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Vol. 16, No. 14 Week of April 03, 2011
Providing coverage of Alaska and northern Canada's oil and gas industry

Susitna hydro moving on; AEA needs authority to pursue project

Parallel versions of Gov. Sean Parnell’s bill to give the Alaska Energy Authority the statutory authority to progress a plan to build a major hydropower system on the Susitna River have moved to the House and Senate Finance committees, having been reviewed by the House Special Committee on Energy and the Senate Resources Committee.

The state administration sees the development of a major Alaska hydropower system as a key requirement for achieving a target set by the state Legislature in 2010, to have half of the state’s power generated from renewable energy sources by 2025. And in November AEA recommended the construction of a large hydroelectric dam on the Susitna River, in remote territory on the south side of the Alaska Range, about 184 river miles upstream of the river’s mouth, to achieve the hydropower objective. As currently envisaged, the Susitna project would meet about half of the total Railbelt power demand.

With an AEA-estimated cost of about $4.5 billion and with a long project timeframe, the Susitna Dam, a somewhat scaled down version of a Susitna hydropower concept that was investigated in the 1980s, would require financial assistance from the state for its construction. And AEA is taking a lead in moving the project forward.

The agency has started conducting a gap analysis, assessing where the environmental investigations done in the 1980s Susitna hydropower studies need updating, and has also been conducting a series of open house meetings in Alaska communities, to enable the public to learn more about the project.

AEA has contracted engineering firm Montgomery Watson Harza to conduct engineering studies and do licensing work for the Susitna project — MWH has broad international experience in major hydropower projects and provided construction management and engineering services for the Karahnjukar hydroelectric project in Iceland, a sub-Arctic project of a similar scale to the Susitna project.

Legislation needed

But passage of the governor’s bill is needed before AEA can apply for a permit from the Federal Energy Regulatory Commission for the Susitna hydropower system, AEA officials explained to state lawmakers during committee reviews of the House and Senate versions of the bill.

“Upon passage of this bill AEA will move forward with the Susitna project by filing a preliminary permit with the Federal Energy Regulatory Commission,” AEA Executive Director Sara Fisher-Goad told Senate Resources on Feb. 9.

AEA sees the financing, construction and operation of the successful Bradley Lake hydropower system on the Kenai Peninsula as providing a model for how the Susitna system might come to fruition. Completed in 1991, owned by AEA and managed by Alaska Railbelt power utilities, Bradley Lake was 50 percent funded through bonds and 50 percent funded by the state. Following retirement of the bonds, revenue from the sale of power from the facility is returned to the state as a kind of dividend, refunding the state’s original investment in the project. And since Bradley Lake went into operation, power from the facility has become substantially cheaper than power from the gas-fired power plants that dominate Railbelt power generation.

While using Bradley Lake financing as a model for Susitna, AEA would establish a financing team to hammer out the specifics of Susitna financing, and to work with utilities on potential power sales agreements, Fisher-Goad told House Energy.

Re-instate status

However, AEA lost its ability to establish a development project akin to Bradley Lake when the AEA board of directors merged with the board of the Alaska Industrial Development and Export Authority in 1993, Fisher-Goad explained to Senate Resources. In effect, the governor’s bill would re-instate AEA’s ability to acquire or construct power projects, enabling the agency to hire its own employees and to establish a subsidiary corporation for the Susitna hydropower project, as well as to apply for the FERC permit. Changing the legal status of AEA involves, among other things, a change to the statute specifying the AEA board of directors.

And to make available the necessary funding to kick-start the Susitna project, an existing fund called the Railbelt energy fund would be transferred into a new fund called the Alaska Railbelt energy fund. That would make available $65.7 million for on-going project work, Fisher-Goad said. The Railbelt energy fund was originally established to fund the 1980s Susitna hydro studies. Revenues from the Bradley Lake project have also been paid into the fund, Brian Bjorkquist, state senior assistant attorney general, told House Energy.

The primary purposes of being able to establish a separate AEA subsidiary for the Susitna project would be to enhance the project financing and shield the parent corporation from the debts and liabilities of the subsidiary, Fisher-Goad and Bjorkquist told House Energy.

Procurement regulations

The governor’s bill would also enable AEA to establish its own regulations for the procurement of goods and services for a Susitna project, as distinct from the agency using the state’s current procurement code. This provision of the bill takes into account the confusion that can arise from the fact that, because of the nature of AEA’s projects, some of the agency’s procurement activities fall outside the scope of the state code, while others are subject to that code, Fisher-Goad explained. By having its own unified procurement regulations, similar to the state’s procurement code, AEA could establish consistent procurement protocols, she said.

In response to questions about regulatory oversight of the proposed Susitna facility, Bjorkquist told Senate Resources that the facility would be exempt from Regulatory Commission of Alaska regulation but that RCA would regulate utilities buying power from the facility. AEA has an independent obligation to review for efficiency energy projects such as the Susitna project, Bjorkquist said.

Asked about AEA’s experience in conducting construction projects, Fisher-Goad cited various rural energy projects that the agency has managed, as well as the Bradley Lake project. While accepting that the Susitna project is much larger than anything that the agency has previously managed, Fisher-Goad said that AEA has hired an experienced engineering firm for the project.

“In house, AEA hasn’t done something this large before. However, through our contracting and our processes we can hire the entities to work through that,” Fisher-Goad told Senate Resources.

—Alan Bailey

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