Legislature(1999 - 2000)
03/22/2000 08:09 AM House URS
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING
March 22, 2000
8:09 a.m.
MEMBERS PRESENT
Representative Bill Hudson, Chairman
Representative John Cowdery, Vice Chairman
Representative Pete Kott
Representative Norman Rokeberg
Representative Brian Porter
Representative John Davies
Representative Ethan Berkowitz
Representative Joe Green (alternate)
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 248
"An Act relating to consumer choice for electric energy in
Alaska; and providing for an effective date."
- HEARD AND HELD
HOUSE BILL NO. 169
"An Act relating to including the costs of expansion activities
and political activities in rates of electric cooperatives."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 248
SHORT TITLE: ELECTRIC UTILITY COMPETITION
Jrn-Date Jrn-Page Action
5/19/99 1651 (H) READ THE FIRST TIME - REFERRAL(S)
5/19/99 1652 (H) URS, L&C
3/15/00 (H) URS AT 8:00 AM CAPITOL 120
3/15/00 (H) -- Meeting Postponed to 3/22 --
3/22/00 (H) URS AT 8:00 AM CAPITOL 120
BILL: HB 169
SHORT TITLE: ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY
Jrn-Date Jrn-Page Action
3/31/99 625 (H) READ THE FIRST TIME - REFERRAL(S)
3/31/99 625 (H) URS, L&C
4/28/99 (H) URS AT 8:00 AM CAPITOL 120
4/28/99 (H) SCHEDULED BUT NOT HEARD
5/05/99 (H) URS AT 8:00 AM CAPITOL 120
5/05/99 (H) SCHEDULED BUT NOT HEARD
3/15/00 (H) URS AT 8:00 AM CAPITOL 120
3/15/00 (H) -- Meeting Postponed to 3/22 --
3/22/00 (H) URS AT 8:00 AM CAPITOL 120
WITNESS REGISTER
PAT HARMAN, Staff
to Representative Pete Kott
Alaska State Legislature
Capitol Building, Room 118
Juneau, Alaska 99801
POSITION STATEMENT: Presented information regarding HB 248 on
behalf of the sponsor.
GENE BJORNSTAD, General Manager
Chugach Electric Association, Inc.
P.O. Box 196300
Anchorage, Alaska 99519-6300
POSITION STATEMENT: Testified on HB 248.
ERIC YOULD, Executive Director
Alaska Rural Electric Cooperative Association
703 West Tudor
Anchorage, Alaska 99503
POSITION STATEMENT: Testified on HB 248.
NORMAN L. STOREY, General Manager
Matanuska Electric Association
163 East Industrial Way
Palmer, Alaska 99645
POSITION STATEMENT: Testified on HB 248.
CHARLES WALLS, President and Chief Executive Officer
Alaska Village Electric Cooperative
4831 Eagle Street
Anchorage, Alaska 99503
POSITION STATEMENT: Testified on HB 248.
MEERA KOHLER, General Manager
Anchorage Municipal Light and Power
1200 East First Avenue
Anchorage, Alaska 99501
POSITION STATEMENT: Testified on HB 248.
GEORGE KITCHENS, Executive Vice President
Golden Valley Electric Association
758 Illinois Street
Fairbanks, Alaska 99701
POSITION STATEMENT: Testified on HB 248.
DAWN BISHOP, Special Staff Assistant
Regulatory Commission of Alaska
1016 West Sixth Avenue
Anchorage, Alaska 99501-1963
POSITION STATEMENT: Relayed questions on HB 169.
JEFF LOGAN, Staff
to Representative Joe Green
Alaska State Legislature
Capitol Building, Room 214
Juneau, Alaska 99801
POSITION STATEMENT: Presented information on HB 169.
ED WILLIS [Member, Matanuska Electric Association]
22424 North Birchwood Loop
Chugiak, Alaska 99567
POSITION STATEMENT: Testified on HB 169.
TUCKERMAN BABCOCK, Manager of Government and Strategic Affairs
Matanuska Electric Association
163 East Industrial Way
Palmer, Alaska 99645
POSITION STATEMENT: Testified on HB 169.
ACTION NARRATIVE
TAPE 00-5, SIDE A
Number 0001
CHAIRMAN BILL HUDSON called the House Special Committee on
Utility Restructuring meeting to order at 8:09 a.m. Members
present at the call to order were Representatives Hudson,
Cowdery, Kott, Porter and Green. Representatives Rokeberg,
Davies, and Berkowitz arrived as the meeting was in progress.
Number 0106
CHAIRMAN HUDSON called attention to a draft of a letter to U.S.
Senator Frank Murkowski, saying it puts [committee members] on
record in support of Senator Murkowski's proposed amendment
[federal legislation S. 422], which would help Alaska get small
hydroelectric plants without going through a very expensive and
time-consuming court procedure. Chairman Hudson requested the
signatures of those who agree with it.
HB 248 - ELECTRIC UTILITY COMPETITION
Number 0163
CHAIRMAN HUDSON announced that the committee would consider HOUSE
BILL NO. 248, "An Act relating to consumer choice for electric
energy in Alaska; and providing for an effective date." He
clarified for the record that the work draft before the committee
was 1-LS0923\D, Cramer, 2/1/00 (Version D).
