Front Cover
A COMMONWEALTH NORTH STUDY REPORT
Meera Kohler & Ethan Schutt, Co-Chairs
February, 2012
ENERGY FOR A
SUSTAINABLE ALASKA
The RuRal ConundRum
STATEWIDE ENERGY NEEDS
TO BE PRIORITIZED NOW
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IN ALASkA TODAY, NEARLY 80% Of RURAL COMMUNITIES ARE DEPENDENT
ON DIESEL fUEL fOR THEIR PRIMARY ENERgY NEEDS. THE POOREST ALASkAN
HOUSEHOLDS SPEND UP TO 47% Of THEIR INCOME ON ENERgY, MORE THAN fIvE
TIMES THEIR URbAN NEIgHbORS.
Commonwealth North therefore recommends that Alaska:
Board of Directors
President - Michael Jungreis - Davis Wright Tremaine, LLP
President Elect - Tom Case - University of Alaska Anchorage
Secretary - Michele Brown - United Way of Anchorage
Treasurer - Meera Kohler - Alaska Village Electric Cooperative
Past President - Thomas Nighswander - Alaska Native Tribal Health Consortium
Executive Director - Jim Egan
Editor and Program Director - Joshua Wilson
Nils Andreassen - Institute of the North
Don Bantz - Alaska Pacific University
Milt Byrd - President Emeritus, Charter College
Pat Dougherty - Anchorage Daily News
Joe Farrell - ConocoPhillips Alaska, Inc.
Cheryl Frasca - Municipality of Anchorage
Patrick Gamble - University of Alaska
Joe Griffith - EJ Griffith Enterprises
Max Hodel - Founding President,
Commonwealth North
Karen Hunt - Superior Court Judge, Retired
Bruce Lamoureux - Providence Health &
Services, Alaska
Marc Langland - Northrim Bank
Janie Leask - First Alaskans Institute
James Linxwiler - Guess and Rudd, P.C.
Jeff Lowenfels - Lewis & Lowenfels
David Marquez - NANA Development Corp
Jeff Pantages - Alaska Permanent Capital
Management
Mary Ann Pease - MAP Consulting, LLC
Morton Plumb - The Plumb Group
Governor Bill Sheffield - Founding Board
Member
Terry Smith - Carlile Transportation Systems
Jeff Staser - Staser Group, LLC
Tim Wiepking
Eric Wohlforth - Wohlforth, Johnson, Brecht,
Cartledge & Brooking
Jim Yarmon - Yarmon Investments, Inc.
Study Group Participants
Julie Anderson - Alyeska Pipeline Service
Ethan Berkowitz - Strategies 360
Chris Birch
George Cannelos - C. Cannelos & Associates
Greg Carr - Merrill Lynch
Del Conrad - Rural Alaska Fuel Services
Denali Daniels - Denali Commission
Mark Foster - Mark A Foster and Associates
Pat Galvin
Duane Heyman - Statewide Corporate Programs
Lonnie Jackson - Rural Energy Enterprises
Wilson Justin - Cheesh’na Tribal Council
Christine Klein - Calista Corporation
Mary Knopf - ECI/Hyer, Inc
Meera Kohler - Alaska Village Electric Co-op
Kaye Laughlin - The Laughlin Company LLC
Marilyn Leland - Alaska Power Association
Katie Marquette - Strategies 360
Iris Matthews - Stellar Group
Kate McKeown - Alaska Conservation Alliance
Jason Meyer - Alaska Center for Energy and
Power
Michael Moora - PDC Harris Group LLC
Christian Muntean - Beyond Borders
Karthik Murugesan - USKH
Kirk Payne - Delta Western
Mary Ann Pease - MAP Consulting
James Posey - Municipal Light & Power
Colleen Richards - Linc Energy
Chris Rose - Renewable Energy Alaska Project
Debra Schnebel - Acacia Financial Group
Ethan Schutt - Cook Inlet Region, Inc
Tiel Smith - Bristol Bay Native Corporation
Jan Van Den Top
Christine West - The Business MD
Dean Westlake - NANA Regional Corporation
Michele White
Tim Wiepking
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Table of Contents
Study Group Participants ................................................................................................................ 1
Study Group Meetings and Presentations ....................................................................................... 3
Executive Summary ........................................................................................................................ 4
Commonwealth North Study Group Findings ................................................................................ 6
The Rural Alaska Energy Crisis ..................................................................................................... 7
The Cost of Energy .................................................................................................................. 8
Power Cost Equalization Program: A Stop-Gap Measure .................................................... 11
Sustainable Energy Development in Rural Alaska ....................................................................... 12
Overcoming Barriers: Connecting Rural Alaska ................................................................... 12
Overcoming Barriers: Definitive Statewide Leadership ....................................................... 18
Overcoming Barriers: Sustainable Project Financing ........................................................... 22
Navigating Alaska’s Regulatory and Permitting Landscape ........................................................ 24
Rural Energy Regulatory Roadmap ...................................................................................... 25
Appendix ....................................................................................................................................... 26
Renewable and Alternative Energy Options ......................................................................... 27
Power Cost Equalization Program Legislative History ......................................................... 30
Glossary of Key Alaska Energy Regulators .......................................................................... 33
State of Alaska Regulators and Permitting Authorities ................................................ 33
Federal Regulators and Related National Agencies ..................................................... 37
3
Study Group Meetings and Presentations
Thursday, May 19 - Steve Colt, Associate Professor of Economics, ISER - Rural Alaska
Energy Expenditures/Rural Alaska Fuel Transportation and Logistics Costs
Friday, May 27 - Meera Kohler, President/CEO, Alaska Village Electric Co-op - A
Cooperative Approach to Locally Owned Electric Utilities
Thursday, June 2 - Sara Fisher-Goad, Executive Director - Alaska Energy Authority
(AEA) - Overview of AEA’s Rural and Alternative Energy Programs
Thursday, June 9 - Facilitated Discussion
Thursday, June 16 - Joel Neimeyer, Federal Co-Chair, Denali Commission & Denali
Daniels, Denali Commission
Thursday, June 23 - Melody Nibeck, Tribal Energy Program Manager, Bristol Bay Native
Association
Thursday, June 30 - Christine Klein, Chief Operating Officer, Calista Corporation &
Elaine Brown, North Star Gas
Thursday, July 7 - Aaron Schutt, Doyon Limited
Thursday, July 14 - Chris Lace, The Aleut Corporation and Bruce Wright, Senior Scientist
for the Aleutian Pribilof Islands Association - Energy Solutions for the Aleutians - The A-
Team Approach to Energy Conservation, Bulk Fuel and Renewable Projects
Thursday, July 21 - Jay Hermanson, Director of Energy and Technical Services, NANA
Pacific - Project Manager of Denali Commission/NANA Transmission Study, “Distributing
Alaska’s Power - A Technical and Policy Review of Electric Transmission in Alaska”
Thursday, July 28 - Bob Cox, Vice President Petroleum Distribution, Crowley - Petroleum
Transportation & Delivery: Understanding Petroleum Retail Rates in Rural Villages
Thursday, August 4 - Jimmy Ord, Alaska Housing Finance Corporation, Research &
Rural Development, Rural Energy and Housing Programs and Policy Issues
Thursday, August 11 - Facilitated Discussion
Thursday, August 18 - Facilitated Discussion
Thursday, August 25 - Facilitated Discussion
Thursday, September 1 - Rich Seifert Energy and Housing Specialist, UAF & Robert
Venables, Energy Coordinator for the Southeast Conference
Thursday, September 8 - Doug Ott, Project Manager Hydroelectric Programs, AEA, &
Kat Keith Wind Diesel Coordinator
Thursday, September 15 - Harold Heinze, CEO, Alaska Natural Gas Development
Authority
Thursday, September 22 - Facilitated Discussion
Thursday, October 6 - Facilitated Discussion
Wednesday, November 2 - Facilitated Discussion
4
Executive Summary
The hallmark of a healthy, sustainable community is the availability of reliable and affordable
energy. Affordable energy remains unavailable in virtually all of rural Alaska and as a result
Alaska’s rural and indigenous communities are at severe risk.
Recent studies have demonstrated that the poorest households in rural Alaska spent up to 47% of
their income on energy in 2008, more than five times their Anchorage neighbor. Given the
meteoric rise in the cost of oil since then, estimates of the burden today are significantly higher.
The Commonwealth North Rural and Alterative Energy Study Group received presentations
from regional organizations on energy plans in various stages of developments. Virtually all the
plans included some version of renewable energy - generally still in the early concept design
stage - and interconnection of communities to that generation source. All the plans appeared to
be very high cost, upward of $500 million per region, and none would dramatically lower the
cost of energy without massive government subsidies.
The Renewable Energy Fund, established in 2008, is authorized to underwrite $250-300 million
of energy projects, but with projects for small communities coming in at $4-5 million each, it is
likely that per-community renewable solutions will cost $2 billion statewide, and will at best
keep electricity prices stable into the future. Heat and transportation fuel substitutions will
greatly increase this number.
This study identifies barriers to electric energy development and offers solutions to overcome
those obstacles. Ultimately, this study proposes that Alaska’s energy challenge must be tackled
in a holistic manner with the development and adoption by the Legislature of an energy plan that
systematically addresses these barriers and enables the implementation of solutions to overcome
them.
