Legislature(2013 - 2014)BARNES 124
03/19/2014 08:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB340 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 340 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 19, 2014
8:04 a.m.
MEMBERS PRESENT
Representative Doug Isaacson, Co-Chair
Representative Charisse Millett, Co-Chair
Representative Neal Foster
Representative Shelley Hughes
Representative Benjamin Nageak
Representative Andy Josephson
MEMBERS ABSENT
Representative Pete Higgins
COMMITTEE CALENDAR
HOUSE BILL NO. 340
"An Act directing the Regulatory Commission of Alaska to provide
a report to the legislature relating to electrical transmission
in certain areas of the state; and providing for an effective
date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 340
SHORT TITLE: RCA: RAILBELT ELECTRIC UTILITY REPORT
SPONSOR(s): REPRESENTATIVE(s) MILLETT BY REQUEST
02/26/14 (H) READ THE FIRST TIME - REFERRALS
02/26/14 (H) ENE, L&C
03/19/14 (H) ENE AT 8:00 AM BARNES 124
WITNESS REGISTER
BRADLEY EVANS, Chief Executive Officer
Chugach Electric Association, Inc.
Anchorage, Alaska
POSITION STATEMENT: Provided background information and a
presentation in support of HB 340.
BRIAN HICKEY, Executive Manager
Grid Development
Chugach Electric Association, Inc.
Anchorage, Alaska
POSITION STATEMENT: Provided background information and
testimony in support of HB 340.
GENE THERRIAULT, Deputy Director
Statewide Energy Policy Development
Alaska Energy Authority
Department of Commerce, Community & Economic Development
Anchorage, Alaska
POSITION STATEMENT: Provided a presentation and answered
questions during the hearing on HB 340.
STUART GOERING, Assistant Attorney General
Commercial and Fair Business Section
Civil Division (Anchorage)
Department of Law
Anchorage, Alaska
POSITION STATEMENT: Representing the Regulatory Commission of
Alaska, answered questions during the hearing on HB 304.
JOE GRIFFITH, General Manager
Matanuska Electric Association, Inc.
Palmer, Alaska
POSITION STATEMENT: Testified in support of HB 340.
MARILYN LELAND, Executive Director
Alaska Power Association
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 340.
ACTION NARRATIVE
8:04:22 AM
CO-CHAIR CHARISSE MILLETT called the House Special Committee on
Energy meeting to order at 8:04 a.m. Representatives Hughes,
Nageak, Isaacson, and Millett were present at the call to order.
Representatives Josephson and Foster arrived as the meeting was
in progress.
HB 340-RCA: RAILBELT ELECTRIC UTILITY REPORT
8:05:09 AM
CO-CHAIR MILLETT announced that the only order of business would
be HOUSE BILL NO. 340, "An Act directing the Regulatory
Commission of Alaska to provide a report to the legislature
relating to electrical transmission in certain areas of the
state; and providing for an effective date."
8:06:06 AM
BRADLEY EVANS, Chief Executive Officer, Chugach Electric
Association, Inc. (Chugach), said HB 340 is visionary and
requires changes in the operations, governance, and fiduciary
controls of the utilities in the Railbelt. The bill calls for a
recommendation and a plan to be developed by the Regulatory
Commission of Alaska (RCA) which would require RCA to establish
a record with the participation of the utilities. The plan and
recommendation would then be brought back before the
legislature, and he cautioned that implementing the legislation
would not be easy. Mr. Evans directed attention to the
PowerPoint presentation entitled, "Railbelt Independent System
Operator (ISO)" and said the presentation would include a brief
overview of independent system operators (ISOs) and their place
in the electric industry, the present Railbelt grid, and how the
structure of an ISO would work in the Railbelt. He began with a
statement of support for the plan to form an independent entity,
saying that support comes from the engineers, mechanics, and the
governing board at Chugach. The aforementioned independent
authority would meet the following requirements: hold authority
over the transmission grid; provide nondiscriminatory open
access; adopt, maintain, and enforce reliability standards;
plan, coordinate, and condition new facilities; establish a
single operator; and establish a universal transmission tariff
[slide 2].
8:10:32 AM
REPRESENTATIVE NAGEAK asked whether there has been "buy-in" from
the other operators within the Railbelt.
