Legislature(2017 - 2018)CAPITOL 17

02/28/2017 10:15 AM House ENERGY

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10:16:04 AM Start
10:16:31 AM Overview: History & Current State of the Railbelt Electric Utilities
12:02:47 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: History & Current State of the TELECONFERENCED
Railbelt Electric Utilities by Bob Pickett,
Chairman, Regulatory Commission of AK
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE SPECIAL COMMITTEE ON ENERGY                                                                              
                       February 28, 2017                                                                                        
                           10:16 a.m.                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Adam Wool, Chair                                                                                                 
Representative Ivy Spohnholz, Vice Chair                                                                                        
Representative Matt Claman                                                                                                      
Representative Dean Westlake                                                                                                    
Representative DeLena Johnson                                                                                                   
Representative Jennifer Johnston                                                                                                
Representative George Rauscher                                                                                                  
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
OVERVIEW: HISTORY & CURRENT STATE OF THE RAILBELT ELECTRIC                                                                      
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
ROBERT PICKETT, Chair                                                                                                           
Regulatory Commission of Alaska (RCA)                                                                                           
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Presented a PowerPoint titled "History &                                                                 
Current State of the Railbelt Electric Utilities."                                                                              
BERNIE SMITH                                                                                                                    
Utility Engineering Analyst                                                                                                     
Regulatory Commission of Alaska (RCA)                                                                                           
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Answered questions during a presentation by                                                              
the RCA.                                                                                                                        
ACTION NARRATIVE                                                                                                              
10:16:04 AM                                                                                                                   
CHAIR  ADAM WOOL  called  the House  Special  Committee on  Energy                                                            
meeting to  order at  10:16 a.m.   Representatives Wool,  Johnson,                                                              
Rauscher,  Spohnholz, Claman,  and  Johnston were  present at  the                                                              
call to  order.   Representative Westlake  arrived as  the meeting                                                              
was in progress.                                                                                                                
^Overview:  History  &  Current  State of  the  Railbelt  Electric                                                            
   Overview: History & Current State of the Railbelt Electric                                                               
10:16:31 AM                                                                                                                   
CHAIR WOOL  announced that the only  order of business  would be a                                                              
presentation by the Regulatory Commission of Alaska.                                                                            
10:18:20 AM                                                                                                                   
ROBERT  PICKETT,  Chair, Commissioner,  Regulatory  Commission  of                                                              
Alaska  (RCA),  Department  of   Commerce,  Community  &  Economic                                                              
Development,  presented  a PowerPoint  titled  "History &  Current                                                              
State of  the Railbelt  Electric Utilities."   He presented  slide                                                              
2, "Regulatory Commission  of Alaska," and shared  some background                                                              
information  on  the  RCA.   He  stated  that  RCA  regulated  600                                                              
certificated utilities  and pipelines, and it covered  a very wide                                                              
range of  industry groups,  which included  small water  and water                                                              
systems,  trash removal systems,  electric,  natural gas,  and gas                                                              
companies.   He  reported that  the charge  for the  RCA from  the                                                              
Alaska  State  Legislature  was   to  ensure  that  that  reliable                                                              
utility  and   pipeline  service   was  provided  with   just  and                                                              
reasonable  rates.  He  reported that  RCA administered  the Power                                                              
Cost Equalization  (PCE)  program jointly  with the Alaska  Energy                                                              
Authority  (AEA), as well  as administering  the Alaska  Universal                                                              
Service  Fund  for telecommunications  which  helped  ensure  that                                                              
intrastate  long  distant  calls  were  available  throughout  the                                                              
state.    He  noted  that  there  were  five  sections  of  Alaska                                                              
statutes which  governed the RCA,  with the most recent  being the                                                              
In-state  Pipeline  Contract Carrier,  which  focused  on the  in-                                                              
state large diameter natural gas pipeline.                                                                                      
MR.  PICKETT  moved  on  to  slide  3,  "Railbelt  Service  Area,"                                                              
pointing out  that the primary focus  of this presentation  was on                                                              
the  Railbelt   electrical  system,   which  included   the  Homer                                                              
Electric  Association   service   area,  the  Matanuska   Electric                                                              
service area,  the Golden  Valley Electric  service area,  and the                                                              
Chugach Electric service area.                                                                                                  
REPRESENTATIVE   JOHNSON  asked,  regarding   slide  3,   if  this                                                              
designated  the boundary  of the  actual  service area  or of  the                                                              
provided area.                                                                                                                  
MR.  PICKETT,  in response,  said  that  although it  defined  the                                                              
certificated  service   area,  service  may  not   necessarily  be                                                              
REPRESENTATIVE  JOHNSON asked if  there was  an agreement  for the                                                              
area between Golden Valley and Matanuska Electric.                                                                              
MR. PICKETT replied [indisc].                                                                                                   
REPRESENTATIVE  RAUSCHER asked where  Copper Valley  and Matanuska                                                              
Electric met.                                                                                                                   
MR. PICKETT offered his belief that this was in the Eureka area.                                                                
MR.  PICKETT, in  response to  Chair  Wool, said  that this  green                                                              
line   designated  transmission   lines.     He  described   other                                                              
transmission lines to the Seward area.                                                                                          
REPRESENTATIVE  JOHNSON  asked  if the  green  transmission  lines                                                              
were controlled by Chugach Electric.                                                                                            
MR. PICKETT replied, "yes."                                                                                                     
MR. PICKETT  directed attention  to slide  4, "Railbelt  Installed                                                              
Generation  Capacity  (MW)  2016,"   depicting  the  size  of  the                                                              
Railbelt  systems,  which  he  declared  to  be  relatively  small                                                              
compared to total MW generation outside Alaska.                                                                                 
REPRESENTATIVE  JOHNSTON  asked if  the  120 MW  power  generation                                                              
from Plant 2A would  increase the listed total 458.6  MW for ML&P.                                                              
She asked if the power generation from Beluga would be dropping.                                                                
MR.  PICKETT relayed  that the  chart reflected  capacity, and  it                                                              
reflected the Beluga capacity.                                                                                                  
