Legislature(2009 - 2010)BUTROVICH 205
03/19/2009 11:00 AM Senate ENERGY
| Audio | Topic |
|---|---|
| Start | |
| SB143 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 143 | TELECONFERENCED | |
| *+ | SB 135 | TELECONFERENCED | |
| *+ | SB 136 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON ENERGY
March 19, 2009
11:09 a.m.
MEMBERS PRESENT
Senator Lesil McGuire, Chair
Senator Lyman Hoffman
Senator Bert Stedman
Senator Bill Wielechowski
MEMBERS ABSENT
Senator Albert Kookesh
COMMITTEE CALENDAR
SENATE BILL NO. 135
"An Act clarifying the purpose of the Alaska Natural Gas
Development Authority; and relating to definitions of certain
terms in AS 41.41."
SCHEDULED BUT NOT HEARD
SENATE BILL NO. 136
"An Act relating to noncompetitive leases of state land and for
rights-of-way for oil or natural gas pipelines that originate
and terminate within the state and to the regulation and
certification of those pipelines; relating to conditional
certification for certain new natural gas pipelines; relating to
definitions of "common carrier" and "firm transportation
service" in the Pipeline Act."
SCHEDULED BUT NOT HEARD
SENATE BILL NO. 143
"An Act establishing the Greater Railbelt Energy and
Transmission Corporation and relating to the corporation;
relating to transition, financial plan, and reporting
requirements regarding planning for the initial business
operations of the Greater Railbelt Energy and Transmission
Corporation; relating to a report on legislation regarding the
Regulatory Commission of Alaska and the Greater Railbelt Energy
and Transmission Corporation; authorizing the Alaska Energy
Authority to convey the Bradley Lake Hydroelectric Project and
the Alaska Intertie to the Greater Railbelt Energy and
Transmission Corporation; and providing for an effective date."
HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 143
SHORT TITLE: RAILBELT ENERGY & TRANSMISSION CORP.
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
03/09/09 (S) READ THE FIRST TIME - REFERRALS
03/09/09 (S) ENE, RES, FIN
03/19/09 (S) ENE AT 11:00 AM BUTROVICH 205
WITNESS REGISTER
JOE BALASH, Special Assistant to the Governor
State Capital
Juneau, AK
POSITION STATEMENT: Presented the Governor's statement on SB
143.
KEVIN HARPER, Director
Enterprise Management Solutions
Black & Veatch
POSITION STATEMENT: Presented their recommendations regarding
formation of a unified Railbelt energy authority in SB 143.
JIM STRANDBERG, Manager
Greater Railbelt Energy and Transmission Corporation (GRETC)
Alaska Energy Authority (AEA)
Alaska State Department of Commerce, Community & Economic
Development (DCCED)
POSITION STATEMENT: Described the projected two-year process to
create the new energy organization in SB 143.
BRIAN BJORKQUIST, Senior Assistant Attorney General
Alaska State Department of Law
POSITION STATEMENT: Answered questions about the legal structure
of the proposed organization in SB 143.
LORALI CARTER, Manager
Government and Corporate Communications
Matanuska Electric Association (MEA)
POSITION STATEMENT: Supported SB 143, but does not believe this
bill as it is written will accomplish that.
BRAD EVANS, CEO
Chugach Electric Corporation
POSITION STATEMENT: Supported the concept in SB 143 and is
willing to work with the legislature and the administration to
make the bill workable.
JAMES POSEY, Manager
Anchorage Municipal Light and Power (ML&P)
POSITION STATEMENT: Supported the concept in SB 143 and is
willing to work with the legislature and the administration to
make the bill workable.
DAVID GARDNER, Vice President
Golden Valley Electric Association
POSITION STATEMENT: Supported the concept in SB 143 and is
willing to work with the legislature and the administration to
make the bill workable.
JOE GALLAGHER, Member
Homer Electric Association
POSITION STATEMENT: Supported the concept in SB 143 and is
willing to work with the legislature and the administration to
make the bill workable.
PHILLIP OATES, Manager
City of Seward
POSITION STATEMENT: Supports the concept in SB 143 and is
willing to work with the legislature and the administration to
make the bill workable.
ACTION NARRATIVE
11:09:14 AM
CHAIR LESIL MCGUIRE called the Senate Special Committee on
Energy meeting to order at 11:09 a.m. Present at the call to
order were Senators Wielechowski, Hoffman and McGuire.
CHAIR MCGUIRE advised that the committee is unlikely to hear SB
135 or SB 136 today due to the time that testimony will take for
SB 143.
SB 143-RAILBELT ENERGY & TRANSMISSION CORP.
CHAIR MCGUIRE announced consideration of SB 143.
11:10:34 AM
JOE BALASH, Special Assistant to the Governor, State Capital,
Juneau, AK, presented SB 143, which has been in process for
years building off of prior work and off of lessons learned
along the way. It is a product of the Governor's Office, the
Alaska Energy Authority, and the Railbelt Electric Utilities.
Presently the Railbelt system generates and transmits 850 mgW of
power. That is spread among six entities. For comparison
purposes, in the Lower 48, an 850 mgW load would represent a
very modest, if not small, utility. The timing of some power
sales agreements and the retirement of certain assets in the
near future now present an opportunity to do things in a very
different fashion and invest in the next generation of energy
infrastructure along the Railbelt. By unifying the system and
capitalizing on economies of scale ratepayers and the larger
economy will save tens of millions of dollars annually. It is an
opportunity that should not be missed.
MR. BALASH stated that in 2007 Governor Palin vetoed
appropriations to the various utilities from the Railbelt Energy
Fund. In doing so she called on them to come up with a
comprehensive energy plan that lays out how those dollars will
be spent, how they will be spent efficiently, and how the
benefits will be passed on to all of the ratepayers. The
Railbelt Electric Grid Authority (REGA) study was then
undertaken by the Alaska Energy Authority (AEA), and in 2008
four of the six utility companies signed an MOU indicating they
would support and pursue a unified power provider. He thinks
it's fair to say that each of the six utilities recognizes that
joint planning and financing is the most efficient way to go in
the long run, but they will all say the devil is in the details.
