Legislature(2019 - 2020)CAPITOL 17
02/20/2020 10:15 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| HB151 | |
| HB232 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 151 | TELECONFERENCED | |
| += | HB 232 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
HB 151-ELECTRIC RELIABILITY ORGANIZATIONS
[Contains discussion of SB 123.]
10:20:15 AM
CHAIR HOPKINS announced that the first order of business would
be HOUSE BILL NO. 151, "An Act relating to the regulation of
electric utilities and electric reliability organizations; and
providing for an effective date." [Before the committee,
adopted as a working draft during the House Special Committee on
Energy meeting on 2/11/20, was the proposed committee substitute
(CS) for HB 151, Version 31-LS0870\K, Klein, 2/10/20 ("Version
K").]
10:20:44 AM
REPRESENTATIVE LINCOLN moved to adopt the proposed committee
substitute (CS) for HB 151, Version 31-LS0870\E, Klein, 2/19/20,
as the working draft. There being no objection, Version E was
before the committee.
10:21:17 AM
JOE G. HARDENBROOK, Staff, Representative Grier Hopkins, Alaska
State Legislature, presented changes proposed under Version E of
HB 151, on behalf of the House Special Committee on Energy,
sponsor, on which Representative Hopkins serves as chair. He
paraphrased the written statement of the changes in Version E,
[included in members' packets], which read:
Page 1, line 4: Amends title to remove reference
to project preapproval for 'public utilities
interconnected with interconnected bulk electric
systems' and replaces with project preapproval for
'certain interconnected large energy facilities'.
Page 2, line 1: Changes 'electric utilities' to
'load-serving entities'.
Page 2, line 8: Conforming change related to
restructuring.
Page 2, line 12: Switches sections (d) and (e).
Prefaces new (d) with 'Notwithstanding the
requirements in (e)'.
Page 3, line 7: Changes 'an integrated resource
plan' to 'integrated resource plans'.
Page 3, line 19: Removes 'developing reliability
standards and' so that the provisions cited must be
part of all ERO duties.
Page 5, line 19: Expanded section heading from
'Rules' to 'Electric reliability organization rules;
approval.' Legislative Legal made this change for
conformity to the section.
Page 6, line 3: Changed 'provisions' to
'standards' to conform with style.
Page 6, lines 24, 25: Removed 'of an interconnected
electric energy transmission network' to avoid
redundancy. At the advice of Legislative Legal,
maintained first reference within subsection (b).
Page 7, lines 9, 13: Added 'all' before
'customers' to reflect the intent that integrated
resource planning address the needs of all customers
on a network.
Page 7, line 19: Removed requirement for RCA to
hold a hearing to approve an integrated resource plan
petition.
Page 7, line 20: Removed reference to rejecting a
petition.
Page 7, lines 23-25: Added ability for RCA to
reject a petition, but only for form and filing.
Page 8, line 7: Changed 'the' public utility to
'a' public utility.
Page 8, line 27-28: Moved 'in a cost-effective
manner' within the provision so it modifies the needs
of an entity and not the facility served by the
facility.
Page 9, line 5: Corrected error in previous
version; hydro projects licensed by FERC before Sept.
30, 2016, are exempt from the requirement for pre-
approval.
10:25:09 AM
REPRESENTATIVE SPOHNHOLZ asked about the change removing the
requirement on page 7, line 19 for the RCA to hold a hearing on
an integrated resource plan.
MR. HARDENBROOK said that he would research the "specific logic
behind that."
10:26:18 AM
ANTONY SCOTT, Commissioner, Regulatory Commission of Alaska
(RCA), Department of Commerce, Community & Economic Development,
declared that important reform was very close for building
institutions to create value for consumers and economic
development benefits. He reported that six years prior the
Alaska State Legislature had charged the RCA with providing
recommendations around Railbelt electric system reform. The RCA
held numerous public hearings, heard testimony, and ultimately
provided findings and recommendations back to the legislature.
He shared that there had been a process recommendation, which
suggested that the utilities voluntarily craft solutions among
themselves. He offered his belief that, although this had been
a difficult, long, and painful process, it had resulted in
material movement by the utilities and a first draft of a
memorandum of understanding (MOU) amongst themselves had been
signed in 2018.