REPRESENTATIVE  JOHNSTON  asked  about  a  bottleneck  at  Bradley                                                              
Lake, and  how it affected the  capacity of power  generation into                                                              
the system.                                                                                                                     
10:27:44 AM                                                                                                                   
BERNIE SMITH,  Utility Engineering Analyst,  Regulatory Commission                                                              
of  Alaska (RCA),  Department of  Commerce,  Community &  Economic                                                              
Development,  in response  to Representative  Johnston, said  that                                                              
approximately  75 MW  of power  was available  from Bradley  Lake,                                                              
and, although  it was capable  of a bit  more power, that  was not                                                              
good  for the  transmission lines.   He  expressed agreement  that                                                              
there  was a  bottleneck for  moving  power from  Bradley Lake  to                                                              
Anchorage and beyond.                                                                                                           
REPRESENTATIVE JOHNSTON  asked if  the distribution of  power from                                                              
Bradley Lake was prorated to the various utilities.                                                                             
MR.  PICKETT relayed  that the  Bradley Lake  agreements were  the                                                              
governing  documents, and  that the  legislature had  specifically                                                              
excluded  the RCA  from  overseeing any  aspect  of those  Bradley                                                              
Lake  agreements.   He  shared  that  RCA  did work  with  Chugach                                                              
Electric  on  its transmission  revenue  requirements,  which  had                                                              
created  some  tension  and  had resulted  in  as  yet  unresolved                                                              
litigation with various utilities.                                                                                              
MR.  PICKETT addressed  slide  5,  "Railbelt Utilities  Peak  Load                                                              
2010  - 2015  (MW/h/yr),"  a different  metric  than the  previous                                                              
slide  depicted for  capacity.   He reported  that there had  been                                                              
significant  changes  in  the Railbelt  commercial  agreements  in                                                              
2013  and 2014.   He  said that  in  2013, Homer  Electric was  no                                                              
longer   an  all   requirements  power   purchaser  from   Chugach                                                              
Electric, even  though it  had an  historic legacy agreement,  and                                                              
became  self-generating.   In  2014, Matanuska  Electric  finished                                                              
its  long-term power  purchase  agreement  with Chugach  Electric,                                                              
and also  became self-generating.   He  stated that, overall,  the                                                              
load  for the  Railbelt  had  been  relatively stable  during  the                                                              
previous five years.                                                                                                            
REPRESENTATIVE  JOHNSTON  asked  if the  generation  capacity  was                                                              
daily or monthly.                                                                                                               
MR. PICKETT  explained that capacity  was reflected by  the amount                                                              
of MW  generated  by all the  generators.   He said  that slide  5                                                              
added a time metric  for the amount per hour over  the course of a                                                              
MR. PICKETT reported  on slide 6, "Matanuska  Electric Association                                                              
(MEA) Service Area,"  and noted that MEA served  63,000 customers.                                                              
Regarding slide  7, "MEA's Eklutna  Generation Station  (EGS)," he                                                              
reported that the  171 MW natural gas power plant  came on line in                                                              
2015,  after  the  conclusion  of  its  long-term  power  purchase                                                              
agreement with  Chugach Electric.   He shared  that it  cost about                                                              
$324 million.                                                                                                                   
REPRESENTATIVE JOHNSON  asked for the reason that  only 40 percent                                                              
of the engines were on-line.                                                                                                    
MR. PICKETT replied  that there had been a slight  delay, but that                                                              
all the engines were currently available for generation.                                                                        
REPRESENTATIVE   RAUSCHER  asked   about   any  connectivity   for                                                              
electric transfer between MEA and Copper Valley.                                                                                
MR.    PICKETT   said    there    was   not    any    transmission                                                              
interconnectivity between these two utilities.                                                                                  
REPRESENTATIVE  RAUSCHER  asked  about  connectivity  with  Golden                                                              
MR. PICKETT  replied that  there was  the Alaska Inter-tie,  which                                                              
was  state  funded,  and  allowed  for  transmission  of  electric                                                              
energy from the southern part of the Railbelt to Golden Valley.                                                                 
REPRESENTATIVE  CLAMAN asked  for the  reason MEA  elected to  use                                                              
smaller capacity generators.                                                                                                    
MR. PICKETT  replied that RCA did  not have any input  for utility                                                              
management decisions.   He opined that, given the  location of the                                                              
generation on  the system,  it would be  an advantage to  have the                                                              
ability to  dispatch in 17 MW  increments, which offered  the most                                                              
efficient  generation,  as  it  could  be  left  running  with  no                                                              
dramatic fluctuations.                                                                                                          
10:37:09 AM                                                                                                                   
MR.  PICKETT directed  attention  to  slide 8,  "Chugach  Electric                                                              
Association   (CEA),"  stating   that  CEA   had  83,000   metered                                                              
customers.  Referencing  slide   9,  "Southcentral  Power  Project                                                              
(CEA/ML&P),"  he  reported that  this  project  came in  ahead  of                                                              
schedule on January 31, 2013, and under budget, $359 million.                                                                   
CHAIR WOOL  asked how  the generation  capacity was factored  when                                                              
there was a joint venture.                                                                                                      
MR. PICKETT  explained that the  capacity was prorated for  the 30                                                              
percent  ownership  by  ML&P  and  the  70  percent  ownership  by                                                              
Chugach Electric.                                                                                                               
MR. PICKETT  moved  on to slide  10, "Beluga  Power Plant,"  which                                                              
offered an  overview of  the plant.   He said that,  historically,                                                              
the  Beluga  Power   Plant  powered  the  southern   part  of  the                                                              
Railbelt.   He reported that  when the Southcentral  Power Project                                                              
(SPP)  recently brought  on 200  MW  of capacity,  the Beluga  use                                                              
began to  be dialed  back.  He  added that  the Beluga  gas fields                                                              
had  been the  source of  fuel for  the electric  generation.   He                                                              
presented  slide   11,  "Anchorage  Municipality  Light   &  Power                                                              
(ML&P),"  and stated  that ML&P  covered the  core, urban  part of                                                              
Anchorage.   He reported that ML&P  had Plant 2a, slide  12, which                                                              
had just  come fully  on line,  and consisted  of  120 MW, with  a                                                              
combined cycle,  natural-gas powered generation.   He relayed that                                                              
the cost had been over $275 million.                                                                                            
CHAIR WOOL asked if the plant was on-line.                                                                                      