Number 0240
REPRESENTATIVE KOTT, Alaska State Legislation, sponsor of HB 248,
explained that the bill had been introduced late in the last
session. Considerable work had gone into it over the interim,
resulting in the proposed committee substitute, Version D, before
the committee. He had introduced the bill because a number of
studies had recommended that Alaska proceed cautiously in a
competitive environment. Rather than table those studies to
collect dust, he had decided to introduce a bill that would at
least generate discussion to see what direction the state would
like to take as it diversifies and develops its energy resources.
Number 0380
PATRICK HARMAN, staff to Representative Pete Kott, Alaska State
Legislature, began his testimony with the disclosure that he had
been a commissioner on the Anchorage Municipal Light and Power
Commission for nine years and had served as chairman during the
acquisition of the gas field. He stated that his loyalties at
this time are to Representative Kott and the members of District
24. Mr. Harman proposed that he present a neutral introduction
of HB 248, leaving it to the witnesses to provide their various
viewpoints.
MR. HARMAN said Section 1 consists of findings, which are
relatively self-explanatory. Turning to Section 2, he called
attention to a technical change that adds regulatory oversight,
by the Regulatory Commission of Alaska (RCA), of power
aggregators and power marketers. A power marketer means an
entity that acts as an agent or intermediary in the purchase of
electric energy, he explained, but does not take title to that
energy. A power aggregator actually takes title and owns the
electricity in the process of marketing it. Section 2 provides
for the retail sale of electricity and introduces the concepts of
power aggregators and power marketers into the statute.
Number 0548
MR. HARMAN emphasized that Section 4, starting on page 4, is the
"meat" of the bill. Lines 4-6 provide for an effective date and
allow consumers to choose their electric service provider. Lines
7-15 describe the role of the RCA in the new competitive market.
The RCA will have a major role if Alaska adopts competition or
restructuring of the electric utility industry. The RCA will
basically set the ground rules, but its rate-making ability will
be severely curtailed. In a competitive market, it is not
necessary to have the rates set by a regulatory commission. Mr.
Harman highlighted lines 16-17, saying they would allow for rural
competition by January 1, 2002, if the commission allowed. He
imagined that the committee would be revisiting those particular
two lines during testimony, he added.
Number 0670
MR. HARMAN explained that page 4, line 8, through page 5, line
16, further refines the issues that the RCA will be required to
address. On line 8, subsection (7), the generation,
transmission, distribution services and costs are unbundled in
service areas open to competition. A critical task for the RCA
to undertake is the unbundling of the network. This allows
people to sell electricity across the current service areas,
becoming common carriers. Without unbundling the distribution
and transmission network, duplicate facilities would have to be
built.
MR. HARMAN said page 5, lines 20-28, deals with recoverable
stranded costs. This is a complex issue and is probably the core
of a level playing field - what is and what is not allowed as a
recoverable cost.
MR. HARMAN turned to the last page and read the definition of
recoverable stranded cost: "Recoverable stranded cost means the
cost of public utilities subject to economic regulation by the
company will be allowed to recover as either a transition
surcharge or other recoverable rate category." If an asset is
not allowed to be recoverable, and that asset is not producing
revenue, he said it is probably indebted by bonds and will not be
allowed to repay that debt with revenue from the rates. This
primarily involves generation facilities. He surmised that there
would be lots of testimony in this area because it is critical to
having a level playing field in the competitive electricity
industry.
MR. HARMAN said page 6, lines 9-10, restricts competition to
urban areas unless otherwise allowed by the RCA. Page 6, lines
11-28, has definitions of terms used in HB 248. Section 5
establishes an effective date. Mr. Harman volunteered to answer
questions.
Number 0915
CHAIRMAN HUDSON asked if the definitions are new ones, not
previously published.
MR. HARMAN said the definitions are not new, but they have not
been published in statute.
CHAIRMAN HUDSON noted for the record that Representatives Davies
and Berkowitz had joined the meeting.
Number 0943
REPRESENTATIVE PORTER asked why on page 5, under "recoverable
stranded costs," it refers specifically to investments made after
1995. He asked what is magic about 1995.
MR. HARMAN answered that the legislature does not often act
retroactively, but this recognizes that the gas field was
purchased in 1996.
Number 0995
REPRESENTATIVE GREEN inquired about the last line on page 5,
where it talks about the power marketer that is not a public
utility being subject to regulation by the RCA "only as provided
in this section." He asked whether "this section" means AS 42,
42.05 or AS 05.915?
MR. HARMAN pointed out that the next page goes into what the
commission will require of power aggregators and power marketers.
It requires registration with the RCA and bonding, and on line 7
there is a price cap, which is an attempt at consumer protection.
REPRESENTATIVE GREEN pursued clarification that "this section"
refers only to AS 42.05.915.
MR. HARMAN affirmed that.
Number 1048
REPRESENTATIVE GREEN referred to page 3 where it says there is a
price cap. He said he could not tell what the cap is applied to.
