Legislature(2019 - 2020)BUTROVICH 205

02/24/2020 09:00 AM RAILBELT ELECTRIC SYSTEM

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Audio Topic
09:01:25 AM Start
09:01:59 AM SB123
09:42:59 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 123 ELECTRIC RELIABILITY ORGANIZATIONS TELECONFERENCED
Moved CSSB 123(RBE) Out of Committee
-- Public Testimony --
           SB 123-ELECTRIC RELIABILITY ORGANIZATIONS                                                                        
                                                                                                                                
9:01:59 AM                                                                                                                    
CHAIR  COGHILL announced  the consideration  of  SENATE BILL  NO.                                                               
123, "An  Act relating  to the  regulation of  electric utilities                                                               
and  electric reliability  organizations;  and  providing for  an                                                               
effective date."                                                                                                                
                                                                                                                                
He noted that  Version G was adopted during  the previous hearing                                                               
and  there was  a proposed  amendment, work  order 32-LS0959\G.1,                                                               
relating to the Bradley Lake  exemptions and electric reliability                                                               
organizations  (ERO) in  the  Railbelt. He  asked  Ms. Miller  to                                                               
review the proposed amendment.                                                                                                  
                                                                                                                                
9:04:09 AM                                                                                                                    
RENA  MILLER,   Staff,  Senator   Cathy  Giessel,   Alaska  State                                                               
Legislature, Juneau, Alaska, stated that  she was on loan to this                                                               
committee  for the  purposes of  SB 123.  She explained  that the                                                               
bill  drafter suggested  that  because  the exemptions  municipal                                                               
utilities and  entities have under  AS 42.05.711 are  very broad,                                                               
SB 123 should be amended to  clarify that utilities that are part                                                               
of  a  network  served  by  an ERO,  must  comply  with  the  ERO                                                               
statutes.  She   reviewed  the   following  from   amendment  31-                                                               
LS0959\G.1:                                                                                                                     
                                                                                                                                
     Page 4, line 3:                                                                                                            
        Delete "otherwise"                                                                                                      
        Following "from":                                                                                                       
          Insert "other"                                                                                                        
        Following "under":                                                                                                      
         Insert "AS 42.05.711 or another provision of"                                                                          
                                                                                                                                
     Page 8, line 20, following "utility":                                                                                      
        Insert ", including a public utility that is exempt                                                                     
        from other regulation under AS 42.05.711 or another                                                                     
        provision of this chapter,"                                                                                             
                                                                                                                                
MS.  MILLER  advised  that the  [Southeast  Alaska  Power  Agency                                                               
(SEAPA)] has requested  an amendment to amendment  G.1 to clarify                                                               
that the  RCA shall not  require an ERO  for a network  where all                                                               
the entities are  exempt under AS 42.05.711.  The following would                                                               
be inserted:                                                                                                                    
                                                                                                                                
     Page 4, line 2, following "network"                                                                                        
        Insert   "served   by   an    electric   reliability                                                                    
        organization,"                                                                                                          
                                                                                                                                
MS. MILLER  explained that  page 1  of the  bill says  that SEAPA                                                               
utilities  would  not  be  required  to  have  an  ERO  and  this                                                               
clarifies that the tariff applies to an ERO.                                                                                    
                                                                                                                                
9:07:27 AM                                                                                                                    
CHAIR  COGHILL   restated  the   amended  amendment   Ms.  Miller                                                               
described.                                                                                                                      
                                                                                                                                
9:08:45 AM                                                                                                                    
SENATOR MICCICHE moved Amendment 1.                                                                                             
                                                                                                                                
                          AMENDMENT 1                                                                                       
                                                                                                                                
     Page 4, line 2, following "network"                                                                                        
        Insert   "served   by   an    electric   reliability                                                                    
        organization,"                                                                                                          
                                                                                                                                
