back to the structure where they would get points for the amount of benefit/cost ratio like we did in Rounds 0 through 3. The regulation says you must reject an application that‟s not technically nor economically feasible. Take out the number. Mr. Rutz suggested we just drop the threshold if six is too high, but has to be greater than zero, would that work. You could have that as the threshold and realizing that anything, probably between .1 and 1 is a subsidy. Even though it‟s a subsidy there still could be some benefit. The community getting the money is an economic benefit. Whether it‟s feasible or not, there‟s still an economic benefit. Mr. Posey pointed out that sustainable means it will pay for itself without having future subsidies. Representative Thomas inquired as to how we weigh the reduction of oil diesel products, the carbon footprint. Do we weigh that at all when you retire 100,000 gallons in a village, by putting in a hydro project, i.e, is used as any weight anywhere in grants. Mr. Crimp replied that we have a small amount that we charge for a carbon tax, we assume there will eventually be a carbon tax and we assign a certain amount of price per gallon of diesel for that. Representative Thomas commented that it works, for instance Cordova saved 365,000 gallons of diesel. Mr. Stromberg said he had been in contact with the Cordova Coop while researching how to quantify rural energy credits and carbon offsets. They get about $30,000 a year in renewable energy credits from their Power Creek project. He said there are probably formulas making it possible to give more of a dollar amount figure if we wanted to research that further. Chair Beltrami asked the Committee for their recommendations. Renewable Energy Fund Advisory Committee Meeting August 13, 2010 Page 10 of 10 Senator Hoffman stated he would be in favor of Mr. Haagenson‟s recommendation and delete the section of the Application, .6 and .8 covering feasibility and construction. There were no objections. Mr. Rose reiterated that by next meeting the Committee receive some type of framework/proposal from staff that we can use as a starting point in our discussions regarding Round V strategic grant making and deployment strategies. 11.) Next Meeting Date The next meeting date will be November 9, 2010 from 1:00 p.m. to 4:00 p.m. at AEA. 12.) Adjournment The meeting was adjourned at 3:40 p.m.