The REGA study was completed in September 2008, and beginning in
October he sat down with representatives of each of the utility
boards, their chairs, and the Alaska Energy Authority to discuss
how they would proceed. In November the Governor's office met
with the executives of each utility. In December they came back
with a list of characteristics that a corporation would need in
order to progress jointly. They then developed a white paper and
shared it with the utilities, modified it, and used it to begin
drafting statute.
11:16:39 AM
In January they realized they wouldn't have a bill complete by
session, but they wanted to have something in front of the
legislature before the end of session, so committed to a
schedule. He hoped to have a consensus document next week. He
assured them that they are not trying to jam anything down
utilities throats; all see the opportunity. It's a matter of
getting the details worked out.
11:17:09 AM
SENATORS STEDMAN and HOFFMAN joined the meeting.
MR. BALASH said the administration hoped to find consensus and
take action this session. Alaska is too big and too disparate to
have a one-size-fits-all system to serve the energy needs of
each community, but this template can be used in other regions
of the state.
11:18:43 AM
SENATOR HOFFMAN said he is more than anxious in working with the
administration on this legislation to make sure the Railbelt
gets lower rates, but he is interested in seeing something come
from Governor's office regarding what she sees as reductions in
energy costs for some of the places in Alaska that continue to
have the highest energy costs in the country, not just for
electricity but for vehicles and heating fuels.
11:20:19 AM
MR. BALASH said the Palin Administration set out in 2007 to
conduct an inventory and aggregate all of the information on
resources that are available in each community. That information
was housed at state and federal agencies in a variety of boxes,
and one of the first things the Governor asked for was an
inventory to be aggregated in one place and to be put into a
geographic information system for use by energy planners
everywhere. In 2008 Mr. Steven H. Haagenson was brought in to
breathe new life into the Alaska Energy Authority, an agency
that represents tremendous potential, but has been somewhat
neglected over the years. Relying on his team, they assembled
the guide book for the energy options in each community around
the state, which was released in January. The onus is now on the
legislature to identify the needs of each community and help
them find their opportunities and assist them in identifying
financing mechanisms that are available to really pursue the
least cost option.
SENATOR HOFFMAN commented that the legislature has come up with
assistance programs in last few years to help not just rural
Alaskans, but all Alaskans. The legislature came up with
alternative energy in HB 152; the Senate came up with the
modification to the power cost equalization (PCE) and the $360
million plan for energy efficiencies for homes. He still hopes
the Governor, who represents all of Alaska, can do something to
address the high cost of heating for everyone. He said this bill
came up with a solution for the Railbelt, but asked what is
being done to address energy needs in the rest of the state
including Southeast.
11:23:37 AM
MR. BALASH said if they had the answer, he would tell him, but
they look forward to working with legislature to identify what
can be done next session to address that. They understand that
it isn't right or practical to expect that only one region's
needs will be addressed, and the Railbelt bill in front of
committee sets up a process that will result in a package of
consideration to be brought forward next year, but "We'll need a
package for everybody."
SENATOR HOFFMAN said he appreciates that, but history in the
past year or two has shown that several members of the House and
Senate have been trying to address these issues, but did not get
the support or the expertise that is on the Third Floor.
MR. BALASH responded that the administration is committed to
working with everybody this next Interim.
11:25:36 AM
SENATOR STEDMAN asked if the administration has done any
preliminary work on any other region outside of the Railbelt
area. Is anything in draft form?
MR. BALASH replied no. They have old studies for the Southeast
intertie, but nothing is updated. The Southeast conference has
filed a proposal to the Alaska Energy Authority for renewing an
integrated resource plan for Southeast Alaska as a region, but
nothing for Southwest. Nanina has undertaken an effort to put
together a regional plan, but they don't want local and regional
planning efforts to get in the way of local and regional
planning efforts already under way to get in the way of a state-
wide solution. They hope to achieve a collaborative approach
with the individual utilities as this approach does.
11:27:23 AM
CHAIR MCGUIRE thanked Mr. Balash and called Mr. Harper, Black &
Veatch, to testify.
11:28:06 AM
KEVIN HARPER, Director, Enterprise Management Solutions Group,
Black & Veatch, summarized results of their September study
identifying the benefits of Railbelt Electrical Grid Authority
(REGA). He also wanted to talk about how the proposed
legislation was built upon this study and is consistent with its
recommendations in large part.
11:29:18 AM
He wanted to:
1. touch on key issues facing Railbelt utilities
2. talk about what the three primary objectives of the study
were
3. talk about the analytical and stakeholder processes
4. provide a summary of the overall results and
recommendations and near-term steps that have to take place
in order for the Greater Railbelt Energy and Transmission
Corporation (GRETC) to be formed.
11:29:58 AM
SLIDE 1: Summary of significant categories of Railbelt Issues -
He said the Railbelt generation, transmission, and distribution
system as they know it today did not exist in the 1040s and
various efforts in the various parts of the Railbelt region got
the four current cooperatives going - Golden Valley Electric
Association, Matanuska Electric Association, Chugach Electric
Association, and Homer Association as well as the two
municipalities: Anchorage Municipal Light and Power and the City
of Seward.
Over time they have seen an evolution of the business and
operating environment facing the Railbelt utilities that present
a whole new set of dynamics within which decisions need to be
made. This challenging environment poses challenges for Railbelt
utilities and stakeholders. It is not an understatement to say
Railbelt is at an historical crossroads not unlike the one that
was faced back in the 40s when the Railbelt utilities were
formed.