MR. EVANS stated that letters of support from most of the
utilities in the Railbelt are in the committee packet. A
universal transmission tariff means there would be one rate for
the entire system from Fairbanks to Homer. This would lower
barriers in contract negotiations because the transmission grid
becomes less complex. Although there may be system constraints
to address, the universal tariff would be developed by RCA -
working with the industry - to service existing debt and perform
operations.
REPRESENTATIVE ISAACSON asked how independent utilities fit into
the universal transmission tariff and economic dispatch as
envisioned.
MR. EVANS explained that the universal transmission tariff comes
from a total of all costs divided by kilowatt (kW) hours. The
utilities must pay, thus economic development and growth of the
electrical demand is helpful to reduce the tariff. For example,
providing a reliable power supply to a gold mine creates more kW
hours to be divided into the cost of transmission, and lowering
the rate for all users.
8:14:10 AM
REPRESENTATIVE ISAACSON referred to the debt load of existing
utilities and posed a scenario in which one utility located far
from a user can deliver electricity for less than a utility
located nearby. He inquired as to how economic dispatch would
function in this case.
MR. EVANS said the user would issue a request for proposal (RFP)
for power supply and judge responses on their economics. He
stressed that a universal transmission tariff and an ISO would
not make an uneconomic project economic, although they may lower
some barriers. In further response to Representative Isaacson,
he clarified that the situation is the same for the utility -
even with the transmission costs out of the equation - the
lowest-cost electrical provider will be the most attractive.
CO-CHAIR ISAACSON noted that there has been some negative
response to establishing an ISO or a regulated transmission
company (TRANSCO) due to the utilities' existing debt service.
He asked how a utility would be able to compete if it is
carrying a debt load.
MR. EVANS was not sure if the existing debt load is a barrier.
The transmission charges could be more or less, but adjustments
are made during the transmission period when the benefits of a
unified system, such as economic dispatch, reap operating
offsets.
8:18:08 AM
CO-CHAIR MILLETT offered to distribute to the committee research
on the Texas regional transmission organization (RTO) that was
used as a model. She observed that HB 340 is the first step to
complete the ISO, which will take many years.
REPRESENTATIVE HUGHES asked how the bill evolved.
CO-CHAIR MILLETT recalled a RTO for the Railbelt has been
discussed for about 15 years. The first time the utilities
worked together was on the Greater Railbelt Energy and
Transmission Corporation (GRETC) [House Bill 182, introduced in
the 26th Alaska State Legislature], which was not passed by the
legislature; however, HB 340 is based on a more successful
model.
8:20:11 AM
MR. EVANS returned to Co-Chair Isaacson's question, adding that
additional barriers are the fears that the utilities will have
to pay more, and that establishing an ISO means there will be a
"let-go" moment, because an ISO enters into the governing body
of an independent entity. In fact, the utilities will not be
alone in a governing position in an ISO. He opined there are
two types who will argue against HB 340, those who feel they
will lose an economic advantage and those who fear change. Mr.
Evans assured the committee that existing costs would continue
to be paid under the ISO system after a "slight rebalancing" by
RCA. He recalled that Chugach first investigated ISOs 25 years
ago when he looked at the history of ISOs in the Midwest.
Independent System Operators have proven to be reliable, and
after two years of study the best model was chosen. Slide 3 was
a map of ISOs in the Lower 48 and Canada; the Texas model was
driven by independent utilities and addressed similar issues
such as congestion, access, and renewables. The Texas
organization was put in place by the Texas state legislative
body, although ISOs can be put in place by the Federal Energy
Regulatory Commission (FERC) [slide 4]. He explained that a RTO
and an ISO are identical. Also, a significant difference
between GRETC and HB 340 is that an ISO does not own any assets
or require assets to be transferred, as it is very difficult to
do so.
8:26:46 AM
REPRESENTATIVE HUGHES observed that in Texas ISOs were formed by
the state legislature, and asked why Alaska utilities have not
pursued that path.
MR. EVANS explained that for the past 30 years, Chugach has had
large wholesale power contracts and thus controlled 80 percent
of the grid; however, this situation is coming to an end.
CO-CHAIR MILLETT added that Texas is similar to Alaska in that
the utilities do not cross state or national boundaries, thus
there is one legislature and one electrical grid involved.
MR. EVANS added that an organization that crosses state lines
becomes more complex - which is a situation Alaska can avoid -
and he noted that choosing an existing ISO for a model is a
decision that will be made later. He directed attention to
slide 4, which illustrated the characteristics of an ISO as
follows: ensures nondiscriminatory access; has possession of
operational authority for all of the facilities under its
control; has a regulatory compact to facilitate RCA's
development of one transmission tariff; and looks at project
development to coordinate and plan new facilities across the
system.
