Legislature(1999 - 2000)
03/16/1999 01:38 PM Senate L&C
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* first hearing in first committee of referral
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SB 10-APUC JURISDICTION: UNDERGROUND UTILITIES
CHAIRMAN MACKIE announced SB 10 to be up for consideration.
SENATOR DONLEY, sponsor, said that SB 10 requires that the
utilities in a community over 100,000 people have an ongoing
program for placing overhead utility lines underground. Currently,
it would only apply to the Municipality of Anchorage.
Through technological advances over the past number of years,
underground utilities are much easier to maintain and less costly.
They are aesthetically more pleasing. Having a minimum amount that
utilities can contribute to a long range plan of putting existing
overhead lines underground levels the economic playing field so
there isn't the disincentive of competition where if one utility
does it and another utility doesn't do it, they can charge lower
rates. Unless there are mandates to protect the public interest
and to encourage undergrounding, all incentive will be lost to do
it. Many cities require "undergrounding" for new developments.
The problem in Anchorage is that all new developments are
"undergrounded," but the neighborhoods that were built before the
law went into place have overhead utilities. Some areas of
Anchorage that have two power deliverers have overhead power lines
running down both sides of streets and it's a mess.
The City tried to address this issue with an ordinance requiring
utilities to have a 10-year plan for an ongoing program of
"undergrounding" overhead lines. It requires utilities to spend up
to four percent of their gross revenues per year towards
"undergrounding." However, because of the words "up to" there's no
minimum amount, so they spend nothing towards it. In the amendment
he is asking for just one percent; he would be happy with even a
half percent. Just so there is some established minimum towards an
ongoing program of "undergrounding."
SENATOR DONLEY said in the past objections from the utilities has
been that the APUC would make them go through all kinds of
reporting hoops and may not allow them to spend the money or charge
for it in a rate base. When asked, the APUC commissioners have said
they wouldn't do that. They think that underground is a great
idea. That is why he exempts APUC totally from the process.
SENATOR DONLEY said he thought it was important to make a public
policy "call" in this direction.
SENATOR LEMAN said he knows that cost of service studies for
utilities are very expensive, even $1 million. He thought it was
wrong for the APUC to require such an expensive exercise. He
didn't know if one percent was a good amount, but it didn't sound
like a lot. He asked if Senator Donley wanted to add the one
percent as a surcharge.
SENATOR DONLEY answered that they would just roll it into the rate
base which is what they do with their current "undergrounding"
programs.
Number 405
MR. DON EDWARDS, General Counsel, Chugach Electric Association,
said they are not opposed to "undergrounding" per se. It's a
matter of cost and reliability. Reliable systems are built both
overhead and underground. There are more underground distribution
lines than overhead lines. It boils down primarily to the cost.
MR. EDWARDS explained that roughly, as a rule-of-thumb, on the
Chugach system, you can assume it would cost from $700,000 -
$1,000,000 per distribution line mile to do underground
distribution. There are 334 line miles in their entire
distribution system. Chugach Electric's gross is around $140
million. Transmission is considerably more expensive to
"underground" because of the high voltage use and having to use
fluid-filled cables.
Capital expenditures is the more important consideration. There
are some savings one might expect to get on operation and
maintenance, but they are dwarfed by the capital expenditures.
They are very sensitive to their customers' concern for cost since
they are a member-owned association. He recommended making very
sure customers want to buy this kind of "undergrounding." Also,
the legislation might require "undergrounding" of perfectly good
overhead lines which have not yet been depreciated. This could
degrade equity levels and damage the organization financially.
MR. EDWARDS advised the committee to have their lawyers look at the
constitutionality of the "cap" on the amount of recovery that is
allowed to the extent that expenditures of money are required to
implement this legislation.
SENATOR DONLEY responded that the cap only applies to the
regulatory powers of the APUC.
MR. EDWARDS replied that to him the cap means the annual recovery
of revenue for "undergrounding" may not exceed 10 percent of a
utility's annual gross income.
SENATOR DONELY said it doesn't say that; it says the exception to
the Commission's regulation only applies to the first 10 percent
and after that it would be subject to regulation by the Commission.
He said he would ask the drafters to make that clear.
MR. EDWARDS said he thought discussions should take place among the
utilities about what might be doable, but as it stands, Chugach
would not support this legislation.
Number 471
CHAIRMAN MACKIE asked if it was true that a majority of their lines
are underground now and asked if that included high voltage
distribution lines.
MR. EDWARDS replied no and explained that they make a distinction
between lower voltage distribution lines and higher voltage
transmission lines. More than half of their distribution lines are
underground now and all new distribution lines are underground.
Burying transmission cable is much more expensive, because it is
fluid-filled cable which are higher maintenance and are much more
expensive to install.
CHAIRMAN MACKIE asked if any transmission lines were underground
now.
MR. EDWARDS answered a few of them are and the main one is the
submarine cable that cut across from the west side of Cook Inlet to
a point close to the Anchorage airport. There is probably 8 - 12
miles on the entire system of "undergrounded" transmission lines.
CHAIRMAN MACKIE asked if they are putting transmission lines
underground now in new developments.
MR. EDWARDS answered no, because transmission lines are expensive
to put underground and there is a serious earthquake hazard.
SENATOR KELLY asked what fluid-filled cable was like.
MR. EDWARDS explained that a hollow cable has fluid in it that
seeps through the conductor that is in segments. The fluid
impregnates paper that is wrapped in many layers of thin sheets and
has to be under light pressure at all times to make sure the paper
stays impregnated and impervious to elements. Outside of that
there are all kinds of armoring to try to keep the cable safe,
particularly during installation. The fluid pressure has to be
monitored constantly.
