Legislature(2017 - 2018)SENATE FINANCE 532

02/26/2018 09:00 AM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved HB 195 Out of Committee
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 120                                                                                                            
     "An Act relating to the Department of Law public                                                                           
     advocacy function to participate in matters that come                                                                      
     before the Federal Energy Regulatory Commission."                                                                          
9:17:38 AM                                                                                                                    
Co-Chair  MacKinnon directed  attention to  Tlingit Culture,                                                                    
Language,  and  Literacy   (TCLL)  Program  from  Harborview                                                                    
Elementary School in attendance in the audience.                                                                                
JOHN  PTACIN, CHIEF  ASSISTANT ATTORNEY  GENERAL, REGULATORY                                                                    
AFFAIRS  AND PUBLIC  ADVOCACY,  DEPARTMENT  OF LAW,  relayed                                                                    
that the  bill would  allow the Department  of Law  (LAW) to                                                                    
recover  costs  related  to  cases  in  the  Federal  Energy                                                                    
Regulatory Commission (FERC).                                                                                                   
Mr. Ptacin  discussed the  presentation "HB  120: REGULATORY                                                                    
COST CHARGE FOR FERC MATTERS" (copy on file).                                                                                   
Mr. Ptacin looked  at slide 2, "What is  the regulatory cost                                                                    
charge (RCC)?":                                                                                                                 
      The RCC is a fee assessed on public utilities and                                                                      
        pipelines that are regulated by the Regulatory                                                                          
        Commission of Alaska (RCA).                                                                                             
      It is created by AS 42.05.254 (for utilities) and AS                                                                   
        42.06.286 (for pipelines).                                                                                              
Mr. Ptacin turned to slide 3, "Who Pays RCCs?":                                                                                 
         Utilities and pipelines that are regulated by the                                                                   
          RCA pay RCCs, including:                                                                                              
             o over 125 public utilities and about 20                                                                           
               common carrier pipelines with in-state                                                                           
     Those utilities and pipelines may pass the charge onto                                                                     
     customers that benefit from RCA regulation.                                                                                
     Each year, the RCA assesses RCCs to utilities and                                                                          
     pipelines based on the amount of work required for                                                                         
     each industry sector.                                                                                                      
Co-Chair Hoffman asked about the annual revenues.                                                                               
Mr. Ptacin showed slide 4, "What does the RCC pay for?":                                                                        
     The money collected in the RCC provides funding for:                                                                       
         the Regulatory Commission of Alaska (RCA), which                                                                    
          is responsible for the economic regulation of                                                                         
          public utilities and intrastate common carrier                                                                        
          pipelines in Alaska, and                                                                                              
         the Regulatory Affairs and Public Advocacy (RAPA)                                                                   
          section  in  the  Department   of  Law,  which  is                                                                    
          charged  with advocating  for the  public interest                                                                    
          in matters  related to the economic  regulation of                                                                    
          public utilities and pipelines.                                                                                       
9:21:22 AM                                                                                                                    
Mr. Ptacin reviewed slide 5, "What does the RCC pay for?":                                                                      
     Just and reasonable rates for utility and pipeline                                                                         
Senator von  Imhof referenced  slide 5,  and asked  if there                                                                    
were any utilities  in the state that were  not regulated by                                                                    
the Regulatory  Commission of Alaska  (Regulatory Commission                                                                    
of Alaska).                                                                                                                     
Mr. Ptacin  relayed that  it was  possible for  utilities to                                                                    
petition  the Regulatory  Commission of  Alaska, and  have a                                                                    
vote to  not be regulated  at a  point. He stated  that Nome                                                                    
Joint Utility System decided against regulation.                                                                                
Senator   von  Imhof   wondered   whether  the   unregulated                                                                    
companies had publicly available financials.                                                                                    
Mr. Ptacin  was not  aware if  the financial  information of                                                                    
