[Senate Report 106-405]
[From the U.S. Government Publishing Office]



                                                       Calendar No. 795
106th Congress                                                   Report
                                 SENATE
 2d Session                                                     106-405

======================================================================



 
                  SOUTHEASTERN ALASKA INTERTIE SYSTEM

                                _______
                                

               September 11, 2000.--Ordered to be printed

                                _______
                                

  Mr. Murkowski, from the Committee on Energy and Natural Resources, 
                        submitted the following

                              R E P O R T

                             together with

                             MINORITY VIEWS

                         [To accompany S. 2439]

    The Committee on Energy and Natural Resources, to which was 
referred the bill (S. 2439) to authorize the appropriation of 
funds for the construction of the Southeastern Alaska Intertie 
System, and for other purposes, having considered the same, 
reports favorably thereon without amendment and recommends that 
the bill do pass.

                         purpose of the measure

    The purpose of S. 2439, as ordered reported, is to 
authorize appropriations to the Secretary of Energy for use in 
assisting in the construction of an electrical transmission 
intertie connecting communities throughout southeastern Alaska.

                          background and need

    Southeastern Alaska is made up of a large group of islands 
stretching over 400 miles in what is known as the Alexander 
Archipelago. There are few roads, and access between 
communities is limited in most cases to air and marine 
transportation. The Forest Service owns 85% of the land in the 
region. Historically, the region's economy has been resource-
based, with timber, commercial fishing and tourism as the major 
components.
    Immediately following World War II, the Federal Government 
took steps to encourage development and settlement in the 
region. In 1947, Congress passed the Tongass Timber Act, which 
was designed to attract investment by offering a guaranteed 
quantity of timber to those willing to invest in physical 
plants capable of processing the timber in southeast Alaska. 
Also in 1947, the first Federal study on a regional electrical 
intertie was prepared by the Federal Power Commission 
(precursor to the Federal Energy Regulatory Commission) and the 
Forest Service. Entitled ``Water Powers of Southeast Alaska'', 
the joint study identified over 200 potential hydro power sites 
and observed, ``In developing a power system many of these 
projects would logically be connected with high voltage 
transmission.'' Numerous subsequent studies, including a 1987 
study by the Alaska Power Administration (a Federal agency 
under the Department of Energy) concluded that the region's 
economic viability would be enhanced if its communities were 
electrically interconnected.
    While tourism and commercial fishing employment is highly 
seasonal, the Federal timber processed through two pulp mills 
(one in Sitka, the other in Ketchikan) attracted to the region 
as a result of the long-term contracts under the Tongass Timber 
Act became the chief component of the year-round private sector 
employment. In 1990, Congress passed the Tongass Timber Reform 
Act, which substantially altered the terms and conditions under 
which the pulp mills were to operate on the National Forest, at 
the same time precluding extractive uses on additional Federal 
acreage on the Tongass. Since 1990, harvests of timber from the 
Tongass have fallen from 470 million board feet annually to 120 
million board feet, and both pulp mills, as well as a number of 
mills for sawn wood products, have ceased operation.
    The consequences of this change in Federal policy have been 
substantial.
    Since 1995, Ketchikan's population has declined by 800 
residents, and total employment and payroll are down 12%. Real 
payroll is down 16%.
    In Wrangell, real payroll is down 29% from 1994, and 
population has dropped 7%.
    Timber receipts (Federal stumpage sharing with local 
governments for schools and roads) have been reduced from $900 
per student in rural southeast Alaska to $180 per student in 
1999, an 80% decline.
    With these changes under way, consensus began to form among 
the communities that the region required reliable, clean and 
reasonably priced electrical power in order to promote 
diversification of their economies. Historically, the 
communities of the region had relied primarily upon locally 
generated electricity, which in many cases meant diesel-fired 
generation and systems known for their unreliability and high 
costs. In other areas, hydroelectric power was cheap and 
abundant.
    In 1997, the Southeast Conference--a regional group 
composed of municipalities, businesses, concerned individuals 
and government leaders--commissioned a study to obtain 
technical information in support of an electrical intertie 
between unconnected southeast Alaskan communities. The study 
proposed a 25 year plan for utilizing existing and planned 
power generation sites throughout southeast Alaska in 
conjunction with an electrical intertie serving communities 
throughout the region. The intertie itself would be a 
combination of overland and submarine cables designed to link 
communities, provide reliability and enhance the economics of 
power delivery.
    The region now has a system of hydroelectric dams and on-
site diesel electric generating facilities. In rural 
communities, many of which are inhabited predominantly by 
Alaska Natives and where unemployment and poverty are high, 
electrical rates are extremely high. For example, in Kake, 
Alaska, electricity is in excess of 38 cents per kilowatt hour. 
the Intertie would allow the connection of hydro power dams 
with communities currently producing electricity independently, 
and provide a grid for increasing the reliability of load 
management.
    The study estimated that the cost of completing such a 
system would be in excess of $435 million in 1996 dollars. 
Under the Intertie proposal described in the study, a phased 
construction schedule would allow a state-chartered regional 
authority to gain equity through the orderly construction and 
capitalization of the system. The report stated ``Participants 
recognize that a combination of State, Federal and Community 
funding will be required.'' Under S. 2439, the Secretary of 
Energy would be authorized to provide such sums as are 
necessary as Congress would provide in future appropriations to 
assist in the construction of the system.
    The Intertie plan is not site-specific except in general 
relationship to the communities which would receive service 
from the proposal. Under S. 2439, each component of the system 
would be required to adhere to all State and Federal laws and 
regulations.