8:31:38 AM
CO-CHAIR ISAACSON asked about the impact of an ISO on fuel
surcharges and non-regulated fees from each utility. He then
referred to the ISO's planning of projects, and asked whether
transmission and generation projects would be included when the
ISO doesn't own assets, but the utilities do.
MR. EVANS answered that the ISO looks at the impact that a new
power project would have on the system, and if there is a
negative impact RCA will question its approval for the recovery
of rates for the project; therefore, the ISO creates a barrier
to "doing things wrong" because projects will be part of a
public discussion. This type of public review is common within
local and state governance, but not in the electric industry.
Regarding generation, he said the ISO does not take into account
the type of fuel used by a power project, but only looks at the
effect the new generation will have on the grid. The economics
of the project are left to the developer. Regarding fuel
surcharges, Mr. Evans explained that fuel surcharges sometimes
have the purchase power component included and depending on how
RCA implements the tariff, "all the bills that were being paid
for yesterday will be paid for tomorrow, so it'll flow somewhere
through your bill." Further, if economic dispatch is achieved,
fuel surcharges will go down.
8:38:00 AM
CO-CHAIR ISAACSON pointed out there is already a charge on the
bill for RCA, and inquired as to whether utility customers will
pay another charge for the ISO.
MR. EVANS acknowledged there will be a transition plan to
consider the costs. Currently, many of the duties of the ISO
are being handled by other entities, and are being paid for. He
opined the RCA's transition plan will be part of the
recommendation mandated by HB 340.
CO-CHAIR MILLETT informed the committee RCA is not available for
comments at this time.
MR. EVANS concluded that ISO's are a proven solution for several
important reasons, most importantly to maintain the utilities'
"A" rating which lowers their borrowing cost for new
transmission projects [slide 5]. Additionally, ISOs are common
throughout the Lower 48 and are scalable to the Railbelt in
Alaska.
8:42:13 AM
BRIAN HICKEY, Executive Manager, Grid Development, Chugach,
directed attention to slide 6, and pointed out key features of
the Railbelt interconnection, or grid, that covers the region
from Homer to Fairbanks. One key feature is that the three
large load centers on the Kenai Peninsula, in the Anchorage and
Matanuska-Susitna (Mat-Su) area, and in Fairbanks, are connected
by single transmission lines, upon which all of the energy is
transmitted. He informed the committee a grid operates as a
single machine, for example, the generators at Bradley Lake and
at North Pole operate "locked in synchronism" and respond to
changes in the demand for power anywhere in the Railbelt. The
"thin" transmission lines that connect the large load centers
are a cause for concern. In addition, at every moment of the
day, electrical generation must equal the demand load because
the energy cannot be stored, but must be produced when required.
From 1985 to December 2013, there were three vertically
integrated utilities: Chugach, Golden Valley Electric
Association (GVEA), and two areas of Anchorage Municipal Light &
Power (ML&P). During that time, Chugach controlled economic
dispatch through a series of wholesale power agreements with
Homer Electric Association (HEA), and Matanuska Electric
Association, Inc. (MEA), and a non-firm energy agreement with
GVEA, except for the area controlled by ML&P. There were
reliability "rules of the road" that had been embodied in the
Alaska Intertie Agreement in 1985, and agreed to with voluntary
compliance between the three operators. Later on in the '80s
and '90s there were other agreements that allowed utilities
north of the Kenai Peninsula to access energy from Bradley Lake.
This was possible because Chugach provided dispatch for the
entire area, and the power did not have to travel the line to
Anchorage because Chugach displaced power from Bradley Lake to
serve the Kenai load, and generated other power for the
utilities located north. Therefore the line did not require
upgrading at that point in time, even though the original line
was designed for a project one-tenth the capacity of the Bradley
Lake project [slide 7].
8:49:45 AM
MR. HICKEY continued to slide 8, and stated that at the end of
2013 the wholesale contracts broke apart causing major changes.
Post 2014, there will be five separate load-balancing
authorities: GVEA, Chugach, MEA, two areas for ML&P, and HEA.
