North Dakota Legislative Energy Development Committee

NORTH DAKOTA LEGISLATIVE MANAGEMENT
Minutes of the
ENERGY DEVELOPMENT AND TRANSMISSION COMMITTEE
Wednesday, August 19, 2009
Roughrider Room, State Capitol
Bismarck, North Dakota
Senator Rich Wardner, Chairman, called the
meeting to order at 9:00 a.m.
Members present: Senators Rich Wardner, Jim
Dotzenrod, Robert M. Horne, Joe Miller, George
Nodland; Representatives Tracy Boe, Mike
Brandenburg, Matthew M. Klein, Todd Porter, Dave
Weiler
Members absent: Senator John M. Andrist;
Representative Lee Kaldor
Others present: Representative Shirley Meyer,
member of the Legislative Management, was in
attendance.
See Appendix A for additional persons present.
At the request of Chairman Wardner, committee
counsel reviewed the Supplementary Rules of
Operation and Procedure of the North Dakota
Legislative Management.
ENERGY STUDY
Mr. Shane C. Goettle, Commissioner of
Commerce, provided testimony (Appendix B) on
Empower North Dakota. He said the major policies
are to grow all of North Dakota energy, base decisions
on science and economics, support research and
development, choose incentives over mandates,
regulate fairly, and be environmentally responsible.
In response to a question from Senator Horne,
Mr. Goettle said the coal gasification plant is the first
in the nation and is worthy of recognition.
In response to a question from Senator Miller,
Mr. Goettle said the water resource study will be of
existing projects and planned projects and the water
needs for those projects. He said the availability of
water is more important than the quality of water for
the energy industry. He said the study of water will
result in a number of maps of the resources available
in this state and the limitations on those resources.
Mr. Tony Clark, Commissioner, Public Service
Commission, presented written testimony
(Appendix C) on the Public Service Commission's
activities in regard to energy development in this
state. He provided information on active North Dakota
wind projects, the siting of transmission projects,
pipeline siting cases, and work with regional groups
for transmission planning.
In response to a question from Representative
Klein, Mr. Clark said the Western Area Power
Association and Basin Electric Power Cooperative are
not part of the Midwest ISO. In North Dakota, he said,
wind developers are wanting to sell into the markets
east of this state and are driven to use Montana
Dakota Utilities Company's and Otter Tail Power
Company's transmission because of free access. He
said there would be a rate pancake if the developers
used Basin Electric Power Cooperative's or the
Western Area Power Association's transmission.
In response to a question from Representative
Brandenburg, Mr. Clark said there is movement within
the Federal Energy Regulatory Commission and
Congress for cost allocation for new transmission to
be spread out and socialized. He said this would
make pricing more of a postage stamp price. He said
if there is a federal renewable energy standard, there
is a good argument that the cost of transmission for
the renewable energy should be more spread out.
In response to a question from Senator Nodland,
Mr. Clark said present wind projects generate
electricity for local utilities and are not shipping to faroff
load centers.
In response to a question from Representative
Klein, Mr. Clark said wind displaces natural gas and
pairs well with hydroelectric generation.
In response to a question from Senator Horne,
Mr. Clark said the Public Service Commission has
received a letter of intent for the Heartland Wind
Project. He said a letter of intent is a cursory glance
at future plans. He said the next step is for an
application that will contain details. He said the letter
of intent was sent a little over a year ago and the
intent was to phase in the wind project over time.
In response to a question from Senator Miller,
Mr. Clark said the Midwest ISO cost allocation does
not relate to the cost of generation, which is a state
public utilities commission decision.
In response to a question from Representative
Brandenburg, Mr. Clark said there has been
significant progress in achieving consensus that
transmission is needed, especially through Minnesota.
He said the CapX 2020 project is building
transmission and one line will go from Fargo to the
Minneapolis area.
In response to a question from Representative
Brandenburg, Mr. Clark said CapX 2020 is a regional
reliability project and not meant to move power to
eastern load centers.
In response to a question from Representative
Klein, Mr. Clark said the Federal Energy Regulatory
Commission has not implemented backstop siting
authority. He said there is a potential for the use of
Energy Development and Transmission 2 August 19, 2009
this authority for siting a line from Arizona into
California. He said there is interest in Congress to
give the Federal Energy Regulatory Commission more
backstop siting authority.
In response to a question from Representative
Brandenburg, Mr. Clark said the Midwest ISO has
proposed and implemented reforms so that the queue
is less first come, first served and more based on
viable projects.
