Legislature(2015 - 2016)CAPITOL 17

01/29/2015 10:15 AM House ENERGY


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10:17:34 AM Start
10:18:50 AM Presentation: First Infrastructure
10:41:45 AM Presentation: Renewable Energy Alaska Project
11:10:50 AM Presentation: Chugach Electric Association Inc.
11:58:54 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overviews: TELECONFERENCED
- "Energy & Infrastructure Financing" by
Steve Klein, First Infrastructure
- Unified System Operator - Brian Hickey,
Executive Manager of Grid Development, Chugach
Electric Association
- Independent System Operator - Chris Rose,
Executive Director, Renewable Energy Alaska
Project
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                        January 29, 2015                                                                                        
                           10:17 a.m.                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Jim Colver, Co-Chair                                                                                             
Representative Liz Vazquez, Co-Chair                                                                                            
Representative Benjamin Nageak                                                                                                  
Representative David Talerico                                                                                                   
Representative Cathy Tilton                                                                                                     
Representative Matt Claman                                                                                                      
Representative Adam Wool                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATION:  FIRST INFRASTRUCTURE                                                                                             
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PRESENTATION:  RENEWABLE ENERGY ALASKA PROJECT                                                                                  
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PRESENTATION:  CHUGACH ELECTRIC ASSOCIATION INC.                                                                                
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
STEVEN KLEIN, Managing Principal                                                                                                
First Infrastructure, LLC                                                                                                       
Montclair, New Jersey                                                                                                           
POSITION STATEMENT:  Provided a PowerPoint presentation                                                                       
entitled, "Financing Energy in Alaska," and dated 1/29/15.                                                                      
                                                                                                                                
CHRIS ROSE, Executive Director                                                                                                  
Renewable Energy Alaska Project (REAP)                                                                                          
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled, "An Independent System Operator for the Railbelt."                                                                    
                                                                                                                                
BRADLEY EVANS, Chief Executive Officer                                                                                          
Chugach Electric Association Inc. (CEA)                                                                                         
Anchorage, Alaska                                                                                                               
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled, "Status update on the  Railbelt Unified System Operator                                                               
(USO) Initiative."                                                                                                              
                                                                                                                                
BRIAN HICKEY, Executive Manager                                                                                                 
Grid Development                                                                                                                
Chugach Electric Association, Inc. (CEA)                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Participated  in the PowerPoint presentation                                                             
by Chugach Electric Association.                                                                                                
                                                                                                                                
DUFF MITCHELL, Executive Director                                                                                               
Alaska Independent Power Producers Association (AIPPA)                                                                          
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Asked a  question during the presentation by                                                             
Chugach Electric Association.                                                                                                   
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
10:17:34 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  LIZ  VAZQUEZ  called the  House  Special  Committee  on                                                             
Energy meeting  to order at  10:17 a.m.   Representatives Claman,                                                               
Wool, Nageak, Talerico, Tilton,  Colver, and Vazquez were present                                                               
at the call to order.                                                                                                           
                                                                                                                                
^PRESENTATION:  FIRST INFRASTRUCTURE                                                                                            
              PRESENTATION:  FIRST INFRASTRUCTURE                                                                           
                                                                                                                              
10:18:50 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  VAZQUEZ  announced that  the  first  order of  business                                                               
would be  a PowerPoint  presentation entitled,  "Financing Energy                                                               
in Alaska,"  dated 1/29/15, by Steven  Klein, Managing Principal,                                                               
First Infrastructure.                                                                                                           
                                                                                                                                
CO-CHAIR  COLVER expressed  his interest  in hearing  information                                                               
that may lead to lowering energy costs.                                                                                         
                                                                                                                                
10:20:02 AM                                                                                                                   
                                                                                                                                
The committee took a brief at ease.                                                                                             
                                                                                                                                
10:21:46 AM                                                                                                                   
                                                                                                                                
STEVEN  KLEIN,  Managing  Principal, First  Infrastructure,  LLC,                                                               
informed the committee his company  is an advising and consulting                                                               
firm based in  New Jersey.  His presentation  describes a concept                                                               
that  is  applicable  in  Alaska,  and which  has  proven  to  be                                                               
feasible -  it is  a significant departure  and innovative  - but                                                               
not unprecedented.  Mr. Klein  acknowledged that Alaska is facing                                                               
severe fiscal challenges, however, this  is the time to invest in                                                               
Alaska's future economic well-being.   In order to finance energy                                                               
infrastructure,  the  prerequisites   of  comprehensive  economic                                                               
development  are:   the  identification  of comparative  economic                                                               
advantages; private  capital for  investment to  leverage limited                                                               
state  dollars; infrastructure  necessary to  support development                                                               
including  roads,  ports,   power,  energy  transmission,  energy                                                               
distribution,  energy  production,  and telecommunications.    He                                                               
stated that  infrastructure development  must be the  priority as                                                               
it  is  a  driving  force,  and the  lack  thereof  is  the  most                                                               
significant hurdle that prevents or slows economic development.                                                                 
                                                                                                                                