This new situation requires more coordination of load and
generation, and the previously agreed-to reliability rules are
no longer effective. The Alaska Intertie Agreement was amended
in 2011 to implement open access, and other participants are
being invited to use the transmission system. The addition of
new generation has put different stresses on the system, such as
uneconomic dispatch, reliability problems, and potential
blackouts. He noted that the Bradley Lake transmission access
congestion comes from the new generation by HEA, MEA, Chugach,
and ML&P that now has to travel on the single transmission line
and integrated planning is critical; in fact, the output from
Bradley Lake must now traverse the line from Kenai to Anchorage
and cannot do so under certain conditions which prevents low-
cost and efficient power from being used. In addition,
independent power producers (IPPs) want access to the system,
which requires coordination. Mr. Hickey described the savings
in infrastructure possible through reserve sharing, which kept
rates lower prior to 2014, but now will have to be recovered.
He related his extensive investigation of ISOs in the Lower 48,
and advised that an ISO is a good model to follow for the
Railbelt because it would eliminate the five load-balancing
authorities and provide independent long-range planning [slide
9].
8:55:51 AM
CO-CHAIR MILLETT asked Mr. Hickey to describe the structure of
an ISO.
MR. HICKEY explained that the utilities would remain intact with
distribution loads, service territories, and boards of
directors, and would still own the transmission facilities in
their service territories. The utilities would not decide on
interregional planning because each utility would focus on its
own service territory, and would cede control of the operation
of the transmission system to an overarching entity that has no
assets. The new entity would economically dispatch the system,
choosing the lowest cost generator.
CO-CHAIR ISAACSON cautioned that in the future the Railbelt
transmission area will need to be expanded to Copper Valley and
Glennallen in a loop back to Anchorage. He asked if the ISO
would facilitate expansion to accomplish greater economic
dispatch.
MR. HICKEY provided an example of how a wind farm was integrated
in West Texas. After given direction from the legislative body,
the Texas ISO studied the problem and undertook the project.
8:59:30 AM
REPRESENTATIVE HUGHES inquired how IPPs fit into the structure
of the ISO.
MR. HICKEY said IPPs and utilities are treated identically under
the proposed ISO model; in fact, the ISO studies the system and
determines how the IPP would connect, without causing
reliability or congestion problems along the grid, following
protocols previously established by the stakeholder groups.
REPRESENTATIVE NAGEAK observed the state is considering building
a gas pipeline, which would provide a source of fuel and support
the formation of an ISO.
MR. EVANS agreed that the construction of a gas pipeline is
fortuitous, although decisions have not been made on
compression, or whether excess power can be sold to the grid.
Alternatively, compression on the gas pipeline could be
electrified by power from the grid. The ISO would provide
greater flexibility so there would be less angst over the
location of interconnections and over tariffs. Another benefit
of an ISO structure is that it facilitates economic development,
as has been demonstrated in the Lower 48.
9:04:36 AM
MR. HICKEY explained that pancake rates are layers of costs; for
example, as power crosses individual power systems, individual
rates are charged each time and the rates pile up like a stack
of pancakes. With an ISO structure, there is one single rate:
All of the transmission costs in the Railbelt are divided by all
of the kilowatt hours, and there is one rate charged to all.
CO-CHAIR ISAACSON asked who will develop the rules for the
transmission system.
MR. HICKEY said, under ISO models, all of the stakeholders
participate in the development of the protocols to govern the
system, which will take one to two years.
CO-CHAIR MILLETT added that following the example of Texas, with
the help of RCA, the legislature would appoint a board that
includes IPPs and utilities.
REPRESENTATIVE HUGHES asked whether rates are tied to distance
or the amount of power transmitted.
9:08:24 AM
MR. HICKEY advised that currently the rate is based on the
number of kilowatt hours moved across the system. There is no
distance charge, because the system is "one single machine." He
confirmed that this is a "postage stamp rate ... you put a stamp
on a letter and it goes wherever it goes." Mr. Hickey returned
to the needs of the Railbelt which were illustrated on slide 9,
and restated the need for universal reliability standards; an
independent authority to enforce the rules; long-term planning
which precipitates savings from economic dispatch; and regional
operations to support transfers of power from one region to the
next. Slide 10 illustrated the following Transmission
Challenges: transmission constraints that limit power transfer
and economic dispatch; the business model for individual local
utilities and cooperatives does not motivate utilities to
develop infrastructure beyond their individual service
territories thus preventing regional transmission projects or
economic dispatch; and multiple transmission tariffs and
operating rules make interconnection uncertain. Slide 11 listed
studies - beginning in 1998 - that have identified millions of
dollars in savings from economic dispatch by an ISO. Mr. Evans
cautioned that the eminent fragmentation of the system means
costs will continue to increase.
