Legislature(2007 - 2008)HOUSE FINANCE 519
07/24/2008 09:00 AM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4005 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB4005 | TELECONFERENCED | |
| *+ | HB4006 | TELECONFERENCED | |
HOUSE BILL NO. 4005
An Act amending the power cost equalization program,
repealing the exclusion from eligibility for power cost
equalization for certain power projects that take their
power from hydroelectric facilities, and amending the
definition of 'eligible electric utility' as it applies
to the power cost equalization program and the grant
program for small power projects for utility
improvements; and providing for an effective date.
9:08:48 AM
SARAH FISHER-GOAD, DEPUTY DIRECTOR OF OPERATIONS, ALASKA
ENERGY AUTHORITY (AEA), DEPARTMENT OF COMMERCE, COMMUNITY
AND ECONOMIC DEVELOPMENT, provided an overview of the Power
Cost Equalization (PCE) program and background information
for HB 4005. The PCE program was established in 1985 as an
economic assistance program to address the high cost of
energy in rural areas that were not receiving the benefits
of the larger infrastructure projects the state was building
at that time. Two programs preceded the PCE program: the
Power Production Assistance Program, and the Power Cost
Assistance Program. The first was a one-year program in 1980
and the other ran for about five years before it was
replaced by the PCE program in 1985.
9:11:40 AM
Ms. Fisher-Goad explained that in order for an electric
utility to be eligible for PCE reimbursement, it had to
provide electric service for compensation and had to have
provided residential consumption of less than 7,500 Megawatt
Hours (MWH) during calendar year 1983, or if serving more
than one community, less than 15,000 MWH. Additionally, the
utility had to have produced more than 75 percent of its
electricity in 1984 using diesel generators.
Ms. Fisher-Goad added that a residential customer is
eligible for PCE reimbursement for up to 500 KWH per month;
community facilities are also eligible for PCE subsidies up
to 70 kilowatt hours (KWH) per month multiplied by the
community population.
Ms. Fisher Goad explained that the administration of the
program is carried out by two agencies. The Regulatory
Commission of Alaska (RCA) determines the PCE level for each
community based on fuel expenses, including purchase price
and transportation, along with non-fuel expenses, including
overhead costs of the utility such as salaries, insurance,
taxes, interest on debt service, and other costs. The
second agency that administers the program is AEA.
9:13:29 AM
Representative Gara noted that the Committee has raised
questions regarding whether a utility would be eligible for
PCE if it generated power from sources other than diesel,
such as wind power. He asked for clarification regarding the
eligibility standards for utilities with multiple power
sources.
Ms. Fisher-Goad explained that the two components of the PCE
reimbursements are fuel and non-fuel costs. At the program's
inception, the eligibility of a utility or community was
determined by the amount of electricity generated and how
that was generated in 1984. Cordova is an example of a
utility that has moved from diesel toward hydro to generate
electricity and has remained eligible for PCE. Cordova's
power costs have changed to incorporate more stable fuel
costs, but also include increased debt service costs. A
utility is still eligible for PCE as its mix of fuel and
non-fuel costs change if its other qualifications remain the
same.
9:15:25 AM
Representative Gara reiterated his original concern that a
community would have no incentive to switch to alternative
energy power generation such as hydro or wind if only diesel
is eligible for PCE. For example, if a community such as
Cordova were looking to increase its hydro component, would
it remain eligible for PCE regardless of the source of its
power, as long as the costs of the power met the PCE
program's eligibility criteria?
Ms. Fisher-Goad responded that she believed a utility would
remain eligible in such a circumstance. She noted that
representatives of the Regulatory Commission of Alaska were
standing by to answer questions of that nature, and she
offered to meet later with Representative Gara to discuss
some of the alternative energy sources that are eligible for
PCE.
Representative Gara elaborated that his fundamental question
is whether a community such as Kotzebue, faced with the need
to expand its power production, would choose to install
additional diesel instead of wind power because only the
diesel-produced power would qualify for PCE subsidies. He
suggested the Committee would want to address the issue if
the program has an inherent incentive to choose diesel over
other power sources, although he assumed that was not the
case.
Ms. Fisher-Goad affirmed that she believed Representative
Gara's assumption was correct. She noted that PCE does not
affect all electric power generated in rural Alaska. A
utility, in making decisions regarding the installation of
new power sources, would be looking at minimizing its
overall generation costs, not just the costs eligible for
PCE credits.
9:17:57 AM
Vice-Chair Stoltze asked whether, in the original rationale
for the PCE program paring off the major power projects of
the urban areas with the PCE program for rural communities,
the Susitna Hydro project was considered a done deal.
Ms. Fisher-Goad replied that for an answer she would have to
go back and ask the people who were involved in the program
at that time. While the Susitna project may have been a
factor in the deliberations, the utilities that were
specifically determined ineligible for the PCE program were
the Four-Dam Pool projects. She will check further and get
back to Representative Gara with more information.
Vice-Chair Stoltze noted that there are various people still
available, such as Mr. Dawson and Mr. Markley, who were
involved originally and could shed light on the role the
Susitna Hydro project played in the crafting of the PCE
program.
9:20:06 AM
Representative Kelly agreed that the Susitna project
preceded the Four-Dam Pool and was the big engine driving
the entire concept of a hydropower utility base for the
urban areas. When that project fell by the wayside, leftover
funds were reallocated to the Bradley Lake project and other
components of the Four-Dam Pool.
9:21:19 AM
Ms. Fisher-Goad returned to the subject of PCE program
administration. The AEA administers the PCE program based
upon fiscal appropriations by the Legislature. The agency
works with participating utilities to evaluate their monthly
reports, determining the level of reimbursements and
distributing them. The AEA also evaluates the eligibility of
residential customers.
Ms. Fisher-Goad explained that the RCA's role is to set the
PCE level by calculating the lesser of the rate charged by
the utility or eligible power costs based upon a formula.
That formula is 95 percent of the electricity rates between
a floor of 12 cents and a ceiling of 52.5 cents. The floor
itself is determined by a formula that is the greater of
either 12 cents, or the current weighted average residential
rates of Anchorage, Fairbanks and Juneau. The current floor
for FY09 is 12.83 cents per KWH. Costs below the floor of
12.83 cents or above the ceiling of 52.5 cents per KWH are
not eligible for reimbursement by PCE. The current maximum
PCE level based upon these limits is 37.69 cents per KWH.