MR. HARMAN replied that the cap would apply to the carrier of
last resort, which would probably be the utility that was
historically in the service area. If the older utility was
charging 10 cents and somebody new was bringing in electricity
for 9 cents, the recoverable stranded costs would be recovered in
the "wheeling rates," the fee that the carrier would charge for
delivery of the electricity.
Number 1125
REPRESENTATIVE GREEN said that was his concern, that it could be
an unfair advantage to a new supplier because the original
utility would have to charge [an extra 2 cents] to recover its
stranded cost.
MR. HARMAN confirmed that Representative Green was getting at the
crux of a public policy call, in that if there are going to be
winners and losers, what happens to that investment they [the
losers] have made?
CHAIRMAN HUDSON noted for the record that Representative Rokeberg
had joined the meeting.
Number 1189
REPRESENTATIVE DAVIES asked about the definition, at the bottom
of page 6, of an "urban area," which determines where HB 248 is
applicable. He noted that the definition is quite loose,
referring to "a municipality served by interconnected public
utilities." He wasn't sure what "interconnected" means.
MR. HARMAN agreed that it was a weak, broad definition that
probably needs work.
Number 1300
CHAIRMAN HUDSON announced that RCA staff was listening online and
would take questions.
Number 1341
GENE BJORNSTAD, General Manager, Chugach Electric Association,
Inc., began his testimony by saying the group's members, like
consumers in other parts of the country, support competition in
the electric utility industry and favor having the option to
choose their power supplier. Chugach Electric Association, a
consumer-owned cooperative, supports competition and the
consumers' right to choose. Inaction is the wrong action, he
said. Each year that passes without customer choice is a year
during which the customer is denied the opportunity to benefit
from exercising choice, "and when innovation and efficiency are
not compelled by the pressured of competition."
MR. BJORNSTAD said Chugach Electric recognizes that regulation
will be required to assist with the transition to competition,
and it supports a thoughtful and cautious approach. It supports
a price cap at least for a few years to allow for a smooth
transition. It supports HB 248 because it begins consumer choice
cautiously with plenty of oversight by the RCA. He stressed that
there is no reason to delay customer choice. Studies have been
going on for several years, and no one has come up with any
"terrifying problems." Those opposed to competition and
deregulation advocate more and more studies just to delay a
decision, he alleged.
Number 1597
MR. BJORNSTAD said that, in a nutshell, HB 248 would allow the
RCA to develop regulations to allow customer choice by July 1,
200l, so that customer choice would start in the Railbelt by
September 1, 2001. The bill contains substantial consumer
protections. It addresses stranded investments. The bill
establishes that power marketers or aggregators, while not
subject to full regulation as public utilities, are subject to
consumer protection by the RCA. The bill provides authority for
the RCA to prevent undue discriminations by vertically integrated
utilities in favor of their own retailers. It gets the RCA out
of the business of deciding when and where to site new generation
resources. It caps retail rates offered by aggregators and
marketers at the level set by the RCA for carriers of last
resort, which are the utilities. It reaffirms the authority of
the RCA to establish open-access tariffs for transmission
facilities.
MR. BJORNSTAD cautioned that in testimony to follow, listeners
should be alert for the smokescreen word "complex," which he said
translates to "let's delay and study some more." He also
suggested they listen for loose references to problems in the
Lower 48 with deregulation and competition. "We're talking about
the Railbelt, and the Railbelt is not particularly complicated,"
he said. Mr. Bjornstad concluded that HB 248 is a good vehicle
for transition to consumer choice. It is safe, simple, and
should be implemented now.
Number 1838
REPRESENTATIVE BERKOWITZ asked what the price benefits would be
to consumers.
MR. BJORNSTAD said he would not want to predict any specific
price decreases or changes. He didn't think prices would go any
higher with the price cap; they should go lower.
Number 1868
REPRESENTATIVE DAVIES asked if Mr. Bjornstad's reference to the
Railbelt indicated he thought the Railbelt was what HB 248 meant
by an "urban area."
MR. BJORNSTAD said that was his interpretation.
REPRESENTATIVE GREEN asked if all the states that have started
down this road or have [deregulated] still favor deregulation.
MR. BJORNSTAD said he thinks there are some concerns, in some
states, that deregulation is not working as well as they thought
it would. He didn't think any of them have turned around and
gone the other way, however.
Number 1928
REPRESENTATIVE GREEN wondered if, without a reliable intertie
along the Railbelt, the various generators would be able to offer
excess power at a lower rate than they are charging their
customers now. Could an aggregator buy wholesale power and
redistribute it at a more competitive rate?
MR. BJORNSTAD said he didn't think Chugach or anybody else could
afford to sell below the cost of producing power. "But
obviously," he said, "when we negotiate wholesale contracts, we
negotiate different terms for different contracts. And the same
thing would happen with an aggregator if we had one."
Number 2020
REPRESENTATIVE GREEN asked, if the co-ops are already operating
at the lowest cost, how an aggregator would be able to sell for
less.
MR. BJORNSTAD replied that Chugach is operating at the lowest
cost now, but that he couldn't speak for the other utilities.
Number 2049
REPRESENTATIVE ROKEBERG asked about the cutoff date of 1995 for
the recovery of stranded investment.