Map of Alaska courtesy of the Renewable Energy Alaska Project
5
The State of Alaska must acknowledge that energy infrastructure is the essential element of
public infrastructure. Absent a viable energy system, all other public infrastructure fails. Schools,
public health facilities, water and waste-water systems, airports, public buildings, and all other
major attributes of civilized society cannot exist for long without reliable, affordable energy.
Investments in these other assets are at risk in today’s economic environment and Alaska’s
citizens accordingly face risks as well.
As the state considers the investment of billions of public dollars in gas pipelines, hydro projects,
transmission lines, and other assets to serve urban areas, in effect buying down the true cost of
energy for urban Alaskans, it must also consider rural Alaskans. The state must recognize that it
is no longer practical to expect complex energy systems to be competently operated and
managed in small rural communities and instead must adopt regional planning to best serve
Alaskans. Investments in energy efficiencies, hybrid systems to incorporate renewable energies,
and transmission grid development all reduce the overall cost to the State and individual
Alaskans overtime. Energy infrastructure is a critical area for the State of Alaska, regional
organizations, and communities to partner and invest.
This means adopting values that shift to a cohesive view of Alaska energy sustainability that
serves all Alaskans similarly irrespective of the political powers at federal, state and local levels
that at times can reflect geographic priorities versus a longstanding policy for all Alaskans.
Regional focus, structure, and identity may vary, however the overarching objective to provide
reliable and affordable energy to all Alaskans should remain constant throughout.
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Commonwealth North Study Group Findings
1. Alaska needs a statewide energy vision, plan, and implementation strategy that incorporates
a holistic view of statewide energy sustainability which serves all Alaskans similarly
2. The interconnection of rural communities into regional electrical transmission grids
develops economies of scale, creates efficiencies, reduces redundant infrastructure costs,
and develops a greater potential for alternative energy projects
3. In order to mitigate the high cost of energy in rural Alaska, dependency on diesel
consumption must be reduced through increased efficiencies and utilization of
economically viable alternatives
4. A single statewide entity could coordinate energy generation and transmission project
selection and advocate for all regions of the state in a balanced fashion
5. The State of Alaska could ensure high-value and effective investments in energy projects
through:
Creating of an investment structure that can serve as an aggregator of financing for
energy projects
Requirement of equal competition amongst funding opportunities across all energy
sectors and technologies in order to reduce the cost of energy
Designing and auditing programs to ensure that experienced teams are making
accountable procurement decisions
Securing long term sustainability of funding by transitioning away from grants and
toward other financing options
Providing a “one stop shop” to deal with all permitting regarding energy projects and
to assist with information and assistance in working with federal regulators
6. Alaska should strive to eliminate the need for the Power Cost Equalization Program (PCE)
by reducing the electric rates paid by rural consumers to levels comparable to those paid by
consumers on the Railbelt
The Regulatory Commission of Alaska should ensure electric utilities that participate
in PCE are implementing cost effective energy conservation measures and feasible
alternatives to diesel generation in accordance with Alaska Statute 42.45.130
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The Rural Alaska Energy Crisis
Twenty percent of Alaska’s 710,000 residents live in almost 300 communities spread across
500,000 square miles. While some rural communities are larger - Ketchikan, Kodiak, etc. - most
are small. Hub communities such as Barrow, Bethel, Kotzebue, Nome, Dillingham and others are
home to 2,500-5,000 people while some 250 communities have populations of 50-1,100. Per
capita income is extremely low while costs of goods and services are extremely high. Low
income and high costs are among the drivers causing many community members to move to
hubs, urban communities, and outside destinations in search of gainful employment and
affordable cost of living.
Electricity first appeared in rural villages as a result of resource development and economic
opportunities. In the 1950s, electricity slowly made its way into more villages via small
generators for local schools. Availability of electricity became more widespread during the
1960s and by the mid-1970s most remote communities had central station diesel generation
facilities. The demand for petroleum products continued to rise as the use of outboard motors and
snowmachines became more prevalent.
Prior to the Arab oil embargo of the early
1970s, diesel fuel and gasoline were
available, even in the most remote Alaska
communities, for less than $1.00 a gallon.
When the commodity price rose dramatically
in the late 1970s, subsidy programs were
established to reduce the end cost of electricity. When state coffers grew flush with earnings
from the Trans-Alaska Pipeline System, efforts were undertaken to assure long-term low-cost
electricity for urban areas of the state.
When solutions remained elusive for the vast majority of Alaska, Power Cost Equalization (PCE)
was enacted as a solution to keep electricity affordable for residents and public facilities. No
solutions were proposed for commercial users, or energy for heating and transportation needs.
Figure 1 – How Alaskans Heat Their Buildings
1
1
Ben Saylor, Sharman Haley, & Nick Szymoniak, Estimated Household Costs For Home Energy Use (ISER, May
2008) www.iser.uaa.alaska.edu/Publications/webnote/LLFuelcostupdatefinal.pdf
Today, nearly 80% of rural
communities are dependent on diesel
fuel for their primary energy needs.
8
Today, nearly 80% of rural communities are dependent on diesel fuel for their primary energy
needs. There are many factors that contribute to the high and rising cost of diesel. Transportation
is a major cost driver; how fuel is transferred (truck, barge, plane) and how far that fuel is
transported significantly contributes to total cost. The farther the community is from a hub the
greater the cost. Distance also increases costs by the number of times fuel is handled en route and
potential transport or handling difficulties, especially if barged on a shallow river or, flown into
communities. Year round or seasonal delivery affects cost and a lack of local infrastructure such
as local storage capacity, moorage and unloading equipment, and port landing facilities also add
costs.
Figure 2 – Trend in Average Alaska Fuel Prices
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The Cost of Energy
Energy (electricity, heating fuel and diesel fuel) represents a very significant component of rural
Alaskans’ annual cash outlay, with the figure approaching or exceeding 40%.
3
In the last five
years the price of fuel in Alaska has grown dramatically, particularly affecting rural Alaska
where transportation costs are greater. While the State of Alaska does not have a well defined
energy plan, there have been recent efforts to develop such a plan. There are numerous regional
plans in various stages of development. Regional planning and leadership is a critical component
yet none of these plans offer comprehensive relief to the high cost of energy without heavy
reliance on significant state funding to buy down the cost of energy to an affordable level.
2
Alaska Department of Commerce and Economic Development Division of Community and Regional Affairs,
Research and Analysis Section, Current Community Conditions: Fuel Process Across Alaska (Aug 2011)
www.dced.state.ak.us/dca/pub/Fuel_Report_Jan_2011.pdf
3
Nick Szymoniak, Ginny Fay, Alejandra Villalobos Melendez, Justine Charon, & Mark Smith, Market Factors and
Characteristics Influencing Rural Alaska Fuel Prices (ISER, February 2010)
www.iser.uaa.alaska.edu/Publications/webnote/LLFuelcostupdatefinal.pdf
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$6.00
$6.50
Nov-05
Feb-06
May-06
Aug-06
Nov-06
Feb-07
May-07
Aug-07
Nov-07
Feb-08
May-08
Aug-08
Nov-08
Feb-09
May-09
Aug-09
Nov-09
Feb-10
May-10
Aug-10
Nov-10
Price per Gallon
Survey Date
Heating Fuel
Gasoline
9
Figure 3 outlines the estimated percentage of household income spent on home energy in a year
(2008). Remote households with the lowest incomes face the highest cost burden, estimated in
some cases to be 47% of their total income. Even rural households with higher incomes spend
nearly twice as much as Anchorage residents spend for energy.
Figure 3 – Estimated Median Share of Income Alaska Households Spend for Home
Energy Use
4
Because energy has been consistently expensive, people in rural places tend to use less than half
as much total energy as people with natural gas or hydro power as in Anchorage and Southeast
Alaska. In the Yukon-Kuskokwim Region energy is one of the major concerns for families due
to the high cost of diesel fuel that ranged from $6.14 to $9.50 per gallon in 2010. Many rural
Alaska families struggle to both heat their homes and feed themselves.
Figure 4 – Cost of Diesel Fuel in Selected Communities
5
4
Nick Szymoniak, Ginny Fay, Alejandra Villalobos Melendez, Justine Charon, & Mark Smith, Market Factors and
Characteristics Influencing Rural Alaska Fuel Prices (ISER, February 2010) “HH” Represents
Householdswww.iser.uaa.alaska.edu/Publications/webnote/LLFuelcostupdatefinal.pdf
5
Ginny Fay, Ben Saylor, Nick Szymoniak, Meghan Wilson, & Steve Colt, Study of the Components of Delivered
Fuel Costs in Alaska (ISER, January 2009) www.iser.uaa.alaska.edu/Publications/fuelpricedeliveredupdate.pdf
10
Figure 5 – Gulf Coast & Interior Fuel and Gasoline Prices: On & Off the Road
System
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Gulf Coast
On Road System
Off Road System
Interior
On Road System
Off Road System
Heating Fuel:
Heating Fuel:
High
$4.30
$6.86
High
$5.50
$10.00
Low
$4.19
$4.28
Low
$4.00
$4.34
Average
$4.24
$5.38
Average
$4.51
$6.27
Gasoline:
Gasoline:
High
$4.33
$7.07
High
$5.65
$10.00
Low
$4.22
$4.56
Low
$4.04
$5.30
Average
$4.29
$5.54
Average
$4.64
$6.67
Electricity in rural Alaska is delivered by a variety of service providers. Larger utilities like
Alaska Village Electric Cooperative (54 communities) and Alaska Power and Telephone (29
communities) serve more than half of Alaska’s village residents. Many communities receive
central station electricity from a locally owned private or municipal utility. Almost all use diesel
fuel for power generation. Electricity cost, $.58-$1.05 per kilowatt-hour, is very high. Even with
PCE offsetting the cost of up to 500 kWh for residential users most homes use less than 50
percent of the national average kWh consumption. Commercial users pay the full cost of
electricity. Those costs are passed on the consumers.