There are currently 41 communities are that are at that
maximum level, and many more will reach the maximum as
utilities make their fall fuel purchases at much higher
prices. There are approximately 180 communities in the
program, and although she doesn't have the exact number, she
expects the number of communities reaching the maximum PCE
reimbursement level to double this fiscal year if the
formula remains the same. The RCA provides the AEA that base
rate calculation annually. The FY09 calculation is based on
the utilities' 2007 annual reports, which are calendar year
reports. FY08 was the first year the urban weighted average
of the floor exceeded 12 cents per KWH. She provided a chart
showing the base rate escalation occurring over the past
seven years (copy on file.) In 2008, the rate was 12.87
cents and in 2009, 12.83 cents. The table also shows the
base rate calculations derived from the weighted average of
the five utilities that service Anchorage, Fairbanks and
Juneau.
9:24:25 AM
Ms. Fisher-Goad noted that many questions have come up
recently regarding how the PCE floor would be impacted after
AEL&P in Juneau dramatically raised their rates this spring
on a temporary emergency basis after losing their
transmission lines to an avalanche. She explained that two
relevant factors minimizing that impact are that the rates
are weighted so that AEL&P represents only approximately 13
percent of that calculation, and that the calculations are
based on a calendar year with a lag time, not affecting the
PCE floor until FY10.
Ms. Fisher-Goad reviewed the program eligibility
requirements. An eligible residential customer may receive
credit up to the first 500 KWH consumed each month. She
handed out a table (on p. 2 of Alaska Energy Authority PCE
Program Overview; copy attached) to give a sample of
residential rates and the associated PCE rates that apply.
For example, Lime Village and Chuathbaluk are both at the
maximum PCE level, but their effective rates - what they are
paying after the PCE credits - are different. This chart
assumes that residents are at the 500 KWH per month maximum;
if they exceed that level they would be paying the higher
pre-PCE rate for all additional KWH.
9:25:57 AM
Representative Gara inquired whether there are any
communities where heating relies primarily on electricity,
so that PCE subsidies are being used to provide heat.
Ms. Fisher-Goad did not know the answer, but speculated that
there may be some communities in Southeast Alaska that are
hydropower based and use electricity for heating. Even in
Juneau where electric rates are low, only about 20% of the
residents use electricity as their primary heat source.
Heating oil is still cheaper than electricity in most
communities.
9:27:24 AM
Ms. Fisher-Goad pointed out that in addition to individuals
and utilities, the program does include community
facilities, with their reimbursement cap set at 70 KWH per
month multiplied by the community population. Examples are
washeterias, water pump stations, street lights, community
centers, city and tribal council offices, and clinics. In
FY07, there were about 22 communities reaching the KWH
maximum for community facilities. State, federal, commercial
and school facilities are not eligible for PCE credit. About
one-third of the KWH used in rural communities is eligible,
while these institutional customers representing the other
two-thirds are not eligible.
Ms. Fisher-Goad addressed the PCE Endowment Fund, which was
created and endowed in FY01 from the proceeds of the
Constitutional Budget Reserve and the Four-Dam Pool project
sale proceeds. The fund is managed by the Department of
Revenue for the Alaska Energy Authority. Its assets are
invested with the objective of earning at least seven
percent over the long term. In FY07 the legislature made a
supplemental appropriation of $182 million to the fund. She
referenced the table included on page 3 of the PCE Program
Overview handout showing performance of the fund on an
annual basis. For FY10 the three-year monthly average market
value calculation projects a seven percent return, or
approximately $21 million. The three-year monthly average
market value of the fund is currently $300 million.
9:29:58 AM
Representative Joule asked for confirmation of his
understanding that eligible community facilities usually
include clinics, because he has heard that some clinics have
been excluded from the PCE program.
Ms. Fisher-Goad explained that, in order to be eligible
according to statutes, a clinic's operating costs must not
to be paid by state, federal or private sources. A clinic's
eligibility depends on who owns the clinic and the source of
its funding.
Representative Joule asked for a list of the clinics
included in the program. Ms. Fisher-Goad offered to find
and provide that information.
9:31:39 AM
Representative Gara asked for clarification on how the PCE
funds are distributed to its three classes of beneficiaries:
residential customers, community facilities and utilities.
Ms. Fisher-Goad replied that utilities provide information
on their pre-PCE rates to the RCA, which then sets their PCE
rates. Utilities know on a monthly basis how much
electricity their customers have used and are to be billed
for. When the utilities send their bills out to the
residential customers, those customers know how much they
are paying out of their own pockets and how much the PCE is
subsidizing on their behalf. Utilities send the aggregate
data each month to the AEA, which then reimburses the
utilities based on the level established by the RCA. There
are two full-time staff at the AEA who work with the
utilities to make those calculations for reimbursements. The
PCE payments are not advanced funding but, rather
reimbursements of the payments already made by the
utilities.
Representative Gara clarified that all PCE reimbursement
money goes straight to the utilities in a regulated fashion
through the RCA.
9:34:28 AM
Representative Thomas asked whether the Four-Dam Pool
communities are currently eligible for the PCE program. Ms.
Fisher-Goad replied that they were not.
Representative Thomas noted that the legislature had added
$182 million to the PCE program in 2006 or 2007, without
realizing that the funds would be split 50/50 between fuel
expenses and non-fuel expenses. He asked whether the RCA had
increased their non-fuel overhead expenses because more
money was put into the fund, since they already had overhead
costs fully funded before this increase.
Ms. Fisher-Goad responded that RCA could best address that
question. She clarified that PCE endowment capitalization
provides a funding source but, is independent of the
calculation for power costs, which include the components of
fuel and non-fuel expenses. She noted that the RCA could
provide further information on how they are calculating
those costs.
9:36:16 AM
Representative Thomas mentioned that he had called Senator
Al Adams after learning that 50 percent of the PCE funds
were to be directed to non-fuel costs, and Senator Adams had
expressed surprise that not all the funds were going to fuel
costs but, were available for overhead as well.
Representative Thomas voiced concern that the additional
endowment monies, increasing from $9 million to $28 million,
had accidentally resulted in increasing the overhead of the
program because of the 50/50 split.
Ms. Fisher-Goad commented that the endowment fund functions
as a steady funding source for the PCE and has no impact on
how the PCE fuel and non-fuel rates are set. The primary
factor that affects PCE rates are increases in fuel costs.
Overall, the fuel costs are rapidly rising and increasingly
comprise a greater percentage of the PCE calculation than in
the past, when oil was at $7 a barrel and diesel cost about
$1 per gallon in rural communities. Fuel costs were then
rather small compared with other components of a utility's
expenses. She stressed that the capitalization of the
endowment did not affect calculations of the costs of the
program.
9:38:46 AM
Representative Kelly wondered which years the two
predecessor programs to the PCE program were initiated.
Ms. Fisher-Goad responded that she believed one started in
1980 and was a one-year program and the other probably began
the following year and was a five-year program. She will get
the exact information from the Regulatory Commission of
Alaska and provide it to the Committee later.