                          legislative history

    S. 2439 was introduced by Senators Murkowski and Stevens 
April 13, 2000. The full committee held a hearing on the bill 
May 18, 2000.
    At the business meeting on June 7, 2000, the Committee on 
Energy and Natural Resources ordered S. 2439 favorably reported 
without amendment.

            committee recommendation and tabulation of votes

    The Committee on Energy and Natural Resources, in open 
business session on June 7, 2000 by a voice vote of a quorum 
present, recommends that the Senate pass S. 2439.

                          committee amendments

    During the consideration of S. 2439, the Committee adopted 
no amendments.

                      section-by-section analysis

    The legislation is self-explanatory.

                   cost and budgetary considerations

    The following estimate of the cost of this measure has been 
provided by the Congressional Budget Office.

S. 2439--A bill to authorize the appropriation of funds for the 
        construction of the Southeastern Alaska Intertie system, and 
        for other purposes

    Summary: S. 2439 would authorize the appropriation of such 
sums as may be necessary to assist in the construction of the 
Southeastern Alaska Intertie system. Based on information from 
a study by the Southeast Conference in Alaska, CBO estimates 
that construction costs for the entire intertie system would be 
$500 million or more over a 30-year period. CBO estimates that 
the federal cost for the first phase of the project would be an 
additional $20 million over the 2001-2005 period. (The project 
has already received $20 million in prior appropriation acts.) 
The bill would not affect direct spending or receipts; 
therefore, pay-as-you-go procedures would not apply. S. 2439 
contains no intergovernmental or private-sector mandates as 
defined by the Unfunded Mandates Reform Act (UMRA).
    According to the Southeast Conference, the intertie system 
is planned as a five-stage project, linking Alaskan power 
plants over more than 400 miles. The first stage of the 
Southeastern Alaska Intertie system would link the Swan Lake 
and Lake Tyee hydroelectric plants over 57 miles, and is 
estimated to cost around $85 million. The state of Alaska has 
identified about $65 million in funding for this project, 
including $20 million that was appropriated through the Alaska 
Power Administration, the Denali Commission, and the Forest 
Service over fiscal years 1998 through 2000. Under S. 2439, the 
federal government could fund all of the remaining costs of the 
complete system, or it could share the costs with the state of 
Alaska
    Estimated cost to the Federal Government: The estimated 
budgetary impact of S. 2439 over the next five years is shown 
in the following table. The costs of this legislation fall 
within budget function 270 (energy).