MR. SCOTT related that after the recommendations had been
forwarded to the RCA, a workshop was convened for discussion and
the utilities recommended formation of a Railbelt Reliability
Council (RRC). He reported that the utilities wanted the RCA to
provide some oversight although the RCA did not have clear
statutory authority for these. The RCA issued language
"substantially cribbed from federal legislation which had
created the relationship between the Federal Energy Regulatory
Commission (FERC) and the North American Electric Reliability
Council (NAERC)" and was modified for Alaskan conditions. This
was put out for public comment.
MR. SCOTT acknowledged the proposed bill substantially reflected
this proposed language and would clarify the statutory
authority, which had then been revised in proposed SB 123. He
noted that SB 123 was consistent with "where we thought things
needed to go." He added that the RCA had endorsed the proposed
bill as the preferred vehicle to move forward with Railbelt
electric reform. The subsequent committee substitute, Version
K, had been reaffirmed as on track and improved. He declared
the unanimous support of the RCA and stated "this has been a
group effort. It began with you all. We did some work. The
utilities have done some work." He pointed out that once the
bill passed, the real work for forming the durable institutions
would take place. He declared that this was important because
of the reliability, explaining that utilities would build the
infrastructure to provide instantaneous supply with safe and
reliable service, when the demand was required.
MR. SCOTT noted that the capital expenditures in the electric
utility industry were materials and reported that almost half of
what was paid in 2018 by Railbelt consumers was for these
capital costs. He pointed out that currently there were six
different entities with each responsible to meet their own
needs. He stated that, as there could be better coordination
for decisions across the utilities, the proposed bill would
ensure coordination and would create a viable process for
establishing and enforcing the reliability standards.
MR. SCOTT pointed out that currently there was not a system of
fines and enforcement. He declared that electricity rates in
the Railbelt had a direct and material effect on power cost
equalization (PCE) payments in Rural Alaska as these were
"geared off of utility rates in Fairbanks and Anchorage and
Juneau." He pointed out that the proposed bill had been crafted
to be flexible, so it did not create disincentives for
efficiencies and interconnections in Rural Alaska and it created
an opportunity for future additional reliability organizations
without a request for statutory reforms. He reiterated that the
RCA was in support of the proposed bill.
10:35:52 AM
REPRESENTATIVE SPOHNHOLZ asked about the change to remove the
requirement for the RCA to hold hearings to approve an
integrated resource plan petition.
MR. SCOTT explained that filings came to the RCA and were
approved if everything appeared correct. He noted that a
hearing must be held, as a due process matter, if the RCA wanted
to deny or modify. He opined that the RCA should be able to
approve a filing after review if it conformed with filing
requirements. He expressed his concern with the shortened
timelines during a 45-day review period, but pointed out that
the RCA would write rules concerning the conduct of the ERO for
openness of meetings, retention of records, openness to the
public for input, etc. He added that the RCA would have an ex-
officio seat on the ERO, which allowed for non-voting feedback.
He declared that it was important for the RCA to have a
"backstop role so that, if things should go awry, we can go
ahead and say, 'this doesn't quite work.'"
REPRESENTATIVE SPOHNHOLZ asked for clarification that the RCA
was required to have at least one hearing if a request was to be
denied.
MR. SCOTT replied, "absolutely."
REPRESENTATIVE SPOHNHOLZ asked for more information about the
PCE being driven by expenditures on the Railbelt.
MR. SCOTT explained that PCE payments were formula driven, the
difference between local electricity rates of a PCE eligible
utility and the weighted average rate of Fairbanks, Anchorage,
and Juneau. He noted that the higher the weighted average rate,
the smaller the difference with the rural utility, and the
smaller the PCE payments. He offered that the proposed bill
would attempt to ensure that Railbelt rates would be as low as
possible by capturing efficiencies across utilities. He said
that this required a lot of conversation and negotiation and
that, without a structure that forced people to do this, some
opportunities would be by-passed.
10:41:30 AM
CHAIR HOPKINS asked whether a public comment period was
initiated when an IRP was submitted to the RCA.
MR. SCOTT said that was correct. He added that there were
requirements for public notice, with a minimum of 30 days. He
pointed out that any drafts and materials would be publicly
posted.
10:42:46 AM
REPRESENTATIVE LINCOLN asked whether there was an expectation
that the utilities would work in a cooperative way for a more
efficient use of capital.