10:25:08 AM                                                                                                                   
                                                                                                                                
MR. KLEIN  explained that infrastructure  is most often  a public                                                               
sector  undertaking; on  the other  hand, when  public funds  are                                                               
scarce, private  capital can be utilized.   In this process  - in                                                               
which  the  state's  role  is critical  -  the  prerequisites  of                                                               
private   capital   are:    a   stable,   transparent   political                                                               
environment;  minimal political  interference  in the  investment                                                               
process; and a public commitment.   As background information, he                                                               
noted that  the energy fund  marketplace is  growing domestically                                                               
and  internationally; in  fact, infrastructure  and energy  funds                                                               
are   a  large   and   growing  category   of  investment   among                                                               
institutional  investors.   However, to  attract investment,  the                                                               
state must  establish the proper  framework and incentives.   For                                                               
example,  a state-sponsored  effort to  attract investment  could                                                               
involve  the Alaska  Industrial  Development  & Export  Authority                                                               
(AIDEA),   Department   of   Commerce,   Community   &   Economic                                                               
Development (DCCED), and  he provided a conceptual  outline.  Mr.                                                               
Klein  disclosed that  he  is a  paid consultant  to  AIDEA on  a                                                               
number of projects,  but at this hearing he  was not representing                                                               
AIDEA,  and his  remarks are  his own.   Mr.  Klein advised  that                                                               
AIDEA is the state's economic  development arm and is equipped to                                                               
provide   the  state's   financial  contribution   by  sponsoring                                                               
financial feasibility,  strategic planning, and  start-up efforts                                                               
that are needed.   In addition, AIDEA's strong  balance sheet can                                                               
support this  effort.  He  noted that AIDEA  is in a  position to                                                               
form a separate  entity, and holds the  statutory legal authority                                                               
to form  subsidiary corporations.   Forming a separate  entity is                                                               
critical to  provide transparency and status  which would attract                                                               
long-term   private  capital   investment.     For  the   funding                                                               
structure,  he proposed  AIDEA dedicate  funds in  a subordinated                                                               
investment in  a fund  of approved  projects.   The "subordinated                                                               
layer"   assumes  incremental   risk  beyond   that  of   private                                                               
investors, and  serves to induce  private capital  investments in                                                               
Alaska.  Mr.  Klein briefly described a similar  fund in Michigan                                                               
that  was   formed  from   an  initial   subordinated  investment                                                               
contribution of  $20 million from  the state.   Subsequently, the                                                               
investment fund raised more than  $40 million in private capital.                                                               
In   consideration  of   the  projects   needed  in   Alaska,  he                                                               
recommended that  AIDEA dedicate $50 million  contingent upon the                                                               
successful  raising of  at least  four times  that amount  in the                                                               
private market.                                                                                                                 
                                                                                                                                
10:32:25 AM                                                                                                                   
                                                                                                                                
MR.   KLEIN  provided   the  following   key  principles   of  an                                                               
infrastructure  fund   that  would   be  acceptable   to  private                                                               
investors:                                                                                                                      
                                                                                                                                
   · Must must be privately operated and governed.                                                                              
   · Must commit to achieve market returns for its investors.                                                                   
   · Representatives of the state or AIDEA would sit on the                                                                     
     board of directors, but the majority of the directors and                                                                  
     the investment committee must be from the private sector.                                                                  
   · Investment decisions must be made impartially on their                                                                     
     merits, without political considerations in accordance with                                                                
     the dual objectives of achieving development needed for                                                                    
     Alaska and producing market returns.                                                                                       
  · The investment team must be professionals in the industry.                                                                  
   · Must be authorized to make both equity and subordinated                                                                    
     debt investments in worthy projects.                                                                                       
   · Fund term commensurate with the life of its investment.                                                                    
                                                                                                                                
MR.  KLEIN  said  the  aforementioned  are  the  first  steps  to                                                               
creating  a  fund to  address  the  long-term capital  needs  for                                                               
energy and  infrastructure development;  however, the  fund would                                                               
not solve the near-term fiscal  situation.  He concluded that the                                                               
organization of  the fund, raising money,  and reviewing projects                                                               
are estimated to take one year,  but work can begin now to create                                                               
a future for Alaska less dependent  on the demand for fossil fuel                                                               
and more on broadly-based economic development activity.                                                                        
                                                                                                                                
10:36:14 AM                                                                                                                   
                                                                                                                                
The committee took an at ease from 10:36 a.m. to 10:41 a.m.                                                                     
                                                                                                                                
^PRESENTATION:  RENEWABLE ENERGY ALASKA PROJECT                                                                                 
         PRESENTATION:  RENEWABLE ENERGY ALASKA PROJECT                                                                     
                                                                                                                              
10:42:07 AM                                                                                                                   
                                                                                                                                
CO-CHAIR VAZQUEZ announced that the  next order of business would                                                               
be a  presentation by Chris  Rose, Executive  Director, Renewable                                                               
Energy Alaska Project.                                                                                                          
                                                                                                                                