unregulated utilities was available.                                                                                            
Co-Chair  MacKinnon   informed  that  there   were  multiple                                                                    
utilities that were  not regulated. She thought  there was a                                                                    
statewide issue.  She discussed differing utility  costs and                                                                    
aging  infrastructure.  She  had been  working  on  reducing                                                                    
energy costs over the previous  interim, and had experienced                                                                    
a challenge obtaining information.  As the state invested in                                                                    
energy  efficiency,  it  had  not been  able  to  gain  cost                                                                    
savings because of fixed costs and a small population base.                                                                     
Senator  von  Imhof  referenced legislation  to  extend  the                                                                    
bonding authority  for the  Fairbanks Interior  Gas Project.                                                                    
She stated that there had  been a hearing after the purchase                                                                    
of the  Fairbanks Natural Gas  Company for $54  million. She                                                                    
stated that it  was an unregulated utility at  the time, but                                                                    
had since received applied regulation.                                                                                          
9:25:17 AM                                                                                                                    
Mr. Ptacin discussed slide 6, "How Much Is It?":                                                                                
      Total RCCs cannot exceed 0.87 percent of the                                                                           
        adjusted gross revenue (revenue derived from                                                                            
        operations in Alaska) of the regulated utilities and                                                                    
      Statute allocates that 0.87 percent between the RCA                                                                    
        and RAPA.                                                                                                               
         RCCs funding the RCA cannot exceed 0.70 percent                                                                     
         RCCs funding RAPA cannot exceed 0.17 percent                                                                        
Co-Chair MacKinnon  asked if the  RCC funded  the Regulatory                                                                    
Commission of Alaska.                                                                                                           
Mr. Ptacin answered in the affirmative.                                                                                         
Co-Chair MacKinnon wondered whether the rate was explicit                                                                       
in state statute.                                                                                                               
Mr. Ptacin answered in the affirmative.                                                                                         
Co-Chair MacKinnon wondered whether it was as explicit as                                                                       
how the funding was separated.                                                                                                  
Mr. Ptacin answered in the affirmative.                                                                                         
Senator Stevens wondered whether the 0.87 percent paid for                                                                      
all the expenses of the Regulatory Commission of Alaska.                                                                        
Mr. Ptacin replied in the affirmative.                                                                                          
Mr. Ptacin referenced slide 7, "RAPA's 2017 Budget":                                                                            
      0.17 percent Statutory Cap = $2,374,390                                                                                
      RAPA's 2017 Budget = $2,333,700                                                                                        
      Budget is $40,690 under the cap                                                                                        
Mr. Ptacin moved to slide 8, "What would HB 120 change?":                                                                       
     This bill does NOT:                                                                                                        
         Change the 0.17 percent RCC cap.                                                                                    
         Create new authority for the Attorney General to                                                                    
          participate in matters before FERC.                                                                                   
     This bill will:                                                                                                            
         Allow some costs incurred by the department in                                                                      
          matters before FERC (TAPS pipeline tariffs) in                                                                        
          the pipeline RCC.                                                                                                     
     This bill might:                                                                                                           
         Increase the amount of RCC allocated to                                                                             
         Because the size of the "pie" is not changing, an                                                                   
          increase in the pipeline RCC would reduce the RCC                                                                     
          paid by utilities.                                                                                                    
Vice-Chair Bishop noted that the  scenario used the pipeline                                                                    
tariffs as  an example.  He stressed that  the bill  did not                                                                    
provide   additional  funding.   He  wondered   whether  the                                                                    
arguments were based on the existing budget.                                                                                    
Mr. Ptacin explained that the deficit that was not                                                                              
collected from the RCC came out of general funds.                                                                               