Figure 6 – Primary Energy Consumption Per Alaskan
(Barrels of Oil Per Person Per Year)
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6
Alaska Department of Commerce and Economic Development Division of Community and Regional Affairs,
Research and Analysis Section, Current Community Conditions: Fuel Process Across Alaska (Aug 2011)
www.dced.state.ak.us/dca/pub/Fuel_Report_Jan_2011.pdf
7
Steve Colt, Fuel Costs, Community Viability, and Alaska Energy Policy Presentation (May 2011)
0
10
20
30
40
50
60
70
Alaska
Gas Network
PCE Areas
Other
Barrels of Oil per Year
Wood & All Others
Other Petroleum
Gasoline
Diesel
Hydro
Coal
Natural Gas
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Power Cost Equalization Program: A Stop-Gap Measure
When the State of Alaska began receiving
revenues from the production of North Slope
crude oil in the late 1970s, the search began for
energy solutions to reduce the end cost of
electricity for all Alaskans. Although solutions
were identified for 85% of Alaskans, none
were forthcoming for rural Alaska.
PCE was established in 1984 as a parity program to lower the end cost of electricity in rural
Alaska while projects were built to lower costs in more urban areas – Bradley Lake Hydro to
serve the Railbelt, the Northern Intertie to bring low cost gas-fired power to Fairbanks, and
hydro projects to serve Valdez, Kodiak, Ketchikan, Petersburg and Wrangell.
PCE is computed for individual communities based on the local cost of service. The maximum
cost in FY10 was 81.59 cents and the average cost was 24.91 cents per kilowatt hour. PCE is
available only to residential accounts for the first 500 kWh and to community facilities (such as
street lights, water/sewer facilities and public buildings) for up to 70 kWh per resident per
month. Schools, commercial establishments, and federal or state government offices are not
eligible for PCE. Changes to the program since it was first enacted reduced eligibility by more
than 40%. Currently, about 30% of kWh sold in eligible communities receives PCE and the total
program cost represents 18% of the cost of electricity.
PCE is given directly to the end user in the form of a credit on their electric bill. The utility is
then reimbursed when it subsequently collects from the State of Alaska. It is not a funding
mechanism for system improvements. In the last 20 years, utility costs increased by 170%.
However, total PCE disbursed has only risen by 56%, highlighting the enormous burden being
borne by rural electricity consumers.
Retail electric rates in rural Alaska are as low as 15 cents a kWh (North Slope Borough villages
– subsidized by the North Slope Borough) and as high as 151 cents kWh (Lime Village) with the
average at around 50 cents a kWh. Larger communities’ rates are as low as 30 – 40 cents. Rates
in most communities average about 60 cents per kilowatt hour.
PCE is a stop-gap measure to make a basic amount of electricity affordable for rural residents.
Because PCE cannot reduce the cost of electricity for commercial users, high-cost energy
continues to be a major impediment to economic development and financial sustainability of
remote communities. When long-term energy solutions are established, the PCE Endowment
Fund (see appendix) can be dismantled and the subsidy program can be terminated.
Rural residents use less than half as
much total energy as people with
natural gas or hydro power as in
Anchorage and Southeast Alaska.
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Sustainable Energy Development in Rural Alaska
Overcoming Barriers: Connecting Rural Alaska
As concerns mount over fuel prices, long-term energy availability, and climate change, attention
is turning toward one of the most pervasive places where energy can be conserved: the supply
chain associated with delivering fuel to rural Alaskan communities. The fuel supply chain is the
production and distribution network that encompasses the sourcing, transportation,
commercialization, distribution, and consumption of diesel fuel in rural Alaska. Roads and
transmission lines transport energy between communities. Efficient and strategic development of
infrastructure is important to decrease the capital, operations, and maintenance costs associated
with energy development in rural Alaska.
Figure 7 – Fuel Distribution Routes in Rural Alaska Markets
8
Most of rural Alaska communities are road-less and are not interconnected. Community isolation
has led to each community having unique and independent infrastructure including schools, rural
power systems, bulk fuel systems, airports, and rural health clinics. Each community’s
infrastructure has unique capital, operations, and maintenance requirements. This redundancy is
extremely costly to the State. For some of rural Alaska’s 250+ communities, the distance to the
8
Nick Szymoniak, Ginny Fay, Alejandra Villalobos Melendez, Justine Charon, & Mark Smith, Market Factors and
Characteristics Influencing Rural Alaska Fuel Prices (ISER Feb 2010)
www.iser.uaa.alaska.edu/Publications/componenetsfuelsummaryfinal3.pdf
13
closest neighboring community is too
great to interconnect with either roads or
transmission lines. However, for many
communities interconnection can play a
critical role in reducing the capital
outlay of infrastructure and in
decreasing the cost of energy. With a
better understanding of the rural energy
supply chain and strategic development of critical infrastructure, inefficiencies can be identified
and strategies to overcome these inefficiencies developed. Strategically placed roads and
transmission lines are viable components to promote efficiencies in the rural Alaska energy
supply chain.
Technical Barriers (Providing Reliable Energy)
Commercially available technology can be widely deployed to
provide reliable energy solutions to rural communities
throughout Alaska. Many of the energy challenges outlined in
this report, given infinite levels of money and political will,
could be overcome yet sustainable energy solutions must be
financeable and ensure reliable and affordable energy for
Alaskans that is a challenge for many potential projects.
Integration – Successful integration of many renewable
energy sources with base electrical generation into village-
scale grids is a significant challenge. In particular, the
integration of intermittent renewable energy sources such as
wind and solar is an issue. Although headway has been made
to address this issue, barriers remain especially as the
complexity of the systems increase with higher penetration
levels.
Integration multiple energy sources while addressing issues
such as seasonality, intermittence, and complicated controls and operations protocols is complex.
In Alaska, efforts have been focused on developing wind-diesel systems. These systems have
been successful at low and medium wind penetration levels, while high penetration utility
systems have not yet been successfully deployed.
9
Relevant to integration is the need to develop adequate energy storage for village-scale
decentralized grids. This technology is a critical component to successfully integrating multiple
9
“A system is considered to be a high penetration system when the amount of wind produced at any time versus the
total amount of energy produced is over 100%. Low penetration systems are those with less than 50% peak
instantaneous penetration and medium penetration systems have between 50%-100% of their energy being produced
from wind at any one time. Low and medium penetration systems are mature technologies.” Denali Commission
Emerging Energy Technology Grant, Final Project Descriptions www.denali.gov
Photo courtesy of Alaska Housing Finance Corporation
Strategically placed roads and
transmission lines can play an important
role in decreasing the capital, operations,
and maintenance costs associated with
energy development in rural Alaska.
14
energy sources, specifically, those intermittent or seasonal renewable energy resources. Storage
technologies range over application (short, medium, and long term), and across technology types
(chemical, reservoir, mechanical, and thermal). There has been significant recent progress in
battery technology; however, there is currently no cost effective solution to address this barrier in
rural Alaska.
Operations and Maintenance – A corresponding issue arising with complex energy systems is
the need for sophisticated operations and maintenance. This barrier is broad and encompasses
such things as adequate human capacity both statewide and locally, the challenges associated
with operating such sophisticated systems in harsh, remote Alaskan conditions, and the limited
expertise, resources, and capital available globally for operating and maintaining these systems.
Space Heating – Many energy systems now are capable of addressing electricity generation
year-round, but addressing heating needs, particularly during winter months, remains a
challenge. Rural communities’ prime source of space heat generation today is from diesel and
fuel oils. While some communities have localized access to biomass resources, geothermal
resources, or even an overabundance of an electrical generation source such as traditional hydro
that could theoretically be used for heating, many communities lack a resource that could
technically address community heating needs, or the technology is not available to sufficiently
exploit the local resource.
Market Barriers (Providing Affordable Energy)
The significant barriers to
providing affordable energy to
isolated communities in rural
Alaska are market accessibility,
economies of scale, and the cost
of energy itself. These barriers
increase energy costs by limiting
economies of scale, increasing
cost of delivery, requiring
duplication of services, and
hindering access to more
efficient diesel and alternative
energy generation.
As discussed earlier, nearly all rural villages are dependent on diesel generation. Efficiency of
diesel generation is driven by generator size, with larger generators being more efficient, creating
more kilowatt-hours per gallon of diesel burned. Small communities typically require small
generation units. The small size of these communities results in less efficient generation,
increasing the cost of electricity.
Administration, maintenance and operations, capital expenditures, and availability of renewable
energy resources are all negatively impacted by community size and limited access. The
Photo courtesy of the Alaska Energy Authority
15
operating cost, excluding fuel, of a large generator versus a small generator is negligible. There
is little additional labor cost incurred by a large tank farm as compared to a small tank farm. The
administration costs related to reporting, managing, and ordering fuel are similar for small and
large utilities.
Market Accessibility – As most rural
communities are located in remote,
distant, or often difficult to access areas
this barrier is primarily a transportation
issue. The availability of convenient and
reliable transportation methods and the
access to transmission corridors help
reduce the cost of energy. Access
challenges not only affect the types of
energy solutions that can be implemented, but how they can be implemented. In terms of
reliability, this reduces available options, and in terms of affordability, makes projects more
expensive.