10:41:45 AM                                                                                                                   
                                                                                                                                
CHRIS ROSE,  Executive Director, Renewable Energy  Alaska Project                                                               
(REAP), said  his presentation would  explain why  an independent                                                               
system operator (ISO) for the  Railbelt is important to renewable                                                               
energy  in Alaska.   He  informed the  committee that  REAP is  a                                                               
coalition   of   over   80  organizations,   including   electric                                                               
utilities,  independent power  producers (IPPs),  businesses, and                                                               
other non-governmental  agencies, and  has been the  state's only                                                               
organization focused  on renewable  energy and  energy efficiency                                                               
since  2004.   To  explain  some  of  the benefits  of  renewable                                                               
electricity,  he recalled  that in  2010, the  legislature passed                                                               
House Bill 306, which created  a 50 percent renewable electricity                                                               
goal.   Also,  renewable electricity  is a  hedge against  rising                                                               
fuel prices.   For example, Anchorage  has a lot of  natural gas-                                                               
fired generation;  however, the  gas [purchase] contracts  do not                                                               
extend  beyond 2019.   Regardless  of the  amount of  fossil fuel                                                               
available, there  are uncertain prices in  the future; therefore,                                                               
companies around the  world are hedging against  rising prices by                                                               
using  renewable  energy.   Furthermore,  the  cost of  renewable                                                               
energy technology  is now approaching  parity with  other sources                                                               
of energy  such as coal  and natural gas.   In fact, the  cost of                                                               
electricity  generated by  wind turbines  has dropped  from $0.90                                                               
per kilowatt  hour (kWh) to $0.3  in parts of the  Midwest.  Iowa                                                               
and  South Dakota  both produced  more than  25 percent  of their                                                               
electricity  from  wind; Alaska  produces  less  than 1  percent.                                                               
Regarding   the   instantaneous   penetration  into   a   state's                                                               
electrical grid, Colorado has had  60 percent electrical power on                                                               
the grid at  one time and Texas 39 percent.   Denmark, Spain, and                                                               
Portugal have  demonstrated that it is  possible to put a  lot of                                                               
wind energy on  an electrical grid and  not suffer unreliability.                                                               
In the  Lower 48, 60,000 megawatts  (MW) of wind power  have been                                                               
added to a  grid without additional commercial storage.   This is                                                               
possible because  there is flexibility  in the grid.   He pointed                                                               
out that the  costs of integrating wind are about  $0.005 per kWh                                                               
in the  Lower 48.   Grid  system flexibility is  the result  of a                                                               
large balancing  area in  which to  utilize different  sources of                                                               
power.    Utilities  often adjust  for  the  unpredictability  of                                                               
electrical  demand  thus  the  variability  of  wind  -  and  the                                                               
variability in demand - cancel  each other out within a balancing                                                               
area.   However,  in  the Railbelt,  the  transmission system  is                                                               
small  and "islanded."   Furthermore,  the system  is constrained                                                               
and  is  not  one  balancing  area, but  four.    There  are  six                                                               
utilities  operating an  average annual  load of  600 MW  - which                                                               
would equal  one small power  plant in the  Lower 48 -  with four                                                               
balancing areas and  seven owners, thus integrating  wind is more                                                               
difficult.                                                                                                                      
                                                                                                                                
10:46:46 AM                                                                                                                   
                                                                                                                                
MR.  ROSE, in  response  to Co-Chair  Vazquez,  explained that  a                                                               
balancing  area  is  an  area  within which  a  utility  that  is                                                               
balancing the supply  and demand of electricity, as  well as load                                                               
and  supply.    A  bigger  balancing area  has  more  sources  of                                                               
generation  and a  variety  of demands,  or loads.    In a  small                                                               
village it is harder to  balance wind generation without storage;                                                               
Kodiak has a  population of 8,000 - a small  balancing area - but                                                               
they have 9  MW of wind on  the grid and battery  storage.  Slide                                                               
5,  entitled  "Alaska's  Energy Infrastructure"  illustrated  the                                                               
grid between  Homer and Fairbanks;  there is a bottleneck  on the                                                               
Kenai Peninsula which limits the  amount of power to Anchorage at                                                               
75 MW, and another at Willow  which limits the amount of power at                                                               
80 MW.  Barriers to renewables  in the Railbelt are not driven by                                                               
technology, but  by policy, operations,  and contracts;  in fact,                                                               
there are  already dispatchable potential renewable  resources in                                                               
the  Railbelt  such  as hydroelectric  (hydro),  geothermal,  and                                                               
wind, which  is the resource waiting  to get into the  grid right                                                               
now.                                                                                                                            
                                                                                                                                
10:49:25 AM                                                                                                                   
                                                                                                                                
CO-CHAIR COLVER  surmised the concept  of an  ISO is to  drop the                                                               
barriers  that exist  due to  trade and  business considerations,                                                               
but  the cost  of  maintaining  transmission is  a  cost to  each                                                               
utility's  consumers.    A regional  system  would  increase  the                                                               
economy of scale  by using one utility  for financing, operating,                                                               
and maintenance, which is a more  efficient use of the sources of                                                               
power.                                                                                                                          
                                                                                                                                
MR. ROSE  agreed that  efficiency is a  big factor;  however, his                                                               
presentation   addresses  transmission   and  not   unifying  the                                                               
generation of power.                                                                                                            
                                                                                                                                
CO-CHAIR COLVER observed that constraints cost consumers.                                                                       
                                                                                                                                
MR.   ROSE  opined   the  utilities   work  very   well  together                                                               
operationally,  although  there is  not  one  entity running  the                                                               
entire grid.   An ISO is also known as  a unified system operator                                                               
(USO).    The  Alaska  Energy   Authority  (AEA),  Department  of                                                               
Commerce,  Community &  Economic  Development  (DCCED), spent  $1                                                               
million  on a  study  that supported  a  regional resource  plan,                                                               
regional generation planning,  and regional transmission planning                                                               
for the  Railbelt, and he  stated his organization's  support for                                                               
regional transmission  planning that separates  transmission from                                                               
generation.   Other issues  in the Railbelt  that are  related to                                                               
renewables are as follows:                                                                                                      
                                                                                                                                