9:40:46 AM
JAY LIVEY, STAFF, SENATOR LYMAN HOFFMAN, expressed his
intention to talk about why HB 4005 was introduced, go
through the bill, and explain the three major changes to the
PCE program included in the bill. Many Alaskans are
expressing concern that fuel costs are rising and may soon
escalate up to $10 per gallon in rural communities. The
purpose of this bill is to provide some equitability in the
price of electricity around the state and provide relief to
Alaskans for the high price of their fuel. This particular
legislation addresses the electricity component of energy
costs, and another bill will address the heating component.
The first major change included in this bill will allow more
Alaskans to participate in the PCE program by changing the
definition of an eligible utility. This legislation would
use 120 percent of the weighted mean costs of energy in
Anchorage, Fairbanks and Juneau as the floor and pay any
costs above that level. The rates would no longer be linked
to what kind of power the utility produced in 1984 or the
percentage produced by oil. The second major change is an
increase in the maximum rate for the PCE. Currently the
maximum rate is 52 cents per KWH, but many consumers will
exceed that maximum rate this coming winter. This bill would
raise the maximum rate to $2 per gallon, which should
provide a cushion if fuel prices continue to increase.
9:43:30 AM
Representative Gara asked for clarification of the 52 cents
per KWH rate limit, since the handout notes 37 cents as the
maximum subsidy.
Mr. Livey responded that 37 cents represents the maximum
qualifying electricity rate of 52 cents - more accurately,
52.5 cents - minus the floor rate of 12 cents that is
subsidized by PCE. By current statute, the portion of the
individual's rate below 12 cents and above 52.5 cents does
not qualify for subsidy by the state, but this bill would
raise the cap to two dollars. There was additional
discussion between Representative Gara and Mr. Livey to
clarify this formula.
9:45:48 AM
DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, referred
to Figure 1 of the handout, Discussion of HB4005 - Power
Cost Equalization (copy attached), showing the customer cost
of electricity. The horizontal line across the bottom of the
graph represents the amount above which the PCE kicks in
(.1283 per KWH, representing the weighted average costs in
Anchorage, Fairbanks and Juneau). The PCE subsidizes 95
percent of the electricity costs above this floor but,
below the ceiling of 52.5 cents per KWH. Consumers pay 100
percent of the costs above the ceiling of 52.5 cents per
KWH.
9:49:30 AM
Mr. Teal pointed to Figure 2 of the handout showing customer
costs compared with the subsidy amounts. He cited the
example of rates in Wainwright compared with those in Lime
Village. Customer costs escalate rapidly as electricity
rates exceed the 52.5 cents per KWH PCE ceiling. Right now,
there are 41 utilities with electricity costs above 52.5
cents per KWH. As fuel is delivered this summer to the rural
communities and electricity rates are established for the
coming winter, expectations are that power costs will rise
about 50 percent throughout rural Alaska. When that happens,
there will be an estimated 148 rural utilities above the
ceiling of the 161 utilities in the program. As higher rates
kick in this winter, the costs to the customers will
accelerate rapidly. The rural costs will typically be much
higher than urban rates with the average utility rate about
65 cents and the customer rate about 30 cents, even for the
first 500 KWH qualifying for individual resident
reimbursement. Above the first 500 KWH, the customer will
pay the full costs of that power.
9:51:13 AM
Representative Gara asked what is projected for the rates
rural residents will have to pay if PCE is changed under the
proposed legislation versus if it is not.
Mr. Teal answered by giving an example from a table,
comparing a current typical cost in Cordova of $134, which
is projected to rise to $199(copy on file.) These figures
will be different for every utility and every community.
They are also dependent on what happens to fuel prices.
Representative Gara asked for clarification of the
percentage changed.
9:52:57 AM
Mr. Teal referenced the handout, Figure 3. In that chart,
all factors are constant except for fuel costs, which are
projected at various increased rates. He used a specific
example to show how he derived the projected costs of the
program and the impact on consumers.
9:54:30 AM
Mr. Livey reiterated that the bill would raise the PCE
ceiling from 52.5 cents to $2, providing greatly expanded
relief for rate payers. However, the current maximum of 500
KWH per month for reimbursement of each eligible residential
customer does not necessarily fit the pattern of how energy
is actually used in rural areas. The new legislation would
change that limit to 700 KWH per month in the six winter
months and 300 KWH per month in the summer months. The
customer is still allowed an annual subsidy of 6,000 KWH,
but, the distribution would be more closely aligned with
most rural Alaskan lifestyles.
Mr. Livey added that the current PCE program allows
community facilities to receive subsidies. Examples of
eligible facilities include street lights, dump stations and
washeterias. The sponsor has proposed that eligibility of
community facilities be limited to those in communities no
larger than 10,000 people.
9:56:56 AM
Representative Thomas noted that he didn't see any
incentives to get off the diesel power generation and onto
renewable energy in this bill. He recommended that language
be inserted in this legislation to create incentives for
that switch. He has been involved this past regular session
in HB 152 (Renewable Energy Projects). He is concerned that
villages are continuing to pay high costs for diesel and
would like to see those villages that are able to switch, do
so.
Mr. Livey agreed, adding that there are other mechanisms for
the utilities to receive funding for developing alternative
energy sources. He noted that that the primary purpose of
this bill is to serve as an energy relief act. He foresees
growing problems over the next few years with the cost of
energy for people heating with oil, but he doesn't regard
this legislation as the final determination on legislative
energy policy. Utilities need to switch off of diesel fuel,
but those changes will take time. Other solutions are likely
to be proposed over the next few years.
Representative Thomas commented that this is intended to be
an energy special session. He wanted to see language
incorporated in the legislation being considered here to
encourage state residents to get off diesel. It could be as
much as ten years from the inception of a new energy project
to its coming on line. The largest hurdle is getting permits
from the government agencies. We need to tell the agencies
that we can't wait ten years for their decisions, but need
them to process the permits in a matter of a few months.
10:00:06 AM
Co-Chair Meyer inquired what the average KWH usage is for a
residence in rural Alaska.
Mr. Livey replied that the average is around 390 KWH per
month, but he did not know how usage varied from that
average between summer and winter months.
Co-Chair Meyer asked for the total cost of the fiscal notes
for this bill, incorporating the proposed major program
changes.
Mr. Teal replied that the estimated total cost is
approximately $90 million. The current FY09 funding level
is $28 million, but the anticipated costs are closer to $33
million. Co-Chair Meyer pointed out that the projected
costs are almost three times the current rate.
10:02:02 AM
Representative Joule inquired what the average KWH use is in
rural areas, and in the Anchorage/Mat-Su area. Mr. Teal
replied that the state average is 700 KWH per month and the
national average is approximately the 750 KWH.
Representative Joule mentioned that the Power Cost
Equalization Program's cap is effectively putting a cap on
how "equal" state residents will be.