Economies of Scale – Similar to market access challenges, the economies of scale of the average
rural Alaska community pose a substantial barrier to leveraging sustainable and affordable
energy solutions. Many energy solutions require conditions where capital, operational, and
management costs can be distributed among a large user base and/or a large energy demand.
There are various methods currently being used to address this issue such as cooperative utility
ownership and fleet management, but all face challenges unique to isolated communities.
Cost of Energy – Finally, the high cost
of energy itself is a market barrier. It is
mentioned here because in terms of
economic development, long term
sustainability, and many other social
issues, this is a substantial market barrier
for rural Alaskan communities. Local
companies cannot afford to do business because the cost of energy is too prohibitive. Bringing
down the cost of energy will increase business activity in these remote regions and help promote
economic development throughout Alaska.
Interties in Rural Alaska
One way to mitigate the high costs driven by small community size and remote locations is to
connect communities by interties. The capital cost of a new small 1-1.2 megawatt power plant is
approximately $4-5 million dollars. Interties cost $250-400,000 dollars per mile. While the cost
of interties vary with distance, climate extremes, and geography the capital costs for interties are
generally less than duplicate generation plants for communities within ten to twenty miles of
each other. As more communities become connected, the benefits of higher efficiency generators
and operating economies become more pronounced.
As more communities become connected
through interties the benefits of higher
efficiency generators and operating
economies become more pronounced.
16
Current Southwest Alaska Communities
Potential Future Interties
Becoming A Grid
As an example, there are twelve
communities within roughly a twenty five
mile radius of Bethel. Interconnecting these
communities could significantly reduce the
cost of electricity in the surrounding villages
in the following ways:
Reduced Delivery Cost – Bethel is a
hub community with significant fuel
storage. By locating generation for
all the communities in Bethel, the
cost of reloading fuel into secondary
barges for delivery to smaller
communities would be eliminated
significantly reducing the cost of
diesel used for electric generation.
Higher Efficiency Generation –
While generation would need to be
maintained throughout the system for
emergency back-up, most generation
would be provided by large
generation plants located in Bethel.
Since the efficiency of diesel
generation is driven by generator
size, this would result in lower fuel
usage per kilowatt hour generated
and lower electric costs.
Better Access to Renewable Energy
– By linking villages with interties,
the opportunity exists to utilize
renewable energy sources. Larger
base loads will allow for greater use
of wind resources and communities
that have no access to renewable
energy can use resources available in
other locations. One potential
opportunity is to maximize
renewable energy by identifying the
ideal location for a resource such as
wind, and consolidating generation
in that location, thereby lowering
maintenance and operating costs by
centralizing expertise and equipment.
17
Creating interties between
communities has compelling
advantages and will play a
significant role in reducing electric
costs in rural communities.
Complicating the implementation
of even a partial rural grid is the
organization of electric generation
across communities. While some
villages are served by broad based
organizations such as AVEC and
Alaska Power and Telephone, many
more are independent, stand-alone
organizations. The structure of
these organizations varies from cooperatives to municipalities, tribes, and private corporations.
Integrating this disparate industry will require cooperation between communities, regulatory
agencies, and electric companies.
While interties cannot reduce energy costs for all communities in rural Alaska, the vast majority
would benefit from the development of connectivity. As village clusters begin to connect, the
advantages of connecting these clusters into an expanding grid will increase. The development of
regional energy grids will regionalize energy efficiency and allow for more economic energy
project decision making. The connection of regional grids into a statewide grid could
dramatically reduce the cost of energy in rural Alaska.
18
A Vision for a Connected Alaska
Diagrams courtesy of the Denali Commission
from their December 2008 intertie study entitled,
“Distributing Alaska’s Power: A technical and
policy review of electric transmission in Alaska.”
Development of rural interties
is an infrastructure investment
which fosters efficiency and
reduces redundancy. Interties
not only improve access to
reliable and affordable energy,
but also to health care and
educational opportunities.
19
Overcoming Barriers: Definitive Statewide Leadership
Alaskan have long battled for reliable and affordable energy. This is ironic because Alaska
boasts an abundance of hydrocarbons, as well as exceptional renewable energy resources such as
wind, tidal, hydro, geothermal, and biomass. Even more paradoxically, dusty shelves groan
beneath the weight of energy studies, energy plans, and energy task force reports. There are
clearly charted pathways forward, but inadequate progress taken down those paths.
Why, in the midst of plenty, do Alaska’s rural
communities pay the highest energy prices in
the nation? While there are technological,
financial, and regulatory obstacles that inhibit
the State and local communities’ ability to
make better use of these resources, structural
barriers have proven the greatest impediment to achieving greater energy independence, self-
sufficiency, and affordability. In spite of good intentions, Alaska lacks a clearly articulated
policy of mandates and metrics with strong, consistent, and institutional leadership to implement
and enforce energy policies and practices. Alaska has the resources to be a global energy leader,
but needs the right policy and structure in place. Without a plan, Alaskans cannot benefit from
the competition and innovation that are critical to resolving the State’s energy challenges.
Energy Needs Clear Direction: A State Energy Plan
While many tout the state’s aspirational goals, they do not carry the weight of clear policy
directives. The lack of a comprehensive state and regional energy policy is a significant factor in
the state’s inability to make meaningful and sustained progress towards affordable energy in
rural Alaska. Establishing a statewide energy policy will require leadership, commitment, and
buy-in from all stakeholders. This also means establishing and agreeing to a paradigm shift in the
current framework that treats Railbelt and rural communities separately and is typically highly
Photo courtesy of the Denali Commission
Why, in the midst of plenty, do
Alaska’s rural communities pay the
highest energy prices in the nation?
20
dependent on the political
hierarchy. A plan should include
the adoption of values that shift to
a more cohesive view of Alaska
energy as a package, serving all
Alaskans similarly irrespective of
the political powers at federal,
state and local levels.
This effort could be led by a nonpartisan stakeholder panel, similar to the House Energy
Committee stakeholder working group which convened in 2009 and ultimately recommended an
energy policy accepted by the Legislature in 2010. The energy policy was the first step toward
establishing long term objectives while de-politicizing energy decisions in Alaska. Optimally,
current elected leaders would establish such a group to provide input on the characteristics of a
state energy plan and use the input as the basis for legislation.
A starting point for establishing such a framework would be to identify shared values, common
interests, and mutual benefits. This could start at a statewide level and make its way to regional
energy planning, and ultimately to local decision making. A common framework for energy
decision making would provide consistency at all levels and chart the path for implementation.
Energy Needs A Champion: Centralized State Leadership
The lack of a powerful, institutional champion has caused Alaska’s energy development to drift,
and has resulted in fitful progress that is reflected in the costly subsidy and grant programs in use
today.
10
The state desperately needs agency leadership with the ability to coordinate energy
project selection, communicate and advocate for all regions of the state in a balanced fashion,
and take a leadership role in state government. Alaska Housing Finance Corporation (AHFC) is
the designated entity for receiving State Energy Program funding from the U.S. Department of
Energy. AHFC collaborates with the Alaska Energy Authority (AEA) through a Memorandum of
Agreement which outlines the relationship between the agencies and provides for the
coordination of activities. AHFC has successfully worked with AEA for many years with this
arrangement. Additionally AHFC has implemented successful end use energy efficiency
programs on its own. Energy resource development such as natural gas and oil production
activities are handled in other areas of state government, further compounding a lack of
consistency. Without a clear policy and a streamlined approach to overseeing all energy activities
in Alaska, one can understand the difficulty in making progress.
The State of Alaska should move to develop a statewide entity that coordinates energy
generation and transmission projects. Its purpose would be to generate, transmit, and sell
electricity to local electric distribution companies. One impact of such an organization is that
cost considerations would be evaluated on a broad regional basis, rather than on a community by
community basis. By changing the focus decision making regarding interties, renewable
10
These parallel subsidies include royalty free natural gas for the Railbelt and the PCE program for rural Alaska.
Alaska lacks a clearly articulated policy of
mandates and metrics with strong, consistent,
and institutional leadership to implement and
enforce energy policies and practices.
21
resources, and generation will be driven by financial results, improving efficiencies, and
lowering costs.
A statewide entity would oversee all facets of energy in Alaska consistent with the adopted
energy policy and vision. The following characteristics should also be considered:
Autonomy to execute statewide energy activities as established in an adopted energy plan.
Legislative actions should be consistent with the adopted energy plan and the oversight of
implementation should not be impeded by the political process.
Capacity to implement a policy would require a commitment of funding to assure
adequate staffing to carry out the vision and policy implementation. Critics of creating a
centralized state energy entity believe that creating more government is not the answer.
This new model would assure that existing structures are supported and streamlined.
Efficiency should be the main goal, while additional government and costs should be
avoided.
Regional leadership organization’s involvement is
integral in policy development and implementation.
Residents of the regions should have a voice
throughout the development process and
implementation. Existing processes should be
utilized when possible to further streamline and
coordinate development. In establishing the
implementation strategy, the identification of the
levels of responsibility should be carefully thought
through, vetted, documented, and monitored for efficiency. One guiding principle should
be the recognition that local involvement is core to any planning process and produces the
most sustainable results. Communication and efficient execution at local, regional, state,
and federal levels can be challenging, yet critical to executing an energy plan in a
consistent and cohesive way.