MR.   PICKETT  replied   that  although   it   was  on-line,   the                                                              
commissioning process  and the final  warranty details  were still                                                              
being completed.                                                                                                                
MR.  PICKETT  addressed  slide  13,  "Homer  Electric  Association                                                              
(HEA),"  and  reported that  it  served  30,000 customers  on  the                                                              
western  side of  the Kenai  Peninsula.   He stated  that HEA  had                                                              
taken  a multi-phased  approach to  generate its  own power  after                                                              
its agreement  with  Chugach Electric  ended in  2013.  He  listed                                                              
other  HEA generation  assets.   He  presented slides  15 and  16,                                                              
"Bradley  Lake Hydro,"  and explained  that RCA  did not have  any                                                              
regulatory  jurisdiction over  this project.   He  noted that  six                                                              
utilities shared the power generated.                                                                                           
REPRESENTATIVE  JOHNSTON asked  if  additional transmission  lines                                                              
from Bradley Lake Hydro would include RCA regulations.                                                                          
MR. PICKETT  replied that  there would be  a request  for recovery                                                              
of costs of the transmission lines.                                                                                             
REPRESENTATIVE JOHNSON  asked if  there were any  power generating                                                              
facilities not under the RCA oversight.                                                                                         
MR.  PICKETT   shared  that   the  legislature  had   specifically                                                              
exempted  the Fire  Island project  from the  RCA cost of  service                                                              
regulation.   He  stated  that this  project  had  entered into  a                                                              
long-term power  purchase agreement with Chugach  Electric for the                                                              
financing and the  long term guarantees of a power  purchaser.  He                                                              
noted that RCA  had approved the power purchase  agreement between                                                              
Chugach  Electric and  Fire Island.   He relayed  an instance  for                                                              
the certification  of Delta Wind,  which had entered into  a long-                                                              
term agreement  with Golden  Valley.   He said  that RCA  would be                                                              
looking at any long-term contract with a certificated utility.                                                                  
CHAIR WOOL asked about the opt-outs from RCA regulations.                                                                       
MR. PICKETT  replied that  although some  smaller co-ops  in Rural                                                              
Alaska had  opted out, Homer was  the first major provider  to opt                                                              
out,  even  though the  HEA  membership  had  voted by  almost  70                                                              
percent to stay in the RCA oversight.                                                                                           
CHAIR WOOL  asked whether certain  co-ops were allowed to  opt out                                                              
of regulation.                                                                                                                  
MR. PICKETT replied, "yes."                                                                                                     
10:49:42 AM                                                                                                                   
MR. PICKETT shared  slide 17, "Golden Valley  Electric Association                                                              
(GVEA) Service  Area," which had  40,000 customers, and  slide 18,                                                              
"North Pole Expansion  Power Plant 60 MW," which  was completed in                                                              
March 2007,  at a  cost of $100  million.   He reported  that this                                                              
generator  could   be  fueled  by   natural  gas,  if   it  became                                                              
available.  He  addressed slide 19, "GVEA's Eva  Creek Wind Farm,"                                                              
in  the Healy  area,  which produced  almost  25 MW  with 12  wind                                                              
turbines, each  almost 410  feet tall.   He said that  the project                                                              
had  cost $93  million and  had  been commissioned  on January  7,                                                              
MR.  PICKETT  brought  up  slide  20, "Healy  Unit  2  Coal  Power                                                              
Plant," which, he  reported, had a long history.   He relayed that                                                              
it  had started  as  a demonstration  of  the  U.S. Department  of                                                              
Energy's  Clean Coal  Technology  for Healy  Clean  Coal, and  had                                                              
been  funded  by  the  utilities,   the  state,  and  the  federal                                                              
government.   Although  it  began  burning coal  in  1998, it  had                                                              
failed in 1999,  and "went into a bit of hibernation  period for a                                                              
number  of years."    He reported  that,  in  2013, Golden  Valley                                                              
Electric  paid $44 million  to Alaska  Industrial Development  and                                                              
Export Authority  (AIDEA) for  the plant, even  as there  was more                                                              
than  $300 million  in  construction  costs.   He  said the  total                                                              
costs for the  plant were $447 million.   He added that  the plant                                                              
name  was changed  in 2012,  to  Healy Unit  2.   He relayed  that                                                              
there had been a  fire and explosion on March 3,  2016, during the                                                              
commissioning  of the  plant,  and that  the  plant was  currently                                                              
expected to resume operation by mid-2017.                                                                                       
REPRESENTATIVE SPOHNHOLZ  asked about the failure  during the test                                                              
MR. PICKETT  offered his belief that  it had to do with  coal dust                                                              
in the  feeding mechanism into the  boiler, with a  resulting fire                                                              
and  explosion.   In  response, he  said that  there  had been  an                                                              
explosion in 1999, as well.                                                                                                     
REPRESENTATIVE  JOHNSON observed  that the  coal was  ground  to a                                                              
fine powder and then ignited.                                                                                                   
REPRESENTATIVE  CLAMAN asked if  the plant  had ever been  running                                                              
and generating power.                                                                                                           
MR. PICKETT replied, "no."                                                                                                      
REPRESENTATIVE  CLAMAN  suggested  that  the  dormancy  phase  was                                                              
still on-going.  He asked about the resumption of operation.                                                                    
MR. PICKETT explained  that Golden Valley Electric had  done a lot                                                              
of work  on the  plant, and this  would be  a resumption  from the                                                              
incident in 2016.                                                                                                               
REPRESENTATIVE  CLAMAN  asked if  any  energy had  been  generated                                                              
since the 1990s.                                                                                                                
MR.  PICKETT  replied that  Healy  Unit  1 had  consistently  been                                                              
generating 25  MW of  coal fired generation.  He pointed  out that                                                              
Healy  2,  adjacent to  Healy  Unit  1,  had not  been  generating                                                              
REPRESENTATIVE  CLAMAN asked if  Unit 2  had generated  any energy                                                              
between the failure in 1999 and today.                                                                                          
MR.  PICKETT  said  that  it had  not  generated  any  significant                                                              
CHAIR  WOOL pointed  out  that  the ratio  of  MW  to dollars  was                                                              
consistent until  1989.  He asked  if this was because  clean coal                                                              
was a new prototype technology.                                                                                                 
MR.  PICKETT opined  that this  had initially  been influenced  by                                                              
the clean  coal technology,  although Golden  Valley had  to enter                                                              