9:30:39 AM                                                                                                                    
Mr. Ptacin spoke to slide 9, "How would HB 120 impact                                                                           
      Pipelines can pass the RCC onto customers for in-                                                                      
        state shipments.                                                                                                        
      This increase would not be significant because the                                                                     
        cost is  spread across  all regulated  pipelines and                                                                    
        each unit of oil or gas shipped.                                                                                        
      For example, adding $100,000 to the pipeline RCC for                                                                   
        the last  two quarters  of 2017  would increase  the                                                                    
        pipeline RCC surcharge by about 0.048 percent, i.e.,                                                                    
        a $10,000  billing  to  a  pipeline  customer  would                                                                    
        increase by $4.84.                                                                                                      
      The $4.84 surcharge helps ensure the $10,000 bill is                                                                   
        "just and reasonable."                                                                                                  
Mr. Ptacin showed slide 10, "Why now?":                                                                                         
      For over 30 years, outside counsel has represented                                                                     
        the state on FERC pipeline matters.                                                                                     
      To reduce costs, Law is developing the necessary                                                                       
        expertise and bringing more of this work in-house.                                                                      
      In the process of budgeting for this increased in-                                                                     
        house   workload    and    searching   for    budget                                                                    
        efficiencies, it came to our attention  that the RCC                                                                    
        may be an appropriate funding source.                                                                                   
9:34:03 AM                                                                                                                    
Co-Chair  Hoffman referenced  slide 10,  and asked  how much                                                                    
the  state had  spent  on outside  counsel.  He queried  the                                                                    
numbers related  to reduced costs associated  with switching                                                                    
to inhouse counsel.                                                                                                             
Mr.  Ptacin  agreed  to  provide  detailed  information.  He                                                                    
furthered  that   he  had  been  involved   in  Trans-Alaska                                                                    
Pipeline System (TAPS) tariff litigation  from 2009 to 2015.                                                                    
He remarked  that the litigation  of those cases in  2009 to                                                                    
2010,  the state  spent $16  million. The  competitors spent                                                                    
$55 million.  He felt that  a bringing similar cases  to LAW                                                                    
would not  yield the same cost.  He stated that in  the year                                                                    
2016, as  a result of  the TAPS tariff litigation,  LAW went                                                                    
to  the  DC  Court  of Appeals.  He  stated  that  typically                                                                    
outside counsel would have been  hired, but instead the work                                                                    
was done inhouse for under $25,000.                                                                                             
Senator  Micciche  queried the  role  of  the department  to                                                                    
interfere with FERC determinations.                                                                                             
Mr.  Ptacin  stated  that  there were  a  series  of  feeder                                                                    
pipelines  that  fed  into  TAPS,   and  provided  they  had                                                                    
interstate  shipping,  there  must   be  an  interstate  and                                                                    
intrastate rate.                                                                                                                
Senator Micciche asked  if any of the work had  been for the                                                                    
AKLNG projects.                                                                                                                 
Mr. Ptacin  was not aware  of any work the  department would                                                                    
do on the AKLNG projects.                                                                                                       
Vice-Chair Bishop  suggested that  there could  be crossover                                                                    
into hydro-projects with FERC.                                                                                                  
Mr.  Ptacin  stated  that  there  were  FERC  processes.  He                                                                    
thought it was  possible  at some point there  could be FERC                                                                    
rate issues associated with a hydro-electric projects.                                                                          
Senator Stevens  wondered whether the state  would still use                                                                    
outside counsel.                                                                                                                
Mr. Ptacin answered in the  affirmative, and reiterated that                                                                    
the department would still retain outside counsel.                                                                              
Senator  von Imhof  wondered whether  there was  an impeding                                                                    
need  to  go before  FERC.  She  asked  if there  were  high                                                                    