SENATOR KELLY asked how much of their system is transmission line
versus distribution line.
MR. EDWARDS said he didn't even have a ballpark figure on that.
Number 531
SENATOR LEMAN said he thought Senator Donley was referring to the
distribution lines and asked if Mr. Edwards had identified his
costs, breaking them down into generation, transmission, and
distribution and what the distribution costs are in Anchorage.
MR. EDWARDS answered yes, they have distribution and transmission
cost data, but they have not really broken it down to residents
within Anchorage, although he didn't think it would be difficult to
do.
Number 565
MR. SAM COTTEN, Executive Director, Alaska Public Utilities
Commission, said the Commission decided to take a neutral position
on this policy call. However, they have a couple of technical
concerns. They suggested using the term "revenue" instead of the
term "annual gross income" so there is no question about what money
they are talking about. MR. COTTEN explained that the full actual
cost might involve the potential for cost shifting. Typically, a
utility has to justify cost and there is a prudency standard that
has to be met, but in this case it wouldn't be. His staff
recommended going with a surcharge rather than increasing rates,
because it would be simpler to manage administratively. For
instance, there are a couple of utilities that operate within the
Municipality of Anchorage and it's only a small part of their
business. Matanuska Electric and Matanuska Telephone provide
service to Eagle River, which is part of the Municipality, so the
rates for those people in Eagle River would be affected, whereas if
they lived in Palmer or Wasilla, they wouldn't be affected (under
this bill). Rather than doing a rate redesign, a simpler method
would be to add a surcharge to the affected members.
MR. COTTEN reported one commissioner was interested in knowing who
would be responsible for setting the standards they deal with in
cost cause or cost repair. This bill leaves it unclear who is
responsible.
TAPE 99-7, SIDE B
Number 590
MR. COTTEN said the fiscal note the Commission endorsed is $91.8
thousand for a half-time engineering analyst. Not all the members
agreed that there was a high risk of litigation, but they allotted
$54,000 per year for three years for it.
SENATOR DONLEY responded that the bill says the APUC would have no
role in the one percent, so he didn't understand what the fiscal
notes are for.
MR. COTTEN asked how the actual cost would be placed on the rates.
SENATOR DONELY answered that the utilities would make that
assessment themselves and if it's under the cap that's in the bill,
the APUC would just accept those numbers.
MR. COTTEN replied that he understands that, but the Commission
approved the proposition that they would have to be involved in
establishing rates regardless of the wording. He asked if Senator
Donley meant for the surcharge to be added on to what the
Commission approves as a rate.
SENATOR DONLEY replied that is what he intends.
Number 561
SENATOR DONELY moved to delete "income" on page 1, line 9 and page
2, line 1 to "revenue". There were no objections and it was so
ordered.
MR. COTTEN commented additionally that the FY2000 budget for the
Commission proposed by the Governor includes some new positions and
they feel if that budget is approved, "they could get by with the
resources contained in that budget." This was an effort by the
staff and Commission to identify the cost a account for it. If the
budget were approved, the Commission could agree to a zero fiscal
note.
CHAIRMAN MACKIE asked if the Commission would have to review the
rate increases if they occur.
MR. COTTEN replied that he wasn't clear how that would work. The
Commission is still responsible for approving rates and he would
review the issue again knowing what Senator Donley's intent is.
CHAIRMAN MACKIE asked if he would have problems with the bill if
there was clarification of the intent in the bill.
MR. COTTEN replied that if it's as simple as Senator Donley thinks
it is, he couldn't imagine any expense for the Commission other
than the potential for litigation which he didn't think existed.
He said he would work with Senator Donley on clarifying the rate
issue.
SENATOR DONLEY proposed further clarifying language on page 1, line
14. He moved to replace the last sentence of the bill with, "This
Section only applies to undergrounding programs that do not exceed
five percent of the utilities' annual gross revenue." This makes
it really clear there is no cap on what they do for
"undergrounding" and limiting the APUC jurisdiction up to five
percent. There were no objections and it was so ordered.
SENATOR LEMAN wanted to see the distinction between distribution
versus generation and transmission revenues. This legislation
would make more sense to know what revenues come from distribution.
He thought they wanted to address situations like the ones on
Northern Lights Blvd. and Muldoon Rd.
SENATOR LEMAN suggested on line 9 after "utilities annual gross
revenue from" insert "distribution to". He said they are only
talking about electric lines now, but there are probably some
telephone cable that are not distribution lines. He wanted to
limit the revenues to only those that are associated with the
distribution instead of the generation and transmission.
SENATOR DONLEY agreed with that change saying that it clarifies his
intent.
SENATOR LEMAN moved that as a conceptual amendment.
SENATOR KELLY shared Senator Leman's concern, but hesitated because
he thought they had to differentiate between high voltage
transmission lines and all other distribution lines which are
basically low voltage and could include telephone, electric, and
cable. However, he thought the committee should figure out if they
really want high cost transmission lines buried. They don't know
how many transmission lines there are or how they are defined.
SENATOR LEMAN explained that there is a break point of kilovolts
and then it drops down and go to distribution.
SENATOR DONLEY said it's clear with Chugach's numbers, it would
take over 100 years to get to the point where they have to deal
with transmission lines even if they were covered by the bill. The
other issue is that there may be some perfectly good overhead lines
and they would want to wait for them to depreciate before doing
this. There is probably 150 years of flexibility here.
CHAIRMAN MACKIE asked for a committee substitute to be prepared for
further discussion with that language in it and adjourned the
meeting at 3:40 p.m.
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