Slide 1 showed categories of issues facing utilities. He touched
briefly on the Railbelt region from the unique electric utility
perspective that has a combination of a very small load and
pretty significant geographic expanse along with a transmission
network that has limited connections and very few redundancies.
That is very different than what is typically seen in the Lower
48. This means that the Railbelt utilities are very isolated and
really have to depend upon what goes on inside the region in
order to provide reliable electric service.
The second category is issues associated with costs. Alaska is
the eighth highest in nation in terms of average cost of
electricity, and there is significant disparity between the six
utilities. The cost in the Railbelt relative to other regions is
at the high end.
The next key category is natural gas issues - the fact that the
region has had significant dependence on it in the past; it has
gas supply contracts that are in the process of expiring,
declining developed reserves and deliverability, and recent with
expectations of future price increases.
11:33:23 AM
SENATOR STEDMAN asked him to bring forward the nationwide
analysis to see how the state fits in and how the state electric
cost is calculated between areas noting a substantial difference
between Southeast and Western Alaska, Anchorage and Fairbanks.
11:33:54 AM
MR. HARPER said that is in REGA study, but they'll provide it
under separate cover.
He said a new mine or expanding mine would have significant
impacts on the region. So, another key issue is load
uncertainties because of the size of the region as a whole. The
infrastructure is aging, as well, and the Railbelt region uses
inefficient natural gas facilities as base load units, which is
a significant part of the higher cost of electricity.
Under future resource options, he said a number of resources are
available, but issues are associated with them such as the
acceptability of large hydro facilities or coal plants including
potential changes in CO regulations and other environmental
2
restrictions.
These issues are what the legislature was considering when it
originally directed the AEA to undertake the REGA study and that
is how Black & Veatch became involved.
SLIDE 2: Three primary objectives for the study:
1. Identify alternative business structures for the future
Railbelt generation and transmission system. This is
important because the study was basically a study on
organizational options.
2. Do a detailed evaluation of how they compared to each other
in terms of dealing the future for each of those
alternative organizational structures.
3. Produce a report which was intended to provide a basis from
which decision-makers and stakeholders could make proposals
going forward.
11:36:46 AM
SLIDE 3: The first key issue in dealing with the analysis was to
identify potential functional responsibilities of a new regional
entity, and coming up with definitions was first. These are:
1. Coordinated operation of the transmission grid: this means
that the overall operation of the grid from the north to
south terminus is operated in a manner that is coordinated
so that the maximum amount of energy can flow north and
south to the benefit of the whole region.
2. Economic dispatch: this means all of the generation
resources in the region are dispatched in a manner that
minimizes the cost of electricity to the region as a
whole. That is different than having the three generating
utilities making decision on their own basis in terms of
which of their facilities to operate at a given time.
3. Regional integrated resource planning: this is simply a
process whereby electric utilities evaluate the various
generation, transmission and conservation programs which
are available to meet the need of the future and select
the most optimal mix of resources for meeting the needs
and reliability going forward.
4. Joint project development: this means coming together as a
region in developing project for the benefit of a region
as a group of entities as opposed to individual utilities.
11:38:51 AM
They also decided to look at alternative combinations of those
responsibilities and those were called organizational paths.
SLIDE 4: Summary of Five Organizational Paths:
1. The first is essentially the status quo, which is the
utilities continuing to do business as they are today with
some coordination, some bilateral contracts.
2. A new regional entity would be formed to provide the
coordinated operation of the transmission grid. To a large
degree this coordination already occurs through the
cooperative actions of the utilities. Under this path they
simply looked at creating a new entity that would do that
as an independent entity.
3. A new regional entity would be formed that would be
responsible for the independent operation of the grid and
for regional economic dispatch.
4. In addition to those responsibilities the regional entity
would have the responsibility for regional resource
planning and for joint project development.
5. Forming a power pool. Typically, power pools are created
that have operational responsibility for the grid, economic
dispatch responsibility and regional resource planning
responsibility (similar to path 4), but with the major
difference that the individual utilities who are
participants in the power pool retain the responsibility
for the development of development of future generation and
transmission resources.
Clearly the decision about an organizational structure is in
part a function of what their view of the future is, he said. So
in trying to evaluate the organizational paths against each
other they looked at four alternative views of what the future
might look like in terms of generation resources, referred to as
evaluation scenarios. They tried to determine if one
organizational path was superior under any of the alternative
paths or whether the choice of the path was a function of the
future. They developed prescriptive resource plans for each
scenario.
11:42:22 AM
Scenario A: Over the next 30 years they assumed that the future
generation requirements of the region would be met by a
combination of large hydro electric facilities, other renewables
and energy efficiency programs.
Scenario B: Referred to as the natural gas scenario - assumed
all future generation would be natural gas-fired plants, which
means that the region will continue to be dependent on natural
gas.
Scenario C: The resource plan was built around the addition of
coal plants.
Scenario D: The resource plan had a mix of hydro electric, coal,
renewables, and so forth.
11:42:46 AM
MR. HAPRER said they developed these resource plans so they
could identify annual power costs under each of the
organizational paths.
SLIDE 6: Stakeholder Involvement Process:
Black & Veatch proactively solicited input from stakeholders.
The AEA sponsored a two-day technical conference so participants
could share views; 120 people attended including the governor
and several state legislators. In addition to that, stakeholders
had the opportunity to meet with the Black & Veatch project
team; they had 30 meetings with stakeholders in addition to the
meetings they had with the utilities themselves. They also sent
out surveys to those who attended the first technical conference
to provide them the opportunity to respond to some specific
questions. They received numerous responses and considered those
during the course of the project.
11:45:21 AM
Towards the end of the project they had a second day-long
technical conference to present preliminary results, conclusions
and recommendations to the general public. This was before the
draft report was prepared so the responses could be used in its
production. He thought it was correct to say the involvement of
all the various types of stakeholders had a direct positive
impact on the quality of their analysis and on the results and
recommendations of the study.