into a consent  decree to increase emission control  and bring the                                                              
plant up to the latest standards.                                                                                               
CHAIR  WOOL  asked if  the  new  clean  coal  power plant  at  the                                                              
university had technology similar to Healy 2.                                                                                   
MR. PICKETT  replied that  he did not  know about the  technology,                                                              
as it  was a university  project.  He  suggested that it  would be                                                              
necessary  for the  emissions and  efficiency to  be state  of the                                                              
art, in order for it to "make sense."                                                                                           
CHAIR  WOOL asked if  the new  university power  plant would  fall                                                              
under the RCA jurisdiction.                                                                                                     
MR. PICKETT replied  that it would not.  He directed  attention to                                                              
slide  21, "Alaska  Environmental  Power (AEP)  Wind Farm,"  which                                                              
had  two  900 kW  wind  turbines  and  one  100 kW  turbine.    He                                                              
reported  that  the wind  farm  had sold  2  MW to  Golden  Valley                                                              
Electric over  the past  six years.   He noted  that the  cost had                                                              
been  $8.3  million,  paid  by  a  grant  from  Alaska  Industrial                                                              
Development and  Export Authority of  $6.3 million and  a matching                                                              
$2 million.   He  moved on  to slide  22, "Fire  Island Wind  Farm                                                              
(FIW),"  which   was  visible  from  the  Ted   Stevens  Anchorage                                                              
International  Airport.   He reported  that Fire  Island Wind  LLC                                                              
owned  and operated  a 17.6-megawatt  wind turbine  and began  the                                                              
project in  the fall of  2012.  He relayed  that they had  a long-                                                              
term   power  purchase   agreement  with   Chugach  Electric   for                                                              
providing a  flat net price of $97  per megawatt hour.   He stated                                                              
that the RCA had to consider and approve this contract.                                                                         
CHAIR WOOL asked if all the capacity was being consumed.                                                                        
MR. PICKETT replied  that he was unsure, as there  was a challenge                                                              
with  intermittent  and variable  renewables  for  timing and  for                                                              
"what else was going  on with the system."  He  offered his belief                                                              
that  it was  "by and  large being  utilized" and  "it seems  like                                                              
it's performing as it was expected to perform, largely."                                                                        
MR. PICKETT  reported that there  had been more than  $1.7 billion                                                              
in generation  investment in the  past six years in  the Railbelt,                                                              
which  had an  impact on  payers  to incorporate  all the  capital                                                              
expenditures into rates.   He pointed out that  the new generation                                                              
was  more   efficient  than  the   old  generation  in   terms  of                                                              
consumption  of natural gas,  which represented  real savings  for                                                              
the  region's electric  customers.   He shared  slide 23,  "Alaska                                                              
Electric Light &  Power (AELP)," which served 16,300  customers in                                                              
Juneau and  Douglas.  He  pointed to slide  24, "The  Lake Dorothy                                                              
Project," which  was a significant  generation increment  addition                                                              
for AEL&P.   The  slide depicted  the connection  of this  project                                                              
into the  system, utilizing  cables from  the Snettisham  Project.                                                              
He  commended  the utility  for  its  response to  the  avalanches                                                              
which had interrupted the power transmission.                                                                                   
REPRESENTATIVE  RAUSCHER,  referencing  slide  22, asked  for  the                                                              
total cost so far.                                                                                                              
MR. PICKETT  opined that  the State of  Alaska had invested  about                                                              
$25 million  into the  submarine cable  connecting Fire  Island to                                                              
the Chugach  system.   He offered his  recollection that  the cost                                                              
was about  $54 million,  in addition  to the  $25 million  for the                                                              
cable, which totaled about $79 million.                                                                                         
MR. PICKETT  pointed to  slide 25,  "Lake Dorothy  Hydroelectric,"                                                              
and reported  that the project had  a capacity of  14.3 megawatts,                                                              
at  a cost  of  $70 million.    He listed  some  of the  technical                                                              
details  of the  dam and the  lake, adding  that  the cost of  the                                                              
transmission  line  to connect  to  the rest  of  the system  cost                                                              
about  $3.5 million.    He  stated that  it  had been  an  11-year                                                              
process from permitting to beginning construction.                                                                              
MR.  PICKETT addressed  slide 26,  "Alaska  Power Company  (APC),"                                                              
which served more  than 7,000 customers over a  "sprawling service                                                              
area."    He  stated  that  slide   27,  "Alaska  Power  Company,"                                                              
depicted  the extent  of the  service  area for  the small,  rural                                                              
communities.   He  reported  that, because  of  this dispersal  of                                                              
communities,  APC had  established  a number  of  rate centers  in                                                              
order to sensibly aggregate the communities.                                                                                    
11:05:22 AM                                                                                                                   
MR.   PICKETT   shared   slide  28,   "Alaska   Village   Electric                                                              
Cooperative,  Inc.   (AVEC),"  and   reported  that  AVEC   was  a                                                              
cooperative serving  11,000 customers in 57 villages.   He pointed                                                              
out  that RCA  did not  economically  regulate AVEC  but did  work                                                              
closely with  them on the Power  Cost Equalization program  and on                                                              
various smaller electric utility projects.                                                                                      
REPRESENTATIVE  JOHNSON,  referencing  slide  28, asked  if  these                                                              
were all small diesel generators.                                                                                               
MR. PICKETT expressed  his agreement that these  were mostly small                                                              
diesel  generation,   as  well   as  small  renewables   when  the                                                              
financing was  available.  He allowed  that it was a  challenge to                                                              
integrate diesel with an intermittent and variable renewable.                                                                   
CHAIR  WOOL   asked  if   the  cooperative  was   administratively                                                              
MR. PICKETT  explained that it was  necessary for a program  to be                                                              
in place to maintain  and replace the assets.  He  stated that the                                                              
administrative   efficiencies   were   significant,   as   utility                                                              
function and cost could be a huge impact on a small village.                                                                    
CHAIR WOOL asked if there were other cooperatives.                                                                              
MR.  PICKETT  said that  there  was  an  electric coop  on  Kodiak                                                              
Island,   although  most   coops  were  focused   on  a   specific                                                              
REPRESENTATIVE  JOHNSON  asked if  local village  governments  ran                                                              
the power generation.                                                                                                           
MR.  PICKETT replied  that there  were  all different  approaches,                                                              