9:13:24 AM
CO-CHAIR ISAACSON questioned whether there is the danger that HB
340 is just adding another study.
MR. EVANS acknowledged there is a danger; however, many of the
issues have been addressed regarding asset transfers, the
governance model, the structure, and financing. He expressed
his hope that the governing boards of the utilities wake up to
the benefits of lowering the cost of power and achieving
reliability.
CO-CHAIR ISAACSON affirmed that the previous studies lead in the
right direction, but may not offer a plan.
MR. EVANS said the studies go no further than exploring the ISO
concept and its effect on economic dispatch. These studies are
not working business models upon which to make a business
decision or to determine tariffs.
REPRESENTATIVE NAGEAK observed that HB 340 is a plan and a
concept.
MR. EVANS agreed that HB 340 calls for an actionable plan - not
a study - and tasks RCA to establish a record of need in order
to make a recommendation, based on need, which can be
implemented.
9:16:44 AM
REPRESENTATIVE NAGEAK stated his support for HB 340.
MR. EVANS directed attention to slide 12 which illustrated the
structure of an ISO and its governing model. The organization
is supported by stakeholders such as cooperatives,
municipalities, the Alaska Energy Authority (AEA), investor-
owned utilities, IPPs, renewables, and others. He provided an
example wherein the ISO governing board was established by a
formal hiring system because the board members must be very
knowledgeable from the outset. Also, new to Alaska, is the role
for board members to represent the interests of IPPs and
renewables. The board will be self-sustaining and balanced by
the regulatory compact.
CO-CHAIR MILLETT stressed that the state's goal of 50 percent
renewable energy by 2025, acknowledged by RCA, ensures that the
IPPs and renewables have a role.
9:20:30 AM
MR. EVANS shared the following vision of the Railbelt ISO:
stakeholder governance; under RCA jurisdiction; caretaker of
reliability and interconnection standards; plans and conditions
projects; enforces standards; has regulatory compact; ensures
nondiscriminatory open access; develops tariff working with RCA;
responsible for reliability; and responsible for system economic
dispatch [slide 13]. Mr. Evans restated that the legislation
and path forward is through HB 340, which asks RCA to recommend
a plan to the legislature by 1/1/2015 to establish an
independent entity to provide a business structure and meet the
stated objectives [slide 14]. Further, part of the
recommendation from RCA is to suggest the legislation and
statutory changes needed to implement the plan.
CO-CHAIR MILLETT pointed out the legislative change needed in
Texas was a subject of lengthy debate.
MR. EVANS opined there will be those who testify against the
bill. He closed with the summary illustrated on slide 15.
REPRESENTATIVE JOSEPHSON asked whether RCA has accepted the
change from the original report due date to 1/1/2015.
MR. EVANS said the new date is achievable because RCA's task has
been clarified and fewer details are needed. He cautioned that
to wait [until 7/1/2015] during this time of transition would
add complications if gas contracts are executed; however, he
deferred to the chair of RCA.
CO-CHAIR MILLETT stated that she made that change after
discussions with RCA.
9:25:46 AM
REPRESENTATIVE JOSEPHSON asked whether RCA should give the
Regulatory Affairs & Public Advocacy (RAPA), Department of Law,
an affirmative role in its action plan, or if consumer needs are
protected by existing statutes.
MR. EVANS expressed his understanding that a consumer advocate
could be placed on the board or in another position. He
deferred to RCA to make a recommendation. He stated that there
is a general understanding that consumer advocacy has a place in
the new business structure.
9:27:23 AM
CO-CHAIR ISAACSON moved to adopt the proposed committee
substitute (CS) for HB 340, labeled 28-LS1408\N, Nauman,
3/12/14, as the working draft.
9:28:05 AM
CO-CHAIR MILLETT objected for the purpose of discussion.
REPRESENTATIVE NAGEAK directed attention to the bill beginning
on page 2, line 13 which read:
(7) has the power to
(A) mandate the use of a nondiscriminatory
electrical transmission system
REPRESENTATIVE NAGEAK asked for an explanation of the above
subparagraph.