   ·  In the Lower 48, there are demand response resources that                                                                 
      utilities can pay to shut off power and balance the load                                                                  
      for renewables.                                                                                                           
   ·  Ramp rates are too low to allow the Bradley Lake                                                                          
      Hydroelectric Project (Bradley Lake) to be used as a                                                                      
      battery to store wind energy.                                                                                             
   ·  Take or pay fuel contracts for natural gas contracts                                                                      
      direct that utilities pay for natural gas even when it is                                                                 
      displaced by wind or other renewables.                                                                                    
   ·  Ad hoc roles of engagement for IPPs mean there are no                                                                     
      market rules for IPPs.                                                                                                    
   ·  No mandate for integrated resource planning.                                                                              
   ·  No    Federal   Energy    Regulatory   Commission    (FERC)                                                               
      jurisdiction.                                                                                                             
                                                                                                                                
 MR. ROSE  described the wind system  on Fire Island that  has 11                                                               
 turbines.  Chugach  Electric Association, Inc. (CEA)  bought the                                                               
 power from Fire  Island Wind at the  flat rate of 9.7  cents per                                                               
 kWh  for 25  years.   Cook Inlet  Region Inc.  (CIRI) owns  Fire                                                               
 Island Wind  and has room  for 54  turbines, but could  not sell                                                               
 that much power  after negotiating with multiple  entities.  The                                                               
 Regulatory  Commission  of  Alaska   (RCA)  approved  the  power                                                               
 purchase  agreement; however,  although  CIRI  used federal  tax                                                               
 credits to  build Phase 1  turbines, it  has given up  trying to                                                               
 expand to Phase 2, resulting in a potential loss of $100 million                                                               
 of local economic activity.   Golden Valley Electric Association                                                               
 (GVEA)  was  going   to  pay  6.3  cents  per   kWh,  but  after                                                               
 transmission by  three utilities,  the cost  to consumers  would                                                               
 have  been over  20 cents  per kWh.   He  said this  is a  great                                                               
 example of  the need  for an  ISO and  a universal  transmission                                                               
 tariff.                                                                                                                        
                                                                                                                                
10:56:09 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  VAZQUEZ  asked  for  the  boundaries  of  the  Railbelt                                                               
utilities.                                                                                                                      
                                                                                                                                
MR. ROSE  answered that  Homer Electric  Association (HEA)  is in                                                               
the south  and serves  the Kenai Peninsula;  CEA serves  parts of                                                               
the Kenai Peninsula; Anchorage Municipal  Light & Power (ML&P) is                                                               
midtown  and downtown  Anchorage; Matanuska  Electric Association                                                               
(MEA) starts at Eagle River and  goes north past Wasilla; GVEA is                                                               
at the  very end; and  then service  by the municipal  utility of                                                               
the City of  Seward.  Currently, there are  opportunities for the                                                               
Railbelt:   the  utilities  have  spent over  $1  billion on  new                                                               
natural gas generation which provides  flexibility to do more; it                                                               
is  possible  to do  some  transmission  system upgrades  and  to                                                               
create  an ISO.    Therefore, REAP  has  reviewed this  situation                                                               
extensively and supports the following seven ISO principles:                                                                    
                                                                                                                                
   · A non-profit, non-asset-owning entity governed by an                                                                       
     impartial, diverse, and independent group of stakeholders                                                                  
     not dominated by utility companies.                                                                                        
   · Mandatory participation of all six utilities.                                                                              
   · Operational authority over the transmission system - but                                                                   
     not the generation system - and regional planning.                                                                         
   · Operational authority over reliability rules for the entire                                                                
     grid.                                                                                                                      
   · Create a universal transmission tariff that would be                                                                       
     transparent and that would not multiply or "pancake" one                                                                   
     rate on top of the other.                                                                                                  
   · Provide economic dispatch for efficiency.                                                                                  
   · Regulated by RCA.                                                                                                          
                                                                                                                                
MR. ROSE  said an important  part of  a system is  a transmission                                                               
company (TRANSCO),  which is an  entity that would  own, operate,                                                               
maintain, and  upgrade transmission lines within  the constraints                                                               
of the ISO.  A TRANSCO must be  under the direction of an ISO and                                                               
would be a for-profit entity that  would gain a regulated rate of                                                               
return  on   its  investment  in   building  transmission.     He                                                               
recommended  that  the   legislature  agree  to  a   set  of  ISO                                                               
principles and send a clear signal  to RCA that its intent is for                                                               
RCA to  establish an ISO.   Mr.  Rose concluded that  having more                                                               
renewables  in  the electrical  grid  makes  sense; for  example,                                                               
Norway  is  a   gas  producer,  but  has   98  percent  renewable                                                               
electricity on  its grid;  Alaska can  too, and  thereby decrease                                                               
its  use  of  fossil  fuel   imports,  stabilize  energy  prices,                                                               
diversify the economy, and create jobs.                                                                                         
                                                                                                                                
11:02:27 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  WOOL   surmised  in   order  to   introduce  more                                                               
renewables  the  transmission grid  must  be  more unified.    He                                                               
questioned  whether  a  more robust  and  accessible  grid  would                                                               
alleviate the problem of the  unreliability of wind generation in                                                               
Fairbanks.                                                                                                                      
                                                                                                                                
MR. ROSE responded  that increasing the capacity of  the grid and                                                               
one dispatcher  make the  balancing area  bigger, and  areas with                                                               
high penetration have  many wind farms from which  to draw power.                                                               
In addition, meteorologists can now predict wind events.                                                                        
                                                                                                                                