11:45:41 AM
SLIDE 7: Provides the overall results - the top was divided into
the various organizational paths. Different evaluation scenarios
showed the total average annual net savings for each
organizational path under each of the evaluation scenarios. The
net average annual savings is a function of two things: first is
it's a function of the total power costs for each of the
different evaluation scenarios and paths. The power costs
include both the generation related costs as well as
transmission related costs. The second element of the net annual
savings is the cost of the organization, itself - startup costs,
annual administrative and general costs associated with salary
benefits, and other general costs.
11:46:22 AM
MR. HARPER continued to explain that they compared power costs
and the organizational costs and came up with a total cost for
each path under each scenario. And path four shows significant
benefits relative to organizational paths two and three. In
essence that says that forming a regional entity that has a
broad set of functional responsibilities for operation of the
grid, planning, resource dispatch and project development is
superior to an entity that has only a subset of those
responsibilities.
For example, he said the total annual net savings for path four,
scenario A, represents $42.7 million in savings relative to the
base case. The second way they show net savings is in percentage
of savings. So the $42.7 million represents approximately 11
percent savings relative to the base case. The third way they
try to relate it is to a typical monthly residential bill, which
would save $11.50 a month over a 30-year period.
11:49:22 AM
SENATOR HOFFMAN asked if natural gas has the least amount of
savings and hydro the most, with coal being a close second.
MR. HARPER replied yes, and that is driven by two factors; one
is the utilities today know how to build and operate gas
facilities and they tend to be smaller. When you start getting
into hydro and coal, you are talking about bigger projects and
integrating that is more challenging; the benefits of having a
regional entity to do that shows up in these numbers.
SENATOR HOFFMAN asked if the $12 billion includes a bullet line
for natural gas.
MR. HARPER answered yes; they assumed gas would flow from Cook
Inlet, but would be priced at world market prices.
SENATOR HOFFMAN stated that the capital costs from the North
Slope are considerably different than the capital costs from
Cook Inlet.
MR. HARPER said that was right, but those costs would be
incorporated in the delivered price, and they assume that no
matter where it comes from it will be a higher price than it is
today to reflect the capital costs.
11:51:00 AM
Two categories in shaded columns are tax exempt debt and taxable
debt, and that refers to whether or not this regional entity is
formed in a manner that would allow it to use tax exempt debt
for financing future generation and transmission. There are
significant benefits between tax exempt and taxable debt.
11:51:48 AM
Last, he mentioned the differences between paths four and five.
Path five actually looks like it is a superior option compared
to path four, but there are two issues associated with drawing
that conclusion. Fist is in their analysis they assumed under
path four that those currently responsible for power generation
and transmission planning in the region would be transferred
over into the new entity and those salaries were included into
path four. In the case of path five the individual utilities
would continue to have responsibility for development of
projects, so those staff would remain presumably with the
existing utilities. That wasn't captured in the analysis. So,
that says if you look at the region as whole there would be less
saving in path five.
The second more important issue with regards to path five is
they assumed that the power cost savings in paths four and five
are the same. In essence that means that in path five where the
individual utilities retain responsibility for future generation
transmission projects that they make decisions on an individual
basis that would completely align and track with the region
resource planning process. There are ways that a power pool
could be developed that would induce that behavior, but there is
no way to guarantee that that behavior would happen. In their
view, the chances are that the PCE would be significantly less
under path five. So, they ultimately recommended that a path
four organization be created for the Railbelt region.
11:53:47 AM
SENATOR WIELECHOWSKI asked if they had done any modeling on the
impacts of cap and trade legislation on their numbers.
MR. HARPER responded that they assumed some carbon taxes that
were consistent with the mid-range of proposed legislation in
Washington, D.C. as of 14 or 15 months ago. They just picked a
number and didn't do any sensitivity analysis around what that
number might be.
SENATOR WIELECHOWSKI asked if that is factored into those
numbers.
MR. HARPER answered yes.
11:54:21 AM
SENATOR HOFFMAN asked if he had a breakdown of the mix under
scenario D on path four.
MR. HARPER answered yes; it was a combination of one large hydro
plant, one coal plant, limited renewables and some energy
efficiency programs.
11:54:46 AM
MR. HARPER said that Black & Veatch concluded that the
formation of a regional entity with the responsibility for the
operation of the grid, regional economic dispatch of generation
facilities, regional resource planning and joint project
development was the optimal organizational structure for the
region to move forward and deal with the issues and challenges
facing it, and the proposed legislation is consistent with those
recommendations.
MR. HARPER said there is one difference. They proposed that the
regional entity be formed as a state power authority rather than
a private corporation with statutory powers, which is what the
GRETC legislation is proposing. Their recommendation was based
on two principal factors; one is the ability of the regional
entity to secure financial assistance from the state and the
second was the ability of this regional entity to use tax exempt
financing to build future generation and transmission
facilities.
11:56:42 AM
SLIDE 8: It is challenging, but regions need to finance the
future. The top the graph showed the total capital investment
required over the next 30 years for each of the four evaluation
scenarios. Basically the region is looking at an investment of
anywhere between $2.5 billion and $8.1 billion over the next 30
years. The numbers at the bottom put that in context. The total
net for an electric plant for all six utilities based upon their
2007 financial reports was $1.5 billion. The total long term
obligations were around $1.1 billion. So if you were to take the
$8.1 billion under scenario A and finance it completely with
debt, essentially they would be looking at a seven-fold increase
in the long term obligations of the utilities within the region.
Even if it's only $2.5 billion, it's a significant amount. That
brings up the issue of state financing and tax exempt debt.
