|
Millions in energy bill for rural Alaska Bill includes NPR-A lease extension, Healy coal power plant loan Larry Persily Petroleum News Juneau Correspondent
Alaska did not win congressional approval for opening the Arctic National Wildlife Refuge to oil and gas drilling but will benefit greatly from several other important provisions in the energy bill.
The legislation includes up to $1 billion over the next 20 years for rural energy projects across Alaska, as much as $35 million over the next seven years to help subsidize electricity for rural residents, and a $125 million federal loan for the Healy coal power plant 110 road miles south of Fairbanks.
The bill also allows the federal government to extend oil and gas leases in the National Petroleum Reserve-Alaska, giving companies more time to explore the area without losing their leases. The secretary of the Interior also would have the authority to grant royalty relief for NPR-A production.
In addition to losing ANWR over the threat of a Senate filibuster by wildlife-protection advocates, the state’s congressional delegation also was unsuccessful in its attempt to win a federal tax credit provision to boost production of heavy oil on Alaska’s North Slope. Alaska denied heavy-oil tax credits The tax credits, at $3 per barrel, already are available in federal law but only for wells producing about 30 barrels per day or less. The state of Alaska and ConocoPhillips, which holds leases on a lot of North Slope heavy-oil acreage, had lobbied to eliminate or at least raise the limit so that larger and more costly Alaska wells could qualify for the federal money.
Alaska’s biggest obstacle was House Ways and Means Committee Chair Bill Thomas, R-Calif., who fought to protect the tax break for the thousands of small wells in his district rather than expanding the program — and its cost. “Bill Thomas … is very much opposed to any kind of incentives,” said Alaska Gov. Frank Murkowski.
The House-Senate conference committee adopted the energy bill Nov. 17, with House approval coming the next day on a 246-180 vote. Senate approval was expected before lawmakers adjourned for Thanksgiving. ANWR fight over for another year The loss of ANWR was perhaps the most labored defeat for Alaska’s congressional delegation and the governor, after years of trying and $12.6 million in state funding for the pro-drilling lobby group Arctic Power. But the governor, who spent much of his 22 years in the Senate advocating for opening ANWR to oil and gas exploration, said he is not giving up.
“We will not give up on ANWR,” he said in a prepared statement the afternoon after House passage of the bill. “We will be back.”
Looking past the ANWR and heavy-oil defeats, Alaska stands to collect a lot of benefits from the bill, with two key provisions helpful to exploration and development in NPR-A. NPR-A lease extensions possible In addition to allowing the secretary of the Interior to waive, suspend or reduce federal royalties on NPR-A production if it can be shown to encourage production in the area west of Prudhoe Bay, the bill grants the secretary the authority to extend leases in the area an additional 10 years. The extension could be granted if the leaseholder finds oil or gas on one or more wells drilled on the lease and is pursuing further exploration or future development.
Federal leases were sold in NPR-A’s northeast section in 1999 and 2002. Companies have drilled more than a dozen exploratory wells, with the Alaska Department of Revenue projecting the first production in about four years.
The bill also gives the Bureau of Land Management explicit authority to approve unit agreements for NPR-A leaseholders, allowing companies to work together on joint production of a reservoir. Loan to help Healy coal plant In a move intended to help start the Healy coal power project, the bill authorizes up to $125 million in federal loans to salvage the non-producing electrical generating plant.
The 50-megawatt plant, constructed with $117 million in federal grant funds, $85 million in state bonds and $25 million in state cash, has never produced any electricity since its final test run in 1999. The plant was selected in the 1990s for federal aid as a pilot project for a new, clean-burning coal technology.
The Alaska Industrial Development and Export Authority owns the plant, and is paying about $6 million a year on the bonds and about $3 million a year to maintain the facilities. That $9 million annual cost is coming out of AIDEA’s income from other projects and investments.
The plan a decade ago was for the Fairbanks-based Golden Valley Electric Association to buy power from the Healy plant, but the utility claimed the clean-coal technology did not work as advertised and was too costly to operate, and canceled the deal.
While the utility has pushed for a full and expensive retrofit of the plant to conventional coal-burning technology, the state development agency has favored a more limited and less costly rebuild of the plant to save much of the clean-coal elements. State will have to decide how to use funds The energy bill does not specify how the $125 million in new loan funds are to be spent.
The money could be used for a total retrofit and rebuild, which would drive up the total investment in the plant to almost $375 million, or it could be used for a limited retrofit and perhaps to pay off some of the state bonds. A return to conventional coal-burning technology, however, could require a new air quality permit, which might present problems for the facility so close to Denali National Park.
The largest items of federal funding for Alaska in the bill are two sections that direct cash to the Denali Commission, created in 1998 by Alaska’s senior senator, Ted Stevens, to spend federal dollars on rural development programs. Rural energy needs a big winner One section guarantees the Denali Commission $50 million a year from 2004 through 2013 for “energy generation and development (including fuel cells, hydroelectric, solar, wind, wave and tidal energy, and alternative energy sources), energy transmission (including interties), fuel tank replacement and clean-up, fuel transportation networks and related facilities.”
The annual $50 million grant would come from federal lease rents, bonuses and royalties earned from oil and gas production in NPR-A.
The legislation says the federal government will make up any shortfall in NPR-A lease revenues to fulfill the $50 million annual pledge, but only through 2013. Starting in 2014, through the end of the funding in 2023, the annual grants could fall short of the $50 million if the area does not start producing sufficient oil or gas. Funds to help with rural electrical costs The second Denali Commission funding provision authorizes — but does not appropriate — up to $5 million a year from federal fiscal year 2005 (which starts Oct. 1, 2004) through 2011 for the state’s power cost equalization program that subsidizes high-cost electricity for rural residents statewide.
Congressional approval of the funding will be required for each fiscal year budget.
The power cost equalization program serves about 79,000 Alaskans in almost 200 communities, paying an average of 12 cents per kilowatt hour toward residential-only electricity bills. The Legislature has short-funded the program in recent years, resulting in prorated subsidy payments covering about 85 percent of eligible costs.
The program received $15.7 million in state funds each of the past two years.
The Legislature in May 2000 set aside money in an endowment to fund the annual payout, with the intent that drawing out 7 percent of the fund’s market value each year would cover most of the program’s costs. However, the endowment never reached the level needed for an annual 7 percent draw to fully cover the costs, and the Legislature has appropriated other state funds to partially fill the gap.
The federal aid will likely guarantee full power cost equalization to rural residents, “even in the face of state budget woes,” said Sen. Lisa Murkowski, R-Alaska, who was not on the energy bill conference committee but was able to win approval for the Denali Commission funding.
| 