Co-Chair Meyer said he assumed that most of the homes in
rural Alaska don't have big energy-consuming appliances,
such as washers, dryers, refrigerators and the like.
Representative Joule responded that rural Alaska has come a
long way, and the use of freezers in particular is
widespread, consuming a lot of electricity in the summer
months. Flat screen TV's are also common. However, people
are getting really conscious of energy use. He has found
himself pulling plugs out of the receptacles, just because
he knew his personal usage was very high, about 1,200 KWH
per month when all five of his children were home. He still
pays about $250 per month, in Kotzebue.
Co-Chair Meyer followed up saying he was under the
impression that smaller villages frequently have community-
centered laundry facilities. Representative Joule agreed.
10:05:24 AM
Representative Kelly noted that utilities are facing a
dramatic increase in cost as the price of diesel rises. He
asked whether AEA had tried to address this problem by
capturing the rate of increase, moving up the curve on the
cost graph, because the averages used for the program are
lagging the increase in current energy costs.
Mr. Teal answered that they had not changed the timing on
the computation of the base.
Representative Kelly further asked what would happen if the
dramatic increase were recognized, since the steepness of
the curve and the lag time is a widely recognized problem.
Mr. Teal did not think the curve would be changed
significantly because it is based on prices in Anchorage,
where natural gas costs have not risen very fast, and
Juneau, where hydropower costs have been relatively stable.
According to Ms. Fisher-Goad's computations, the urban base
actually fell in 2009 from 12.87 cents last year to 12.83.
Even back when oil was cheap in 2003 and 2004, the base was
about 11 cents. The urban base is not affected nearly so
much as the cost of fuel in PCE communities when the price
of oil goes up.
10:08:06 AM
Representative Gara stated he needed to understand better
how much it costs to heat homes in rural areas. He had heard
earlier this year from Representative Edgmon that he
typically spent $2,000 per month to heat in Dillingham,
which flabbergasted him. He wondered how much typical costs
for heating rural homes would be if the support programs are
not changed this year, assuming $9 a gallon diesel costs,
compared with the typical costs if the program is changed by
the legislature as proposed. The discussion will be more
realistic if the Committee can gain a better understanding
of conditions in the rural communities.
Mr. Teal answered that the PCE doesn't address the heating
costs. There will be another bill considered tomorrow that
will address heating costs, and at that time the typical
costs of both heating and electricity use can be addressed.
Representative Gara clarified that he meant to ask about
electricity costs, not heating costs.
Co-Chair Meyer noted that the subject today is primarily
electrical costs, tomorrow will be primarily heating, and
then on Sunday the two will be combined for public
testimony.
10:10:16 AM
Representative Thomas related his commercial fishing
experience this year having to buy extra fuel to run his
fish into Juneau, where he could get 25 cents per pound more
because of lower energy costs for freezing, instead of
selling them in Hoonah, where the costs are significantly
higher, and it's even worse in some other communities such
as Pelican. The impacts of higher energy are not only
residential, but also affect the businesses such as fish
processors in rural Alaska.
Co-Chair Meyer asked to what degree wind power was helping
to bring down electricity costs in villages such as
Kotzebue.
MEER KOHLER, PRESIDENT CEO, ALASKA VILLAGE ELECTRIC
COOPERATIVE, in the audience, responded that AVC now
includes six villages that use wind power to generate
electricity.
Representative Hawker asked what the rationale was for
excluding from the proposed legislation all communities with
a population greater than 10,000.
Mr. Livey answered that the cost of the program has several
components. One of the components of the increase in cost is
that new utilities and their customers are now eligible.
Some of those additional individuals are living in large
communities which already have a large tax base, revenue
sharing, or some other means of providing for common
facilities.
Representative Hawker asked which communities would be
affected by this.
Mr. Livey said his understanding was that the largest
community to qualify would be Fairbanks.
Representative Hawker asked for clarification that the Power
Cost Equalization program would now include Fairbanks, which
was not included up to this point.
Mr. Livey confirmed that was the case and explained that the
base is now calculated at about 15 cents per KWH, while
Fairbanks power costs approximately 18 or 19 cents. PCE now
also includes Kodiak utilities and Golden Valley, which were
not included before, but whose power costs are above the 15
cent limit. The program is now basing eligibility not on
geography or what kind of power was generated in 1983, but
on price.
Representative Hawker asked if historic criteria had been
eliminated. Mr. Lively confirmed that was the case.
10:14:28 AM
Mr. Teal added that it was important to make the distinction
that the 10,000 population limit only affects the
eligibility of community facilities, while the individuals
in the community will be eligible for PCE assistance. Adding
Fairbanks would, for example, add $13 to $14 million to
benefit individuals; adding community facilities would cost
another $5 to %6 million. It is a cost-containment measure
to disqualify the larger communities, and Fairbanks may be
the only community to be affected.
Representative Hawker wondered what Mayor Whitaker of
Fairbanks thought about that restriction, while noting this
was only Version \A of the legislation under consideration.
He went on to ask what the consequences would be of
eliminating the exclusion of the former initial project
beneficiaries from the statute, in other words which
communities would be added to the program by ending the
exclusion.
Mr. Teal answered that the provision affects mainly the
Four-Dam Pool communities., but their power costs are
currently still too low under the current formula, meaning
that they would not be added to the program anyway, so there
is no current consequence., but because their costs are
close, it is possible if urban power costs went down that
they could be eligible in the future.
Representative Hawker asked for statistics on the
communities' eligibility instead of anecdotal evidence.
Co-Chair Meyer asked how many additional households would
qualify under the proposed legislation that would include
Fairbanks in the program.
Mr. Teal answered that there are approximately 25,000
households in the PCE right now. Opening it up to Fairbanks,
Kodiak and Copper Valley would nearly double the number of
households in the program.
Co-Chair Meyer noted that was part of the reason the cost of
the program would nearly triple from $30 million to $90
million. Mr. Teal confirmed that was the case.
10:17:58 AM
Representative Hawker said it would be very helpful and
informative for the Committee to have a list itemizing the
consequences of this legislation to various communities
around the state.
Co-Chair Meyer said his understanding was that Fairbanks and
the other utilities to be added to the program now qualified
because their electricity price exceeded 15 cents per KWH.
Mr. Livey confirmed that any electric utility customers in
any community with electricity prices over 15 cents would
become eligible.
Mr. Teal said that there is a cost model available that
shows what power costs are now and how each community is
paid under PCE currently, as well as how they would be paid
under the proposed legislation. He would be happy to show
each Committee member that data individually or as a whole
in a later meeting.