Ms. Sandi Tabor, Director, North Dakota
Transmission Authority, provided written testimony
(Appendix D) to the committee on recent activities of
the North Dakota Transmission Authority. She said
the North Dakota Transmission Authority has been
working with local-, regional-, and national-level
transmission planning. She said last session a bill
allowed the North Dakota Transmission Authority to
obligate up to 30 percent of a project, not to exceed
$240 million, as a moral obligation of the state. She
said the North Dakota Transmission Authority is
developing a screening process to determine the
financial soundness and to create due diligence
protocols to determine whether to issue bonds backed
by the moral obligation of the state for a particular
project. She said because the North Dakota
Transmission Authority lacks expertise, the authority
issued a request for proposals for bonding counsel
and a senior underwriter. She said the North Dakota
Transmission Authority should have protocols by the
end of the year. She said a resolution adopted last
session directed a cap and trade study and the
Industrial Commission will secure the services of an
economics firm. She said the North Dakota
Transmission Authority is looking for an economics
firm and is doing the project development for this
study.
In response to a question from Representative
Klein, Ms. Tabor said any new power purchase
agreements must meet the Minnesota Next
Generation Act, but not existing projects.
In response to a question from Senator Wardner,
Ms. Tabor said the CapX 2020 project is moving along
as planned.
In response to a question from Representative
Klein, Ms. Tabor said the CapX 2020 line from Fargo
to the Minneapolis area will be a 345-kilovolt line.
In response to a question from Representative
Brandenburg, Ms. Tabor said the Green Power
Express and other groups are looking at large highvoltage
overlays to move energy to the east. She said
these groups are waiting for federal action on
transmission and if there is a renewable energy
standard at the federal level.
Mr. Loren Laugtug, Manager, Legislative Affairs,
Otter Tail Power Company, presented information to
the committee. He said there are different methods
for paying for transmission in the Midwest ISO. He
said for a generator outlet, the generator pays for all
of the transmission. He said renewable energy can
use the excess capacity. He said the CapX 2020 line
from Fargo to Monticello is a reliability line that
provides regional benefits. He said the cost of the line
is divided between local utilities that benefit from the
line. He said local utilities should not have to pay for a
line to Chicago. He said if the local utilities were
required to pay under cost allocation by the Midwest
ISO, the utilities would pull out of the Midwest ISO.
In response to a question from Representative
Brandenburg, Mr. Laugtug said no utility can
designate extra capacity and it is used on a firstcome,
first-served basis. He said when the capacity is
full then the user would have to pay for network
upgrades.
In response to a question from Representative
Boe, Mr. Laugtug said membership in the Midwest
ISO is voluntary.
Mr. Justin Kringstad, North Dakota Pipeline
Authority, provided a presentation (Appendix E) on
recent activities of the North Dakota Pipeline
Authority. He said it is anticipated that North Dakota
will need additional capacity for transporting crude oil
to market after 2010. He said several options are
being actively pursued, including Enbridge's proposed
portal reversal--Kinder Morgan's Bakken crude
project, new interconnecting pipelines, and other
options.
In response to a question from Senator Wardner,
Mr. Kringstad said the EOG Stanley rail station will
transport oil using EOG's rails and trains. He said the
economics for the project have the project going
forward even though, traditionally, rail transport is
more expensive than pipeline transport.
In response to a question from Senator Nodland,
Mr. Kringstad said to reduce truck traffic from Stanley
to Rhame, there needs to be a smaller gathering
pipeline.
In response to a question from Senator Nodland,
Mr. Kringstad said potential projects will have the
capacity to transport about 370,000 barrels of oil per
day; however, not every project will be completed by
the oil industry.
In response to a question from Representative
Klein, Mr. Kringstad said the Butte pipeline is
operational and transporting 120,000 barrels per day
to Guernsey, Wyoming, where it terminates. He said
the oil at that point is put in the Platte pipeline.
In response to a question from Senator Wardner,
Mr. Kringstad said the price differential should be at
the normal level of 5 percent to 10 percent if there is
adequate pipeline capacity.
In response to a question from Representative
Klein, Mr. Kringstad said there is a $9 per barrel
discount for transportation.
In response to a question from Senator Miller,
Mr. Kringstad said the Keystone interconnect is the
most expensive and furthest out timewise as to
completion.
In response to a question from Senator Miller,
Mr. Kringstad said the Keystone interconnect is
attractive because it would allow the transportation of
oil to Oklahoma, which is a good place to transport oil
because of refining capacity.
Energy Development and Transmission 3 August 19, 2009
In response to a question from Senator Dotzenrod,
Mr. Kringstad said the Kinder Morgan and Alliance
pipelines are right next to each other. He said the
Kinder Morgan line is a smaller line than the Alliance
line.