MR. BJORNSTAD explained that it was about 1995 when people in the
country started talking seriously about retail competition and
deregulation. If a utility built new generation after 1995, it
was with the knowledge that competition and deregulation might
come, and that utility was running the risk of having stranded
investment.
Number 2081
REPRESENTATIVE ROKEBERG asked what was meant by "unbundling" of
services.
MR. BJORNSTAD said "unbundling" in the electric utility industry
means breaking down the costs associated with generation,
distribution, transmission, and other services so the customer
can see the costs itemized for each one of those areas instead of
having them combined in one rate that covers everything.
Number 2116
REPRESENTATIVE ROKEBERG asked about the possibility that there
would be a dual tariff on one line.
MR. BJORNSTAD said he did not think there would be a dual tariff.
REPRESENTATIVE ROKEBERG said it would be interesting to see what
major capital investments have been made in the Railbelt area
from 1995 and since. He asked if the committee staff could get
that information for him.
Number 2248
REPRESENTATIVE GREEN observed that on page 6, it says, "a price
cap for retail electric energy equal to the rate charged by the
carrier of last resort for similar electric load." He wondered
if that rate might include some payout of what would become
stranded costs if someone else took part of those customers. He
asked Mr. Bjornstad if that meant a newcomer would have an unfair
advantage, or if Chugach Electric would restructure its rates to
be competitive.
Number 2203
MR. BJORNSTAD said he thought that if it were a recoverable cost,
the power marketer or aggregator would have to have that in its
rates, too. That would be something set by the legislature or
the regulator.
CHAIRMAN HUDSON asked if that would be something the RCA would
determine.
MR. BJORNSTAD said he thought it would.
Number 2221
CHAIRMAN HUDSON summarized:
We require unbundling so the consumer can see all of
the associated elements of cost, and the RCA would be
responsible for making certain that the stranded costs
would be recovered in one form or another. And if
competition were to come in and take over certain
customers, the competitor would also have to take over
the underwriting of the recoverable costs of the
stranded investments.
MR. BJORNSTAD concurred with that summary.
Number 2248
REPRESENTATIVE GREEN said he thought that somewhere in HB 248,
the RCA was excluded from dealing with that.
CHAIRMAN HUDSON said he thought so, too.
Number 2262
REPRESENTATIVE GREEN referred to page 5, where it says that
"other than that the power aggregator or the power broker would
not be subject to the RCA," other than as provided by AS
42.05.915. He asked Mr. Bjornstad, "Does that give that
[aggregator] an advantage over your organization?"
MR. BJORNSTAD replied, "No, I don't believe it does."
CHAIRMAN HUDSON noted that three people in Orlando, Florida, were
online waiting to testify.
Number 2316
ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative
Association (ARECA), was the first to testify by teleconference
from Orlando. He said there was only one other witnesses left to
testify, as the third had left to catch an airplane. He
explained that ARECA is the trade association for the electric
utility industry in Alaska. The industry includes most of the
utilities throughout the state, virtually all of those in the
Railbelt plus the major utilities in rural Alaska. Collectively,
the member utilities generate about 90 percent of the state's
electricity.
MR. YOULD cautioned that there might be some confusion in
subsequent testimony because the original HB 248 never received a
committee hearing; hence all of his members had been going under
the assumption that they would be discussing the original draft
of the bill, which was quite a bit different from Version D. The
original bill required wholesale competition before going to
retail competition. It also had provisions for exclusion of
competition in rural Alaska, whereas the industry seriously
questions whether rural competition is even possible there,
physically or economically.
MR. YOULD indicated he would like to update the committee on
where the industry is now and where it is trying to go with
retail competition, and then to comment on what the industry
thinks about retail competition. Ultimately, he stated, "what we
are trying to do is not pass a bill for the bill's sake, but
first try and decide whether retail or wholesale competition is
even good for Alaska, and we haven't done that yet." He said
there a big question in some people's minds as to whether a state
that is not overwhelmed by investor-owned utilities, that has a
very immature and weak transmission system with very few
competitors, provides the template for a successful [competitive]
venture.
Number 2422
MR. YOULD recalled that in 1998, the legislature set up a special
committee to study deregulation over the next six months. One of
that committee's recommendations was that the issue, which is
complex, needs more study. It then recommended a joint venture
with the then-Alaska Public Utilities Commission, a study to
determine whether or not retail competition should come to
Alaska. The legislature brought in CH2M Hill to do the study.
CH2M Hill subsequently gave its recommendations to the
legislature. Last year, based on the recommendation of the
special committee, the House had created the Special Committee on
Utility Restructuring.
TAPE 00-5, SIDE B [Numbers run backward]
MR. YOULD continued. At the same time, he said, the RCA was put
in place, totally replacing the Alaska Public Utilities
Commission. The chair of the RCA has said that the commission
will not be able to render an opinion on restructuring until next
year. At the conclusion of the legislative session last year,
the House Special Committee on Utility Restructuring concluded
that this is a complex issue that should remain the purview of
the legislature, and that the regulators should keep their hands
off until the policy makers decide what should be done.