MR. SCOTT replied, yes. He explained that the proposed bill
required that the reliability organization, consistent with yet
to be written regulations, would produce an integrated resource
plan to be used across utilities for supply and demand
resources, transmission resources, and battery resources to meet
load in a reliable way. He stated that the integrated resource
plan involved a forecast of demand, usually 10 - 20 years,
because any new construction took a long time. The plan would
also review the most reliable and cost-effective way to meet the
demand going forward. The bill would also create a process for
large projects to first come to the RCA for pre-approval. He
stated that projects that were consistent with the most recently
approved integrated resource plan were presumed to be necessary
so there would be a process to vet these large project additions
to the Railbelt to ensure efficiency. Generally, these projects
were presumed to be necessary and project pre-approval would
most often not require a hearing unless something was found to
have "gone seriously awry." He noted that a large project may
be pre-approved outside of the resource planning process as
sometimes needs arise that did not sync up with the integrated
resource planning process. He pointed out that the pre-approval
process was currently necessary given the legal landscape. He
referenced the recent rate case for Municipal Light & Power
plant 2A which had initially been found by the RCA to be prudent
and allowable to be included in rates; however, that decision by
the RCA was appealed to superior court where it had been
determined that the RCA needed to review whether the overall
planning had been prudent. This involved consideration of the
various alternatives, which he labeled "a veritable gumbo of
items," that had not been adequately addressed in totality. He
emphasized that this was exactly the process for an integrated
resource plan. This would minimize the risk for a project being
found imprudent with a portion of costs not being included in
rates. He opined that the proposed bill rationalized the
process and addressed a recent judicial decision regarding a
current need.
10:49:17 AM
REPRESENTATIVE LINCOLN asked whether there had been a formal
assessment on the system for generation capacity versus need.
MR. SCOTT explained that when the RCA first made its findings
and recommendations to the legislature in 2015, it was found
that there were necessary improvements for the capital spend on
the system. He pointed out that in the last 10 years, although
there had been a suite of generational asset additions, if there
had been tighter coordination, "probably we could have done
better." He stated that this assessment was very high level and
was included in the RCA findings to the legislature. He noted
that load, in general, in the Railbelt had been in decline.
While energy efficiency was increasing on a per customer basis,
energy consumption was declining on a per customer basis in the
Railbelt, at a rate faster than the decline in the State of
Alaska which was declining faster than the rest of the country.
He pointed out that the projections for demand had probably
planned for more load than was needed. He stated that the
integrated planning process would allow for a lot of peer review
for the demand projections.
10:52:49 AM
REPRESENTATIVE FIELDS asked for any plans by the RCA for plant
retirements to bring the generation more in line with the actual
load.
MR. SCOTT explained that the RCA only found out about these
planned retirements based on filings from the utilities. He
said that this was best addressed to the utilities and that the
RCA did not exercise any authority over this.
10:53:45 AM
REPRESENTATIVE RAUSCHER asked whether this would guarantee
successful outcomes.
MR. SCOTT replied that it did not guarantee successful outcomes,
noting that "there's not much that does that" but he added that
the process would be helpful, and he offered his belief that the
Railbelt utilities would see value in this arrangement.
10:54:47 AM
REPRESENTATIVE LINCOLN asked whether there was any priority or
preference for renewable energy.
MR. SCOTT reported that there had not yet been an integrated
resource plan. He did not see any priority for non-fossil
options compared to conventional generation although it did not
rule out this preference going forward. He reminded that, as
the energy load per customer in the Railbelt had been in decline
since 2008, there was not currently any need for a lot of
additional generation resources to meet customer demand. He
pointed out that there would need to be a case made for why
additional generation would be needed. He suggested that the
legislature be open and flexible, and not be prescriptive in the
planning process. The structure allowed for legislative input
going forward as the planning process would need to be renewed
every two to three years and new priorities could be introduced
for consideration. He referenced an earlier question by
Representative Spohnholz for the change of phrase from "leads to
cost" to "greatest value." He explained that this would ensure
that planning criteria were indeed flexible so that value could
appropriately weigh the trade offs between reliability and
minimum cost, as well as include other potential values. He
stated that cost may not be "merely pecuniary in terms of
showing on a customers bill, but there might be environmental
cost that people are concerned about." He stated that use of
the phrase "greatest value" was more encompassing for a wider
range of potential values.
10:59:11 AM
REPRESENTATIVE SPOHNHOLZ expressed a concern for the process
through which the energy production capacity may have just been
overbuilt, at a time when the load was decreasing, and the need
to reduce the carbon footprint and produce lower cost and
predictable energy had been identified. She questioned whether
there would be the opportunity to add more renewable energy
capacity along the Railbelt during the foreseeable future.