In response to a question from Senator Horne,
Mr. Kringstad said with the development of the
Enbridge or Kinder Morgan lines, there could be
available the pipeline transport of 370,000 barrels per
day by 2011. He said pipelines should be able to
provide transport for all oil with current projects based
on current assumptions.
In response to a question from Representative
Klein, Mr. Kringstad said the Enbridge line has been
hydrostatically tested and the increased pressure
should not affect the pipeline.
Mr. Lynn Helms, Director, Department of Mineral
Resources, provided a presentation (Appendix F) on
shallow gas and a presentation (Appendix G) on
carbon dioxide storage. As to shallow gas, he said,
the price for gas is down from $12 per million cubic
feet (MCF) a year ago to $2.66 per MCF. He said
natural gas is at a high in storage. He said it will be
years before the natural gas market recovers. He
said the shale gas development is creating more gas
than can be consumed. He said this has removed
any need to produce shallow gas. He said the
following list ranks the hits for shallow gas in the
counties studied:
1. Ward.
2. Bottineau.
3. Richland.
4. Renville.
5. Bowman.
Mr. Helms said drilling activity for shallow gas has
increased from three before the tax incentives to nine
after the tax incentives. He said glacial beds produce
natural gas which is pressured, and lignite and shale
produce natural gas which is under pressure.
In response to a question from Senator Wardner,
Mr. Helms said lignite beds are encapsulated in clay
and are at low pressure.
In response to a question from Senator Horne,
Mr. Helms said there are two types of gas: biogenic
and thermal. He said biogenic is created by bacteria
that produce methane and thermal is created in the
same way that oil is created. He said there is more
gas at a higher pressure in the Bakken Formation
than in shallow gas formations.
In response to a question from Representative
Weiler, Mr. Helms said a unit that will change gas that
would otherwise be flared into electricity will go in by
the Stanley and Parshall area.
In response to a question from Senator Wardner,
Mr. Helms said the funding for a person to conduct
seismic activity has not been used because of
difficulty in finding an individual with the proper
geophysical experience.
As to carbon dioxide, Mr. Helms said there were
two bills last session relating to carbon dioxide. He
said one bill determined who owned the pore space
and the other delegated to the Industrial Commission
and State Department of Health authority over the
storage of carbon dioxide. He said there are three
types of storage: enhanced oil recovery, when
enhanced oil recovery is converted to carbon dioxide
storage, and saline aquifer storage. He said
enhanced oil recovery is not done in North Dakota.
He said there is a gap between what will be paid for
carbon dioxide and the cost to make carbon dioxide.
He expects the gap to be closed by carbon credits.
He said the Broom Creek saline aquifer can store
500 to 600 years of carbon dioxide that is created in
this state. He said the Industrial Commission is
creating rules and the rules will contain a fee of
one cent per ton of carbon dioxide stored for
administration and a fee of seven cents per ton for the
trust fund. He said these fees may be adjusted on an
annual basis and that the relatively low charge is to
avoid pricing carbon dioxide storage out of business.
He said over a period of 90 years, natural gas storage
has resulted in five accidents and 10 deaths. He said
the 10 deaths resulted from explosions. He said
carbon dioxide is not explosive. He said carbon
dioxide has been used for 40 years for enhanced oil
recovery and there have been no deaths resulting
from carbon dioxide in that time. He said the public
perception as to carbon dioxide storage is that it is as
risky as coal mining and the actual risks are low to
moderate.
In response to a question from Senator Horne,
Mr. Helms said oil companies are willing to pay $15 to
$20 per ton for carbon dioxide for enhanced oil
recovery. He said the $40 to $60 per ton cost is for
carbon dioxide from power plant emissions. He said
Dakota Gasification Company probably creates
carbon dioxide at a cost below the cost from power
plant emissions and in the range of $20 to $30 per
ton. He said Canada is using carbon dioxide from the
gasification plant because of carbon credits and
99 percent of the minerals in Canada are owned by
the Crown.
In response to a question from Representative
Boe, Mr. Helms said the company that stores carbon
dioxide will have liability for the 40-year active life of
the storage and a 10-year closure. He said the state
will then issue a certificate of closure and absorb
liability. He said the risk drops dramatically at that
point. He said by the time the state becomes liable, it
will have experience with carbon dioxide storage. He
said the first closure would be around 2060 and there
would be $50 million in the trust fund.