Number 2443
MR. YOULD recalled that the CH2M Hill study said that benefits
could come out of retail competition, but the cost of achieving
those benefits might outweigh those benefits. As a result,
Alaska may not want to proceed into retail competition.
Basically, it said that other steps need to be taken beforehand.
One step is conducting modeling studies. The CH2M Hill study
suggested that would be a substantial effort and cost about $2
million. Competition in the electric utility industry is a major
decision being made for the state, and Mr. Yould said he thinks
it is premature to consider HB 248 until a decision has been made
about whether we [Alaska] should actually be restructuring.
MR. YOULD noted that it had been recommended earlier that
deregulation would be good because there wouldn't be as much
regulation. He does not think there has been any less regulating
as a result of deregulation of the telecommunications industry.
Two weeks ago, RCA Commissioner Will Abbott indicated that the
RCA felt there would be significantly more regulation as a result
of deregulation of the electric utility industry.
Number 2365
MR. YOULD said the utility industry has been wrestling with what
the values of deregulation are to Alaska. "I frankly think our
people [those in the electric utility industry] are in the best
position to make that determination," he said. "We respect the
opinion that Chugach Electric has expressed, but the rest of our
[ARECA] membership has a different opinion.
MR. YOULD said Chugach Electric favors retail competition, but
not wholesale competition, because "they presently maintain and
control about 95 percent of the wholesale power market." Other
ARECA members, especially in the Railbelt, feel that if
competition comes to Alaska, it should come at the wholesale
level first to preclude an unbalanced playing field. Others feel
that competition would reduce reliability in the Railbelt and
could increase the ultimate cost of power.
Number 2302
MR. YOULD said most ARECA members oppose the idea of conducting
pilot programs as a prelude to competition. He added:
There is a strong feeling that we could probably better
learn by watching some of the pilot programs that are
taking place in the Lower 48 and the competition that
is taking place down there, as opposed to trying to
conduct pilot programs in Alaska.
MR. YOULD said the industry group also strongly feels that it is
going to be a long time before any type of competition is going
to work in rural Alaska, which has even less of an economic
[base] and infrastructure than does the Railbelt. He restated
his opinion that it is premature to consider HB 248, saying ARECA
particularly opposes Version D because "it doesn't appear to
provide the level playing field that is needed if we are truly
going to have retail or wholesale competition in Alaska."
Number 2223
CHAIRMAN HUDSON thanked Mr. Yould for his testimony. He then
commented that he did not think it premature to take up the issue
of deregulation at this time. Throughout the entire previous
session, the committee had been looking at the studies and
educating itself. He said he thinks it is time for "a snapshot
as to just where this issue is." He agreed that the dialogue
needs to be finished before making a decision, but thinks it is
timely to take a look at the issue again.
Number 2189
NORMAN L. STOREY, General Manager, Matanuska Electric
Association, a member-owned cooperative, said he did not think
either the original version or the revised version of HB 248
should be passed. A law that restructures the entire utility
business in Alaska without first knowing that a change of this
magnitude would be in the best interests of Alaska is a high-risk
situation. If the benefits cannot be confirmed, then HB 248
should be set aside until those questions can be answered.
Restructuring should yield benefits. So far, there is no hard
evidence that there would be benefits. Restructuring may
seriously impact the reliability of electric systems because a
change of this magnitude in industry infrastructure could cause a
change in the way that the business operates. For example,
erosion of some of the utility's financial resources could result
in the rethinking of re-investment into systems. It also may
inhibit the utility's ability to finance long-term plant
maintenance projects.
MR. STOREY said Version D leaves in place the existing hopes of
power agreement. Homer Electric Association is a wholesale
contract load for Chugach Electric, under binding contractual
obligations through the year 2014. A large power supplier like
Chugach, holding long-term purchase agreements, will have
advantages over the smaller utilities if restructuring should
occur. Neither HB 248 nor Version D resolves this problem.
Number 2077
MR. STOREY reminded the committee of recent testimony from the
RCA chair, Nan Thompson, who said more time would be needed to
fully understand the issues of electric utility restructuring,
and that the RCA wished to take the time needed to do that.
There are so many issues involved in restructuring, affecting
every consumer in Alaska, that it is best to move slowly and
deliberately, he said. The RCA must be given latitude and time
to be thorough in its review of the issues. In his opinion, HB
248 is not in the best interest of the public.
Number 2011
CHARLES WALLS, President and Chief Executive Officer, Alaska
Village Electric Cooperative (AVEC), testified by teleconference
from Anchorage. He said deregulation may be appropriate for the
Railbelt but it is not appropriate for rural Alaska. He then
noted that on page 4 under Section 4, subsection © says that by
January 1, 2002, the commission may adopt regulations to allow
consumers outside the urban area to choose their electric
supplier. He thinks it "opens the door wide, exposing the rural
areas of the state to the provisions of this bill." He asked for
deletion of that section.
MR. WALLS revisited the definition of "urban area" on page 6. He
noted that AVEC serves interconnected rural villages, which would
fit under that definition of "urban area," and he does not think
that was the intent. He suggested that the language be amended
to specify that it is referring to the Railbelt, or to specify a
population threshold such as "municipalities of more that 25,000
people." He concluded by saying that retail competition would
not make any sense in the tiny markets of the rural villages.