11:57:58 AM
MR. HARPER said there were two reasons they decided to go with
the state power authority; first there is no doubt that any
state financial assistance, whether it's in the form of a loan
or a grant, would have significant benefits for the ratepayers
in the region. From their perspective it seemed reasonable that
the state legislature might be more willing to provide funding
to a state power authority rather than to a private business. It
is a policy issue.
The second had to do with tax exempt debt, and the second best
way to reduce the rate impact associated with this capital
investment program is to be able to raise financing through tax
exempt debt, which can't be done as a private corporation. It
can be done as a state power authority, but even then there
would be significant challenges.
11:59:35 AM
MR. HARPER stated from their perspective the most important
decision to be made is whether to form the regional entity. The
secondary question is whether it is a state power authority or a
private corporation. But regardless of the form, there are
significant benefits as they already saw on the previous slide.
12:00:05 PM
SENATOR WIELECHOWSKI asked if the numbers change if they have a
state corporation that is voluntary like the one proposed in SB
143 that doesn't require everyone to be a part of it.
MR. HARPER answered yes. When he looked at how the utilities
work in the Railbelt region, he was reminded of a circular canoe
- you have six people in that canoe each of which are strong and
have a paddle, but as they are paddling they are going in a
circle. To the extent that the canoe could be restructured, if
all six people are paddling in the same direction, you get
significant benefits. If you take a couple of rowers out and put
them in a different canoe, you get suboptimal results from a
regional perspective.
12:01:34 PM
SENATOR WIELECHOWSKI said he questioned some of the hydro
numbers in particular. How many megawatts would the hydro
project generate in scenario A?
MR. HARPER answered it was 450-500 megawatt facility and the
total cost was in the neighborhood of $4 billion.
SENATOR WIELECHOWSKI remarked that the only Railbelt facility
that can generate that much power is Susitna and that is
currently estimated to cost $8 billion.
MR. HARPER said Black & Veatch used standard industry averages
to come up with costs; but the problem is that hydro is very
site specific, so the costs can vary a lot. When they did their
study they didn't have the benefit of the numbers for Susitna.
12:03:20 PM
SLIDE 9: Implement Steps - the state needs to make decisions as
to whether a regional entity should be formed, finalize a legal
form, establish a transition team with both utilities and the
state represented, adopt legislation and regulatory actions,
complete formation of an entity, and develop the initial
regional integrated resource and transmission expansion plans.
12:05:05 PM
MR. HARPER said he wanted to leave them with five thoughts.
· Challenges are significant, but Alaska has some advantages,
among them the coal and hydro resources.
12:05:30 PM
SENATOR HUGGINS joined the meeting.
MR. HARPER continued;
· Formation of a regional generation/transmission entity is
common in other parts of the country. So while the GRETC
concept is new to Alaska, it is a well-tested
organizational structure.
· When you look at how such entities have been formed
elsewhere, you see net benefits weren't always really
clear. A leap of faith took place in the decision to form a
particular entity, but that is not the case here where the
potential benefits are compelling.
· There is a lot of work to be done, but it's worth it.
· It is critical that the state moves forward now. Delay will
make challenges even greater. It will mean that the
individual utilities continue to make decisions that are
best for the utilities and not necessarily for the region.
Also, momentum will be lost if they wait until next
session.
12:09:23 PM
SENATOR HOFFMAN asked if he has prioritized projects among the
renewables and established a timeframe for the infrastructure to
be put into place.
MR. HARPER replied that will be answered in the development of
the integrated resource plan, a process that is just starting
and will be completed by early next year.
12:10:30 PM
MR. HARPER said the region has a few years to do the analysis,
make the decisions, and start building the infrastructure before
things get critical from a capacity perspective. The gas supply
situation is critical now in terms of the expiring gas contract.
But that is the motivation behind the integrated resource plan
that is currently under development.
12:11:06 PM
SENATOR HOFFMAN asked if he sees any federal involvement
financially in the $5.8 billion proposal.
MR. HARPER replied that it depends on what resources are chosen.
If a hydro facility is built, federal regulations have to be met
and you can go to congress and try to get money for a large
hydro or coal plant like the state did with Bradley Lake.
12:12:16 PM
SENATOR HOFFMAN asked if they had contemplated user fees to
participate in the construction.
MR. HARPER replied that their analysis didn't look at that, but
the legislation has a transition plan and a finance plan. His
question would be addressed in the financing plan.
12:12:54 PM
SENATOR HOFFMAN stated that in any plan, a portion of the
savings that are delineated on page 7 should be dedicated to
completion of the project.
MR. HARPER agreed, but added that with significant investment,
you're talking about rate increases - even with significant
savings.
12:14:06 PM
SENATOR WIELECHOWSKI asked if he recommends a state power
authority over a private corporation.
MR. HARPER replied that their study came to that conclusion.
They saw financing benefits to forming a state power authority.
12:15:26 PM
SENATOR WIELECHOWSKI asked if he has a sense of what the cost
savings would be with a state power authority.
MR. HARPER replied that it would be a function of two things -
one is state financial assistance and the second is tax-exempt
versus taxable debt. He directed them to evaluation scenario A
under path four and the tax exempt debt savings of $42.7
million/taxable debt of $28.2 million. An average would be in
the neighborhood of a $6-7 million/year difference. He said
first of all, simply forming a state power authority doesn't
give it the ability to use tax exempt debt. The big issue is the
state power authority can sell power through the four electric
cooperatives and the two "munis," but selling through the
cooperatives precludes them from using tax exempt debt because
it becomes a private use. The only way one could do that is to
set up a structure whereby the state power authority sells
directly to the individual ratepayers. He understands the
utilities are concerned about having this entity sell directly
to their customers. That's kind of a political decision, but
there are savings to do it that way.
State financial assistance is a bigger issue, because the
benefits whether in the form of a grant or a low interest loan
are greater than the benefits of tax exemption. He said it is a
decision for the legislature and the state to make.