     Page 4, line 3:                                                                                                            
        Delete "otherwise"                                                                                                      
        Following "from":                                                                                                       
          Insert "other"                                                                                                        
        Following "under":                                                                                                      
         Insert "AS 42.05.711 or another provision of"                                                                          
                                                                                                                                
     Page 8, line 20, following "utility":                                                                                      
        Insert ", including a public utility that is exempt                                                                     
        from other regulation under AS 42.05.711 or another                                                                     
        provision of this chapter,"                                                                                             
                                                                                                                                
9:09:33 AM                                                                                                                    
CHAIR  COGHILL found  no discussion  or  questions and  announced                                                               
that without objection, Amendment 1 passed.                                                                                     
                                                                                                                                
He reminded  the members  that during  the previous  hearing they                                                               
talked about adding  intent language to identify  Bradley Lake as                                                               
unregulated but  a participant on  the Railbelt utility  line. He                                                               
asked  Ms. Miller  to discuss  the proposed  intent language  and                                                               
noted  that  it had  been  distributed  to stakeholders  and  the                                                               
committee and reviewed by the drafter.                                                                                          
                                                                                                                                
9:10:59 AM                                                                                                                    
MS. MILLER said she'd first step  back to remind members that the                                                               
intent of  SB 123 is  to require interconnected networks  to work                                                               
together  on planning  and reliability  for an  entire system  to                                                               
benefit ratepayers.  For this to  occur, all entities  feeding in                                                               
and  moving power  through  that system  need to  be  part of  an                                                               
electric   reliability  organization   (ERO)  and   the  planning                                                               
process.  She said  this makes  sense for  the Railbelt  that has                                                               
utilities over  which the Regulatory  Commission of  Alaska (RCA)                                                               
has  jurisdiction to  ensure  participation  and compliance.  But                                                               
that component  does not quite  fit the Bradley Lake  project and                                                               
the associated  transmission lines that are  required services by                                                               
the sweet  of contracts  that are exempt  from RCA  oversight and                                                               
review. The question that's come up,  she said, is how SB 123 and                                                               
these  requirements work  in an  ERO interface  with this  entity                                                               
that  is not  subject to  the same  levels of  regulation as  the                                                               
other entities.                                                                                                                 
                                                                                                                                
MS. MILLER advised that the intent  statement is intended to be a                                                               
tool  that reflects  the committee's  purpose and  intent without                                                               
wading  into ongoing  litigation  and dispute  over  some of  the                                                               
Bradley issues. It expresses the intent of this legislature.                                                                    
                                                                                                                                
9:13:12 AM                                                                                                                    
MS. MILLER paraphrased the following  Intent Statement for the CS                                                               
for Senate Bill 123(RBE), version G:                                                                                            
                                                                                                                                
     It  is  the intent  of  the  Thirty-First Alaska  State                                                                    
     Legislature that  under SB 123,  reliability standards,                                                                    
     electric   reliability    organization   (ERO)   tariff                                                                    
     standards,  planning  terms, and  project  pre-approval                                                                    
     requirements  will ultimately  apply across  the entire                                                                    
     interconnected Railbelt electric  energy network. Broad                                                                    
     application  is   necessary  to  achieve   the  desired                                                                    
     efficiencies  and reliability  for Alaskans  within the                                                                    
     Railbelt.                                                                                                                  
                                                                                                                                
     SB  123  does not  in  any  way  affect or  change  the                                                                    
     existing relationship  between the RCA and  the Bradley                                                                    
     Lake  project  agreements,  contracts,  and  amendments                                                                    
     exempt  under  AS  42.05.431(c). It  is,  however,  the                                                                    
     intent of  the Alaska State Legislature  that after the                                                                    
     Bradley  Lake  project debt  is  satisfied  and the  AS                                                                    
     42.05.431(c)   exemption  expires,   those  agreements,                                                                    
     contracts, and amendments shall be subject to SB 123.                                                                      
                                                                                                                                