Number 1907
MEERA KOHLER, General Manager, Anchorage Municipal Light and
Power (ML&P), testified by teleconference from Anchorage. She
said since 1997, Chugach Electric Association has been engaged in
"a strenuous effort to leapfrog the logical processes leading
toward restructuring of the electric industry by advocating the
immediate imposition of full retail competition in the Anchorage
area." House Bill 248 originally moved toward retail competition
by first instituting wholesale competition, then unbundling rates
and cost allocations, next considering a retail competition pilot
program, and finally moving into full retail competition.
MS. KOHLER reported that since HB 248 was introduced, valuable
lessons have been learned in the Lower 48 about the complexities
and dangers of restructuring. One critical problem that has been
identified concerns the physical limitations of the transmission
systems. In recent months, significant reliability problems have
emerged in an interconnected system hundreds of times the size
and capacity of Alaska's.
Number 1828
MS. KOHLER reported that there has been animated debate in the
Lower 48 focusing on what size market - 20,000, 30,000 or 50,000
megawatts - is large enough to limit market power to acceptable
levels. Alaska's entire Railbelt market is 700 megawatts,
smaller than pilot programs in the Lower 48. Ms. Kohler recalled
that the CH2M Hill report on restructuring in Alaska expressed
concern about the issue of market power.
Number 1790
MS. KOHLER said Congress has been grappling with restructuring
bills over the last few years, and it has become clear that no
comprehensive electricity restructuring bill will be enacted at
the federal level this year. She called HB 248 "a thinly
disguised effort by Chugach Electric Association to advance its
agenda of retail competition in Anchorage while it is still able
to leverage its market power to full advantage." Additionally,
she said, "the new language [of Version D] that disallows
stranded cost recovery for assets acquired after 1995 very
clearly targets the $125 million gas field that we [ML&P]
purchased in 1996." She stated that ML&P strongly supports a
considered, structured approach to competition in the electric
industry. She added, "We believe that this legislature and the
RCA have given this important issue the critical scrutiny that it
merits, ... and a lot more remains to be done."
Number 1724
MS. KOHLER commented on several points made by Mr. Bjornstad.
First, he had said he thought Chugach Electric was already
supplying reliable power at the lowest cost; Ms. Kohler said she
believes both ML&P and Golden Valley are doing so, too. She said
the contract recently awarded to ML&P to supply power to Golden
Valley Electric in Fairbanks is very small, "not even a blip on
the radar screen of the larger wholesale competition market."
MS. KOHLER disagreed with Mr. Bjornstad's assertion that the
Railbelt is not complex, and that it should be a simple matter to
institute competition there. She explained, "Smaller is more
complex. We have a very fragile transmission network, and there
are a lot of issues that need to be addressed long before any
form of competition." Ms. Kohler also said the purpose of the
open-access tariff Chugach recently filed was "so that they could
step in and serve a very small, firm-power load to Elmendorf Air
Force Base." She commented, "We're talking about a one to two-
megawatt sale here, and Chugach wants to step in and snatch that
away from us as well."
Number 1603
GEORGE KITCHENS, Executive Vice President, Golden Valley Electric
Association, testified by teleconference from Fairbanks. He said
that in general, Golden Valley agrees that competitive markets
are more efficient that are regulated markets. He added, "The
intent of HB 248 to push along the agenda of electric
restructuring is laudable, but we can't support the bill at this
time."
MR. KITCHENS said regulation has served the country well,
developing infrastructure to bring electricity to places in the
United States and in Alaska where it might not have been
otherwise. However, he thinks the job of regulation is not
complete in Alaska, which is not completely interconnected to
other states or to Canada. Furthermore, he said, Alaska does not
have enough buyers and sellers for competition to work
effectively.
Number 1436
MR. KITCHENS said Golden Valley does not support the use of pilot
programs as a means to test competition. Winning new customers
through advertising and marketing efforts is expensive, and
electric power marketers are reluctant to enter pilot programs
and incur huge expenses for a temporary shot at the market. So
pilot programs are not very convincing as a demonstration of what
competition truly is like.
MR. KITCHENS told members that Golden Valley is concerned about
stranded costs from the wholesale marketplace. If a non-
generating utility has a long-term purchase power commitment with
a power generation utility, an element of that contract usually
contains contract demands that will not go away even as the load
decreases, so one is going to leave that cost with people who are
buying wholesale power and are seeing their demand drop from a
loss of customers. In closing, he said that while some elements
of HB 248 are good, it is not the comprehensive look and
carefully crafted piece of legislation that will best serve all
Alaskans.
Number 1236
REPRESENTATIVE GREEN noted that he, as well as several other
legislators, is a member of the National Energy Council, made up
of ten oil and gas producing states, Venezuela, and the Canadian
province Of Alberta. Electrical deregulation has been a major
issue in that group's quarterly meetings for the past three
years. Three years ago, deregulation was the "greatest thing
since sliced bread," and states were converting to it. As time
has progressed, however, that issue has begun to dim. "Some
states that went into it have rescinded," he remarked. "Others
are really questioning it."