Energy Needs Consistency: Achieving a Vision
Energy development in Alaska is fragmented because decision making is scattered,
accountability cannot be assigned, and a great deal of money is used inefficiently. Sustainable
and affordable energy development requires economies of scale to justify large infrastructure
investments as well as a wide range of local energy solutions. This calls for a common, unifying
and compelling vision. This vision should be something that the recommended stakeholder panel
fully articulates, but should include:
An Alaska with the most energy efficient people in the nation
An Alaska which is a global leader in creating and exporting energy expertise and
technology, both in the clean use of hydrocarbons as well as renewable energies
An Alaska which is energy self-sufficient, supplying all of our own energy needs
An Alaska where every community has access to reliable and affordable energy
An Alaska that utilizes an efficient, smart, state-wide energy delivery system serving all
Alaskans equally
Regional and community
leadership are integral in
policy development and
implementation in order
to produce the most
sustainable results.
22
Overcoming Barriers: Sustainable Project Financing
Federal, state, and local governments,
and private sector investors have
invested billions of dollars in rural
Alaska energy projects and programs
over the past 40 years, yet rural
communities are still paying the highest
energy costs of anywhere in the nation.
Alaska should consider new
mechanisms and changes to the existing
structure that will ensure high-value and
effective investment in the future. The
State of Alaska must develop an
investment structure that clearly
articulates public sector program goals,
translates those goals into measurable
objectives, and assesses how well
programs have made progress toward those objectives. This is particularly important in light of
declining federal investment dollars. Alaska cannot expect the same level of federal funding it
has enjoyed in the past and so should take the following steps.
Create an investment structure that can serve as an aggregator of financing for energy
projects. This structure should be under the purview of the previously mentioned statewide
energy entity. Such an investment structure would provide services and benefits critical to
reducing the cost of energy to all Alaskans. Such an agency would take advantage of larger
economies of scale to aggregate community project costs. It would help local stakeholders with
minimal experience by providing administrative expertise for project development, collecting
and incorporating local input, coordinating bids when appropriate, operations, and reporting.
This additional structure would ensure accountability to investors and allow for additional
public/private investment opportunities.
Require equal competition among funding
opportunities across all energy sectors and
technologies in order to reduce the cost of
energy to the end user. Alaska’s energy
policy should be technology neutral seeking
the most cost effective and efficient options.
The current Alaska Energy Authority project selection process for the renewable energy fund is
competitive among projects, and should be driven by cost-effective investments rather than
technology categories. All energy requirements should be considered including heating,
electricity, and transportation fuels. There are cost effective projects such as increasing the
efficiency of rural diesel systems and using heat from diesel systems to displace fuel oil heating
which should also be considered.
Photo courtesy of the Alaska Housing Finance Corporation
Alaska’s energy policy should be
technology neutral seeking the most
cost effective and efficient options.
23
Design and audit programs to ensure that experienced teams are making accountable
procurement decisions. In the long term, government support programs such as grants or loans
will only be sustained and funded if they are effective and accountable in their uses of public
money. As a rule, the benefits of all state funds should accrue 100% to the benefit of the end
user. State government programs should not dissuade free enterprise private sector capital, but
rather should encourage and facilitate private sector investment whenever possible. Funding
decisions should be based on which projects have the greatest cost savings, community support,
and stable funding scheme in order to ensure projects completion
Ensure long term sustainability of funding by transitioning away from grants and toward
loans backed other financing options. Programs should shift to increase equity participation to
expand the availability and impact of limited government funding and increase private
participation and ownership, and improve loan repayment prospects. The Denali Commission
includes a process to review business plans of rural energy projects to ensure projects meet the
Denali Commission’s sustainability criteria. Many rural Alaska communities have submitted
requests for energy projects that are already in the queue waiting for federal funding that may not
be available. The project list and project requirements should be revised to reflect expectations
that local communities will have to increase their local contribution toward infrastructure in
order to be considered competitive in a more constricted federal grant funding environment.
Increasing local match requirements, which could include in-kind labor or resources if local cash
resources are not available will ensure local community buy-in, support, and project viability. It
should be noted, however, many existing electric utilities have little to no equity investment.
Incurring debt will add costs such as depreciation and debt service, which will likely increase the
retail cost of energy.
24
Navigating Alaska’s Regulatory and Permitting Landscape
Energy development in rural Alaska is regulated by numerous state and federal agencies. Each of
the following agencies outlined in the regulatory road map is involved in supporting, permitting,
and/or regulating energy projects in Alaska. Additionally local city and tribal governments,
Alaska Native Corporations, and public interest groups are also involved. These regulators are
important in ensuring the sustainable use of state and federal land, but together create an
extremely complex and difficult regulatory road to navigate. The following diagram outlines the
steps necessary to complete an energy project and the key state departments, federal agencies,
and national organization that impact energy generation and transmission in Alaska.
Rural energy projects are developed in four phases; (1) Outreach and Stakeholder Engagement,
(2) Project Feasibility Analysis, (3) Engineering Design and Permitting, (4) and Construction.
The first two phases are the most important in determining if a project is feasible and has
community support.
Converging on a set of solutions for complex problems, such as those encompassing the rural
Alaska energy challenges calls for a flexible, yet structured decision-making processes. The
complexity of this multi-dimensional challenge is a function of numerous drivers, including
technical, economic, cultural, regulatory and political components. Some of these drivers are
quantitative (e.g. technical or economic), while others are likely to remain qualitative, regardless
of the level of study devoted to understanding their behavior (e.g. cultural or political).
When a rural community is considering an energy project the local champions should begin by
exploring the available energy opinions and engaging potential stakeholder partners. Project
selection should ultimately include prescriptive methods for resource assessment followed by
ranking of energy alternatives based on fuel cost savings, efficiency gains, project capital and
operating costs, time to implementation, scalability/applicability to a variety of rural
communities, as well as environmental impacts.
As a community weighs its options, this project roadmap can act as a tool to better understand
the regulatory and permitting process and which state and federal agencies should be contacted at
each phase of the project. This is not an all inclusive list of project steps or regulatory agencies,
only a framework to better understand the regulatory and permitting process. Furthermore all
permitting should be completed in parallel to the financing and engineering tasks to shorten the
overall project timeline and help ensure project success.
25
Rural Alaska Regulatory and Permitting Roadmap
PHASE 1: Assess Community Energy Need (1 Year)
I. Explore Local Energy Options and Engage Community Stakeholders
PHASE 1: Regulatory/Permitting Agencies to Contact
Alaska Energy Authority (AEA)
US Army Corps of Engineers (USACE)
AK Dept. of Fish and Game (ADF&G)
Denali Commission
US Fish and Wildlife Service (USFWS)
Regional Corporations
Village Corporations
PHASE 2: Project Feasibility Analysis (1-2 Years)
I. Business and Financing Plan Development
a. Resource Assessment
b. Site Selection
c. Conduct Feasibility Study
d. Financing Agreements
e. Environmental Impact Statement/ Environmental Assessment
II. Decide Whether to Proceed
PHASE 2: Regulatory/Permitting Agencies to Contact
AK Dept. of Environmental Conservation (DEC)
AK Division of Mining, Land and Water
Management (DMLWM)
AK Dept. of Transportation & Public Facilities
(DOT/PF)
Army Corps of Engineers (USACE)
Advisory Council on Historic Preservation (ACHP)
Bureau of Indian Affairs (BIA)
Bureau of Land Management (BLM)
Coast Guard
Department of Defense (DOD)
Forest Service
National Parks Service (NPS)
Office of Project Management and Permitting
(OPMP)
State Historic Preservation Office (SHPO)
PHASE 3: Engineering Design and Permitting (2-5 Years)
I. Project Design
a. Construction Permit(s)
b. Supplier/Controller Contracting
II. Energy Transmission & Site Approval(s)
III. Perform Environmental Analysis
a. Air Permit(s)
b. Water/land Permit(s)
c. Historical & Cultural Clearance(s)
d. Fish & Wildlife Permit(s)
PHASE 3: Regulatory/Permitting Agencies to Contact
AK Dept. of Labor and Workforce Development
(DOLWD)
AK Dept. of Transportation & Public Facilities
AK Dept. of Fish and Game (ADF&G)
AK Dept. of Environmental Conservation (DEC)
Advisory Council on Historic Preservation
Army Corp of Engineers (USACE)
Department of Defense (DOD)
Division of Air Quality (DAQ)
Division of Environmental Health (EH)
Division of Fire & Life Safety (DFLS)
Division of Spill Prevention & Response (SPAR)
Division of Water (DW)
Environmental Protection Agency (EPA)
Federal Aviation Administration (FAA)
Federal Energy Regulatory Commission (FERC)
Fish and Wildlife Service (FWS)
Ground Water Protection Council (GWPC)
State Historic Preservation Office (SHPO)
Land Owners
Marine Mammals Commission (MMC)
National Marine Fisheries Service (NMFS)
Regulatory Commission of Alaska (RCA)
PHASE 4: Construction (1-3 Years)
I. Construction
26
27
Appendix
Renewable and Alternative Energy Options
Although Alaska has vast identified energy options, they can be extremely difficult to harness
due to the high costs of materials, permitting, technology, transportation, limited accessibility,
daunting geology, and climate of many rural communities. Alaska has tremendous potential to
mitigate high energy costs and displace millions of gallons of diesel by using local renewable
and alternative energy resources. Here is a quick breakdown of the potential energy resources
available to some areas in rural Alaska.