MR. HICKEY explained that the ISO is responsible for short-term
reliability within the system and if - due to transmission
constraints - a generator must be utilized that is not the least
expensive, but is needed for reliability, the ISO has the
authority to do so, because its order of dispatch is reliability
before economics. The cost difference would be determined for
the higher cost generator and all the parties would share the
cost in order to preserve reliability.
9:29:58 AM
GENE THERRIAULT, Deputy Director, Statewide Energy Policy
Development, Alaska Energy Authority (AEA), Department of
Commerce, Community & Economic Development, directed attention
to the PowerPoint presentation entitled, "Alaska Transmission
Issues." He said the distance of the Railbelt Transmission
System from Homer to Fairbanks is 580 miles, and the system
consists of a collection of independently-owned transmission
assets that link the Bradley Lake facility to the GVEA
distribution system in the Healy area [slide 2]. The Alaska
Transmission System is a portion of the Railbelt system that
runs 170 miles from Wasilla to Healy that is owned by the state,
and is operated in conjunction with the utilities. Yet to be
resolved for the Railbelt Transmission System are governance and
infrastructure issues [slide 2]. Over the past two years, AEA
has expended $800,000 to complete an economic review of the
current system in order to determine how to increase the
capacity of the system and to benefit the consumer. The review
looked the infrastructure of the system in three segments, the
first of which affects the southern end of the system at Bradley
Lake. Unconstraining Bradley Projects are needed to ensure that
Bradley Lake power can be transmitted to the utilities at the
times it is most needed. The upgrades to the components needed
to increase the capacity and the reliability of the system are
estimated at [$402.2] million [slide 3].
9:34:15 AM
MR. THERRIAULT continued to the second segment, Southcentral
Projects, which affect Chugach, MEA, and ML&P in the Anchorage
bowl area. In order to ship more power along the system two
substations need upgrades, which are estimated to cost [$20.5]
million [slide 4]. The third segment was identified as Northern
Projects, which are located north of the Anchorage bowl up to
the GVEA system, and the total to increase capacity, ensure
generation, and facilitate IPPs in that portion is estimated to
cost [$480.7] million [slide 5]. He noted that AEA believes
that improvements to the system will enable the use of economic
dispatch and thereby motivate economic development in the
Railbelt.
CO-CHAIR ISAACSON asked whether the improvements will grow into
a system that connects the Copper River Valley to GVEA in order
to provide power to develop the natural resources in the area.
MR. THERRIAULT acknowledged that providing links to the Copper
River Valley system have been studied. In fact, the present
effort to expand capacity in the Railbelt and to establish a
governance system would make future expansion to the Copper
Valley easier because issues such the location of the actual
connection, reliability standards, structure, and
synchronization would be addressed.
CO-CHAIR MILLETT asked whether AEA supports HB 340.
9:39:08 AM
MR. THERRIAULT said yes, and spoke in support of the changes
proposed by the CS. However, the proposed legislation is a low
threshold to attain and would not result in a final plan,
therefore, additional work by the legislature will still be
needed. He returned to the presentation of the cost benefit
analysis which assumed all of the proposed work was done by 2015
[slide 6]. The total cost of all the improvements to the three
segments of the transmission system is [$903.4] million [slide
7]. Slide 8 displayed the base assumptions made by the study:
capital expenditures (CAPEX) of $903 million; yearly operating
expenditures (OPEX) of the expanded system of $18.1 million,
based on an industry standard of 2 percent; interest rate of 5
percent; 30-year bonds; cost of output is spread over all of the
kilowatt hours produced; and an inflation factor of 2.5 percent.
9:42:00 AM
CO-CHAIR ISAACSON observed that market prices and bonding terms
may change, and asked how these changes would affect the cost
benefit analysis.
MR. THERRIAULT answered that if costs go up, the potential
savings to consumers go down; however, he assured the committee
that AEA would be utilizing the backing of the state to secure
favorable financing and keep the overall costs down.
REPRESENTATIVE NAGEAK noted that the upgrades will be entirely
funded with commercial rates and asked for an explanation.
MR. THERRIAULT said AEA's initial evaluation indicates that the
Railbelt consumers will bear the expense, but once the
improvements are paid for, the consumers will realize a savings.
Although AEA has estimated savings will range from $146 million
to $241 million, the utilities have estimated savings of $100
million. The model used by AEA to calculate savings included
information from the utilities; in addition, other scenarios
that reflected changes in demand load were explored. Even with
the potential changes in demand load, annual savings are
estimated to be around $60 million throughout the Railbelt
system. Also, the estimated savings are "hard dollar" fuel-cost
savings, but other savings are possible; for example, saving on
expenses by avoiding blackouts and by sharing spinning reserves.