     Should Bradley Lake  project agreements, contracts, and                                                                    
     amendments  receive  a  future   extension  of  the  AS                                                                    
     42.05.431(c) exemptions, the  Thirty-First Alaska State                                                                    
     Legislature  urges  consideration of  the  relationship                                                                    
     between Bradley Lake  and associated infrastructure and                                                                    
     projects,  the  Railbelt   network,  and  the  electric                                                                    
     reliability organization, and  emphasizes the intent to                                                                    
     subject  all interconnected  network users,  owners, or                                                                    
     operators  to the  reliability  standards, an  electric                                                                    
     reliability organization tariff,  planning, and project                                                                    
     pre-approval requirements.                                                                                                 
                                                                                                                                
9:14:39 AM                                                                                                                    
CHAIR  COGHILL said  the idea  was to  put the  planning and  the                                                               
reliability organization together  to recognize the extraordinary                                                               
circumstance where  one entity is  not subject to  regulation but                                                               
is a participant in the Railbelt energy grid.                                                                                   
                                                                                                                                
CHAIR COGHILL  found no committee  comment and said he'd  like to                                                               
hear public  testimony before adopting  the letter of  intent. He                                                               
listed those who were available  to answer question and those who                                                               
wanted to testify.                                                                                                              
                                                                                                                                
9:17:36 AM                                                                                                                    
CHARLES R.  BALDWIN, General Counsel, Homer  Electric Association                                                               
(HEA), Homer, Alaska, stated that  he has been general counsel to                                                               
the  utility for  38 years,  representing  it before  the RCA  in                                                               
multiple regulatory  matters as  well as the  transaction related                                                               
to the construction of the Bradley Lake Hydroelectric Project.                                                                  
                                                                                                                                
MR. BALDWIN  reminded the  committee that in  an effort  to fast-                                                               
track  the   construction  of  the  Bradley   Lake  Hydroelectric                                                               
Project,  the  legislature  in 1988  amended  the  Alaska  Public                                                               
Utilities  Act by  exempting from  RCA jurisdiction,  the Bradley                                                               
Lake  Power Sales  Agreement between  the Railbelt  utilities and                                                               
the  owner  of  the  Bradley  Lake  project,  the  Alaska  Energy                                                               
Authority. This  was done to  sell very favorable bonds  within a                                                               
window  of opportunity.  Under AS  42.05.431(c), the  legislature                                                               
also exempted  the agreements among  the Railbelt  utilities that                                                               
provided for the  transmission of Bradley Lake  power. That power                                                               
now accounts  for about half  of all wholesale  power transmitted                                                               
within the Railbelt.                                                                                                            
                                                                                                                                
MR. BALDWIN highlighted that the  legislature understood that the                                                               
Bradley Lake  agreements and statutory exemption  were to address                                                               
a unique  circumstance and  that uniqueness  was provided  for by                                                               
sunsetting the Bradley exemption when the bonds were paid.                                                                      
                                                                                                                                
MR.  BALDWIN said  he would  respond  to the  two questions  that                                                               
arose during  the last hearing  on the  bill, the first  of which                                                               
asked when  the exemption expires.  He directed attention  to the                                                               
statutory  language  that  says  the  exemption  of  the  Bradley                                                               
agreements remains in effect, "until  all long-term debt incurred                                                               
for the project  is retired." He noted that the  last bond of the                                                               
debt originally  issued to pay  for that project is  scheduled to                                                               
be retired on July 1, 2021.  If all the Railbelt utilities accept                                                               
that  expiration, any  conflict between  SB 123  and the  Bradley                                                               
exemption  statute  would be  of  minimal  concern. However,  HEA                                                               
understands  that  certain  Railbelt utilities  are  prepared  to                                                               
argue that  the exemption  will not expire  until 2041,  which is                                                               
when the new  bonds for the Battle Lake expansion  of the Bradley                                                               
project are paid.                                                                                                               
                                                                                                                                