which  included  a  hybrid,  a   tribal  city  government,  or  an                                                              
individual  or  a family  doing  whatever  it  could do  "to  keep                                                              
electric power flowing."                                                                                                        
REPRESENTATIVE  WESTLAKE explained that  cooperatives often  had a                                                              
circuit   rider   to  maintain   standardization,   as   well   as                                                              
memorandums  of  agreement with  other  power associations  for  a                                                              
team  in  the region  to  help  keep  the cost  under  control,  a                                                              
daunting task with 57 villages.                                                                                                 
MR. PICKETT stated  that it was not possible  to underestimate the                                                              
amount of work by  AVEC and its partners to keep  the lights on in                                                              
Rural Alaska.   He  shared that  it was  often difficult  for very                                                              
small communities.                                                                                                              
MR.  PICKETT said  that  AVEC had  been  working  in Rural  Alaska                                                              
since 1968.  It  had sold 113 million kilowatt hours  in 2015 with                                                              
revenues of $58  million, and a net margin of $3.9  million, slide                                                              
29, "AVEC, continued."   He added that 4 percent  of its power was                                                              
from wind turbines.                                                                                                             
MR.  PICKETT  turned   to  slide  30,  "Inside   Passage  Electric                                                              
Cooperative (IPEC),"  and shared  some updates to  the information                                                              
on the  slide, namely  that IPEC  had 1340  members in  five rural                                                              
Southeast Alaska  communities, which included Chilkat  Valley.  He                                                              
added  that Klukwan  and Chilkat  Valley were  almost 100  percent                                                              
hydro,  although  the  other  three   communities  were  primarily                                                              
diesel.   He reported that a  hydro project had been  completed in                                                              
Hoonah  in  2015, which  "carries  about  32 percent  of  Hoonah's                                                              
load,"  adding  that  three  potential  hydro  projects  had  been                                                              
identified which could significantly decrease diesel dependence.                                                                
MR.  PICKETT reported  on slides  31 -  33, "Commission's  Finding                                                              
and  Recommendations," and  offered  some background  information.                                                              
He  stated  that the  Alaska  State  Legislature, since  the  late                                                              
1990s,   had  been   somewhat   concerned   with  the   historical                                                              
development  of   an  intensely  fragmented   Railbelt  electrical                                                              
system.   He pointed out  that, during  this time, there  had been                                                              
sweeping  deregulation  in  the Lower  48,  with  a study  on  the                                                              
potential restructure  of the  Alaska electric  market place.   It                                                              
was eventually  decided that  the Alaska market  was too  small to                                                              
"effectively  go  down  that  path."   In  2006,  the  legislature                                                              
appropriated about  $800,000 to the Alaska Energy  Authority for a                                                              
Railbelt  electric   grid  authority  study.    The   outcome  was                                                              
legislation, which  ultimately failed, pushing unification  of the                                                              
grid.  In 2014,  the legislature directed the  commission to again                                                              
review  the  grid  and the  structure  of  the  Railbelt  electric                                                              
system.   He  referenced the  RCA response  [Included in  members'                                                              
packets]  which listed five  findings and  the recommendation  for                                                              
each, slides 31 - 33.                                                                                                           
MR.  PICKETT  referred  to  the  first  finding,  slide  31,  with                                                              
several  assumptions  which  included  that  the  Railbelt  system                                                              
required   institutional  reform,   the   legacy  purchase   power                                                              
agreements  historically limited  efficiencies, and an  assumption                                                              
that no significant  state funding would be available.   He shared                                                              
the  recommendation, which  was  for the  utilities  to create  an                                                              
independent  transmission  company (ITC)  to  operate the  system,                                                              
and  for the  ITC to  be regulated  and certificated  as a  public                                                              
utility.   He offered his belief  that the commission  deemed that                                                              
"the  utilities know  their  business" and  how  to operate  their                                                              
respective  systems within  their  certificated  boundaries.   The                                                              
RCA  laid  out  some  mandatory  reports  which  allowed  for  the                                                              
opportunity to  voluntarily bring about  a solution, and,  if that                                                              
effort was perceived  to not make progress, then there  would be a                                                              
determination  for the use  of regulatory  authority or  statutory                                                              
11:18:49 AM                                                                                                                   
CHAIR  WOOL pointed  to Recommendation  1, which  stated that  the                                                              
RCA  should be  granted citing  authority for  new generation  and                                                              
MR. PICKETT stated that he would address this a bit later.                                                                      
CHAIR WOOL added that the reports had been filed, as requested.                                                                 
MR. PICKETT expressed  his agreement and pointed out  that the RCA                                                              
was   aware  of   extensive,  ongoing   negotiations  and   system                                                              
modeling.   He said  that a  filing was  anticipated this  spring,                                                              
and, if not, there would be an order filed.                                                                                     
CHAIR WOOL asked if this would be from the ITC.                                                                                 
MR. PICKETT replied, "that's correct."                                                                                          
MR. PICKETT  returned to  Slide 31, and  summarized Finding  No. 2                                                              
and its  recommendations.  He stated  that dispatch did  not occur                                                              
on a system wide  basis, as every utility dispatched  based on its                                                              
own generation  and load  portfolios.  He  reported that  the $1.7                                                              
billion of  rate payer  money invested  should allow for  movement                                                              
toward merit order  economic dispatch, which allowed  for the most                                                              
efficient generation  to be  operating first.   He said  that this                                                              
had commercial complications  for the utilities on  settlement, as                                                              
this was  not a fully  restructured market.   He pointed  out that                                                              
there would  not be  a maximum  benefit for  the rate payers  from                                                              
this  new efficient  generation  until  the merit  order  economic                                                              
dispatch was formed.                                                                                                            
REPRESENTATIVE  JOHNSON  asked  if  a  dispatch  system  had  been                                                              
identified  which   would  work   well  for  the   Railbelt  power                                                              
companies, and what would this system cost.                                                                                     
MR.  PICKETT replied  that  this  could take  many  forms, and  he                                                              
offered  examples  for  utilities  working  in  cooperation.    He                                                              
stated  that  he  was  speaking  of a  higher  level  of  economic                                                              
dispatching to ensure  that not only the lights stayed  on and the                                                              
