Reducing costs still a priority at Alaska Energy Authority

  • John Deere generators destined for a Perryville powerhouse are seen inside the Alaska Energy Authority warehouse in north Anchorage in this 2017 file photo. Reducing costs across the state is still the top priority for the AEA under a new administration, the agency’s executive director told Commonwealth North. (Photo/Elwood Brehmer/AJOC)

Reducing the cost of energy across Alaska remains a priority, so the Alaska Energy Authority’s core mission is not changing according to new Executive Director Curtis Thayer..

AEA’s goal of making energy more affordable across Alaska is intact, but Thayer said on April 5 that Gov. Michael J. Dunleavy has also tasked the quasi-government agency with seeing what it can do to promote economic development in the state.

“The biggest thing the governor, in my conversations with him, said is it’s not only lowering the cost (of energy) but it’s creating the capacity to attract new businesses here — so what does that look like?” he said, adding that Dunleavy is relying on AEA for guidance on state energy policy.

Thayer spoke to a gathering of the Alaska policy think tank Commonwealth North about AEA’s direction under the Dunleavy administration, which has proposed eliminating, consolidating or overhauling numerous programs and agencies to close the state’s projected $1.6 billion budget deficit in the 2020 fiscal year that starts July 1.

He took over at AEA in early February after being asked to apply for the position. He previously led the Alaska Chamber and served as state commissioner of Administration and deputy commissioner of the Department of Commerce, Community and Economic Development, which oversees AEA.

Thayer assuaged the worries of many who have been concerned about Dunleavy’s proposal to dissolve the $1.05 billion Power Cost Equalization Fund into the state’s General Fund.

While the administration proposed ending the PCE Fund, which acts as an endowment and generates investment returns that help offset the high cost of electricity for residents in 194 rural communities, the governor’s operating budget still includes a $32.3 million PCE appropriation for fiscal year 2020.

Office of Management and Budget officials said when the governor’s budget plan was released in February that the PCE and other designated state funds should be moved into the General Fund so all constituencies can compete on a level playing field for state support.

The PCE Fund is managed by the Department of Revenue and generated $76.6 million in income in fiscal year 2018, according to Revenue financial reports. The PCE program paid out about $26.1 million of that to communities over the year, according to AEA, which manages the distributions.

The power subsidy to each individual community is based on the average cost of consumer power in a given rural community — often 60 to 70 cents per kilowatt-hour — compared to the average cost of power in urban Alaska, which averages slightly less than 20 cents per kWh.

The PCE program was established in 1985 as a way to provide more equitable financial assistance to rural communities that don’t directly benefit from state power infrastructure investments, primarily in the Railbelt region that encompasses Fairbanks, the Matanuska-Susitna Borough, Anchorage and the Kenai Peninsula.

Thayer noted that despite the administration’s stated goal of sweeping the PCE Fund into the General Fund, the legislation needed to make that happen hasn’t been introduced. He added that not many lawmakers appear interested in the change, either.

“A lot of members of the Legislature have PCE communities in their districts,” Thayer said.

Internally, AEA addressed the state’s budget challenges by not making a capital budget request for 2020. The agency received $16 million in combined general funds for its rural Bulk Fuel Upgrades and Rural Power System Upgrades programs in the current-year capital budget.

As is often the case, that state money was matched by nearly $23 million in other funding, much of which typically comes from the federal Denali Commission. According to Thayer, about 30 percent of the Denali Commission’s grant funding flows through AEA.

The Bulk Fuel and Rural Power programs help fund larger diesel storage tanks allowing for more economical fuel purchases and more efficient powerhouses in small rural communities.

AEA has completed Bulk Fuel projects in 118 communities since 2000 at an average current cost of $4 million to $5 million apiece, according to Thayer.

“We’re not necessarily out of funding, we’re prioritizing funding for the next two years,” he said.

The authority’s prioritized project list for fiscal 2020 includes approximately $7 million for five Rural Power Systems projects and $5.2 million for six Bulk Fuel projects in varying stages of design and construction, Thayer wrote via email.

As for the big picture items to increase power generation capacity in the state, Thayer said AEA leaders are looking at the possibility of revisiting the Susitna-Watana Hydro project that was one of six large, early-stage projects shuttered by former Gov. Bill Walker through an administrative order in December 2014 to limit state spending. While some other projects were eventually allowed to proceed, the stop order stayed on the large dam until Dunleavy rescinded it Feb. 22.

Proponents of the 459-megawatt, 705-foot dam estimated to cost $5.6 billion in 2014 contend it is the only viable way the state can meet its goal of generating half of its energy from renewable sources by 2025 at relatively low and stable prices.

However, dam opponents argue the resulting alterations to Susitna River water flows would endanger salmon stocks. They also question the economics of the massive project at a time when regional power utilities have invested heavily in new natural gas-fired power plants and long-term forecasts indicate little growth in power demand.

AEA has not been formally tasked with restarting Susitna-Watana, according to Thayer.

“Since putting the project into abeyance, AEA continues to field and answer questions from all interested parties regarding processes and costs associated with receiving a (Federal Energy Regulatory Commission) license in the event the project is someday restarted,” he wrote.

Thayer said it’s generally believed it would take about four years and $100 million to get a FERC construction license for the project.

Other long-term possibilities for providing substantial quantities of new power in the state could include a high voltage direct current, or HVDC, power line coming off the North Slope, Thayer conceptualized.

The HVDC idea has long been discussed as a way to utilize the state’s large North Slope gas reserves without building a pipeline and exporting LNG. It would have a large gas-fired power plant on the North Slope feeding the HVDC line, which would be an artery to transmit power to the rest of the state.

Finally, Thayer said AEA hopes to disperse about $7.2 million of the $8.1 million Alaska received from the Volkswagen diesel emissions court settlement this year. AEA was tasked with managing the money — that must be spent on local renewable energy or energy efficiency projects — and solicited grant requests last year.

Elwood Brehmer can be reached at [email protected].

04/11/2019 - 11:13am