----------------------------------------------------------------------------------------------------------------
                                                                       By fiscal year, in millions of dollars--
                                                                    --------------------------------------------
                                                                       2001     2002     2003     2004     2005
----------------------------------------------------------------------------------------------------------------
                                      SPENDING SUBJECT TO APPROPRIATION \1\

Estimated authorization level......................................       20        0        0        0        0
Estimated outlays..................................................        8        8        8        8       8
----------------------------------------------------------------------------------------------------------------
\1\ The table shows estimated incremental funding needed for the federal share of the first stage of the
  Southeastern Alaska Intertie system and estimated outlays over the next five years. Outlays include balances
  from previously appropriated funds. CBO estimates that completing the system would cost at least $400 million
  over a 30-year period. With nearly all of the costs coming after 2005. Some of those costs would be borne by
  the state and local governments in Alaska

    Basis of estimate: The state of Alaska has identified about 
$65 million in funding for the first stage of the intertie 
system. Assuming appropriation of $20 million, the remaining 
amount needed to complete the first stage, CBO estimates that 
spending on construction could start in 2001. Estimated outlays 
are based on historical spending patterns for similar 
activities.
    S. 2439 would authorize the federal government to fund all 
segments of the intertie system. We estimate that the remaining 
four segments of the project would cost at least $400 million 
over 30 years. Outlays in later years could be large, depending 
on future appropriations and the amount funded by the state of 
Alaska.
    Pay-as-you-go considerations: None.
    Estimated Impact on State, local, and tribal governments: 
S. 2439 contains no intergovernmental mandates as defined in 
UMRA. The state of Alaska and some local governments in that 
state would benefit from federal funding to assist in 
constructing the intertie system. Any costs incurred by the 
state or local governments to construct and manage the intertie 
system would be voluntary.
    Estimated impact on the private sector: This bill contains 
no new private-sector mandates as defined in UMRA.
    Estimate prepared by: Federal costs: Lisa Cash Driskill; 
impact on State, local, and tribal governments: Victoria Heid 
Hall; impact on the private sector: Sarah Sitarek.
    Estimate approved by: Peter H. Fontaine, Deputy Assistant 
Director for Budget Analysis.

                      regulatory impact evaluation

    In compliance with paragraph 11(b) of rule XXVI of the 
Standing Rules of the Senate, the Committee makes the following 
evaluation of the regulatory impact which would be incurred in 
carrying out S. 2439. The bill is not a regulatory measure in 
the sense of imposing Government-established standards or 
significant economic responsibilities on private individuals 
and businesses.
    No personal information would be collected in administering 
the program. Therefore, there would be no impact on personal 
privacy.
    Little, if any, additional paperwork would result from the 
enactment of S. 2439, as ordered reported.

                        executive communications

    The Department of Energy submitted testimony concerning S. 
2439 as follows:

  Statement of the U.S. Department of Energy on S. 2439, Southeastern 
                            Alaska Intertie