system  remained  reliable  but  to  also  recognize  the  maximum                                                              
economic benefits.                                                                                                              
REPRESENTATIVE JOHNSON  asked for suggestions of  a mechanism with                                                              
a more sophisticated approach.                                                                                                  
MR. PICKETT  offered his belief  that the pooling  agreement which                                                              
had  been  filed  on an  interim  informational  basis  was  still                                                              
working  out  the  "bugs"  to get  the  commercial  agreements  in                                                              
place.   He reported  that the  primary metric  was fuel  savings.                                                              
He  offered  examples  for  the   organization  of  other  markets                                                              
outside Alaska,  which he deemed to  be too complex for  the needs                                                              
of Alaska.                                                                                                                      
MR. PICKETT  returned to  Finding 2  on slide  31 and stated  that                                                              
the  key  principles included  non-discriminatory  access  to  the                                                              
grid,  transparent  pricing,  and  dispatch  from  an  independent                                                              
entity.   He  offered  Recommendation  2,  which stated  that  the                                                              
system-wide merit  order economic  order dispatch would  bring the                                                              
maximum  benefit to  the rate  payers;  while, in  the interim,  a                                                              
loose power pool  should be encouraged.  He  recommended voluntary                                                              
power  pooling strategies  and  the  filing of  quarterly  reports                                                              
with the commission.                                                                                                            
MR. PICKETT returned  to slide 32, and addressed  "Finding No. 3,"                                                              
sharing that  this had  the most feedback  from the  utilities, as                                                              
they  did  not like  the  phrasing.    He stated  that  many  past                                                              
efforts  to  reform had  failed,  and  that  there  was a  lot  of                                                              
skepticism  about  the  ability   of  the  electric  utilities  to                                                              
voluntarily reform  the grid.  He declared that  reliance on state                                                              
appropriations and  a lack of  trust had produced  a dysfunctional                                                              
history.    He  pointed  to  the   recommendations,  stating  that                                                              
history    indicated   that    current   voluntary    transmission                                                              
restructuring  may  fail,  and   that  failure  of  the  voluntary                                                              
efforts and  initiatives  would trigger compulsory  action  by the                                                              
commission.   He said that  it was not  stated what that  would be                                                              
specifically  as it  would depend  on the ultimate  extent  of the                                                              
regulatory authority,  what statutory changes would  be necessary,                                                              
and what the  administration and the legislature  would be willing                                                              
to do.                                                                                                                          
CHAIR WOOL asked how long this had been a problem.                                                                              
MR. PICKETT replied  that this had been reviewed for  more than 20                                                              
REPRESENTATIVE  JOHNSON asked if  there was a  bright spot  in the                                                              
midst of this  dysfunction, and whether things were  moving in the                                                              
right direction.                                                                                                                
MR. PICKETT  replied that there  was slow progress,  acknowledging                                                              
that  the  level  of  complexity  and the  history  could  not  be                                                              
discounted.   He pointed  out that  the utilities  were trying  to                                                              
absorb a  new generation  of efficient energy  into the  rate base                                                              
and  incorporate this  into rates.   He  allowed that  this was  a                                                              
tremendous  amount  of  work,  and,   along  with  the  associated                                                              
depreciation  studies,  there  are  "a  lot  of  things  that  are                                                              
happening at  the same time."   He stated that the  commission was                                                              
willing to  continue with the  voluntary efforts as  the utilities                                                              
had been working together to move forward.                                                                                      
CHAIR  WOOL  noted  that  there  had  been  a  lot  of  new  power                                                              
generation in the past 20 years.                                                                                                
MR.  PICKETT  reported  that  citing authority  in  terms  of  the                                                              
generation  currently  in place  would  not have  an  impact.   He                                                              
explained  that citing  authority would  come into  play if  there                                                              
were major  transmission upgrades  with significant projects.   He                                                              
offered his  belief that citing  authority for utility  management                                                              
was not necessary  to make decisions for many  things, although it                                                              
should  be  considered   on  major  projects  worth   hundreds  of                                                              
millions of dollars which affected rates.                                                                                       
11:30:13 AM                                                                                                                   
MR. PICKETT returned  attention to slide 32, "Finding  No. 4," and                                                              
stated   that  there   were   currently   no  mandatory   electric                                                              
reliability  standards, although  there were voluntary  standards.                                                              
He  reported   that  the   Intertie  Management  Committee   which                                                              
included  Chugach  Electric, Garden  Valley,  Matanuska  Electric,                                                              
and Municipal  Light  and Power,  as well as  Homer Electric,  had                                                              
adopted a  modified version  of the  reliability standards  in the                                                              
Railbelt.   He offered his belief  that the utilities  were trying                                                              
to work  out the  differences, although,  as these standards  were                                                              
still voluntary,  there were  not any  enforceable and  consistent                                                              
reliability  standards.    He opined  that  these  standards  were                                                              
necessary, as  voluntary standards could  easily lose impact.   He                                                              
added that  critical infrastructure  and cyber security  standards                                                              
needed  to  be  addressed.    He  questioned  what  would  be  the                                                              
enforcement mechanism.                                                                                                          
MR. PICKETT moved  on to slide 33, "Finding No.  5," which focused                                                              
on  the  impact  of  the recommendations.    He  stated  that  the                                                              
aforementioned  four  findings   would  be  challenging  and  time                                                              
consuming  to  implement,  and that  full  implementation  of  the                                                              
proposed electrical  system structural  change would  take between                                                              
five  to ten  years.   He  said  that it  was  necessary for  many                                                              
parties from  many different areas,  including the  utilities, the                                                              
energy  authority,  the  commission,   the  legislature,  and  the                                                              
administration,  to  cooperate  or  the  effort would  fail.    He                                                              
opined  that  the initial  steps  would  need to  be  incorporated                                                              
within  the current  funding  structure,  which would  allow  that                                                              
this process  be kept moving  for another  two years.   He pointed                                                              
out  that any  significant  changes could  necessitate  a look  at                                                              