Biomass – Biofuels in Alaska include timber,
sawmill wastes, fish byproducts, and municipal waste.
Most rural communities have access to at least one
form of biomass. The primary challenges are
harvesting and transporting biomass resources.
Abundant wood fuel at relatively low cost is the
primary way to promote savings by biomass energy
use. The highest savings are derived when wood fuel
is a byproduct of wood processing such as in the
creation of wood pellets for stoves.
Geothermal – Alaska has great geothermal
energy potential in the Interior hot springs, the
Southeast hot springs, the Wrangell Mountains, and
along the Aleutian chain. The heat generated by
natural hot springs and volcanoes can be used
directly or for electric production. Another potential
use is ground source heat pumps which use the
relatively constant surrounding earth or sea water
temperature to provide heating or cooling. The
primary challenge for geothermal energy in rural
Alaska is the remote location of geothermal resources relative to the population centers and
grids. Their remoteness is a significant impediment to develop and manage the resource in an
economic manner.
Hydroelectric – Hydroelectric energy offers
reliable base load power and generally delivers energy
at a stable price over a long period of time. Most
hydroelectric facilities have a potential life of 50-100
years. Alaska has been harnessing hydroelectric
energy since the late 1800s and it now supplies over
twenty percent of Alaskans’ energy needs. Although
hydroelectric power is widespread in certain regions
of the State, particularly Southeast Alaska, the
potential for even more hydro energy exists. Alaska
Bradley Lake Hydro Project
Chena Hot Springs Generators
Winter Heating Wood on Yukon River at Ruby
Photos courtesy of the Alaska Energy Authority
Corporation
28
has 40% of the United States’ untapped hydropower with an estimated 192 billion kWh energy
potential. There are around 99 indentified sites with a positive potential for future hydro
development in Alaska.
11
With 423 MW already installed in Alaska, hydropower is a mature,
proven technology that can greatly reduce the cost of energy.
Hydrokinetic – This energy resource is relatively new and
still in the pre-development stage, but has the potential to
provide a large amount of energy because of Alaska’s
extensive coastline and abundance of rivers. Alaska has one of
the best resources for tidal energy in the world, especially
along the Aleutian chain. Unfortunately, the sparsely populated
region has very low demand for energy. One of the better
prospects for wave energy is Yakutat, Alaska.
Natural Gas – Natural Gas is the cleanest fossil
fuel and is currently produced and consumed
throughout the State of Alaska. Though natural gas
does not have the same btu content as diesel it is a
much cheaper locally available natural resource.
Over 236 TCF of technically recoverable natural
gas has been identified on the North Slope. Cook
Inlet has also supplied Southcentral with gas for
many years and with a rejuvenated exploration
effort could potentially supply many parts of the
state with natural gas.
Propane – Propane can be utilized for home
heating, cooking, and fleet vehicles throughout
Alaska. Propane has the potential to serve many
rural communities which will never benefit from a
gas pipeline and provides an attractive clean
burning alternative to diesel. Propane is an
understood fuel source which is currently used in
many rural communities on a smaller scale. Alaska
North Slope propane resources have been estimated
to be between 40,000-80,000 barrels/day. Propane
is not a ground contaminant and has a carbon
footprint and emission levels which are far below
11
Alaska Energy Authority & Alaska Center for Energy and Power, Alaska Energy: A First Step Toward Energy
Independence (January 2009) www.akenergyauthority.org/PDF%20files/AK%20Energy%20Final.pdf
25 kW Turbine at Eagle
Exit Glacier Chalet
Conventional Gas Stove
Photo courtesy of the Denali Commission
29
diesel. Propane could be barged and trucked in to many of these communities the same way
diesel is today. The Institute of Social and Economic Research recently analyzed how propane
prices might compare to crude oil prices and estimated the price of propane delivered could be a
viable option.
12
Solar – Solar energy is an option though significantly
challenged by Alaska’s shortened solar cycle during the
winter months. Solar energy’s greatest potential is in
meeting small, low-powered off-grid energy needs. To
use solar energy effectively, energy storage is necessary
so that the acquired energy can be used over a longer
period of time. Most solar development in Alaska is in
remote areas for individual residences or services like
weather stations where the cost of alternative electrical
generation is extremely high. Utility-scale solar power
plants are uneconomical in Alaska with today’s
technology.
Wind – High velocity winds are standard in many parts of
Alaska and can be harnessed to mitigate diesel consumption.
Alaska’s best wind resources are found in the western and coastal
regions, but there are wind opportunities throughout the state. At
least 134 rural communities have a viable wind resource.
13
Wind
turbines use aerodynamic force to convert the wind’s kinetic
energy into mechanical energy. Wind energy can be used to
supplement diesel consumption, however wind is an intermittent
source of power and is only viable if there is already base load
generation or battery storage. Based on systems installed through
2009, more than $87 million has been invested in wind energy in
Alaska, at least $23 million of that by native corporations and
other private capital. Alaska now has over 13.1 MW of installed
wind capacity.
14
12
Ginny Fay & Tobias Schwoerer, Economic Feasibility of North Slope Propane Production and Distribution to
Select Alaska Communities (June 2010)
www.iser.uaa.alaska.edu/Publications/Schwoerer_ay2010propane_phase2final.pdf
13
Alaska Energy Authority & Alaska Center for Energy and Power, Alaska Energy: A First Step Toward Energy
Independence (January 2009) www.akenergyauthority.org/PDF%20files/AK%20Energy%20Final.pdf
14
Alaska Center for Energy and Power, Wind-Diesel Applications Center www.uaf.edu/acep/alaska-wind-diesel-
applic/
Pillar Mt-Kodiak
Denali National Park
Photo courtesy of the Alaska Center for Energy and Power
Alaska has tremendous potential to mitigate
high energy costs and displace millions of
gallons of diesel by using local renewable
and alternative energy resources.
30
Power Cost Equalization Program Legislative History
The purpose of the PCE Program is to reduce the electric rates paid by rural consumers to levels
comparable to those paid by consumers in Anchorage, Fairbanks, and Juneau.
During the past thirty years, four different programs have subsidized rural electric rates:
Power Production Cost Assistance Program (PPCA) Fiscal Year 1981
Power Cost Assistance Program (PCA) Fiscal Year 1982 into Fiscal Year 1985
Power Cost Equalization Program (PCE) Fiscal Year 1985 into Fiscal Year 1994
Power Cost Equalization Fund and Rural Electric Capitalization Fund (PCE-REC) Fiscal
Year 1994 to Fiscal Year 1999
Power Cost Equalization Fund (PCE) Fiscal Year 1999 to Present
The five programs share some
common characteristics. Each
program reimbursed rural utilities a
percentage of their eligible costs
when those costs exceed entry rate,
now known as the floor. For example,
the first program, PPCA, reimbursed
85 percent of a utility’s costs in
excess of 7.65 cents/kWh to generate
and transmit electricity. Each
program also set a maximum ceiling
rate. In the case of the PPCA
program, the ceiling rate was 40
cents/kWh. Therefore, the PPCA program reimbursed a utility for 85 percent of its eligible costs
over 7.65 cents/kWh but below 40 cents/kWh.
When costs exceeded the ceiling rate of 40 cents/kWh, the initial PPCA program paid 100
percent of a utility’s excess costs. Subsequent programs differ from the PPCA program in that
they did not reimburse any costs beyond their ceiling rates. The first PPCA program also defined
eligible costs differently from the three subsequent programs. PPCA reimbursed a utility for
production and transmission costs but not for distribution and administration costs. The
subsequent programs permitted reimbursement for all of these costs.
The biggest difference between the initial and successor programs was the imposition of caps on
the costs eligible for reimbursement on a per customer basis. The initial PPCA program
reimbursed a utility for all of its eligible costs regardless of who consumed the electricity. All
three successor programs limited reimbursement to apply to only a certain amount of kilowatt
hours sold to each residential or commercial customer but made special provisions for
community facilities. For example, the PCA program reimbursed eligible costs for the first 600
kWh/month consumed by each residential or commercial customer. If a customer exceeded the
cap of 600 kWh/month, then they received no subsidy for amounts of electricity consumed in
excess of the 600 kWh/month.
Photo courtesy of the Alaska Housing Finance Corporation
31
The three successor programs treated community facilities in a manner distinct from the other
types of customers. Sales of electricity to community facilities qualified for a subsidy on the
basis of a set number of kilowatt hours per month per community resident. For example, the
PCA program reimbursed eligible costs for providing community facilities with electricity on the
basis of 55 kWh/month per resident. If a community had 100 residents, then the first 5,500 kWh
of electricity sold to the community facilities would qualify for the subsidy; conversely,
consumption above 5,500 kWh/month would receive no subsidy. The programs defined
community facilities as water and sewer facilities, public outdoor lighting, charitable educational
facilities, or community buildings whose operations were not paid for by the state, federal
government or private commercial interest.
The initial formula of the newest program, the PCE and Rural Electric Capitalization Fund,
varied from the formula of its immediate predecessor, the PCE Program, in two aspects. The
entry, or base rate, rose by one penny from 8.5 cents/kWh to 9.5 cents/kWh. The cap for
reimbursing eligible costs for residential and commercial consumptions also fell from 750
kWh/month to 700 kWh/month per customer.