MR. SCOTT spoke about a recent solar installation which was
economically viable and justified on the basis for offsetting
the variable cost for production. He pointed out that this
system was competitive, reporting that the costs for renewable
energy resources were rapidly declining. He noted that, to some
degree, those resources could be accommodated within the system.
He declared that renewable resources had a harder time being
base loaded for firm capacity needs, therefore the conventional
resource additions were necessary. He reported that the rapid
evolution of battery technology with the dropping cost of
batteries further extended the ability of renewables to meet the
load demand. He said there was a social set of values for
trading off reliable energy and the willingness to pay for it
versus the cost and environmental attributes.
11:04:39 AM
REPRESENTATIVE FIELDS asked how much the IRP could push
retirement of some older generation assets that seemed to drive
up the consumer costs.
MR. SCOTT reported that the whole system was reviewed, noting
that retirements "are a little bit tricky, though." He added
that, as reliability was so important and there were not a lot
of interconnected utilities to draw upon if there was a problem,
it was "nice to have spares in the backyard." He pointed out
that, as those had mostly been paid for, the ongoing operational
cost tended to be low.
11:06:07 AM
REPRESENTATIVE LINCOLN reflected on the excess capacity in the
system and asked whether there were any opportunities to provide
power for adjacent communities. He asked whether the system
could grow.
MR. SCOTT said that he was not aware of the viability of
extending the Railbelt system to include communities not
currently interconnected as this would require new transmission
lines, a difficult and expensive process requiring a long lead
time and a lot of planning.
REPRESENTATIVE LINCOLN asked how the new organizational
structure would impact the opportunity for growth in other
areas.
MR. SCOTT offered his belief that there was not a direct impact,
although there was a greater likelihood for the opportunities to
be captured and critically evaluated. He said that, as the
utilities worked hard to minimize operational costs, personnel
were kept at a minimum and the expertise was "pretty thin."
With this new organization, it would help pool the expertise and
the opportunities could be better identified and evaluated.
11:10:11 AM
JULIE ESTEY, Director of External Affairs, Matanuska Electric
Association (MEA), said that she represented the organizational
development team consisting of one member of each of the six
utilities, working in a parallel process to develop the Railbelt
Reliability Council which, if the proposed bill passed, would
apply to become the Electric Reliability Organization (ERO)
referenced in the proposed bill. She acknowledged that the
utilities working together had been a very critical step with
the goal to expand to include a broader range of stakeholders.
She said that there had been an impressive amount of
collaboration, involvement, and transparency among all the
stakeholders. She reported that the feedback on the proposed
bills, HB 151 and SB 123, indicated that the council had been
heard and properly challenged when necessary, with the feedback
incorporated as appropriate. She declared support of the
proposed committee substitute, noting that the council had
provided six different points to the committee on February 12,
which were all satisfactorily handled through the committee
substitute or development of regulations. She referenced an
earlier meeting in the Senate when a priority of ensuring the
exemptions provided in statute for the Bradley Lake project were
raised, and she opined that was being handled with an effective
resolution. She declared that the utilities council was "ready
to make this happen." She shared that the utilities were
committed to "doing things in a different way and that
commitment represents a big moment for the utilities."
11:15:37 AM
BRIAN HICKEY, Chief Operating Officer, Chugiak Electric
Association, expressed support for the legislation and the
proposed committee substitute.
11:16:22 AM
JEFF WARNER, Strategic Coordinator, Municipal Light and Power,
testified in support of the process.
11:16:55 AM
MS. ESTEY shared an update to the process for formation of the
Railbelt Reliability Council, being conducted in a parallel
path. She relayed that a memorandum of understanding (MOU) had
been signed on December 18 which triggered a process by which
the organizational development team was working to set up an
implementation committee that would create all the documents and
"stand up the Railbelt Reliability Council." She added that
public notice for applications of the non-utility seats had been
published and 16 applications had been received: 5 applications
for the 2 independent power producers' seats, 10 applications
for the 2 independent non-affiliated seats, and 1 application
for the single consumer advocacy seat. The independent power
producer applications had been sent to the Alaska Independent
Power Producer Association with a request to provide the
designees for the 2 seats by March 20. Once these seats had
been established, the rest of the process would begin, with an
independent firm retained to verify qualifications and form a
subcommittee to select the consumer advocacy group and
subsequently form another subcommittee from that group to select
the 2 unaffiliated seats. She expressed the desire for that to
be implemented by the end of May.