other options.                                                                                                                  
REPRESENTATIVE  JOHNSTON  asked  about  the  fixed  capital  costs                                                              
which each  of the  utilities had incurred,  the variable  cost of                                                              
power generation  dependent on  fuel and  efficiency, the  need to                                                              
update  any transmission  lines, and  the ability  for someone  to                                                              
get "all the wheels on the bus to go in the same direction."                                                                    
MR. PICKETT emphasized  that the management and the  boards of the                                                              
utilities  were acting  in good  faith for moving  forward  in the                                                              
right  direction.   He  said that  capital  expenditures would  be                                                              
incorporated  into rates  upon appropriate  review.  He  explained                                                              
that the  RCA statutes  were structured  in such  a way  that once                                                              
the utility  made an investment,  the commission was  obligated to                                                              
separate  at a  level  which  made it  possible  to  pay for  that                                                              
REPRESENTATIVE  JOHNSON asked  how  long the  rate review  process                                                              
would take from initiation to determination.                                                                                    
MR.  PICKETT replied  that there  were  statutory deadlines  which                                                              
required  completion  within 15  months,  although  this could  be                                                              
completed in a shorter time.                                                                                                    
CHAIR WOOL asked  if a lot of the good faith by  the utilities was                                                              
a  result  of  the  findings  and   recommendations  [Included  in                                                              
members' packets].                                                                                                              
MR.  PICKETT replied  that the  utilities  knew that  the RCA  was                                                              
"not going  away and they know  we're considering to look  at it."                                                              
He  stated  that   neither  RCA  nor  the  utilities   wanted  any                                                              
unilateral action.                                                                                                              
REPRESENTATIVE  WESTLAKE, noting the  failure of previous  efforts                                                              
to reform  as well as some  system incompatibility, asked  why the                                                              
RCA was recommending interjecting itself.                                                                                       
MR.  PICKETT  replied  that  there  was a  need  for  system  wide                                                              
efficiency.      He  offered   his   belief   that  it   was   the                                                              
responsibility of  the RCA to  bring the maximum  economic benefit                                                              
to the  rate payers,  as they were  entitled to reliable  electric                                                              
utility service.                                                                                                                
11:40:22 AM                                                                                                                   
MR.  PICKETT   addressed   slide  34,  "USO   and  Transco,"   and                                                              
distinguished  the difference  between a  Unified System  Operator                                                              
(USO) and  an Independent  System Operator  (ISO) and  pointed out                                                              
that there  were not hard lines,  as there were  hybrid structures                                                              
which incorporated aspects of both.                                                                                             
CHAIR  WOOL,  in  response  to Mr.  Pickett,  suggested  that  Mr.                                                              
Pickett  answer  from  a  series   of  nine  previously  submitted                                                              
questions.   He  asked whether  the  Beluga Power  Plant cost  the                                                              
Railbelt  money,   and  now  that   there  was  new   natural  gas                                                              
generation, was this  the time to stop paying to  keep these older                                                              
gas plants operational.                                                                                                         
MR.  PICKETT said  that  the utility  managers  generally had  the                                                              
right to  decide which  assets to retire,  although the  RCA could                                                              
require actions given  the appropriate due process.   He said this                                                              
would  require  a   finding  that  the  utility   had  engaged  in                                                              
unreasonable management  practices which had an adverse  effect on                                                              
the cost  or quality of  service.  He  pointed out that  there was                                                              
an assumption  that retirement of  the asset would save  money for                                                              
the  consumers, which  may  or may  not  be true.    He said  that                                                              
retirement of an asset could increase rates in the short run.                                                                   
CHAIR WOOL  addressed the  second question  regarding a  time line                                                              
for the  formation of a  unified system,  and at what  point would                                                              
the voluntary  efforts  for a system  wide operator  be deemed  to                                                              
have failed.                                                                                                                    
MR. PICKETT replied  that RCA tried to incentivize  and facilitate                                                              
cooperation with  the interconnecting  utilities in  the Railbelt.                                                              
He said that  there were not specific, mandatory  criteria for how                                                              
this was to be  accomplished because circumstances do  change.  He                                                              
said  that there  was  not a  definition  for  what constituted  a                                                              
failure.   He  offered  his belief  that  the commission  believed                                                              
that the voluntary,  cooperative, collaborative process  was not a                                                              
failure until  the parties arrived  at an impasse,  and activities                                                              
just  stopped.   He  said  that  he would  bring  the  reliability                                                              
standards to  the forefront, as it  did not appear that  there was                                                              
"the same level of movement with that recommendation."                                                                          
CHAIR  WOOL  asked about  an  RCA  report  in  2014, with  an  RCA                                                              
response in 2015,  which resulted in movement by  the utilities in                                                              
CHAIR  WOOL asked  about  citing  authority for  the  RCA for  new                                                              
power and  transmission construction,  and whether earlier  citing                                                              
authority   would   have   resulted   in  a   change   in   recent                                                              
MR. PICKETT said  that the attorney general had  researched citing                                                              
authority  for   RCA  and  had   determined  that   the  precursor                                                              
organization to  RCA had limited  citing authority prior  to 1970.                                                              
He reported  that the pre-1970 period  was not comparable  as that                                                              
commission  did  not have  certificate  authority  over  political                                                              
subdivisions.   He went  on to report  that citing authority  over                                                              
both generation  and transmission  could not be exercised  through                                                              
the [indisc].   He said that  a caveat for citing  authority would                                                              
be the  need for limitations  because utility  managers had  to be                                                              
able to  make the  decisions on  investment.   He opined  that RCA                                                              
did not want to "get down to a granular level."                                                                                 
CHAIR  WOOL reiterated  that the  use of hundreds  of millions  of                                                              
dollars would be an appropriate use of citing authority.                                                                        
11:49:05 AM                                                                                                                   
The committee took a brief at ease.                                                                                             
11:49:28 AM                                                                                                                   
