Parnell zapped for energy fund cuts

Posted: Sunday, June 20, 2010

Gov. Sean Parnell is taking flak for his June 3 vetoes of state funds for energy projects.

"The governor has talked a lot about how we have to be fiscally conservative, but these are projects that will make our communities more self-reliant and less dependent on diesel, and state Power Cost Equalization funds, in five to 10 years," when petroleum revenues will be sharply lower, said Bob Venables, energy director for the Southeast Conference, the economic development association for Southeast Alaska.

Parnell slashed a number of renewable energy projects, cutting $25 million of a $50 million appropriation to the state's renewable energy grant program; reducing $16.7 million for the Whitman Lake hydro project near Ketchikan to $1 million; cutting $15 million in funding for the expansion of Sitka's Blue Lake hydro project to $6 million; eliminating $7 million for Homer Electric Association for a wind project near Nikiski on the Kenai Peninsula; and reducing a $2 million appropriation for Naknek Electric Association's geothermal project to $750,000.

The governor left intact $25 million for the renewable energy grant program, indicating it was the amount he supported before the Legislature increased it to $50 million.

The capital budget includes $77.2 million for renewable and other energy projects, Parnell said.

Parnell on June 15 signed legislation spelling out an energy policy for Alaska. The bill sets out targets for, among other issues, renewable energy use. He also plans to sign omnibus energy legislation that includes efforts aimed at energy efficiency and encouraging new technologies.

On June 2, he signed a bill that aims to encourage more geothermal exploration, reducing the royalty derived from these leases on state land from about 15 percent to 1.75 percent of the gross revenue during the first 10 years of production, and 3.5 percent after that.

Not surprisingly, renewable energy advocates reacted with dismay about the cuts.

The Renewable Energy Alaska Project, an association promoting renewable energy and one of the architects of the state's renewable energy grant program, said Parnell's veto of $25 million in new grants was "short-sighted" and said it jeopardizes the state's goal to have 50 percent of the state's power supplied from renewable sources by 2025.

The 50 percent renewable by 2025 is in the new state energy policy established by House Bill 306 passed by the Legislature this spring and approved by Parnell earlier this month.

"At a time when we need to be working as hard as we can to diversify our energy sources and stabilize energy costs, this veto sends the wrong message to those looking to invest in our state and to those working hard to develop long-term energy solutions for Alaska," Chris Rose, REAP executive director, said in statement issued by the association.

Alaskans pay some of the highest energy costs in the country, more than five times the national average in some cases, and face the possibility that costs will go even higher, the statement said.

Renewable energy, including wind, geothermal and hydropower, offers a viable way to reduce and stabilize energy costs by providing a long-term source of energy in which the cost of fuel is free, the release said.

In 2009 alone, the state paid $37 million to communities in the annual Power Cost Equalization subsidy to help residents better afford their energy costs.

Rose said 46 projects would not be funded because of the governor's veto of the $25 million in grants. These projects are located throughout the state and are in various phases of development.

"Twenty-four of the projects are for reconnaissance and feasibility studies, without which communities will be unable to proceed to apply for money to design and construct projects," he said.

Projects curtailed include a transmission line to connect the Reynolds Creek hydro project in Southeast Alaska, a geothermal heating system for Gastineau Elementary School in Juneau, wind projects in St. Mary's, Teller, Stebbins and Scammon Bay, and geothermal exploration at Akutan, Rose said.

Some of the projects, including geothermal exploration at Pilgrim Hot Springs near Nome and a tidal power project in Cook Inlet, stood to leverage millions of dollars in private and federal funding, which may be lost if the projects cannot proceed without the state's contribution, he said.

"The practical effect of this veto will be to delay many, and potentially kill some, projects across the state," Rose said. "There are a lot of shocked and dismayed people out there. They were moving ahead on projects. Now they're back on their heels."

Doug Johnson, Alaska project director for Ocean Renewable Power Co., said the veto sets back his company's efforts to install a test turbine in Cook Inlet for tapping tidal power and damages his ability to garner additional private funding.

The $1.9 million Parnell vetoed for the project was to be used in conjunction with $4.5 million in mostly private funding for design and construction that was scheduled to begin this summer, with the first turbine operating in 2012, he said.

Cook Inlet has a world-class tidal resource, Johnson said.

In Akutan, city officials were close to signing contracts to drill four exploratory holes this summer to assess whether the community could use geothermal to power the town and the Trident fish processing plant, one of the largest seafood processing facilities in the country.

While the city is still committed to going forward with drilling, it is now in the position of having to raise additional funds before the drilling date, scheduled for July.

The drilling program may have to be reduced due to the smaller budget, which means drilling fewer holes. This will cost almost as much because of the high mobilization and logistics costs, but not provide nearly as much data. The city lost $2.8 million in funding through the governor's veto.

"We were literally in the process of signing contracts with a dozen contractors when we got the news," said Project Manager Amanda Kolker. "This was a shovel-ready project and now we're really having to scramble. It's very frustrating."

Tanana Chiefs Conference President Jerry Isaac said the veto hurts projects in his area looking at using heat recovery systems to save on energy costs.

"Residents in rural Alaska, including those in the 42 villages represented by Tanana Chiefs Conference, pay some of the highest energy costs in the entire nation," he said. "Our renewable energy fund projects would have lowered those costs and made our communities more sustainable over the long term. We're working hard to find energy solutions and this veto only sets us back."

Meera Kohler, president and CEO of the Alaska Village Electric Cooperative, which serves 53 communities in Interior and Western Alaska, said the veto would set back a number of AVEC projects where communities were seeking to develop alternatives to expensive diesel fuel.

Projects that will now have to wait for at least another year are final engineering designs for wind projects at St. Mary's and Teller and wind feasibility assessments for Scammon Bay and Stebbins, she said.

"Renewable energy development is desperately needed in rural Alaska," Kohler said. "With electric rates above 50 cents a kilowatt hour, economic development is difficult and families are forced to make stressful choices between putting food on the table and heating their homes," she said. "While I am pleased the governor affirmed $25 million for renewable energy development across the state, it is very disappointing that another $25 million appropriated by the Legislature was vetoed when there were projects in process."

Parnell's stated reason for the veto was that not all the funds previously appropriated had been spent.

Kohler noted projects often require long lead times for procurement of equipment and site preparation and the reduction of funds will further stretch project schedules. There has been only one construction season since the fund was created, she said.

So far, $125 million has been appropriated to the fund and granted to more than a 100 projects statewide.

"In an era where renewable energy is rising to the top of the agenda for governments across the planet, this veto sends the wrong message about Alaska's future," Kohler said.

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