REPRESENTATIVE  WOOL  asked   whether  individual  utilities,  or                                                               
others, are  currently responsible for infrastructure  to correct                                                               
bottlenecks on the grid.                                                                                                        
                                                                                                                                
MR. ROSE  said that is  a good question.   The state has  built a                                                               
lot of  transmission and some is  owned by utilities.   There has                                                               
been a failed  attempt to build a bigger power  line on the Kenai                                                               
Peninsula, and he is aware of  a proposed alternative route for a                                                               
high voltage direct current (DC) cable from Nikiski to Beluga.                                                                  
                                                                                                                                
CO-CHAIR  VAZQUEZ asked  for Alaska's  hydro potential,  compared                                                               
with other states.                                                                                                              
                                                                                                                                
MR. ROSE  answered that  Alaska has  the most  untapped potential                                                               
for  hydro;  however, there  is  a  limit  to what  is  realistic                                                               
because  of  its lack  of  proximity  to transmission,  with  the                                                               
exception of  Southeast.   Hydro is  a long-term  investment that                                                               
requires certainty  and predictability.   In further  response to                                                               
Co-Chair  Vazquez, he  said  geothermal is  a  great resource  if                                                               
available because  it is  base load,  dispatchable, and  is lower                                                               
maintenance  than coal,  nuclear,  or natural  gas  plants.   Mt.                                                               
Spurr is a good prospect for geothermal.                                                                                        
                                                                                                                                
11:07:15 AM                                                                                                                   
                                                                                                                                
The committee took an at ease from 11:07 a.m. to 11:10 a.m.                                                                     
                                                                                                                                
^PRESENTATION:  CHUGACH ELECTRIC ASSOCIATION INC.                                                                               
        PRESENTATION:  CHUGACH ELECTRIC ASSOCIATION INC.                                                                    
                                                                                                                                
11:10:50 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  VAZQUEZ  announced that  the  final  order of  business                                                               
would  be a  presentation by  Bradley Evans  and Brian  Hickey of                                                               
Chugach Electric Association.                                                                                                   
                                                                                                                                
11:10:55 AM                                                                                                                   
                                                                                                                                
BRADLEY   EVANS,  Chief   Executive  Officer,   Chugach  Electric                                                               
Association  Inc.  (CEA),  said  he would  provide  a  PowerPoint                                                               
presentation  entitled, "Status  update on  the Railbelt  Unified                                                               
System Operator  (USO) Initiative,"  which is a  very significant                                                               
industry  initiative under  consideration  in the  Railbelt.   If                                                               
realized, the  initiative would result in  substantial savings to                                                               
consumers and would provide an  opportunity for private financing                                                               
for infrastructure  development and uniform open  access, thereby                                                               
eliminating individual  tariffs.  Independent systems  have built                                                               
up over  the years in the  Railbelt, but the system  has grown to                                                               
the point  where it needs  to evolve.   The CEA  initiative calls                                                               
for a regulatory  compact through RCA leading  to the development                                                               
of a universal tariff.  He  recalled that the initiative has been                                                               
presented  to legislators,  the Regulatory  Commission of  Alaska                                                               
(RCA), utility  boards, Renewable  Energy Alaska  Project (REAP),                                                               
state    administrators,   the    Municipality   of    Anchorage,                                                               
Commonwealth North, and the public.   The legislature also funded                                                               
an  ongoing investigation  on this  matter by  RCA.   He directed                                                               
attention  to slide  2,  entitled,  "Railbelt Transmission,"  and                                                               
noted  other  entities  that receive  transmission  benefits  are                                                               
Doyon Utilities, the University  of Alaska Fairbanks power plant,                                                               
the military,  and independent  power producers  (IPPs); however,                                                               
the aforementioned  are not  "the utilities  that would  lead the                                                               
effort to do this."                                                                                                             
                                                                                                                                
11:15:54 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE WOOL confirmed that  Valdez and Glennallen are off                                                               
the Railbelt system.                                                                                                            
                                                                                                                                
MR. EVANS  said correct.   In further response  to Representative                                                               
Wool,  he   said  there  is   a  capacity-sharing   agreement  on                                                               
investments made  by the  northern utilities  to the  system that                                                               
establishes permanent  capacity rights to move  energy across the                                                               
Homer system.   Mr. Evans  returned to the  presentation, stating                                                               
that the Railbelt is changing  from its historical environment of                                                               
stability.  In the early '80s,  the state invested $89 million in                                                               
the  Alaska   Intertie  which  connected  two   major  generating                                                               
utilities in  Southcentral with  Fairbanks.   Now there  are five                                                               
major generation  and transmission  utilities, the  operations of                                                               
which  would  be  enhanced  by  a  single  organization  that  is                                                               
technically  experienced and  stakeholder  driven.   Furthermore,                                                               
with  a  single  uniform  transmission rate,  there  could  be  a                                                               
business   structure   that   supports  private   investment   in                                                               
transmission infrastructure.  He  characterized one difficulty is                                                               
paying  for  the  connection  between  territories;  a  utility's                                                               
business  model   does  not  support   financing  that   type  of                                                               
transmission  by  rate  recovery.    In  addition,  CEA  believes                                                               
consistent and non-discriminatory  open access transmission rules                                                               
are needed along with a  regional approach to reliability.  Slide                                                               
4, entitled  "Railbelt 1985-2013" illustrated  the load-balancing                                                               
areas  of the  three  utilities.   During  this  time period  the                                                               
utilities   voluntarily  adopted   reliability,  operating,   and                                                               
planning  standards as  part of  the  Alaska Intertie  Agreement,                                                               
using a  model from the  Lower 48.   Other actions  were: Bradley                                                               
Lake Agreements with transmission  access; the Northern Intertie;                                                               
the Anchorage Loop.   Throughout this time period  the region was                                                               
stable,  without  a  lot of  development,  and  CEA  economically                                                               
dispatched most of  the Railbelt system.  Historically,  a lot of                                                               
economical  dispatch   was  occurring,  until  now.     Slide  5,                                                               
entitled,  "Current  Railbelt  structure"  illustrated  the  more                                                               
fractured areas  of responsibility  and economic  dispatch zones;                                                               
although some  economic transfers  help utilities, the  system is                                                               
not  unified and  thus  the  transfers are  not  as effective  as                                                               
possible.  One requirement of  a unified system operator (USO) is                                                               
the achievement of economic dispatch  across the system to ensure                                                               
substantial cost savings  to balance the cost  of new investment.                                                               
Adding to  the examples  of barriers on  the present  system that                                                               
were mentioned  by the previous  speaker, he said in  addition to                                                               
the  added costs  of "pancaking,"  it is  difficult to  negotiate                                                               
contracts  with  multiple  utilities  "today  in  this  fractured                                                               
system."                                                                                                                        
                                                                                                                                