CHAIR WOOL said that more questions would be submitted later.                                                                   
CHAIR WOOL  asked if  there was  currently a  single tariff  if an                                                              
independent power  producer (IPP) wanted access to  the grid, and,                                                              
if not, when that would be available.                                                                                           
MR. PICKETT  replied that there  were tariffs for  transmission by                                                              
each of  the respective utilities,  and he acknowledged  that this                                                              
was  a  challenge  to  a small  power  producer  when  using  many                                                              
transmission  systems,  as  these  "pancaking rates"  led  to  the                                                              
consideration  for  the rationalization  of  rates  on a  Railbelt                                                              
wide basis.  He  reported that when an IPP wanted  to interconnect                                                              
with a  particular utility and  provide service in  that location,                                                              
it was necessary  to negotiate with  that utility.  He  added that                                                              
a transmission  tariff did not  automatically allow for  access to                                                              
the system,  as a  tariff rate  and a  longer-term power  purchase                                                              
agreement  was  often  necessary   for  a  funding  package.    He                                                              
reported that  a qualifying  facility (QF)  could have  the rights                                                              
for an interconnect  if the utilities tariff permitted,  however a                                                              
non-QF did not have  the rights to transmit power  to the customer                                                              
unless it  had a Certificate  of Public Convenience  and Necessity                                                              
or was  exempt for  this requirement.   He emphasized  that, under                                                              
existing  law, no  utility was  obligated to  buy from  an IPP  or                                                              
even  consider power  purchases except  by contract.   He  pointed                                                              
out that this was negotiated between the IPP and the utility.                                                                   
CHAIR WOOL asked if this would change in a unified system.                                                                      
MR. PICKETT  replied that he could  not speculate as to  the exact                                                              
form,  although  with a  unified  system or  unified  transmission                                                              
everyone  would have  the same  access  to the  system subject  to                                                              
CHAIR  WOOL  asked  about an  independent  system  operator  (ISO)                                                              
versus  a unified  system operator  (USO), and  whether there  was                                                              
concern for  the independence for  ISOs versus the  possibility of                                                              
control of the USOs by the utilities.                                                                                           
MR. PICKETT, stating  his personal opinion, said  that any created                                                              
entity could take  on many forms and aspects.  He  opined that the                                                              
key was in  governance, and how  the entity would be  governed and                                                              
who should  be represented.   He  offered his  belief that  it was                                                              
not  appropriate for  the governing  structure  to be  exclusively                                                              
utilities,  as other  voices should  be involved.   He noted  that                                                              
the assets  pledged to the entity  or the capital being  raised by                                                              
the  entity  were  going  to need  assurances  that  the  entities                                                              
behaved  in  an  economically  rational  fashion  to  protect  the                                                              
REPRESENTATIVE  JOHNSON asked  if  there were  any other  entities                                                              
with similar operations to model.                                                                                               
MR. PICKETT  said that he had  been researching this for  the past                                                              
three years.   He declared  that Alaska  was unique in  that there                                                              
was  not any  crossing of  state boundaries,  although Alaska  was                                                              
able  to look  at what  worked in  other  areas to  see what  made                                                              
sense  for Alaska.    He  added that  many  systems  were far  too                                                              
complicated for the needs of Alaska.                                                                                            
CHAIR  WOOL asked about  Transco  versus USO,  and for a  separate                                                              
entity to  own the  transmission structure  with a unified  system                                                              
operator to  dispatch.  He asked  if there was a blurring  of this                                                              
line  between the  company which  owned the  transmission and  the                                                              
company which dispatched this, or should these be more separate.                                                                
MR. PICKETT  replied  that this  could reflect  a blurring  of the                                                              
lines, although  he was  not able to  state definitively  what the                                                              
form would  take.   He said that,  ultimately, this  would involve                                                              
the State of Alaska and its transmission assets.                                                                                
CHAIR  WOOL asked about  the cost  estimate for  an upgrade  which                                                              
included a tie in of the Susitna-Watana Hydroelectric Project.                                                                  
MR. PICKETT  explained that the  referenced study by  the electric                                                              
power systems  had two big pieces,  the pre-Watana study  for $900                                                              
million and  the component,  the post-Watana,  which assumed  that                                                              
when the dam came  on line there would be other things  to do.  He                                                              
reported that the  RCA had not embraced this study  and had raised                                                              
questions  for internal assumptions  within  that study which  had                                                              
somewhat  skewed  the cost-benefit  ratio.    He opined  that  the                                                              
study  had identified  projects  to be  considered,  and that  the                                                              
updated study did not include a dollar figure.                                                                                  
CHAIR WOOL  asked who paid  for the Bradley  Lake project,  if the                                                              
bonds  were scheduled  to  be paid  off in  the  near future,  and                                                              
whether  the participating  utilities  would then  have an  annual                                                              
payment into the state Railbelt energy fund.                                                                                    
MR. PICKETT  replied that  RCA did  not have regulatory  authority                                                              
on the Bradley  Lake project, and  it had been suggested  that RCA                                                              
did not even have  the right to read the agreement.   He suggested                                                              
that  it would  be necessary  to speak  with AEA  and the  Bradley                                                              
Lake management committee.   He offered his belief  that the bonds                                                              
were nearing their  pay-off, although he was unsure  of what would                                                              
happen next.                                                                                                                    
CHAIR WOOL asked for the meaning of CPCN.                                                                                       
MR.  PICKETT  replied that  this  was  the certificate  of  public                                                              
convenience and necessity,  which he described as  the license for                                                              
the utility to do business.                                                                                                     
REPRESENTATIVE  JOHNSON,  referencing  slide  3, asked  about  the                                                              
boundaries of the  Railbelt, and whether the areas  on the western                                                              
side of Cook Inlet were considered Railbelt.                                                                                    
MR. PICKETT  replied  that this  was the Beluga  Power Plant  area                                                              
and was served by Chugach Electric.                                                                                             
12:02:47 PM                                                                                                                   
There being  no further business  before the committee,  the House                                                              
Special Committee on Energy meeting was adjourned at 12:02 p.m.