In 1993, SB 106 established the PCE Fund, formerly known as the PCE and Rural Electric
Capitalization Fund, as a separate fund with an initial appropriation of $66.9 million with 3% of
the funds available for rural electric project grants. The following fund sources were established
for PCE:
$66.9 million appropriation to the newly created PCE fund
40% of future Four Dam Pool debt service – estimated to provide approximately $4.0
million per year for PCE
Interest earned on the unexpended balance in the PCE Fund
It also enacted limits on costs eligible for PCE during Fiscal Year 1994. During the state fiscal
year that began July 1, 1993, the power costs for which power cost equalization were paid to an
electric utility were limited to minimum power costs of more than 9.5 cents per kilowatt-hour
and less than 52.5 cents per kilowatt-hour. During each following state fiscal year, the
department must adjust the power costs for which power cost equalization may be paid to an
electric utility based on the weighted average retail residential rate in Anchorage, Fairbanks, and
Juneau.
In 1999, SB 157 enacted provisions that excluded previously eligible commercial customers
from participating in the program, and reduced the monthly cap of 700 kWh/month for
residential customers to 500 kWh/month. It also raised the “base” from the prior 9.5 cents/kWh
to 12 cents/kWh, effective 7/1/99. During each following state fiscal year, the power costs for
which power cost equalization may be paid to an electric utility will be based on the weighted
average retail residential rate in Anchorage, Fairbanks, and Juneau; however, the power costs
cannot be set lower than 12 cents per kWh.
This legislation also amended the PCE funding sources as follows:
The percentage of Four Dam Pool debt service allocated for PCE was increased from
40% to 60%. This 20% increment was previously allocated to the Power Project Fund
loan program.
32
Photo courtesy of the Denali Commission
The NPR-A special revenue fund was added as a potential source of PCE funding.
In 2008 in special session, when the price of crude oil hit $147 a barrel, the Legislature raised the
ceiling on allowable costs to $1.00 a kWh. This provision was set to expire on June 30, 2009 but
action was taken that year to set the ceiling at that level on a permanent basis going forward.
Power Cost Equalization Endowment Fund
In 2000, HB 446 established the
PCE Endowment Fund as a
separate fund of the Alaska Energy
Authority. The fund consists of;
(1) legislative appropriations to the
fund that are not designated for
annual expenditure for the purpose
of power cost equalization; (2)
accumulated earnings of the fund;
(3) gifts, bequests, contributions of
money and other assets, and
federal money given to the fund
that are not designated for annual
expenditure for power cost equalization; and (4) proceeds from the sale of the Four Dam Pool
power projects to the power purchasing utilities under a memorandum of understanding dated
April 11, 2000, between the Alaska Energy Authority and the purchasing utilities.
An initial appropriation of $100 million was made into the PCE Endowment Fund from the
Constitutional Budget Reserve. In addition, sale of the Four Dam Pool projects was finalized in
January 2002, which resulted in a deposit of approximately $84 million to the Fund.
The Endowment Fund is invested and managed by the Alaska Department of Revenue to earn
7%. 7% of the PCE Endowment Fund’s three year monthly average market values may be
appropriated to the PCE Rural Electric Capitalization Fund for annual PCE program costs. Most
of the funding needed to support the PCE program in future years is anticipated to come from
earnings of the Endowment Fund.
The PCE Endowment Fund was further capitalized with a General Fund appropriation of $182.7
million in October 2006, and $400 million in July 2011. The total invested assets of the fund as
of September 30, 2011 were $681,616,886, with the fund posting a year-to-date loss in 2011 of
just over $74,000,000.
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Glossary of Key Alaska Energy Regulators
State of Alaska Regulators and Permitting Authorities
Alaska Railroad Corporation (ARRC)
Department of Commerce, Community & Economic Development (DCCED)
Alaska Energy Authority (AEA)
Alaska Industrial Development and Export Authority (AIDEA)
Division of Economic Development
Regulatory Commission of Alaska (RCA)
Department of Environmental Conservation (DEC)
Division of Air Quality
Division of Environmental Health (EH)
Division of Spill Prevention and Response (SPAR)
Division of Water
Department of Fish and Game (DF&G)
Alaska Department of Labor and Workforce Development (DOLWD)
Alaska Occupational Safety and Health Program (AKOSH)
Department of Natural Resources (DNR)
Alaska Coastal Management Program (ACMP)
Division of Forestry
Division of Geological & Geophysical Surveys
Division of Mining, Land and Water Management
Office of Project Management and Permitting (OPMP)
State Historic Preservation Office (SHPO)
Department of Public Safety
The Division of Fire and Life Safety
Department of Transportation and Public Facilities (DOT/PF)
Mental Health Trust Lands
University of Alaska Land Management
Alaska Railroad Corporation (ARRC) – If a project is being developed on Railroad lands or near
rail lines the Railroad must be consulted and agreements attained. The Alaska Railroad Corporation
owns real estate holdings consisting of approximately 36,228 acres of land. Of this amount,
roughly 13,738 acres or 38 percent are devoted to right-of-way and another 4,520 acres or 12
percent are used for railroad operations. The remaining 17,970 acres or 50 percent is available
for lease. alaskarailroad.com
Department of Commerce, Community & Economic Development (DCCED)
Alaska Energy Authority (AEA) – A public corporation of the state with a separate and
independent legal existence created in 1976 by the Alaska Legislature. It constructs,
acquires, finances, and operates power projects and facilities that utilize Alaska's natural
resources to produce electricity and heat. www.akenergyauthority.org
Alaska Industrial Development and Export Authority (AIDEA) – Promotes,
develops, and advances economic growth and diversification in Alaska by providing
various means of financing and investment. www.aidea.org
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Division of Economic Development – Helps businesses and developers navigate the
network of programs offering technical assistance and support for start-ups, expansions,
and relocations. It has a development section that provides specialized assistance to
Alaska industries and a financing section that administers loan programs designed to
promote Alaska industries. www.dced.state.ak.us/ded
Regulatory Commission of Alaska (RCA) – Alaska Statutes 42.04 - 42.06 and other
statutes authorize the Commission to regulate public utilities by certifying qualified
providers of public utility and to ensure that it provides safe and adequate services and
facilities at just and reasonable rates, terms, and conditions. It issues certificates of public
convenience which describe the authorized service area and scope of operations of the
utility. It regulates the rates, services, and practices of utilities that meet the criteria for a
certificate of public convenience and necessity. rca.alaska.gov
Department of Environmental Conservation (DEC) – Controls water, land, and air pollution
in order to enhance the health, safety, and welfare of the people of the state and their overall
economic and social well being. Provides policy direction for the department, coordination of
investment and service delivery, ensures that public concerns are fully considered in department
decisions and actions, establishes department objectives and assures performance, serves as
spokesperson for the Governor on environmental matters, and issues decisions on administrative
appeal requests. dec.alaska.gov
Division of Air Quality – Controls and mitigates air pollution to conserve clean air under
the Federal Clean Air Act and state law in Title 44 & 46. It also provides health
advisories and suggested protective actions. dec.alaska.gov/air
Division of Environmental Health (EH) – Deals with safe drinking water, food, and
sanitary practices. Provides businesses with standards to protect the environment and
provide safe food and drinking water to Alaskans. dec.alaska.gov/eh
Division of Spill Prevention and Response (SPAR) – Prevents spills of oil and
hazardous substances, prepares for when a spill occurs, and responds to protect human
health and the environment. dec.alaska.gov/spar
Division of Water – Improves and protects water quality. Establishes standards for water
cleanliness, regulates discharges to waters and wetlands, provides financial assistance for
water and wastewater facility construction, trains, certifies and assists water and
wastewater system operators, and monitors and reports on water quality. Also monitors
the Stormwater prevention permit (SWPPP) and waste water discharge permits.
dec.alaska.gov/water
Department of Fish and Game (DF&G) – Plays an advisory role if a project disturbs important
wildlife habitat or has linear components (roads and transmission lines) which may hinder
wildlife movements or affect hunting and fishing access. DF&G is consulted by other federal and
state agencies regarding wildlife impacts and mitigation measures that are included in land use or
other project-related permits. DF&G reviews National Environmental Policy Act (NEPA)
documents and provides substantive comments directly to action agencies. Also permits
navigable water and anadromous fish on state lands. www.adfg.alaska.gov
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Department of Labor and Workforce Development (DOLWD)
Occupational Safety and Health Program (AKOSH) – Services are focused on
reducing occupational fatalities, injuries and illnesses. The Enforcement Section performs
inspections based on complaints and targeted programs and issues monetary citations for
serious violations of standards. Operates an occupational safety and health program in
accordance with Section 18 of the Occupational Safety and Health Act of 1970.
labor.alaska.gov
Department of Natural Resources (DNR)
Alaska Coastal Management Program (ACMP) – This program sunset June 30, 2011.
Provides stewardship for Alaska’s rich and diverse coastal resources to ensure a healthy
and vibrant Alaskan coast that efficiently sustains long-term economic and environmental
productivity. Most proposed activities in the coastal zone must meet its standards and go
through a public comment period. Though this program sunset, many proposals are being
developed to redesign the program and bring it back. www.alaskacoast.state.ak.us
Division of Forestry – If a project is being developed on state forest lands than the Division
of Forestry should be consulted and permits attained. Provides for fish and wildlife habitat,
clean water, opportunities for recreation and tourism, and minerals. A DNR Management
Plan guides the use of each State Forest. forestry.alaska.gov/stateforests.htm
Division of Geological & Geophysical Surveys – Tasked with determining potential for
mining and energy resources, groundwater, construction materials, and geologic hazards.