REPRESENTATIVE GREEN said the group's opinion has shifted away
from an attitude favoring a national policy on deregulation.
Various states still have various attitudes on deregulation, but
the overwhelming and absolute unanimity now is that the
individual states should decide, because one size does not fit
all. Representative Green emphasized that he believes
competition has made this country great, but just because it says
"competition" doesn't necessarily make it good. He stated:
What we have found is that the more rural a state, the
less advantageous competition is. Texas, Oklahoma,
Louisiana, and New Mexico are in favor of deregulation
because they have tremendous numbers of generations [of
electric power]. Mississippi, Colorado, and Wyoming,
on the other hand, are vehemently against deregulation.
Alabama, Arkansas, and Alaska are in the process of
trying to determine. So it is a real mixed bag, and I
think that is why they decided against a national
energy policy.
Number 1097
REPRESENTATIVE GREEN said the group has found that vertical
disaggregation has been advantageous, but that it is not
necessarily beneficial to go into an area where there are very
few generators and then try to encourage retail deregulation and
competition.
Number 1061
REPRESENTATIVE PORTER asked the RCA representative online whether
the RCA, now or in the near future, could tell the committee if
the electrical utilities - at least the major ones in the
Railbelt - are working at appropriate levels of cost versus
rates.
DAWN BISHOP, Special Staff Assistant, Regulatory Commission of
Alaska, answered that the commissioners had asked her to take any
questions so they could respond. However, she said she knew that
they had been looking at all of those aspects.
CHAIRMAN HUDSON asked Ms. Bishop to take back not only the
question Representative Porter had just asked, but also the other
questions that had come up during the testimony. He said it
would be helpful to have the RCA's responses, questions or
suggestions for further consideration by the committee on the
subject of deregulation. He then addressed Representative Kott,
saying he thought the committee needed some additional
information from the new RCA.
Number 0868
REPRESENTATIVE ROKEBERG observed that HB 248 is a very broad
piece of legislation and the committee substitute [Version D] is
a substantial change from the original bill. He said he had
numerous questions, and that he thought the bill needed further
work before it is moved to the House Labor and Commerce Standing
Committee, which he chairs. He said he would be happy to work
with the sponsor of HB 248 on some of his questions.
Number 0797
CHAIRMAN HUDSON asked the committee staff to assemble information
on certain topics that had been raised, such as including
wholesale power and a revised definition of "urban." He said he
would like to put out a product that looks like it is going to do
something constructive for the consumer and garner some broader
level support from what he considers to be some of the experts
out in the field. [HB 248 was held over.]
[A brief at-ease was taken.]
TAPE 00-6, SIDE A
CHAIRMAN HUDSON called the meeting back to order at 9:35 a.m.
HB 169 - ELEC.COOPS:EXPANSION & POLITICAL ACTIVITY
Number 0046
CHAIRMAN HUDSON brought before the committee HOUSE BILL NO. 169,
"An Act relating to including the costs of expansion activities
and political activities in rates of electric cooperatives."
REPRESENTATIVE GREEN, speaking as sponsor of HB 169, explained
that over the past few years, there has been a lot of money
expended through the media for a potential takeover involving two
cooperatives in the Anchorage and Matanuska-Susitna areas. Prior
to that, there was some problem involving the Matanuska Electric
Association and Chugach Electric Company. He said all of that
had been done without the approval of the members of the co-ops
involved. Those costs constitute a considerable amount of money
that in an efficiently run organization could reduce the
ratepayers' costs for electricity. That was the premise upon
which this bill was introduced.
Number 0153
JEFF LOGAN, Staff to Representative Joe Green, Alaska State
Legislature, noted that when HB 169 was scheduled last year,
former Representative Ed Willis waited for a couple of hours and
didn't have a chance to testify.
CHAIRMAN HUDSON said he was aware of that, and would call on Mr.
Willis first.
MR. LOGAN asked members to keep in mind the idea of customer
choice that they had heard repeatedly from supporters of HB 248.
He said the core mission - and reason for being - of Alaska's
member-owned cooperatives is to provide electricity to their
members. Thus HB 169 only affects those members. Co-ops will
have to comply with HB 169 only if they engage in political or
expansion activity, both of which are defined in the bill.
MR. LOGAN noted that the co-ops' obligations under HB 248 also
are clearly specified in the bill. The co-op must advise the
member/owner that a portion of the rate is going to be used for
political or expansion activity; identify how much of the rate
will be used; tell the member/owner that the management of the
cooperative will not refuse to serve or discriminate if the
member/owner does not wish to participate; and receive the
consent of the customer.
MR. LOGAN referred to another bill, which he said was really this
bill with a different number, that was heard in the committee in
1998. He said the message in opposition to that bill then was,
"It's too early. We don't need it." While the utilities were
before the legislature saying the bill was not needed, however,
they were spending hundreds of thousands of dollars of members'
rate money on expansion activities. Representative Green has re-
introduced the bill because he thinks it is needed, Mr. Logan
explained. The assumption [of co-op members] is that they are
only paying to have electricity delivered to their house, and
they should be able to decide if they want to pay for other
activities.