MR. BALDWIN described  this as a significant  issue because there                                                               
can be  no unified  open access  Railbelt transmission  system as                                                               
long   as  the   RCA   is  precluded   from  approving   electric                                                               
transmission rates and  standards for the Bradley  Lake power. He                                                               
said  the Supreme  Court  agreed when  it held  that  the RCA  is                                                               
without jurisdiction to approve  transmission tariffs for Bradley                                                               
Lake power.                                                                                                                     
                                                                                                                                
MR. BALDWIN said that leads to  the second question, which is the                                                               
extent to  which SB  123 might  be impacted  by the  RCA's future                                                               
inability  to  review  and  approve  the  terms  of  the  Bradley                                                               
contracts. For  context, he  said it  is important  to understand                                                               
the  relationship  between public  utilities  and  the public  as                                                               
represented by the RCA. He explained  that under what is known as                                                               
the  regulatory compact,  the state  (as the  regulator) gives  a                                                               
utility company a  monopoly to serve a specific  area. In return,                                                               
the regulator is  vested with the power to  regulate that utility                                                               
as to  rates and  conditions of service,  including the  right to                                                               
review, to approve, and to  modify contracts affecting the public                                                               
interest.                                                                                                                       
                                                                                                                                
MR. BALDWIN  said one  of the goals  of SB 123  appears to  be to                                                               
foster  conditions  conducive  to  common  rules  and  rates  for                                                               
transmitting  wholesale   power  within  the  Railbelt.   In  the                                                               
industry, these  rules are known  as an open  access transmission                                                               
tariff (OATT). He directed attention  to Sec. 42.05.77 on pages 5                                                               
and 6 of  version G that allows the RCA  to implement regulations                                                               
requiring the ERO to lay  the groundwork for the eventual unified                                                               
Railbelt transmission rates and services,  but not to adopt rules                                                               
outright to establish an OATT.                                                                                                  
                                                                                                                                
9:27:03 AM                                                                                                                    
MR. BALDWIN said  it is pointless to adopt standards  for an OATT                                                               
if the commission has no  jurisdiction to approve an OATT, unless                                                               
that inability is  short-lived. Further, if the RCA  is ever able                                                               
to approve a nondiscriminatory  open access Railbelt transmission                                                               
tariff, it must  first be able to approve  tariff provisions that                                                               
overrule the  contrary language in the  Bradley Lake transmission                                                               
agreements, because those agreements  are both discriminatory and                                                               
anticompetitive. They  are discriminatory in  that they  give the                                                               
Bradley  Lake Hydroelectric  Project  transmission priority  over                                                               
every  other  resource. They  are  anticompetitive  in that  they                                                               
limit  the  right  to  transport  power  to  a  select  group  of                                                               
utilities and they  provide that disputes are to be  decided by a                                                               
majority vote of  the interested parties, not the  RCA that looks                                                               
out for the public interest.  He reiterated that it is impossible                                                               
to  establish an  OATT  if the  RCA does  not  have authority  to                                                               
oversee these contracts of the monopolies they regulate.                                                                        
                                                                                                                                
MR.  BALDWIN  pointed  out  that  while HEA  is  the  only  power                                                               
generator  currently  constrained  by  the  Bradley  transmission                                                               
agreements, the same constraints will  exist for any other entity                                                               
wishing to  make firm  power sales off  the Kenai  Peninsula. Any                                                               
future peninsula-based  wind, solar,  or tidal projects  would be                                                               
precluded from access  to the Railbelt market. He  said HEA urges                                                               
the  committee   to  adopt  the   language  that   clarifies  the                                                               
legislature's understanding  that the exemption expires  when the                                                               
original  revenue bonds  have been  paid; that  there will  be no                                                               
extension; and the  original purpose for which  the exemption was                                                               
granted is satisfied.                                                                                                           
                                                                                                                                