    Mr. Chairman, in response to your request the Department of 
Energy hereby submits written testimony providing our views on 
S. 2439. This bill would authorize Congress to appropriate to 
DOE ``such sums as may be necessary to assist in the 
construction of the Southeastern Alaska Intertie system as 
generally identified in Report #97-01 of the Southeast 
Conference * * *''
    Mr. Chairman, the Department of Energy does not support the 
enactment of S. 2439. Additional analysis of the proposed 
intertie and possible alternatives should be undertaken before 
Congress authorizes the expenditure of a substantial sum of 
domestic discretionary funds--approximately $450 million.
    The Administration recognizes that distribution and 
transmission infrastructure costs to provide electric service 
to sparsely populated areas can be higher than the costs of 
providing service to more densely populated regions. The Rural 
Utilities Service (RUS) and, its predecessor, the Rural 
Electrification Administration (REA), have done a tremendous 
job of helping to electrify rural America by making loans 
available to rural cooperative utilities.
    However, loans are not issued automatically. In some areas 
the cost of providing service is so prohibitive that loans are 
not issued because of poor prospects of repayment. That is why 
S. 1047, the Administration's comprehensive electricity 
restructuring legislation, proposes that Congress authorize $20 
million annually for seven years to fund a rural and remote 
communities electrification grants program.
    The Department of Energy recognizes that certain 
communities in southeastern Alaska suffer from relatively high 
energy costs and that it is possible that the RUS loan program 
may not be able to help this region reduce its electric costs. 
Moreover, many small communities in the area currently rely 
extensively on diesel-powered generation for their electricity 
supply. It is important that the region diversify its source of 
electricity for both environmental and economic reasons.
    The Administration's proposed electricity restructuring 
bill would help part of the region move in that direction by 
authorizing $20 million to provide financial assistance to 
Alaska ``to ensure the availability of adequate electrical 
power to the greater Ketchikan area in southeast Alaska, 
including the construction of an intertie.'' The intent of this 
provision is to authorize funding that could be used to pay for 
the alternative that is ultimately determined to be the best 
means of making additional power available to this area. This 
could include the construction of a subset of the intertie that 
is being proposed in S. 2349 to make excess hydropower capacity 
available to certain communities in the area, and could also 
include alternative mechanisms designed to reduce reliance on 
diesel generation in the Ketchikan area.
    Nevertheless, we believe more analysis is needed before 
Congress considers S. 2439. While the bill does not include a 
specific price tag for the proposed southeastern Alaska 
intertie, DOE understands that approximately $450 million in 
federal funding would be required. Given the amount that would 
be needed, it is essential that Congress and the Administration 
thoroughly examine the proposed intertie and all possible 
alternatives. For example, great advances have been made in 
fuel cell technologies. Although natural gas may not be 
available in the region, it is possible that fuel cells 
operating on alternative fuels could be used to replace 
existing diesel generation. In addition, there could be some 
potential for locally produced hydropower in certain 
communities in the region. Moreover, it might be less expensive 
to promote increased energy efficiency initiatives aimed at 
reducing the region's reliance on dirty and costly diesel 
generation. These and other possibilities should be thoroughly 
examined before Congress commits itself to expend $450 million 
on the proposed intertie.
    Thank you for this opportunity to submit our views on this 
legislation.

                             MINORITY VIEWS

    S. 2439 contains an open-ended authorization of federal 
funds to construct an electrical intertie in Southeastern 
Alaska. I am not opposed to providing federal assistance to 
provide reliable and affordable power to Southeastern Alaska. 
Regrettably, however, I was forced to oppose S. 2439 for four 
reasons.
    First, the bill broadly authorizes a five-stage project 
that may cost $500 million or more and take over 30 years to 
complete. I believe the project should be authorized in phases, 
rather than commiting the Federal Government to the entire 
project upfront.
    Second, the bill authorizes ``such sums as may be 
necessary,'' rather than specifying a maximum amount. The 
Congressional Budget Office estimates that the entire intertie 
system will cost ``$500 million or more over a 30-year 
period.''
    Third, the bill does not require any contribution from the 
State of Alaska or the project beneficiaries. Federal aid to 
build rural electrical systems has, in the past, taken the form 
of loans, which must be repaid over time. S. 2439 contains no 
requirement that the federal contributions be matched or 
repaid.
    Fourth, more analysis is needed before Congress commits 
itself to the project. The Administration has indicated that 
Southeastern Alaska's electricity needs may be better met 
through distributed generation, fuel cells, local hydroelectric 
projects, and increased energy efficiency. Such alternatives 
should be examined before Congress commits itself to building 
the intertie.
    In sum, S. 2439 is simply too broadly conceived, too 
expensive, too open-ended, and too poorly thought out for me to 
support in its present form.

                                                     Jeff Bingaman.
                        Changes in Existing Law

    In compliance with paragraph 12 of rule XXVI of the 
Standing Rules of the Senate, the Committee notes that no 
changes in existing law are made by the bill S. 2439, as 
ordered reported.

                                  
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