Number 0490
ED WILLIS, Member, Matanuska Electric Association(MEA), an
electric power cooperative, began his testimony by reading:
MEA wants to finish what it started. Joining Chugach
will make MEA stronger when deregulation arrives, and
huge savings still await us. Members should benefit
from those savings. That's why your MEA board proposes
a $500 payment to each member.
MR. WILLIS said that statement, taken from a direct-mail piece
that MEA had sent to its members, illustrates the connection
between deregulation and one utility's very expensive reaction
to it: the attempted hostile takeover of a much larger neighbor
utility. "That incredibly expensive and ultimately totally
unsuccessful takeover plan by MEA is what prompted me into
action," he said, "and why I am now before you supporting this
legislation, HB 169."
MR. WILLIS said last year he co-chaired a committee formed to
recall members of the MVA board of directors. The dissidents'
position was that the board's actions with respect to the failed
takeover attempt had not been in the members' best interests.
Mr. Willis said MEA management had vigorously fought the recall
effort and the petition to place a bylaw amendment before the
members. Ultimately, after having to go to court repeatedly to
get the judge to order MEA to act according to its own bylaws,
the voters were allowed to vote on both matters, but not before
MEA spent hundreds of thousands of dollars of ratepayers'
[payments] to fight the effort.
MR. WILLIS said he thinks it is wrong for a member like himself
to be forced to pay for an expensive legal battle in order to get
MEA management to comply with the cooperative's own bylaws. It
was only after a court order that MEA ultimately disclosed
$740,000 in expenses for the Chugach Electric Association
takeover. "Why should the membership have to get a court order to
have their cooperative disclose how much they are spending and on
what?" he asked.
Number 0709
MR. WILLIS said he objects to the spending and does not want to
pay for it in his light bill. After another court battle, the
dissident group was able to compel MEA to place on the annual
meeting ballot a proposed bylaw amendment to accomplish what HB
169 seeks to do. MEA spent hundreds of thousands of dollars
fighting the amendment. Mr. Willis said co-op administrators
purposely placed the amendment on the back of a voters' packet to
create confusion about the bylaw amendment and then duplicated
the amendment so it was unreadable.
MR. WILLIS testified that the amendment almost passed. He is
sure that it would have done so if MEA had not spent ratepayers'
funds to defeat it. The court ordered MEA to pay the dissidents'
legal fees totaling $89,000. The co-op has appealed the
decision, and Mr. Willis says he strongly objects to members'
fees being spent for the costs of that appeal.
MR. WILLIS emphasized that electricity is vital. He said he has
no qualms about paying for costs associated with its generation,
transmission, and distribution. However, he strongly objects to
being forced to pay for "speculative, non-necessary expenses."
He said he believes HB 169 is good public policy to employ while
debate over restructuring is underway. Once a long-term, defined
plan for the future of electric deregulation is in place, it
might be appropriate to revisit the issue. Meanwhile, stopping
the kind of wasteful spending such as that in the MEA service
area would be a positive step for all the member/owners of
electric cooperatives throughout the state, he said.
Number 0921
TUCKERMAN BABCOCK, Manager of Government and Strategic Affairs,
Matanuska Electric Association, said he certainly could
sympathize with Mr. Willis' position. However, he pointed out,
the board of directors at MEA, like those of every other co-op,
is elected by the members. There are annual elections,
incumbents are defeated, and changes take place in that fashion.
He took issue with the premise that it was unwise for MEA to have
spent money on the effort to acquire Chugach Electric. "Why is
it unwise to spend $500,000 or $600,000 if what's on the table is
saving $100 million?" he asked. He suggested that for
membership, it had been a wise effort, even though it was
ultimately unsuccessful.
MR. BABCOCK pointed out that MEA members had endorsed the effort
to acquire Chugach with a 59 percent advisory vote. Members
voted against the bylaw amendment, 54 to 46 percent, and MEA
suggests that the legislature not force a method of business
operation where any particular member of 32,000 can object to any
particular activity undertaken at any particular time and get his
or her 2.5 cents or 5 cents back with each objection at each
stage of that process. Mr. Babcock said the appropriate method
for making changes in co-op structure is through the board of
directors. He urged the committee to leave the existing
structure in place and not support HB 169.
Number 1045
CHAIRMAN HUDSON declared that discussion of HB 169 would be
continued at the next meeting. He apologized to those waiting on
the teleconference network and said staff would contact them when
HB 169 was going to be considered again. [HB 169 was held over.]
CHAIRMAN HUDSON said he would like to have a round-table
discussion on Power Cost Equalization at the next meeting,
inviting Representatives Barnes and Berkowitz, along with anyone
else who had ideas on funding for power cost equalization. He
indicated a desire to put together a plan to guide work over the
interim.
Number 1128
REPRESENTATIVE PORTER suggested inviting the co-chairs of the
House Finance Standing Committee or that committee's staff to
participate.
CHAIRMAN HUDSON said he would do so, and he would contact a
number of people who are working on the subject, in order to see,
from a policy perspective, "what's shakin' out there."
ADJOURNMENT
Number 1154
There being no further business before the committee, the House
Special Committee on Utility Restructuring meeting was adjourned
at 9:50 a.m.
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