11:23:25 AM                                                                                                                   
                                                                                                                                
MR.   EVANS    directed   attention   to   slide    6   entitled,                                                               
"Inefficiencies of  current structure," and pointed  out there is                                                               
no  business case  for the  regional  expansion of  transmission,                                                               
which   has   meant   there  is   underinvestment   in   regional                                                               
infrastructure.     There   is  a   loss  of   regional  economic                                                               
opportunities; for  example, energy from the  Alaska Intertie was                                                               
necessary for the  development of the Fort Knox  Gold Mine, which                                                               
is estimated to  have a $3 billion economic  impact to Fairbanks.                                                               
He expressed CEA's  concern about the economy,  jobs, and further                                                               
enterprises which  may be lost due  to a lack of  power.  Another                                                               
problem as a  result of the fracturing of  electric utilities, is                                                               
that a lot of  generation has been built - which  was not done on                                                               
a regional basis - and  that has created transmission congestion.                                                               
For example,  the transmission congestion  at Bradley  Lake Hydro                                                               
limits  the  access of  the  northern  utilities to  the  state's                                                               
biggest renewable  resource.  He  said, "But there's  no business                                                               
model, and  no way for me  to make the investment  to unconstrain                                                               
it  -  it  doesn't exist  -  it,  it's  a  dogfight down  at  the                                                               
[Regulatory Commission  of Alaska]...."   Mr.  Evans acknowledged                                                               
that RCA's workload  is increased because of  the inefficiency of                                                               
the current  structure.  He returned  to CEA's proposal of  a USO                                                               
and said  it was  "pretty well synchronized"  with that  of REAP,                                                               
although  from a  different  perspective.   Attributes  of a  USO                                                               
include:                                                                                                                        
                                                                                                                                
   · stakeholder governance                                                                                                     
   · ensures system-wide economic dispatch                                                                                      
   · the engine of a system-wide transmission rate                                                                              
   · eliminates congestion which limits the use of resources                                                                    
   · enables a greater investment in transmission through a                                                                     
     universal tariff if the cost is borne by all who receive                                                                   
     benefits from economic development                                                                                         
                                                                                                                                
11:29:29 AM                                                                                                                   
                                                                                                                                
BRIAN  HICKEY,  Executive   Manager,  Grid  Development,  Chugach                                                               
Electric  Association,  Inc.  (CEA), informed  the  committee  he                                                               
would provide  an update  on four  topics, including  the current                                                               
status of the initiative.   Mr. Hickey stressed that the intertie                                                               
benefits are regional  and thus do not accrue to  only one of the                                                               
six  vertically-integrated utilities;  sharing of  regional costs                                                               
creates  the   uncertainty  that  prevents  the   development  of                                                               
interregional  projects.    He   advised  that  his  presentation                                                               
includes numbers  that are "directionally correct,  they're based                                                               
on a  very complex  production cost and  model where  we evaluate                                                               
all  of  the  variables,   fuel  cost,  generation  availability,                                                               
transmission constraints,  outages -  scheduled and forced  - and                                                               
we  evaluate all  of those  against a  series of  sensitivities."                                                               
Sensitivities could include  the loss of a  large commercial user                                                               
or the  loss of  a large  generator.  After  being run  through a                                                               
model,  the  numbers  presented  were for  a  single  test  year,                                                               
considering that  the assets  would have  a 40-50  year life.   A                                                               
study  by  the  Alaska  Energy  Authority  (AEA),  Department  of                                                               
Commerce,  Community &  Economic Development,  indicated benefits                                                               
in a  range from $75  million to  $210 million; however,  the CEA                                                               
study  indicated benefits  from $75  million to  $140 million  in                                                               
annual  fuel  savings based  on  an  economic dispatch  scenario.                                                               
Without any  improvements to  the system,  CEA believes  there is                                                               
approximately  $50  million  in benefits  and  approximately  $50                                                               
million annually  in Railbelt transmission  costs.   He cautioned                                                               
that one problem  with the economic model is that  the benefit is                                                               
a savings  in fuel, but  projects cannot be financed  by savings.                                                               
The  universal  tariff and  rate  structure  are needed  so  that                                                               
utilities can collect money to  pay for the investments that save                                                               
money.   He  stressed that  the projected  savings are  using the                                                               
current Railbelt  system, but  dispatched by a  USO.   The system                                                               
proposed by AEA - which  included a second line between Anchorage                                                               
and the  Kenai Peninsula,  and a  second line  to Fairbanks  - is                                                               
estimated to cost $880 million.                                                                                                 
                                                                                                                                