11:19:03 AM
CHRIS ROSE, Executive Director, Renewable Energy Alaska Project
(REAP), testified in support of the proposed legislation
declaring that it was necessary to have a collective way to work
together. He pointed out that, as the Railbelt utilities had
spent $1.5 billion on new generation, it should be for the most
economic means. He stated that the integrated resource planning
process was key to looking at the balance of supply and demand
for transmission versus generation and renewables versus fossil.
He reported that this effort had been carried on for the past 30
years and for the last decade REAP had been involved with the
Alaska Energy Authority (AEA) regional integrated resource
planning (IRP) process. He relayed that, as there was not an
ERO, he had questioned who would execute the IRP plan. He
pointed out that REAP was a renewables and efficiency advocacy
group pushing the idea since 2004 that these were good for many
reasons. He pointed out that in the past 10 years, the cost of
renewable energy had decreased significantly, with the cost of
wind decreased by 70 percent and the cost of solar decreased by
89 percent. He reported that the Railbelt was more than 80
percent reliant on natural gas, even though the Railbelt
utilities paid rates almost three times that of the Lower 48,
even as natural gas was produced nearby in Cook Inlet. This was
subsidized by the State of Alaska. He reported that 80 percent
of the Cook Inlet natural gas had gone to two anchor users that
no longer existed, the Agrium Fertilizer plant and the LNG
plant. He shared the concern that natural gas prices could go
even higher as this was such a small market, even as new
generation projects had just been built which required a gas
supply. He shared some of the history for prior legislation.
He offered a suggestion for more independent system operator
members on the board. He declared this to be a "great step
forward" with the need for a more diversified grid, even as
there were a lot of risks in the future and he spoke of a future
carbon tax. He offered his belief that this legislation would
remove some of the barriers for renewable energy as, instead of
six different interconnection standards for independent power
producers in the Railbelt, there would be one set of standards
which would make it a consistent and transparent process for
connection to the grid. He added that the legislation could
also lead toward a consistent, transparent cost of transmission
tariffs.
REPRESENTATIVE LINCOLN asked how the state was subsidizing
natural gas for the Railbelt.
MR. ROSE replied that there had been production subsidies and
incentives in Cook Inlet to ensure that someone would produce
gas, and the Railbelt was the only current off taker.
11:27:58 AM
KIRK WARREN, Director, Engineering and Energy Development,
Alaska Energy Authority (AEA), Department of Commerce, Community
& Economic Development, testified that AEA looked at the
legislation as an asset owner of Bradley Lake, the largest hydro
facility in the State of Alaska and the Alaska intertie, the
interconnection from the Southcentral utilities to Golden Valley
Electric Association in Fairbanks. He stated that the proposed
legislation did not materially affect the operation of those
assets. As a state energy office, AEA was in support of the
proposed legislation.
11:30:05 AM
CHAIR HOPKINS opened public testimony on HB 151. After
ascertaining that there was no one who wished to testify at that
time, he announced that he would leave public testimony open.
CHAIR HOPKINS announced that HB 151 was held over.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2020-02-20 - HB 151 Summary of Changes K to Workdraft E.pdf |
HENE 2/20/2020 10:15:00 AM |
HB 151 |
| 2020-02-20 - HB 151 version E.pdf |
HENE 2/20/2020 10:15:00 AM |
HB 151 |
| 2020-02-20 - HB 232 Alaska Miners Association Letter of Support.pdf |
HENE 2/20/2020 10:15:00 AM HL&C 3/2/2020 3:15:00 PM |
HB 232 |
| 2020-02-20 - HB 232 Interior Gas Utility Letter of Support.pdf |
HENE 2/20/2020 10:15:00 AM HL&C 3/2/2020 3:15:00 PM |
HB 232 |
| 2020-02-20 - HB 232 Version S.pdf |
HENE 2/20/2020 10:15:00 AM HL&C 3/2/2020 3:15:00 PM |
HB 232 |
| 2020-02-20 - HB 232 Usibelli and Aurora Energy Letter of Support.pdf |
HENE 2/20/2020 10:15:00 AM HL&C 3/2/2020 3:15:00 PM |
HB 232 |