9:46:44 AM
MR. THERRIAULT continued to slide 10, which illustrated the net
effect on the cost of kilowatt hours after the improvements are
paid for. Depending on the type of financing, an average
consumer could save from $0.013 to $0.033 per kilowatt hour.
Slide 11 illustrated the costs of each of the three segments
over 35 years, and the annual savings for consumers in nominal
and 2013 dollars. He stated that AEA believes the savings
justify the expenditures on the infrastructure, and savings will
be realized even if project costs increase. Mr. Therriault
closed his presentation, saying that AEA supports funding for a
more streamlined system of governance for the entire Railbelt
Transmission System, components of which are owned by individual
utilities and the state. The existing intertie operates under
reliability standards that have been built for the operation of
the Alaska Transmission System, and the state has relied on
voluntary adherence to those standards by the utilities for the
rest of the system. However, the lack of an entity to enforce
reliability standards is a problem when considering increasing
the capacity of the intertie. The state owns - through AEA -
the Bradley Lake system, generation components, and a section of
the intertie, thus the legislature must ensure that the consumer
receives the optimum benefit from generation on the Kenai, so an
improved transmission system is needed. Further, AEA believes
the investment in infrastructure and the accompanying governance
system will facilitate economic development, such as a large
mine, in the Railbelt [slide 12].
9:51:19 AM
REPRESENTATIVE JOSEPHSON asked whether there are funds in the
capital budget for enhancement of the Railbelt interties.
MR. THERRIAULT answered at this time there is no money in the
governor's budget for the proposed plan. In 2011, $56 million
was directed to the Railbelt system, and AEA has been working
with the utilities to advise on how the allotment has been spent
in order to handle specific problems within the system. He
pointed out that policymakers may question the method of
governance for the system, thus the portion of HB 340 that
addresses governance would assure legislators in that regard.
CO-CHAIR ISAACSON inquired as to how much of the $56 million
allotment is still available to be put toward the abovementioned
projects.
MR. THERRIAULT answered that all of the $56 million has been
encumbered for projects by the utilities, under the guidance of
AEA.
CO-CHAIR ISAACSON surmised the projects are Unconstraining
Bradley Projects, Quartz Lake, or in the Kenai area.
9:53:24 AM
MR. THERRIAULT advised that the suggested expenses in the
economic review are "above and beyond the $56 million that has
primarily already been spent."
CO-CHAIR MILLETT recalled that in 2011 the governor vetoed about
one-half of the funds requested by the Alaska Railbelt
Cooperative Transmission and Electric Company (ARCTEC) for nine
projects, but did not veto specific projects. The reduced
allocation flowed through AEA, thus AEA made the decisions on
which projects to fund. The purpose of HB 340 is to establish a
governance body to advise so that agreed-to projects are fully
funded through the capital budget, and thus avoid regional
battles.
MR. THERRIAULT added that the presentation was on the first part
of the economic study; the second portion will look at how to
stage the proposed projects over a 10-year build out. An ISO
would be able to review advancing technology to save costs and
make recommendations year-to-year. He reminded the committee
that the contractual arrangements made between the utilities
over the years are expiring, and additional delay will
necessitate that individual utilities execute contracts between
themselves, which will remove the current flexibility.
Furthermore, individual utility boards are looking at serving
their constituents, but the legislature has a larger
responsibility to the entire state. Mr. Therriault stressed
that most of the utilities in the Railbelt agree that there must
be a change to the structure of the system.
9:58:24 AM
CO-CHAIR ISAACSON returned attention to the cuts to the 2011
allocation, and asked whether HB 340 would succeed if funds were
severely limited.
MR. THERRIAULT said, "it's not ... if we do 10 percent of the
investment we'll get 10 percent of the savings, it doesn't work
that way." The goal is to create a governance system and a
suite of funding tools that can assure progress from year one to
year ten. The state's support could vary, but the system would
have governance and financing ability tools in place to assure
progress.
CO-CHAIR ISAACSON surmised the system of governance would enable
efficiencies, and asked what the charge to the consumer would be
for the operation of the ISO.
MR. THERRIAULT said he was unsure. Currently, there is some
redundancy in the system, which may cover the operation of the
ISO.