priority  or outstanding  issues. She  wondered whether  the                                                                    
bill was a "blanket" need.                                                                                                      
Mr. Ptacin stated  there was no impending  necessity for the                                                                    
bill, however  the division  was very  busy. It  had entered                                                                    
into  an  agreement  with  TAPS  that  included  a  variable                                                                    
tariff. The  division had to  annually negotiate a  fair and                                                                    
reasonable rate.                                                                                                                
9:41:23 AM                                                                                                                    
Co-Chair  MacKinnon  referenced slide  7,  and  asked if  it                                                                    
showed that  the state was  collecting money that  was going                                                                    
Mr. Ptacin answered in the negative.                                                                                            
Co-Chair MacKinnon  wondered whether  there was  the ability                                                                    
to  collect  through a  0.17  percent  statutory cap,  $2.37                                                                    
million. She  remarked that the  budget was  $2.333 million,                                                                    
which represented  $43,690 under the cap.  She stressed that                                                                    
there  could  be a  higher  charge,  because there  was  the                                                                    
ability for increased collection.                                                                                               
Mr. Ptacin answered in the affirmative.                                                                                         
Co-Chair MacKinnon  wondered whether the state  could charge                                                                    
additional resources to the funding stream.                                                                                     
Mr. Ptacin answered in the affirmative.                                                                                         
Senator Micciche asked  for more detail as  to the increased                                                                    
pipeline cost as listed on slide 8.                                                                                             
Mr. Ptacin relayed  that under current state  law, there was                                                                    
two ways  in which the  division dealt with those  costs. He                                                                    
stated that the bill would  ensure that RCC charges could be                                                                    
assessed. The  cap for the  pipelines was only  0.17 percent                                                                    
of any adjusted revenues.                                                                                                       
9:46:00 AM                                                                                                                    
Co-Chair  MacKinnon  referenced   the  proposed  statute  to                                                                    
change  in the  bill. She  stated  that the  bill was  about                                                                    
whether it  was in the  public's interest for LAW  to engage                                                                    
on behalf  of Alaska  in this process.  She stated  that LAW                                                                    
was asking to recover fees.                                                                                                     
Senator  Micciche wondered  whether  there would  be a  cost                                                                    
shift from utilities.                                                                                                           
Mr.  Ptacin  stated  there  would  be  no  cost  shift  from                                                                    
utilities to the  state, but it arguably could  go the other                                                                    
direction. The department was asking  (to the extent that it                                                                    
did pipeline work) that it could collect for the work.                                                                          
Senator Micciche  thought the last  sentence on slide  8 was                                                                    
Mr. Ptacin agreed that the sentence was strangely written.                                                                      
9:50:56 AM                                                                                                                    
Senator von  Imhof asked if there  had been a time  when Mr.                                                                    
Ptacin  testified  before FERC  on  a  planning stage  of  a                                                                    
pipeline. She  wondered if  there was  a future  pipeline in                                                                    
the works.                                                                                                                      
Mr. Ptacin stated  that his section would  not involve until                                                                    
a pipeline company went before FERC with a proposed rate.                                                                       
Co-Chair MacKinnon  wondered whether  LAW had  the authority                                                                    
to enter  into conversations with FERC  without the proposed                                                                    
Mr. Ptacin stated that when  his section was before FERC, it                                                                    
was usually for a protest.                                                                                                      
Co-Chair   MacKinnon   thought   the   bill   expanded   the                                                                    
department's authority to engage with FERC.                                                                                     
Mr. Ptacin  stated that  it was  not his  understanding that                                                                    
the bill  language had  to do with  a funding  mechanism for                                                                    
the RCC.                                                                                                                        
Co-Chair  MacKinnon  asked Mr.  Ptacin  to  confer with  the                                                                    