12:18:15 PM
SENATOR WIELECHOWSKI asked how common state power authorities
are throughout the country or the western U.S.
MR. HARPER answered that there are 6-10 true state or federal
power authorities. The New York Power Authority and Bonneville
Power Administration are two, for instance. What is more common
is a GNT Cooperative, which is similar to this, but with some
important differences. These are entities formed to provide
generation and transmission services on a regional basis, and
there are 50-70 of those.
12:19:41 PM
SENATOR HOFFMAN noted that his schedule has $9.90/month savings
for the mix or a little less than $120/year for a residence. How
much is that for the Railbelt in total?
MR. HARPER answered the total dollars saved for the Railbelt
region would be $34.2 million annually.
SENATOR HOFFMAN asked what population figure he used.
MR. HARPER replied the current total population that is served
by the six Railbelt utilities. The total savings in the shaded
column has some assumptions tied to load growth which is tied to
population, but they didn't predict population growth. Numbers
on the right are based upon taking the average monthly bill of a
Railbelt resident and applying a 9.4 percent savings. (page 7)
12:21:40 PM
SENATOR HOFFMAN asked for the mix of energy sources.
MR. HARPER replied that he would have to provide that for him.
SENATOR HUGGINS asked what striking the hydro under renewable
energy sources does to the numbers.
MR. HARPER responded that the REGA study focused principally on
organizational structure; that type of analysis would occur in
the integrate resource plan.
12:22:37 PM
SENATOR HUGGINS asked if the regional entity is subject to the
RCA.
MR. HARPER replied that their recommendation was that it not be
subject to oversight by the RCA. The proposed GRETC legislation
proposes it to be under the RCA, however. The primary reason
they concluded not to have the entity under the RCA is tied to
the recommendation that it be a state power authority in which
case you would have one state agency overseeing another.
12:24:07 PM
SENATOR HUGGINS asked what the successful traits versus the
unsuccessful traits are of 6-10 states with state power
authorities.
MR. HARPER answered that there are two characteristics of
successful state or federal power authorities: first is the
level of competency and professionalism in the management team
and board structure is such that it allows them to deal with
issues that they are facing. The second is that the entity is
allowed to be somewhat insulated from the political cycles.
12:25:37 PM
Two examples he is familiar with are both municipalities -
Seattle and Tacoma. In the case of Seattle, the entity reports
directly to the city council. In the case of Tacoma, it reports
to an independent board, which just has a link to the city
council. Most people in the Northwest would tell you that the
Tacoma utility is better managed and run more like a utility
because it has that insulation from the day-to-day political
issue. Also, a utility board has an ability to attract people
who have experience with energy matters as opposed to city
council representatives who might have some experience with
energy, but have a whole lot of other responsibilities that they
have to fulfill. Having a city council run a utility would be
challenging.
12:27:01 PM
SENATOR HUGGINS commented that the local communities in Seattle
are probably more homogeneous than communities in the Railbelt.
"Let's talk about states, not cities."
MR. HARPER agreed with the diversity within Railbelt communities
and with the challenges putting transmission lines over the
topography, but in other parts of the country where regional
entities have been formed - like the Nebraska Public Power
District (GNT cooperative) - the diversity they deal with is not
that much different from the Railbelt's. It's a mix of very
rural and urban centers.
12:29:12 PM
JIM STRANDBERG, Manager, Greater Railbelt Energy and
Transmission Corporation (GRETC), Alaska Energy Authority (AEA),
Department of Commerce, Community & Economic Development
(DCCED), said SB 143 is a product of a joint effort between the
Governor's Office, the Railbelt electric utilities and the
Alaska Energy Authority. It is designed as the first-year step
to create a robust durable, not-for-profit Alaskan corporation
to assume the responsibility for Railbelt power generators and
transmission lines of the future. They have learned from earlier
efforts that restructuring is needed so that new generators and
transmission lines can be financing and constructed. SB 143 is
the first step to form the GRETC company in a phased two-year
legislative process.
12:31:21 PM
Using a pickup truck for a metaphor, MR. STRANDBERG said, they
would build the frame, drive train, wheels and transmission in
the first year and in the second year they would add the body,
engine and truck bed to make the pickup pretty and drivable.
This two-year process is the fundamental concept here.
In SB 143 they seek enabling legislation that defines the
business type in statute, the makeup of the board of directors,
voting rights and basic powers and duties of GRETC. Included are
identified tasks the new company must accomplish prior to the
second year. These tasks include creation of transition plans
that are utility specific, development of financing capabilities
of the company, and further development of the responsibilities
the RCA will have over the operation of GRETC. These will be
valuable guides for the creation of the year-two legislation.
Between years one and two, the AEA will assist in the bill's
financial and regulatory work, and will assist through grants
and support labor the formation of the GRETC board and drafting
of by laws. AEA's funding is proposed through a separate capital
appropriation described in the fiscal note.
In year-two legislation, they propose to add important financing
capabilities and further define the transition process to make
the company fully functional.
12:33:21 PM
MR. STRANDBERG said the first segment of time, the transition
period, will take about 10 years, and during that period the
company's primary operations will be phasing unified operation
of generation and transmission in cooperation with the Railbelt
utilities, and creating a new simplified commercial business
environment that is needed for large-scale power projects for
use by all utilities on a non-discriminatory basis. After this
period, when commissioning of the large projects is done, the
company will need to be an efficient asset manager to maintain
and operate the large scale projects under simplified non-profit
rates.
12:34:28 PM
MR. STRANDBERG closed by saying that GRETC is a robust, not-for-
profit company with specific public duties and responsibilities,
a company with board members that is controlled predominately
by the Railbelt utilities with each board member instructed
statutorily to act on behalf of all ratepayers and customers at
large, a very different hat for these people. This is one of the
fundamental important foundations of this new company. It is in
some ways very different from the previous efforts. So, SB 143
takes the important first steps of forming the company and
charging it and its support agency, AEA, to develop
recommendations for the next legislative session.