CO-CHAIR ISAACSON suggested the savings from redundancy will be
disproportionate.
MR. THERRIAULT agreed and observed that other areas [as
described by the ISO models] have "phased in" the cost structure
and savings until all areas benefit. He cautioned that making
the investment without changing the governance would not accrue
savings for the consumer.
10:02:36 AM
STUART GOERING, Assistant Attorney General, Commercial and Fair
Business Section, Civil Division (Anchorage), Department of Law,
representing RCA, offered to answer questions.
CO-CHAIR MILLETT pointed out that the fiscal note [identifier
HB340-DCCED-RCA-03-14-14, prepared by RCA] was for $1 million
and asked why it was so high.
MR. GOERING said RCA reviewed the costs of previous studies in
order to compare the scope of work required within the timeframe
mandated by HB 340. In further response to Co-Chair Millett, he
said the $0.5 million requested in Fiscal Year 2016 (FY 16) was
to accommodate the July 15, FY 15 filing date of the report
which falls in the following fiscal year. Thus moving the date
places the request all in FY 15. Originally, the due date would
fall across two fiscal years.
CO-CHAIR MILLETT then asked for RCA's position on HB 340.
10:05:08 AM
MR. GOERING advised that in order to take a position, RCA must
convene an open meeting, discuss the matter, and take a vote of
the commissioners. In his experience, RCA has always been
responsive to requests from the legislature that contain clear,
unambiguous directions and adequate resources. In further
response to Co-Chair Millett, he said he could not say what the
commissioners' concerns would be with the language in HB 340,
but, speaking as an advisor to RCA, his concerns fall into two
categories. First, the bill has a narrow scope and it appears
that some preliminary decisions have been made about the entity
created in the bill. Second, some of the assumptions made in
the bill are inconsistent with existing regulatory concepts and
need clarification. If the legislature wishes to change the law
so that there is a different approach to an ISO than there is to
a general ratemaking proceeding in a regular utility or pipeline
matter, the change should be made explicitly.
CO-CHAIR MILLETT expressed her understanding that the authority
for RCA to oversee an ISO would be an additional responsibility
that is not currently in statute.
MR. GOERING agreed, however, if the assumptions in the bill
implicitly change the way an entity is regulated, changes in
statute should follow. He offered to assist the drafters -
without making major changes in the wording of the bill - to
clarify that the bill does not intend to change the status quo.
CO-CHAIR MILLETT requested that Mr. Goering provide his written
recommended changes to the co-chairs for consideration.
10:09:35 AM
JOE GRIFFITH, General Manager, MEA, lauded the efforts of the
committee and the presenters. He said HB 340 is a heroic step
in the right direction, and urged for the passage of the bill as
soon as possible. The pursuit for a change to the Railbelt
Transmission System has continued for 25 years. As the Railbelt
has changed, the creation of an ISO will not be easy; although
at this time MEA and Chugach are working to create a TRANSCO
which will limit the number of area crossings needed to move
power. Mr. Griffith urged the committee to act now.
10:11:33 AM
MARILYN LELAND, Executive Director, Alaska Power Association
(APA), informed the committee APA is the statewide trade
association for the electric utilities which includes
cooperatives, municipal, and investor-owned utilities that
provide power to over 500,000 Alaskans throughout the state.
Ms. Leland agreed that the idea of an ISO has been talked about
and studied by the state and the utilities for many years. She
stated that in December, 2013, the APA board of directors
unanimously passed a resolution asking the Alaska State
Legislature to support the efforts by the Railbelt electric
utilities to unify the regional transmission system. The
members of APA look forward to working with RCA and the
legislature to create an ISO.
[HB 340 was held over.]
10:12:55 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 10:12 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 340 Sponsor Statement.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB0340A.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 ISO Fact Sheet.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| Energy Committee Agenda.doc |
HENE 3/19/2014 8:00:00 AM |
(H) ENE Agenda 03192014 |
| HB 340 Letter of Support -Griffith MEA.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 AEA PowerPoint 03192014.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 APA 2014 ResolutionUTS.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB340 Fiscal Note DCCED-RCA-03-14-14.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 CEA Evans PowerPoint 03192014.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 CEA CEO Evans Letter.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 Letter of Support CEA.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 Summary of Changes.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |
| HB 340 Blank CS version N.pdf |
HENE 3/19/2014 8:00:00 AM HENE 4/2/2014 8:00:00 AM |
HB 340 |