Co-Chair Meyer noted that the wind power in Kotzebue will
displace $450,000 to $500,000 worth of fuel this year. The
goal next year is to supply ten percent of the electricity
from wind and in five years to supply 20 percent. It appears
that alternative energy is being developed in the form of
wind power in Northwest Alaska and other parts of the state,
as well as hydro power in Southeast Alaska.
10:20:31 AM
Representative Gara pointed out that if you subsidize
inefficiency, you just always remain inefficient. If you
subsidize something that's very high cost, you end up not
saving money over the long term. If you subsidize diesel,
you just stay on diesel. He is sympathetic to the idea of
helping people over the short term, but there needs to be a
provision in this bill that encourages communities which are
subsidized to get off of diesel. He wants to see language
that would encourage communities to turn to renewable
energy. Without that, why would a community apply for funds
from the Renewable Energy Fund for projects that might
generate electricity costing more per KWH than subsidized
diesel? There are policy ramifications of not carefully
crafting the bill. He offered an example of requiring a
community in the program to switch to 50 percent alternative
energy power generation within seven years, though he noted
that this specific example would be unworkable because
different communities have different potential for
developing alternative energy resources. He requested a
discussion to include language in this bill to offer short-
term assistance, but at the same time encourage communities
to get off diesel over the longer term.
Mr. Teal responded that while Representative Gara's points
were valid, this bill has some incentives in it, because of
the ceiling of 500 KWH per month that qualifies for subsidy.
The consumer must pay full cost for any power consumed in
excess of that. It is very common to break the ceiling. The
incentive to conserve and hold down costs is built into the
fact that people do break the limit. There are further
incentives for schools and businesses, which are not
eligible and have strong incentive to hold their power costs
down. There could be more incentives built into the bill,
but that was not the purpose of the bill when it was
drafted.
Representative Gara stated that those incentives are not
sufficient and there needs to be greater incentives to get
off of diesel and switch to wind power or other sources of
alternative energy. While the included incentives are
helpful, there is much more that should be included. He
reiterated his request that, instead of saying this is good
enough, some language should be formulated for this bill to
make it better.
10:24:31 AM
Representative Joule differentiated between the immediate
need for relief this winter, and the longer-term issue
brought up by Representative Gara, which was addressed
during the last session by passing HB152 and will be
addressed further in an additional bill to be introduced
soon. Those are two different conversations. While he agrees
with the effort to solve the longer-term issues, this bill
is addressing the immediate issues. Mr. Hawkinson is the
state energy specialist who has been devoting full time to
figuring out what the renewable energy resources in Alaska
are. All of the pieces of the puzzle concerning renewable
energy will come together in the regular session, but this
session is dealing with an immediate issue.
Co-Chair Chenault agreed that the legislature is addressing
the short-term fix today. From his conversations with the
Administration, he is confident that they are working on a
proposal to tackle the long-term energy issues facing the
state, for introduction in the next regular session.
10:27:03 AM
Representative Thomas asked if there was a plan to put more
money into the Endowment to cover rising fuel costs, which
appears to require about $800 million. The price of oil is
creeping downward recently and there may be less money to
pay for this if oil settles at $90 per billion.
Mr. Teal answered that AEA would be creating a fiscal note
to add to the bill. The funding will probably come through
an appropriations bill adding $700 million to fund the
Endowment at this proposed level. An additional $250 million
will be needed to cover the period from the present until
the Endowment payout starts covering the costs, because
there is a four-year lag in the Endowment payout. In total,
about $1 billion will be required to fund this program in
perpetuity. This funding would be added to the approximately
$400 million already in the Endowment.
Representative Thomas asked follow up questions, pointing
out there was a loss this year of $18 million, or 4.6
percent. This loss contrasted with earnings the previous
year of $44 million. For several years the legislature dug
into the corpus of the Endowment, and now they are faced
with doing that again. He wanted to make sure that there was
sufficient funding because he felt that this would be their
only shot at putting the program on stable footing.
Mr. Teal said that if the program is not fully funded, the
PCE program would be in the same situation it was in the
past five years, where payments were pro-rated, and the
legislature had to debate what level of funding was
appropriate each year.
10:30:00 AM
Representative Hawker asked for an explanation of the
retroactivity provisions in the bill and their consequences.
Mr. Teal responded that retroactivity was too complicated to
include. The RCA might be better equipped to respond.
Representative Kelly noted that he was more attracted to a
program that would work through the utilities to encourage
change of behavior rather than merely handing out checks.
The 500 KWH limit in the current program has been a powerful
suppressor of waste in the villages. He wants there always
to be provisions that keep the consumers on edge, aware of
their energy use. It is too easy for subsidies to get
embedded into the system and then continue to have harmful
impacts over the succeeding years. Inflationary impacts also
tend to wash through the economic system and have an effect
on behavior, and the legislature needs to make sure it
doesn't remove the incentives that result. He also wants to
take advantage of this period of temporary wealth in Alaska
to build roads to the rural areas, which do more to create
permanent healthy, vibrant economies than any other thing
the legislature can do. The subsidy programs can quickly
kill any opportunities to tackle more significant projects.
10:34:40 AM
Representative Joule addressed the differences between the
urban and rural concerns in the PCE program. An interior
representative or senator changed the program several years
ago to whittle down the upper limit. Until high energy
prices impacted the urban areas, those legislators were not
very sympathetic to the problems the rural consumers were
facing. He wished more of the residents of the state could
undergo the kinds of experiences that Juneau has had
recently and Fairbanks is now having to help everyone gain
an appreciation of what really is needed in high-cost
communities over both the short term and the long term,
rather than evaluate the proposals on only a cost basis.
10:37:28 AM
DENNIS WHEELER, ADVISORY SECTION MANAGER, REGULATORY
COMMISSION OF ALASKA, testified via teleconference. He
addressed the Committee on making some minor changes to the
bill. First, he anticipated that the legislature would be
disappointed in the language currently in the bill that
addresses retroactivity, because the RCA would not be able
to meet the timelines set out there. He would like to see
implementation scheduled for October, which would give them
time to prepare to address the requirements and proposed
changes. Secondly, he noted that the RCA has a shortage of
bean counters to carry out all the tasks that have been
assigned to it by the PCE. As last year's task force
concluded, the RCA does not currently have the resources to
meet the requirements of the PCE program as currently on the
books, much less if it were modified to add more utilities.
As the program is modified, there are additional associated
administrative burdens, and they are being felt most acutely
in his section. He added that the bill addresses some of the
concerns regarding incentives for alternative energy and
efficiency. Currently there are regulations requiring that
the utilities meet line loss and efficiency standards
revised in 2005, or else the shortfall is imputed and
deducted from the PCE subsidy paid. That feature doesn't
provide incentives to get off of diesel, but it does cause
the utilities to try to be efficient.
10:42:00 AM
Co-Chair Meyer noted that there were some questions for Mr.