12:35:38 PM
SENATOR WIELECHOWSKI said SB 143 requires they have
representatives from each of the utilities including the CEO and
other people - who have a fiduciary duty to Chugach electric,
for example. And putting them into another corporation where
they will also have a fiduciary duty to all the ratepayers could
present a conflict.
MR. STRANDBERG said they had thought that through, and the
approach they've taken is that although it will be difficult
emotionally, they believe it can be done - particularly by
someone who has the responsibility for providing wholesale power
to all of the Railbelt utilities at the same rate.
12:37:21 PM
SENATOR WIELECHOWSKI commented that the potential issue he sees
is that people who have a fiduciary responsibility to get the
lowest rate for their customers might be placed in a situation
of asking them for a higher rate because it's good for all rate
payers.
CHAIR MCGUIRE asked if they had looked at the TAPS model or
other Alaskan models.
MR. STRANDBERG answered that they had employed the service of
Brian Bjorkquist who drafted the statute in cooperation with the
utilities who may be able to comment.
12:38:26 PM
BRIAN BJORKQUIST, Senior Assistant Attorney General, Alaska
State Department of Law, said the structure of the statutory
business model was taken from CFAB because it is a statutory
corporation - not a state agency. It is a statutory corporation
that is private in nature. This is the model that was
recommended by the utilities.
CHAIR MCGUIRE asked if they looked at the TAPS model.
MR. BJORKQUIST replied no.
12:39:32 PM
CHAIR MCGUIRE called for public testimony.
12:39:52 PM
LORALI CARTER, Manager, Government and Corporate Communications,
Matanuska Electric Association (MEA) said they have about 45,000
members in the Mat-Su area. They agree with Mr. Balash and Mr.
Harper that this is a very critical time for the Railbelt and
the utilities as their generation is aged and everyone is
looking at new generation to provide electricity to their
members. They also agree that they don't want to let this
opportunity pass them by and that the legislature is receptive
now. MEA supports the concept of unifying the generation and
transmission functions along the Railbelt and has for a long
time. However, she said, MEA does have some reservations about
the bill.
Primarily SB 143 establishes a framework for voluntary
participation. But in looking at the history of the Railbelt, no
utility has voluntarily done this yet. A couple of joint action
agencies are out there with a few utility members - but all six
of them has never happened, and so she looks at the voluntary
aspect of this as the possible deal breaker. It's a little
fearful to realize that a 10-year transition plan means it might
not happen at all.
MS. CARTER said MEA believes RCA oversight over this corporation
is critical. She was specifically looking at language on page 7,
lines 25-30, that basically guts the RCA of their enforcement
authority. So, while this corporation might fall under AS 42.05,
without being certificated by the RCA, the RCA doesn't have that
enforcement authority.
Other sections of the bill talk about the transfer of state
assets and so why isn't Healy clean coal a part of this
legislation. Why was it negotiated as a side deal? MEA would
like to see all of the state assets as a part of this
legislation including the coal plant. MEA really wants to see a
Railbelt generation and transmission entity to be successful;
economies of scale are to be had along with savings to their
ratepayers. But this legislation doesn't quite hit the mark,
yet.
12:44:24 PM
If combining the GNT functions along the Railbelt is good public
policy, then a decision should be made to actually do that. One
way of correcting this bill is to change all the "mays" to
"shalls". Otherwise, this bill just creates a voluntary
framework that she fears falls short of the goal, she
reiterated.
12:45:29 PM
BRAD EVANS, CEO, Chugach Electric, presented a quick overview of
how this came together. Everybody started out in the 40s and 50s
with limited transmission and everybody on their own. The 60s
saw a little bit more transmission; in the 70s still not
interconnected between the Fairbanks region and the Southcentral
region, but more hydro came on with more interconnection -
dependence on natural gas is increasing. In the 80s, 90s, and
2000s significant changes showed - with the Alaska Intertie
interconnecting and Bradley Lake coming on line and several new
resources that were developed.
There are multiple transmission system owners now, and SB 143
embodies unifying that them to create one highway system, which
makes it commercially easier for people to introduce new
resources. Three different load centers connected by weak
interties are some of the challenges. This legislation takes the
utilities and reconfigures them into one umbrella organization,
but each keeps its own identity. Tension exists between the
utilities, but none can solve the problems individually.
12:49:52 PM
MR. EVANS added that the problems haven't gone away with
reduction in energy prices; this is just a temporary reprieve.
He showed a vision of what the corporation could start to do
right away and he thinks first service for some small entities
that have projects could be developed within two years. He
doesn't disagree with MEA's testimony, but he thinks this
legislation is as close to the middle as they can get.
12:51:39 PM
SENATOR HUGGINS asked why he felt Healy clean coal was omitted.
MR. EVANS replied to the extent that it is already there it was
omitted; this is talking about anticipated new projects and how
existing facilities get transitioned into this company has not
been fully resolved. The entire infrastructure has to be
integrated into the GRETC, and there is really no reason Healy
can't be included.
12:52:32 PM
SENATOR HUGGINS asked how important in-state gas is to this
project.
MR. EVANS replied that in-state gas is very important to the
integrated resource plan, but he couldn't answer all those
questions because the commercial issues hadn't been resolved
around those projects.
SENATOR HUGGINS asked if he'd give them a 30-second burst on his
vision of "storage."
MR. EVANS replied that Cook Inlet has declining production
capability and at some point they would need storage to be able
to continue to harvest and use that resource. If the
deliverability goes underneath the demand, storage is needed,
and then it needs to be used when demand exceeds the
deliverability capability. There are several different types of
storage - in-ground and liquid storage like the LNG plant or
other things like methanized propane where air is introduced.