Mr. Curtis Jabs, Basin Electric Power Cooperative,
presented information on the carbon dioxide capture
project at the Antelope Valley Station. He said in
June 2007 Basin sent a request for proposals for
technology to use for carbon capture. He said in
December 2007 Basin made a selection and the
feasibility study showed that capture would be
between $45 and $50 per ton. He said Basin
conditioned the feed study on one month's successful
data from a pay pilot project. He said the pilot project
Energy Development and Transmission 4 August 19, 2009
showed the carbon capture would cost significantly
more. He said in June Basin made a second request
for proposals. He said in late July the proposals were
received and are being evaluated. He said the project
is behind schedule and the feed study should begin in
October, at which time Basin should have a better
idea as to costs. He said construction will begin in
late 2013 at the earliest.
At the request of Chairman Wardner, committee
counsel presented a background memorandum
entitled Comprehensive Energy Policy Study.
Mr. William Schuh, State Water Commission,
presented written testimony (Appendix H) on the study
of water use by each energy sector. He said the
timeline for the project is to have a written draft report
by February 2010 so that review and modification can
be done before the report is published and presented
to the committee in August. He said the study will
result in a number of maps showing water resources.
In response to a question from Senator Wardner,
Mr. Schuh said the Southwest Water Pipeline should
take pressure for use off of aquifers. He said the
study will look at using the Southwest Water Pipeline
for energy use. He said a treatment plant by Lake
Sakakawea for water used in the oil industry will
depend on cost and access through Army Corps of
Engineers' lands.
In response to a question from Senator Horne,
Mr. Schuh said this study will look at the Northwest
Pipeline as well as the Southwest Water Pipeline and
aquifers.
In response to a question from Senator Miller,
Mr. Schuh said the study will look at the siting of plant
facilities.
Mr. Bob Shaver, State Water Commission,
answered questions for the committee. In response to
a question from Senator Nodland, Mr. Shaver said the
water depot in the Forman Butte Field is for brine
dilution and uses 1 acre to 1.5 acre feed per year. He
said this is a small amount of water usage that will
end as the field develops. He said cities were given
water permits that allowed for future growth. He said
some cities want to sell extra capacity to industry for
profit. He said when a municipality uses water for the
energy industry it is not for municipal use, but for
industrial use, and an industrial permit is needed.
Senator Nodland said Killdeer refused the
Southwest Water Authority because it had an aquifer
and sells water to the energy industry.
In response to a question from Representative
Porter, Mr. Shaver said there are two types of
aquifers--glacial, which are local, and bedrock, which
are regional. He said glacial aquifers are affected by
weather and have little storage. He said the law
requires the protection of senior appropriators, and
junior appropriators may be curtailed until the weather
changes, i.e., it rains. He said regional aquifers have
a lot in storage but the recharge is small in
comparison to the amount in storage. He said when a
senior appropriator cannot efficiently acquire water
under a change in circumstances, the senior
appropriator must make a reasonable effort to capture
and then the rights of the junior appropriator are cut.
He said the term "reasonable" is debatable and may
be litigated in instances in which pressure drops so
that a pump is needed in a remote area.
Mr. Joseph R. Dudak, Vice President, ITC
Holdings Corp., provided a presentation (Appendix I)
on the Green Power Express. He said his company is
an independent transmission company developing a
high-voltage overlay to take wind energy from the
Dakotas to eastern loads.
In response to a question from Senator Wardner,
Mr. Dudak said he has a good reception with
landowner groups and there has not been one
negative comment on siting in the Dakotas. He said
his company intends to use the Federal Energy
Regulatory Commission's backstop authority with
problem areas.
Senator Wardner said Minnesota has placed
regulatory barriers to siting and should allow the siting
of transmission that is created to transport green
energy.
In response to a question from Senator Miller,
Mr. Dudak said his company does not plan on using
eminent domain and hopes to negotiate fair and
equitable compensation with landowners.
In response to a question from Representative
Brandenburg, Mr. Dudak said the wind developer and
the ultimate customer decide on the price of the
electricity. He said his company does not own the
energy, but is the highway for the energy.
In response to a question from Representative
Brandenburg, Mr. Dudak said his company is a New
York Stock Exchange company and has banking
partners and investors that will provide the money for
the Green Power Express. He said the main issue is
cost allocation, not investment.
In response to a question from Representative
Brandenburg, Mr. Dudak said the Federal Energy
Regulatory Commission could stretch its authority to
site the Green Power Express; however, the hope is
that Congress will provide the explicit authority. He
said a cost allocation on a project this size has never
been done and it will have to be dealt with differently
from previous projects.
In response to a question from Senator Horne,
Mr. Dudak said the regulatory issues of cost allocation
are the largest issues. He said construction could
begin within two years if there was the proper
regulation and siting. He said the project could be
completed within five years.
No further business appearing, Chairman Wardner
adjourned the meeting at 2:45 p.m.
___________________________________________
Timothy J. Dawson
Committee Counsel
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