Wheeler. If there are points that don't get addressed during
the questioning, the Committee would like to hear Mr.
Wheeler's comments before the conclusion of this hearing.
Representative Hawker asked for assistance understanding the
mechanics of how the current program is operated, and
specifically what period of time the data is taken from to
calculate the subsidies and how long those calculated rates
apply to the communities.
Mr. Wheeler responded that it varies depending on the type
of filings that the utilities deliver for the PCE program.
For example, in purchasing fuel under the program managing
fuel costs, some utilities will submit filings annually,
some quarterly, and some monthly. There is a full-time
person to help the approximately 70 non-regulated utilities
manage those filings. In addition, the utilities are
required to file annual reports to be audited by the RCA to
make sure their costs are reasonable and appropriate.
Further, the approximately 19 regulated utilities are
required to file additional updates, and there is a whole
host of other filings that must be submitted. In some cases,
the filings consist of projections of anticipated costs,
while others are for reimbursements based on actual costs.
10:46:01 AM
Representative Hawker asked whether the RCA adjusts the PCE
reimbursement rate of each utility every time its fuel price
changes.
After Mr. Wheeler confirmed that was the case,
Representative Hawker followed up by asking how long a delay
was usual in issuing the new subsidy calculations.
Mr. Wheeler explained that for non-regulated utilities,
assuming their filing is complete and up to date, it
normally takes two weeks to make the rate changes from the
time of incurring the expense.
10:47:07 AM
MARY VITTONE, UTILITY TARIFF ANALYST, REGULATORY COMMISSION
OF ALASKA, who testified via teleconference, said that the
19 regulated utilities are on a 45-day clock, processed
under regular tariff filings.
Mr. Hawker concluded that the rate changes are reasonably
contemporaneous. He wondered what the most frequent rate
change schedule was.
Mr. Wheeler responded that St. Paul generally applies twice
a month, while most others do it monthly or less frequently.
Representative Hawker remarked that for St. Paul, the
reimbursements generally lagged by about one rate change. He
congratulated the tariff section for their competent work.
10:48:55 AM
Representative Thomas wanted to see copies of the RCA's
annual reports and see what is allowed to be written off as
deductions. He asked how the RCA had originally come up with
the 50/50 division for fuel and non-fuel costs.
Mr. Wheeler noted that there was no statutory or regulatory
provision that mandates that split, but thought it might
have represented the approximate status at the time the
program was established.
Ms. Vittone clarified how non-fuel costs are figured into
the PCE reimbursements. For regulated utilities, this is
done through a revenue requirement or a rate case
proceeding, via the energy rate charged on the bill. For
non-regulated utilities, the non-fuel costs are taken from
the annual reports submitted by the utilities, and these
include general administrative expenses, operating expenses,
depreciation, personnel and interest. She did not know what
split between fuel and non-fuel costs Representative Thomas
was referring to.
10:51:45 AM
Representative Thomas explained that he had been told that
50 percent of the funding went to cover fuel costs and the
other 50 percent covered non-fuel expenses, and that RCA had
made that determination at one time. He was wondering when
that split had been decided upon.
Ms. Vittone didn't know the answer, but speculated that it
was when the program was initiated. Currently that split
does not apply.
Representative Thomas asked what the split is currently.
Ms. Vittone noted that split would vary between utilities.
Picking one example, the Village of Alutiiq's reimbursements
are based on non-fuel costs of $48,000 and fuel costs of
$54,000. To cite another example, the City of Golovin's non-
fuel costs were $410,000 and their fuel costs were $236,000.
Representative Thomas requested ten random utility annual
reports so he could get an idea of what is allowed for
deductions.
10:53:35 AM
Vice-Chair Stoltze stated that the Committee goes through
the same discussion of administrative costs for every
department. It would be good to establish a benchmark for
what they are trying to achieve in administrative expenses,
even though exemptions are commonly granted due to
extenuating circumstances. He asked if lobbying were allowed
as an allowable non-fuel expense.
Mr. Wheeler stated that lobbying was not eligible as a
reimbursable expense.
Vice-Chair Stoltze continued, asking about consulting,
contract work, or any other similar activities that might
resemble lobbying.
Mr. Wheeler noted that one of the purposes of their
reviewing the utility filings is to look for what should be
excluded, such as lobbying, grant funding and the like. The
goal is to make sure eligible expenses are aimed at useable
power generation.
10:55:45 AM
Representative Hawker referred to statute 42.45.110 to cite
the premise for the PCE program: "…all allowable costs
except for return on equity used by the RCA to determine
revenue requirement…" With that as context, he is really
interested in statute 42.45.130, Cost Minimization: "In
order to qualify, every electric utility shall make every
reasonable effort to minimize administrative, operating and
overhead costs, using the best available technology
consistent with sound utility management practices. In
reviewing applications for power cost equalization, the
commission may require the elimination of unnecessary
operating expenses." He asked whether the Regulatory
Commission of Alaska had identified any unnecessary
operating expenses in their current calculations.
Mr. Wheeler responded that it depends on the specific
utility, and the RCA employs standard accounting principles
to determine what should or should not fall within allowable
expenses. He offered to pull together some specific examples
from the past.
Representative Hawker paraphrased his conclusions that the
RCA is relying on the underlying statutory authority to
approve all allowable costs except for return on equity.
Mr. Wheeler listed a few items that are excluded.
Representative Hawker followed up to point out that there
appeared to be no discussions about requiring the utilities
to minimize operating costs. It sounds as though the RCA is
not going through the due diligence extra step of paring
down operating costs that the legislature has asked them to
do. He would feel more comfortable if they would place more
emphasis on that procedure.
10:58:49 AM
Mr. Wheeler noted that public utility regulation has its own
set of rules regarding allowable rates. GAAP accounting
standards weren't the only approach used to evaluate the
requests for PCE reimbursements. There is a whole body of
decisions nationwide and within Alaska that serve as
guidelines.
11:00:39 AM
Representative Joule asked whether all the PCE-eligible
utilities are passing their subsidized savings on to the
consumers. There are certain types of paperwork that have to
be filed by utilities. Are there utilities that are eligible
for PCE subsidies, but are not doing the paperwork and are
therefore not receiving the benefits of the program?
Mr. Wheeler answered that there are roughly 25 percent of
the 70 non-regulated utilities that are not in compliance
with the paperwork filing requirements and therefore are not
eligible for reimbursement by PCE. That does not mean that
the utilities are not passing the PCE rate reductions on to
the customers, but only that they are not eligible for
reimbursement. The utilities are required to itemize the PCE
benefit on their bills, and apparently all are doing that.
However, there are many utilities that are in suspension
because they are not meeting the reporting requirements.
