Legislature(2017 - 2018)CAPITOL 17
02/28/2017 10:15 AM House ENERGY
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| Overview: History & Current State of the Railbelt Electric Utilities | |
| Adjourn |
* first hearing in first committee of referral
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| + | TELECONFERENCED | ||
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
UTILITIES
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ROBERT PICKETT, Chair
Commissioner
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
Utilities
Overview: History & Current State of the Railbelt Electric
Utilities
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
available.
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
year.
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
Valley.
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,
2013.
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
phase.
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
consistently.
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
energy.
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
connected.
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
community.
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
change.
11:18:49 AM
CHAIR WOOL pointed to Recommendation 1, which stated that the
RCA should be granted citing authority for new generation and
transmission.
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
years.
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
investment.
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
2017.
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
construction.
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
terms.
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
investments.
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
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 12:02 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| House Energy Committee 2.28.17 - RCA Recommendation LTR to the Legislature 6.30.15.pdf |
HENE 2/28/2017 10:15:00 AM |
|
| House Energy 2.28.17 - RCA Presentation - History & Current State of the Railbelt Electric Utilities.pdf |
HENE 2/28/2017 10:15:00 AM |
|
| House Energy 2.28.17- Amended and Restated Power Pooling.pdf |
HENE 2/28/2017 10:15:00 AM |