MR. BALDWIN  concluded his  comments saying  that only  time will                                                               
tell  whether the  RCA's jurisdiction  to  regulate Bradley  Lake                                                               
matters  will be  challenged after  the 2021  sunset date,  but a                                                               
clear statement of legislative intent  would make such challenges                                                               
less likely.  That would remove  a major impediment to  a unified                                                               
transmission system for the Railbelt.                                                                                           
                                                                                                                                
9:31:24 AM                                                                                                                    
CHAIR COGHILL thanked him for the testimony.                                                                                    
                                                                                                                                
9:31:58 AM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
9:33:00 AM                                                                                                                    
CHAIR  COGHILL reconvened  the meeting  and asked  Mr. Warner  to                                                               
provide his testimony.                                                                                                          
                                                                                                                                
9:33:25 AM                                                                                                                    
JEFF  WARNER,  Municipal  Light  and  Power,  Anchorage,  Alaska,                                                               
stated  that the  intent statement  for SB  123 satisfies  ML&P's                                                               
original   concern   and    they   appreciate   the   committee's                                                               
consideration of the statement.                                                                                                 
                                                                                                                                
CHAIR COGHILL asked Mr. Izzo to provide his testimony.                                                                          
                                                                                                                                
9:34:34 AM                                                                                                                    
TONY  IZZO,  CEO,   Matanuska  Electric  Association,  Anchorage,                                                               
Alaska, stated  that the  intent statement  for SB  123 satisfies                                                               
the concerns that were raised  and MEA supports it completely. It                                                               
strikes a  balance between  moving the  Railbelt forward  and the                                                               
existing  contractual  agreements  that  are in  statute  and  in                                                               
dispute. He thanked the committee  for finding an artful solution                                                               
to  bifurcate  those two  things  and  satisfy the  concerns.  He                                                               
repeated  his  earlier  testimony  that SB  123  is  overdue  and                                                               
historic and  warned against letting  the perfect get in  the way                                                               
of the extremely good.                                                                                                          
                                                                                                                                
9:35:57 AM                                                                                                                    
CHAIR  COGHILL summarized  that  the  intent statement  clarifies                                                               
that SB 123 is trying to stay  out of the litigation but when all                                                               
the  issues  are  satisfied,  the power  from  the  Bradley  Lake                                                               
Hydroelectric  Project  will be  part  of  the planning  and  ERO                                                               
process.                                                                                                                        
                                                                                                                                
9:37:41 AM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
9:41:18 AM                                                                                                                    
CHAIR COGHILL reconvened the meeting.                                                                                           
                                                                                                                                
9:41:34 AM                                                                                                                    
SENATOR MICCICHE moved the letter of intent.                                                                                    
                                                                                                                                
9:41:43 AM                                                                                                                    
CHAIR COGHILL  found no objection  and the [Intent  Statement for                                                               
CSSB 123(RBE), version G,] was adopted. He solicited a motion.                                                                  
                                                                                                                                
9:42:08 AM                                                                                                                    
SENATOR MICCICHE moved to report the CS for SB 123, work order                                                                  
31-LS0959\G as amended, from committee with individual                                                                          
recommendations and attached fiscal note(s).                                                                                    
                                                                                                                                
CHAIR COGHILL found no objection and CSSB 123(RBE) with intent                                                                  
statement was reported from the Senate Special Committee on                                                                     
Railbelt Electric System.                                                                                                       

Document Name Date/Time Subjects
SB123 - Intent Statement 2.24.2020 Revised.pdf SRBE 2/24/2020 9:00:00 AM
SB 123
SB123 - Background-AS 42-05-711-exemptions 2.24.2020.pdf SRBE 2/24/2020 9:00:00 AM
SB 123
SB123 - Background-AS 42-05-431 Bradley exemption 2.24.2020.pdf SRBE 2/24/2020 9:00:00 AM
SB 123
SB 123 - Amendment G.1 Feb 22 2020.pdf SRBE 2/24/2020 9:00:00 AM
SB 123