Representative Joule recalled one instance where the
customers were not receiving the PCE benefits and wondered
if that is currently occurring. He asked what could be done
to rectify situations where that problem does occur and to
provide the residents relief on their bills.
Mr. Wheeler is not aware of any utilities that are not
passing the subsidies on to their customers. The AEA might
have better information, but it would certainly be something
that the RCA would want to know about.
Representative Hawker asked how utilities are staying in
business if they're billing their customers for power costs
net of the PCE, but are not actually receiving the subsidy
because they're out of compliance.
Mr. Wheeler responded that that was a very good question.
11:03:56 AM
Representative Gara remarked that there was concern
expressed earlier that utilities generating power from wind
would not be eligible for PCE subsidies. For example, a
community with diesel costs of $1.50 per KWH might switch to
wind which would cost $.60 per KWH; would it be disqualified
from the program? He wanted to make sure the program was not
creating a situation where wind is excluded and therefore
utilities are encouraged not to shift over to wind energy.
Ms. Vittone cited the example of Kotzebue where wind power
is eligible for PCE subsidies. She noted that eligibility
for wind power reimbursement is based on line losses and
efficiency standards.
Representative Gara asked whether there is any disincentive
in the PCE program to shifting to wind power, or can any
alternative energy power source also qualify for PCE
funding.
Ms. Vittone replied that it all comes down to how the credit
is calculated and what costs are included in that
calculation.
Representative Gara followed up by inquiring whether it was
fair to say that there is no disincentive to switching to
alternative energy.
Ms. Vittone confirmed that it was.
11:06:25 AM
Representative Gara remarked that there is going to be some
disincentive for utilities to go off of diesel because
diesel is being subsidized. The impact may be that a
community decides it doesn't have to bother applying for a
grant to install wind power. How much of a concern is that?
Mr. Wheeler responded that it was difficult for the RCA to
address that problem.
Representative Gara said he understood that issue was
outside the mandate of the RCA, but he would appreciate
hearing any ideas on how to come up with an incentive for
utilities to switch while not threatening their
qualification for PCE.
Vice-Chair Stoltze said that he was uncomfortable that the
customers and not the utilities might be penalized. He used
the example of Chugach Electric or MLP being forced into
alternative energy production that would not be beneficial
financially for his constituents.
Mr. Wheeler responded that he would let Mary Vittone address
that issue.
Ms. Vittone explained that all costs associated with
production of power are evaluated through a rate proceeding.
Capital equipment expenditures are put into the rate base,
in a revenue requirement or cost of service study.
Electricity is subsidized, not fuel, and all of the
components of the electricity costs are eligible for
inclusion. For example, the high cost of renewable power
generation such as wind or hydro would qualify, but as a
part of the non-fuel cost, or rate base. There is a
difference between regulated and non-regulated utilities in
the level of review that is carried out on the rate-base
portion of the rates. There are two different rates: the
base rate that is the fixed cost of offering the power, and
the incremental cost of producing each additional KWH of
power. Together they comprise the total rate, and PCE
reimbursements are based on that total cost of electricity.
11:11:42 AM
Vice-Chair Stoltze redirected his question to Bob Pickett.
BOB PICKETT, CHAIRMAN, REGULATORY COMMISSION OF ALASKA,
testified via teleconference that Ms. Vittone had addressed
the question. He expanded on the answer by saying that the
typically higher capital costs of alternative energy power
generating equipment would be included in the rate base. He
realizes that there is a lot of movement currently in the
state's overall energy policy, and he is carefully
monitoring that.
Vice-Chair Stoltze will follow up the conversation with Mr.
Pickett.
Representative Thomas asked whether rates could come down if
utility debts are retired through the capital budget. Copper
Valley had some experience with debt retirement and that
might shed light on the question.
Mr. Wheeler noted that Copper Valley is not economically
regulated and therefore would not make a good example.
11:13:43 AM
Representative Thomas has at least one utility in his
district that has several million dollars of debt due to
overruns in construction. How many utilities are in the same
circumstance? Retiring the debt would be a good use of the
capital budget funds directed at those districts, instead of
constructing new auditoriums, municipal buildings or
schools.
Representative Hawker readdressed the disincentive issue
brought up earlier by Representative Gara. Looking at
aggregate costs in the current PCE program, if 52.5 cents is
exceeded the utility gets no benefit for that portion. There
is a motive for them to drop the costs to that 52.5 cent
level, but there is no more incentive to drop it lower than
that level because the state is paying that portion. Under
the proposal in front of the Committee, that level is raised
to $2.00, a level chosen to encompass the electricity costs
of all utilities everywhere in the state. Therefore the
incentive to reduce costs is being eliminated for every
utility in Alaska. This bill is directed at short-term
relief, but the Committee needs to weigh that objective
against the problems posed by removing the incentives to
conserve.
11:17:55 AM
Co-Chair Meyer agreed.
Representative Joule asked whether the same entities would
be back later for further questions.
Co-Chair Meyer said they would sometime, but was not sure
when.
Representative Gara asked the RCA how equitable it would be
to pay down debt, because he doesn't know how much debt
different utilities around the state were carrying., but he
surmised that ratepayers would save money on their
electricity bills if debt were reduced.
Mr. Wheeler affirmed that notion.
Representative Gara asked whether the RCA can come up with
information on which utilities have debt and how much each
has.
Mr. Wheeler said the RCA is already working on that list in
response to a request from another legislator. One caveat is
that because some utilities are not economically regulated,
they are under no obligation to report any of their
financial data to the RCA. There are others that have not
filed their reports yet. Therefore there will be some holes
in the data.
Representative Gara requested that the list be submitted to
Co-Chair Meyer, for distribution to the Committee. He asked
whether the RCA had any information that might help the
legislature tackle debt reduction equitably in the various
communities.
Mr. Wheeler said he didn't know how to address or even
define equitability.
Representative Gara asked if the information from the RCA
would include the debt loads of each community to enable the
legislature to look at what their needs are.
11:21:18 AM
Mr. Wheeler confirmed that the list will show debt load as
of the latest report filing, plus interest on that debt.
Co-Chair Chenault has talked to some utilities regarding
their debt and various utilities have different types. The
concern would be whether paying off the debt will encourage
them to turn around and increase it again, possibly at a
higher rate which would increase their costs.
11:22:36 AM
Representative Joule asked what the impact to the rate payer
would be of paying down the debt.
Representative Hawker noted that the floor is currently 120
percent of the weighted average retail residential rates in
Anchorage, Fairbanks and Juneau over the previous calendar
year. There may be some problems besides equitability in
paying down individual utilities' debts, such as some that
cannot legally be prepaid., but if the cost floor were
driven down for urban utilities, in contrast, then all
communities would benefit from increased PCE payments at the
lower floor level.