Energy program field research includes opportunities for industry sponsorship and
collaboration in annual oil and gas related field programs. Online access to an inventory
of fully digital DGGS and USGS publications are available for download.
www.dggs.dnr.state.ak.us
Division of Mining, Land and Water Management – Provides for the use and
protection of Alaska's state owned land and water. When all land conveyances under the
Alaska Statehood Act are complete, the division will be responsible for over 100 million
acres of uplands, including non-petroleum minerals in these lands. It also manages
Alaska's 65 million acres of tidelands, shore lands, and submerged lands, including some
34,000 miles of coastline and has jurisdiction over all of the State's water resources,
equaling about 40% of the entire nation's stock of fresh water. Authorizes plans of
operation for mineral development, ice roads, support facilities and camps, gravel sales
for road construction and private development, access for public and private entities
across state lands and waters including power and telephone lines, and for developing
land use plans to guide the use, development, and disposal of state lands.
dnr.alaska.gov/mlw
Office of Project Management and Permitting (OPMP) – Coordinates the review of
larger scale projects in the state. A project coordinator is assigned to each project in order
to facilitate interagency coordination and a cooperative working relationship with the
project proponent. Deals with a diverse mix of projects including transportation, oil and
gas, mining, federal grants, ANILCA coordination, and land use planning. The project
coordinator facilitates these connections for the project and helps to steer the project or
the plan through the State approval process. dnr.alaska.gov/commis/opmp
State Historic Preservation Office (SHPO) – Reviews all proposed projects that could
potentially impact historical sites or cultural resources and consider whether historical
36
properties on the site are eligible for listing under the National Register of Historic
Places. This only applies to projects receiving federal or state funding, are on State or
Federal land, or need state or federal permits. This review is an important consideration
in final site selection when historic properties are involved.
dnr.alaska.gov/parks/oha/shpo/shpo.htm
Department of Public Safety
The Division of Fire and Life Safety – Approves construction, repair, remodel, addition,
or change of occupancy of any building/structure, or installation or change of fuel tanks
before any work is started. Has statewide jurisdiction for fire code enforcement and plan
review authority. Plans and specifications regarding the location of the structure on the
property, area, height, number of stories, occupancy, type of construction, interior finish,
exit facilities, electrical systems, mechanical systems, fuel storage tanks and their
appurtenances, automatic fire-extinguishing systems, and fire alarm systems must be
submitted for examination and approval. dps.alaska.gov/fire
Department of Transportation and Public Facilities (DOT/PF) – DOT/PF permits are needed
if power lines are located along roadways or airports maintained by DOT/PF.
www.dot.state.ak.us
Mental Health Trust Authority – If a project is being developed on Mental Health Trust Lands
than the Trust must be consulted and permits attained. Trust land resources are located throughout
the state and are managed separately from other State of Alaska lands. The 1994 settlement
reconstituted the Trust, and the related legislation transferred nearly one million acres of land to
the Trust Authority. www.mhtrustland.org
University of Alaska Land Management – If a project is being developed on University lands
then the University must be consulted and permits attained. UA Land Management is responsible
for managing, developing, acquiring and disposing of all University real property. The
University currently owns and manages approximately 147,000 acres of land.www.ualand.com
37
Federal Regulators and Related National Agencies
Advisory Council on Historic Preservation (ACHP)
Army Corps of Engineers (USACE)
Coast Guard
Department of Agriculture (USDA)
Forest Service
Department of the Interior (DOI)
Bureau of Indian Affairs (BIA)
Bureau of Land Management (BLM)
Fish and Wildlife Service (USFWS)
Environmental Protection Agency (EPA)
Federal Aviation Administration (FAA)
Federal Energy Regulatory Commission (FERC)
Ground Water Protection Council (GWPC)
Marine Mammal Commission (MMC)
National Marine Fisheries Service (NMFS)
National Park Service (NPS)
Advisory Council on Historic Preservation (ACHP) – An independent federal agency that
promotes the preservation, enhancement, and productive use of the nation's historic resources.
Ensures federal agencies act as responsible stewards of the nation's resources when actions affect
historic properties. www.achp.gov
Army Corps of Engineers (USACE) – Regulates the placement of fill in wetlands and other
waters of the U.S. and placement of structures in navigable waters. Regulates all discharge of
dredged or fill material into US waterways. www.poa.usace.army.mil
Coast Guard – Determines if the installation of any structure will pose potential adverse impacts
to the users of waterways. Conducts risk assessments to determine if the installation will require
Private Aids to Navigation (PATON). www.uscg.mil
Department of Agriculture (USDA)
Forest Service – A major land manager within the Tongass National forest in Southeast
Alaska and the Chugach National Forest in Southcentral Alaska. If a project is being
developed on US Forest Lands then the Forest Service must be consulted and permits
obtained. www.fs.fed.us
Department of the Interior (DOI)
Bureau of Indian Affairs (BIA) – Manages natural resources on trust lands representing
55 million surface acres and 57 million acres of subsurface minerals estates, economic
development programs, implementation of land and water claim settlements, housing
improvement, disaster relief, and repair and maintenance of roads and bridges. Tribes can
also create lease agreements under the Indian Mineral Development Act. www.bia.gov
Bureau of Land Management (BLM) – Manages activities on the 225 million acres of
federal onshore lands in Alaska. Issues grants for electrical power generation,
transmission and distribution systems, reception of electronic signals and other means of
38
communications, highways, railroads, and other facilities or systems which are in the
public interest. www.blm.gov
Fish and Wildlife Service (USFWS) – FWS is the primary wildlife agency on federal
land which regulates activities affecting threatened and endangered species and
establishes federal interagency consultation. Should be involved early in any proposed
project. Authority is defined in the Endangered Species Act, Migratory Bird Treaty Act,
Bald and Golden Eagle Protection Act, and the Fish and Wildlife Coordination Act.
alaska.fws.gov
Environmental Protection Agency (EPA) – Sets and enforces standards on air and water
quality. When Congress writes an environmental law, the EPA implements it by writing
regulations and setting national standards that states enforce through regulations. If states fail to
meet the national standards, the EPA will step in. Nearly half the budget goes into grants to state
environmental programs, non-profits, and educational institutions. www.epa.gov
Federal Aviation Administration (FAA) – The primary agency responsible for air safety and
hazards to navigable airspace or communications/navigation technology. Regulates all projects
that present a potential hazard to air safety. www.faa.gov
Federal Energy Regulatory Commission (FERC) – An independent agency that regulates the
interstate transmission of electricity, natural gas, and oil. Also reviews proposals to build
liquefied natural gas (LNG) terminals and interstate natural gas pipelines. Also regulates the sale
of natural gas and oil for resale in interstate commerce and approves the sitting and abandonment
of interstate natural gas pipelines and storage facilities. Generally not important in energy
projects in rural Alaska unless that energy is being transferred into Canada. www.ferc.gov
Ground Water Protection Council (GWPC) – A national association of state ground water and
underground injection control agencies whose mission is to promote the protection and
conservation of ground water resources. It provides a forum for stakeholder communication and
research in order to improve government’s role in the protection and conservation of ground
water. www.gwpc.org
Marine Mammal Commission (MMC) – An independent U.S. Government agency that
provides independent oversight of the marine mammal conservation policies and programs being
carried out by federal regulatory agencies. mmc.gov
National Marine Fisheries Service (NMFS) – Responsible for all marine mammals,
anadromous and marine fish species, and Essential Fish Habitat. Oversees proposed projects with
marine components or involve crossing anadromous streams with roads or power transmission
structures. Also has purview over endangered species listings including beluga whales and polar
bears. Authority comes from the ESA, Marine Mammal Protection Act, and the Magnuson-
Stevens Fisheries Conservation and Management Act. www.fakr.noaa.gov
National Park Service (NPS) – Conserve the scenery and the natural and historic objects and
the wildlife to leave them unimpaired for the enjoyment of future generations. National parks
cover approximately 54 million acres of land in Alaska. www.nps.gov/akso
RELIABLE AND AFFORDABLE
ENERGY IS CRITICAL
ENERgY INfRASTRUCTURE IS THE ESSENTIAL ELEMENT Of PUbLIC INfRASTRUCTURE.
AbSENT A vIAbLE ENERgY SYSTEM, ALL OTHER PUbLIC INfRASTRUCTURE fAILS.
SCHOOLS, PUbLIC HEALTH fACILITIES, WATER AND WASTE-WATER SYSTEMS,
AIRPORTS, PUbLIC bUILDINgS AND ALL OTHER MAjOR ATTRIbUTES Of CIvILIzED
SOCIETY CANNOT ExIST fOR LONg WITHOUT RELIAbLE, AffORDAbLE ENERgY.
ALASkA NEEDS:
A CLEAR DIRECTION SET bY A STATE ENERgY PLAN
A CHAMPION WITH CENTRALIzED STATE LEADERSHIP
CONSISTENCY TOWARD ACHIEvINg A vISION
-
An
energy future for Alaska can be achieved:
-
The hallmaRk of a healThy, susTainable
CommuniTy is The availabiliTy of Reliable and
affoRdable eneRgy. This Remains unavailable
To viRTually all RuRal alaskans and as a ResulT
a
laska’s RuRal and indigenous CommuniTies aRe
aT seveRe Risk.
COMMONWEALTH NORTH
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§
Commonwealth North was co-founded by former Alaska Governors Walter Hickel and William Egan.
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The Commonwealth North Rural Energy Study Committee Members
February, 2012