11:34:48 AM                                                                                                                   
                                                                                                                                
MR. HICKEY continued  to explain that an  $880 million investment                                                               
over 40  years equals out to  a cost of $80-$90  million per year                                                               
over a  building period of  10-15 years; compared to  an economic                                                               
benefit between $75-$140 million per  year, the decision to build                                                               
is questionable.   However, there are the  additional benefits of                                                               
economic development  associated with  lower cost power,  such as                                                               
construction jobs and construction,  and the increased resilience                                                               
of the  grid.  He then  described the current limitations  to the                                                               
grid.    In order  to  accomplish  its  proposal, CEA  looked  to                                                               
independent  system operators  (ISOs)  and regional  transmission                                                               
organizations  (RTOs) in  the  Lower  48.   These  systems are  a                                                               
product of  the Federal Energy  Regulatory Commission  (FERC) and                                                               
operate over a  region with a universal tariff.   Texas is a good                                                               
model for  Alaska because  it is  a non-FERC  regulated ISO.   He                                                               
explained CEA  prefers a  USO system over  an ISO  system because                                                               
ISOs  and RTOs  in the  Lower 48  have a  competitive commodities                                                               
market function,  and Alaska does  not have  competitive markets.                                                               
Furthermore,  the Texas  model is  mandated by  the state  public                                                               
utilities  commission (PUC).   He  advised  that the  key to  the                                                               
financial  side of  the initiative  is  the regulatory  contract,                                                               
which  is the  assignment  of  authority to  the  USO  by RCA  to                                                               
administer the  universal tariff.   Also, the USO is  required to                                                               
ensure  economic  dispatch,  which  means  using  the  next  most                                                               
efficient  megawatt generated  every  minute of  the  day in  the                                                               
entire region.   The regulatory  compact would also  require non-                                                               
discriminatory  open   access,  a   common  set   of  reliability                                                               
standards,  long-term  planning   in  interconnection  protocols,                                                               
reliability  compliance, plan  projects, and  condition projects.                                                               
On  the  other  hand,  RCA must  recognize  and  incorporate  the                                                               
standards and protocols  developed by the USO.   In addition, RCA                                                               
would  have to  ensure timely  cost recovery  which requires  the                                                               
recovery of debt  before the completion of a project,  or what is                                                               
known as  a forward-looking  rate structure.   Finally,  RCA must                                                               
ensure a  fair distribution of knowledgeable  stakeholders on the                                                               
USO  board  of  directors.   A  general  USO  organization  chart                                                               
indicated the USO between RCA and various entities (slide 16).                                                                  
                                                                                                                                
11:41:40 AM                                                                                                                   
                                                                                                                                
MR. HICKEY  turned to  the current status  of the  initiative and                                                               
informed   the   committee   the  Alaska   Railbelt   Cooperative                                                               
Transmission  Electrical &  Electric  Company,  Inc. (ARCTEC)  is                                                               
comprised  of  four  utilities that  have  organized  to  address                                                               
regional  issues.   The group  is planning  to reach  non-utility                                                               
stakeholders such  as REAP,  industrials, and  community economic                                                               
development groups  in order to  develop the scope on  the facets                                                               
of the USO  to present to RCA.   Other awaited items  are the RCA                                                               
report  and upcoming  directions  from  RCA requesting  statutory                                                               
changes  to  regulations.   Mr.  Hickey  concluded that  numerous                                                               
resolutions in support of the concept  of a USO have been passed,                                                               
and this  is the  time to  coalesce ideas  into a  single vision,                                                               
although  AEA's ability  to transfer  state assets  into the  USO                                                               
would have to be addressed.                                                                                                     
                                                                                                                                
11:44:05 AM                                                                                                                   
                                                                                                                                
UNIDENTIFIED SPEAKER (Indisc.)                                                                                                  
                                                                                                                                
MR.  HICKEY   said  it  is  a   fact  that  vertically-integrated                                                               
utilities have  their own service  territory and are  mandated to                                                               
serve their consumers under a  fiduciary obligation; each utility                                                               
looks at its own  business model.  The issue is  that there is no                                                               
business model for looking at regional generation.                                                                              
                                                                                                                                
UNIDENTIFIED SPEAKER (Indisc.)                                                                                                  
                                                                                                                                
MR.  HICKEY  said  CEA  has a  30  percent  non-spinning  reserve                                                               
requirement and a  100 percent of the  largest single contingency                                                               
spinning reserve requirement in the Railbelt.                                                                                   
                                                                                                                                
11:45:58 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE WOOL  assumed that  most of  the utilities  are in                                                               
favor of a USO.                                                                                                                 
                                                                                                                                
MR. HICKEY acknowledged that the  utilities may not have a common                                                               
vision, but there is movement in that direction.                                                                                
                                                                                                                                
REPRESENTATIVE WOOL  observed some  utilities would  benefit more                                                               
than  others.    He  asked   whether  a  centrally-located  power                                                               
generator that  has capacity is not  in need of the  grid as much                                                               
as others.                                                                                                                      
                                                                                                                                