Representative Gara said one benefit of paying down the debt
would be that it would not be taxable by the federal
government. In contrast, sending out a $1,200 resource
rebate check to each citizen would result in a quarter to a
third of the payments going directly to the federal
government. He has some heartache over spending $800 million
and watching a third of that go straight to the Feds.
Representative Hawker complimented Representative Gara on
his conservative commentary.
Representative Gara noted that it was actually compassionate
liberalism.
11:25:38 AM
Ms. Fisher-Goad had some follow-up comments on some of the
questions. What are the FY09 costs of the program? Part of
the appropriation bill for the special session is a $9
supplemental PCE appropriation for costs they expect to see
this year. Added to the $28 million already appropriated for
FY09, the total for FY09 would be $37 million. She has been
coordinating with Mr. Teal on determining what the impacts
of these changes would be, making sure they are using the
same assumptions and qualifications. There were questions
about which communities would now be eligible: there are
likely 24 new communities and four new utilities that serve
those communities (Golden Valley, Copper Valley, Kodiak and
Homer). Copper Valley shifts seasonally to hydropower, when
they are not eligible because of low rates, but they are
eligible during the winter. Projected costs are $15 to $20
million for the new utilities that would be eligible under
PCE, plus $70 to $93 million for the new ratepayers. Part of
the fiscal note total depends on the behavior that is
stimulated by the proposed seasonal split for summer and
winter KWH caps. There will also be increased administrative
costs to cover the additional residential rate payers that
would be eligible, tripling the program from the current
23,000.
11:28:49 AM
Ms. Fisher-Goad pointed out that the program covers
residences only up to a certain number of KWH per month and
only a segment of utilities, so that there is still an
incentive for businesses, schools and utilities to lower
their fuel costs, no matter what the legislature decides to
do about setting a ceiling for PCE.
Utilities that are not receiving PCE subsidies may not be
billing their customers or they may not be providing the
paperwork to the RCA, in spite of the generous timeline for
reporting by August 31 for the preceding fiscal year.
Concerning debt reduction, interest payments are one part
and depreciation is another of the debt of the utilities.
Her understanding is that just the interest portion would be
subject to rate reduction, while the depreciation would stay
on the books. She will be available for questions and will
get a fiscal note as soon as possible.
11:31:53 AM
Co-Chair Meyer clarified that this bill includes only
residential rate payers plus a few community centers that
are eligible.
Ms. Fisher-Goad noted that PCE is limited primarily to
unincorporated rural communities, with the 10,000 ratepayer
limit. If the legislature wants to put that limit in place,
it would essentially just cut Fairbanks and the North Star
Borough out of the program, while other urban communities
such as Valdez would qualify. The definition of community
eligibility needs to reflect the legislature's intentions on
who is included.
Co-Chair Meyer asked whether Ms. Fisher-Goad thought
businesses should be included, though that would make the
cost of the program skyrocket. Businesses with high fuel
costs are just going to pass those costs along to consumers,
who will ultimately be paying the costs anyway.
Ms. Fisher-Goad said the RCA doesn't have a position on who
should be included. Up until 2000, commercial customers were
included, but there was controversy over that provision.
However, it was a minimal credit that didn't have much
impact on a large company's finances.
11:34:21 AM
Representative Hawker said that as the RCA builds its models
for the fiscal note, he would like to have them build in
consideration of the rate floor. Why would Fairbanks be
included in the base since their costs are so high that they
should be included in the program? He suggested a weighted
average of all the utilities in the state that are not
qualifying for the program, although that definition may be
too circular. Perhaps the six lowest cost communities in the
state should constitute the floor, or some similar
definition, with the goal of eliminating from the floor
calculation any community that will be benefiting from PCE
subsidies.
Ms. Fisher-Goad said she had been discussing this issue
recently and would try to come up with a solution soon. She
noted that reference to Fairbanks in the base rate referred
only to the city and not to the North Star Borough.
Representative Hawker summarized that he was looking for a
better standard to define the base and asked the RCA to come
up with suggestions.
11:37:34 AM
Representative Kelly noted that in this special session the
Committee isn't being charged with completely revamping the
program, but should address the current high costs to
consumers. He wanted to keep some sensitivity to the 52.5
cent limit that is a tremendous incentive to conserve. The
proposed $2.00 limit creates real problems by removing that
incentive to stay efficient. The change from 500 KWH to a
300/700 KWH split limit summer versus winter, even though
the annual calculation is unchanged, will also remove
incentives during the winter months. There may be unintended
consequences to changing many of the elements of the program
without having the time during special session to analyze
them thoroughly. The PCE program would still be covering
only about one third of the total KWH costs.
11:41:21 AM
Representative Kelly asked whether there is any loading
toward the unsubsidized portion of any of the non-fuel
costs.
Ms. Fisher-Goad responded that there is not, and Ms. Meer
Kohler, in the audience, confirmed that answer. Ms. Fisher-
Goad noted that only 30 percent of the commercial KWH are
eligible, and if Golden Valley is brought into the program,
that percentage will decrease because the utility serves
some very large businesses.
Representative Gara asked whether the Committee would hear
from Mr. Hawkinson regarding the possibility of putting
additional money into the Renewable Energy Fund, not to be
spent until there are really worthy applications for it,
which the legislature will ultimately be able to review. He
also noted that the issue of staffing at AEA needs to be
addressed, now that there will be a hugely expanded program
loaded onto it.
Co-Chair Meyer said they are trying to stay focused on the
immediate crisis and these other longer-term issues will be
addressed in the regular session.
Representative Gara said that while the Governor had called
the special session to address the short-term crisis, his
constituents will be angry if the special session doesn't
address long-term solutions.
11:44:42 AM
Representative Joule was concerned about the definition of
summer vs. winter rates, since April 1 is still winter in
some parts of Alaska. He would like to get more data on
usage patterns and what time frames for the switch would be
most useful. Also, in regard to the discussion on businesses
qualifying for PCE, there is a difference between the huge
companies and the mom-and-pop stores in the villages, which
have to pass along to their customers the high
transportation energy costs integrated into their cost of
goods sold.
Co-Chair Meyer concluded the discussion of PCE for today.
Tomorrow the Committee will take up LIHEAP. Saturday will
address the resource rebate in the morning and take public
testimony in the afternoon. Sunday will combine public
testimony on PCE and LIHEAP. Monday will address suspension
of the eight percent fuel tax. He is open to taking up other
meetings, presenters and topics when time allows, but for
now his priority is to get through the bills targeted by the
special session.
Representative Thomas wants to talk more about the PCE and
how it affects people. After hearing so much already on the
$1,200 rebate, he suggested moving that bill out of
Committee and onto the House floor.
HB 4005 was HEARD and HELD in Committee for further
consideration.
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