attorney general to determine the impact of the bill.                                                                           
Mr. Ptacin agreed to provide the information.                                                                                   
9:54:06 AM                                                                                                                    
Vice-Chair Bishop  surmised that intervention at  FERC could                                                                    
only occur on current production pipeline.                                                                                      
Mr. Ptacin agreed.                                                                                                              
Vice-Chair Bishop  surmised that  the bill needed  a general                                                                    
fund funding mechanism.                                                                                                         
Mr. Ptacin agreed.                                                                                                              
Co-Chair MacKinnon noted  that the title stated  that it was                                                                    
to participate as an advocate.                                                                                                  
Vice-Chair Bishop  agreed. He  noted that  there could  be a                                                                    
title change.                                                                                                                   
Senator Micciche  remarked that the state  had full standing                                                                    
to intervene  in any  FERC matter  that occurred  within the                                                                    
jurisdiction  of the  state. He  saw the  bill as  a funding                                                                    
mechanism. He  wondered whether in certain  cases, LAW would                                                                    
bill for  work on  FERC under pipelines.  He stated  that it                                                                    
would  not reduce  the  utility RCC,  but  may increase  the                                                                    
pipeline RCC.                                                                                                                   
Mr. Ptacin answered  in the affirmative. He  stated that the                                                                    
section  had no  intention of  charging a  utility for  work                                                                    
that was not related to that particular utility.                                                                                
9:56:40 AM                                                                                                                    
Mr. Ptacin  looked at  slide 11,  "Is there  a check  on RCC                                                                    
     External limits on RAPA's RCC spending include:                                                                            
     1.Statutory 0.17 percent cap on RCCs for RAPA.                                                                             
     2.RCA review of RAPA's certified costs in a public                                                                         
     docket where any interested party can comment.                                                                             
Co-Chair  MacKinnon  asked  for  Mr.  Ptacin  to  provide  a                                                                    
summary  of the  cost of  outside  council for  the past  XX                                                                    
Mr. Ptacin agreed to provide the information.                                                                                   
Co-Chair   MacKinnon  wondered   what   happened  to   those                                                                    
Mr.  Ptacin  responded  that  it  was  money  that  was  not                                                                    
Co-Chair  MacKinnon   surmised  that   the  money   was  not                                                                    
collected over a period of time.                                                                                                
Mr.  Ptacin  stated that  the  RCC  looked at  the  previous                                                                    
year's  billings  and  adjusted revenues  to  determine  the                                                                    
year's maximum charge.                                                                                                          
Senator  Stevens appreciated  the  question  about costs  of                                                                    
outside counsel that was spent by competitors.                                                                                  
Mr. Ptacin agreed to provide that information.                                                                                  
Senator Micciche  stated that many  of the energy  firms had                                                                    
strong expertise.  He wondered  whether the prep  work would                                                                    
be done inhouse in order to reduce costs.                                                                                       
Mr. Ptacin answered in the affirmative.                                                                                         
Co-Chair MacKinnon OPENED public testimony.                                                                                     
Co-Chair MacKinnon CLOSED public testimony.                                                                                     
Vice-Chair  Bishop discussed  a  new zero  fiscal note  from                                                                    
Department of Law, OMB component 2764.                                                                                          
Senator Micciche thought the fiscal  note was a bit unusual,                                                                    
as it  provided additional  authority. He thought  there was                                                                    
likely a differential from what was currently collected.                                                                        
Co-Chair MacKinnon discussed committee business.                                                                                
HB  120  was  HEARD  and   HELD  in  committee  for  further                                                                    

Document Name Date/Time Subjects
HB 195 Background Document.pdf SFIN 2/26/2018 9:00:00 AM
HB 195
HB 195 Letter of Support McCue.pdf SFIN 2/26/2018 9:00:00 AM
HB 195
HB 195 Opposition Lynch.pdf SFIN 2/26/2018 9:00:00 AM
HB 195
HB 195 Transmittal Letter.pdf SFIN 2/26/2018 9:00:00 AM
HB 195
HB 195 Sectional Analysis.pdf SFIN 2/26/2018 9:00:00 AM
HB 195
HB 195 Support Letters.pdf SFIN 2/26/2018 9:00:00 AM
HB 195
HB 195 Opposition Opheim.pdf SFIN 2/26/2018 9:00:00 AM
HB 195
SB58 HB120 summary statement (01.22.18).docx SFIN 2/26/2018 9:00:00 AM
HB 120
SB 58
HB 120 presentation for SFIN (02.26.18).pdf SFIN 2/26/2018 9:00:00 AM
HB 120