MR.  HICKEY said  correct.    Some utilities  have  not paid  for                                                               
transmission and some  would have more benefit  than others; this                                                               
has  been at  the  root of  stalemates on  other  occasions.   In                                                               
further  response to  Representative  Wool, he  cautioned that  a                                                               
number of generators  are old and inefficient, thus  there is not                                                               
an oversupply -  but a moderate amount - of  modern and efficient                                                               
generation.                                                                                                                     
                                                                                                                                
REPRESENTATIVE WOOL surmised using  the most efficient generation                                                               
all of the time would relieve  the use of less efficient systems.                                                               
For example,  Aurora Energy's coal  power plant in  Fairbanks may                                                               
not be needed.                                                                                                                  
                                                                                                                                
MR. HICKEY  agreed, noting that there  would need to be  a second                                                               
power line north to do so.   The benefit comes from being able to                                                               
use the most efficient generator wherever it may be.                                                                            
                                                                                                                                
REPRESENTATIVE  WOOL  noted  that  the savings  would  come  from                                                               
efficient    generation   and    the    costs   from    increased                                                               
infrastructure.                                                                                                                 
                                                                                                                                
MR. HICKEY  said maintenance on  existing Railbelt  facilities is                                                               
about $48 million per year.                                                                                                     
                                                                                                                                
11:50:51 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TALERICO  expressed  his  understanding  that  if                                                               
there is a  single payer rate, IPPs have the  opportunity to feed                                                               
power  into  the system;  however,  his  biggest concern  is  not                                                               
efficiency  but cost  because  his  constituents are  struggling.                                                               
Some   older  facilities   operate   more   cheaply  than   newer                                                               
facilities,  and he  questioned whether  the USO  would have  the                                                               
"ability to make those decisions, as well."                                                                                     
                                                                                                                                
MR. EVANS  stated there is  another factor to  economic dispatch;                                                               
efficiencies  matter, but  so  does the  cost of  fuel.   A  less                                                               
efficient engine may  run on cheaper fuel and the  USO would make                                                               
the most economic decision.                                                                                                     
                                                                                                                                
REPRESENTATIVE WOOL  asked whether an IPP  could easily introduce                                                               
power into a system, pay a tariff, and sell its product.                                                                        
                                                                                                                                
MR. EVANS  said yes.   An  IPP using  the "highway"  system would                                                               
know  what  the access  points  are  -  and  the cost  -  without                                                               
negotiating  with five  different entities.   It  is possible  to                                                               
establish an  RTO that is  not mandated to do  economic dispatch,                                                               
but this  task has been  added to the initiative  "because that's                                                               
where the savings are."                                                                                                         
                                                                                                                                
11:54:12 AM                                                                                                                   
                                                                                                                                
DUFF  MITCHELL,  Executive  Director,  Alaska  Independent  Power                                                               
Producers  Association (AIPPA),  addressed the  "highway analogy"                                                               
of open  access and  non-discrimination access.   He  pointed out                                                               
that Bradley  Lake hydro is  currently supplying power  to Golden                                                               
Valley Electric  Association (GVEA) at less  than the $0.13-$0.15                                                               
per kWh  "pancake" rate  that GVEA charged  to Fire  Island Wind.                                                               
Mr. Mitchell  asked whether there  would be a postage  stamp rate                                                               
under the  initiative.   He said,  "It's one  thing to  have open                                                               
access, it's another thing to  go down the highway, and everybody                                                               
pays  the  same  toll."   Mr.  Mitchell  questioned  whether  the                                                               
sameness  standard   would  be   provided  to   all  participants                                                               
regardless of  their stature in  the initial organization  of the                                                               
USO.                                                                                                                            
                                                                                                                                
MR.  HICKEY  assured the  committee  the  universal tariff  is  a                                                               
common rate  paid by everyone.   He said  he was not  involved in                                                               
the aforementioned negotiations; however,  the Bradley Lake hydro                                                               
transfer rate contract was signed in 1987.  He remarked:                                                                        
                                                                                                                                
     However,  in  this   uniform  system,  system  operator                                                                    
     world, those contracts would have  to go away and every                                                                    
     megawatt that moved would,  every end-use customer that                                                                    
     used  a  megawatt  would  pay a  fixed  rate  for  that                                                                    
     megawatt.  So anyone that  put their power on the grid,                                                                    
     there would  be no,  there is no  wheeling rate  to the                                                                    
     generators in  this world.   What there is is  a charge                                                                    
     to every customer in the  Railbelt that is equal to the                                                                    
     power they use  - the cost of  the transmission system,                                                                    
     divided by  the amount of  power they  use.  And  so it                                                                    
     takes  the transmission  system off  of that  table and                                                                    
     out of that  negotiation, and that's why  I believe the                                                                    
     independent    system     operators,    the    regional                                                                    
     transmission organizations  in the  Lower 48  have been                                                                    
     so successful in facilitating economic dispatch.                                                                           
                                                                                                                                
REPRESENTATIVE WOOL asked for an explanation of a ramp rate.                                                                    
                                                                                                                                
MR. HICKEY answered that the ramp rate is a physical feature of                                                                 
a particular generator:  how fast it can go from no load to full                                                                
load.  A mismatch between generation and load can cause outages.                                                                
                                                                                                                                
CO-CHAIR VAZQUEZ said the desire of the committee is to present                                                                 
information to the community and stakeholders in order to "solve                                                                
some of the issues we've been dealing with for decades."                                                                        
                                                                                                                                
11:58:54 AM                                                                                                                   
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Energy meeting was adjourned at 11:58 a.m.