This energy corporation would have to start addressing that
immediately. It can't be delayed, he emphasized. Readily
available new reserves are small, and more need to be found - on
federal lands, too. That all has to play out against the various
options for bullet or spur lines, but you need a plan to get
from here to there and that involves the Cook Inlet resource
management plan.
12:54:56 PM
JAMES POSEY, Manager, Anchorage Municipal Light and Power
(ML&P), said they serve about 30,000 residents and businesses in
Anchorage and have the lowest energy rates in the Railbelt. He
asked them to understand that they are obliged to be very
cautious in moving into new business structures to be certain
they do not endanger the unique circumstances not shared with
other Railbelt utilities that allow ML&P to effectively serve
its ratepayers. He urged them to keep the momentum on SB 143
going, but that it needed minor changes.
12:58:26 PM
CHAIR MCGUIRE asked him to highlight the changes he'd like to
see in the bill in order to support it fully.
MR. POSEY said they are meeting Monday to prepare some
recommended changes that everybody can agree on, and he'd rather
not present anything now. There is a lot to discuss and this
bill is basically the skeleton that everyone needs to get
started.
CHAIR MCGUIRE asked if he believes the bill provides RCA
oversight and if that regulation is necessary. Also, did he
think using the model of a state energy authority would work in
Alaska, and if he does think that, why does he think it is
superior to having RCA be that day-to-day regulatory authority?
1:00:31 PM
MR. POSEY responded that the RCA is one of the things that need
further fleshing out. He personally believes in regulation, and
if it is done correctly, as it is in Alaska, it is more of a
benefit than a detriment.
1:01:25 PM
DAVID GARDNER, Vice President, Golden Valley Electric
Association, said their board is still reviewing SB 143, but
they have some concerns about the language because it leaves too
many questions unanswered. Of primary concern is how such an
entity would provide the same level of reliability that the
members currently receive from Golden Valley, especially
considering the sub-arctic temperatures found in the Interior.
He emphasized that Golden Valley is not saying "no" to the
concept of a Railbelt generation and transmission organization;
but first they want to see a Railbelt integration resource plan
that clearly states some purpose. The process should address the
following:
1. How will reliability issues be safeguarded and applied
consistently to all utilities.
2. Will utility membership be voluntary or mandatory?
3. What long-term fuel source will provide the most stable
electric rates?
4. When is joint generation and transmission needed?
5. What type of joint generation is best and what fuel source
is preferred?
6. Where will joint generation be located?
7. How much will joint generation and transmission cost?
8. Who will finance new generation and transmission?
9. What type of financing will offer the lowest costs?
10. Where will the point of demarcation exist between a
unified Railbelt utility entity and each distribution utility?
11. How will existing generation and transmission assets be
integrated into a joint organization?
12. Would non-integrated generation and transmission assets be
exempt from imminent domain?
13. How will utility generation and transmission assets be
valued and how much will utilities be compensated for
integrated assets?
14. How would system wide generation and transmission rates
affect Railbelt consumers?
15. When would system-wide generation and transmission rates be
implemented?
MR. GARDNER stated that this bill does not address lower cost
fuel supplies, something all the utilities need, but that the
Railbelt integrated resource plan will address it. Another
concern is that some Railbelt utilities desperately need new
generation while others will soon be replacing worn out
generation. Golden Valley, on the other hand, has been very
proactive in this area and won't need new generation facilities
or transmission lines for more than 20 years. Currently, SB 143
does not address these diverse needs and seeks to form an
organization that forces utilities under one umbrella in hopes
that everyone's needs will converge and that the savings will
follow.
He said that Golden Valley has promoted the concept of a
Railbelt generation and transmission organization for more than
30 years. In the 1970s Golden Valley and Copper Valley advocated
building generation on the North Slope to electrify Alyeska pump
stations along the TAPS while supplying power to Fairbanks,
Glennallen and Valdez. In the 1980s Golden Valley joined other
Railbelt utilities to work with the state to construct the
Bradley Hydro Electric project. Also, a few years ago the three
power producers - Chugach, ML&P, and Golden Valley - formed a
joint action agency to promote combined generation and
transmission activities, and most recently they joined with
Homer Electric Association to settle the issues surrounding the
Healy Clean Coal project and cooperatively are working to get
that plant running again. In conclusion, he said, that Golden
Valley looks forward to working with the Governor's Office and
the legislature on this project.
1:07:04 PM
JOE GALLAGHER, Member, Homer Electric Association, said they
participated in the REGA study and currently support the concept
of SB 143. However, it is a very complex issue, and working out
the details will take time so that no utilities are adversely
affected. He looked forward to working with them.
1:08:30 PM
PHILLIP OATES, Manager, City of Seward, said they support the
concept of SB 143 and agree it is a very important bill. He said
the Seward electric utility is the smallest of the six utilities
and services about 5,000 individuals and businesses.
He said 10 years is a very short period of time to accomplish
everything that needs to be done, and they would have to move
quickly. Their perspective is as a municipality rather than a
utility. But as a home rule city that gives them some
flexibility to do those things that are not prohibited by the
constitution. Their charter requires a three-fifths vote of the
people to transfer or sell electric utility assets and they have
a five-year limitation on the period for M&O agreements without
a vote of the people. No matter how this legislation plays out,
some action will be required to obtain the consent of the voters
of Seward.
One of the biggest challenges they face is deciding what has to
be done now to get the transition started and what gets played
out during the transition period. Certainly the issues of state
power authority or private corporation are very important along
with the impact of that decision on the non-profit status (both
state and federal) and how that affects financing (tax-exempt or
taxable).
Also, he said that Seward has emergency power generation
capability because the power needs to stay on during severe
weather. That emergency capability is very important and how
that is impacted and how that becomes part of the generation
assets will be important to resolve.
MR. OATES stated that being a small voice among the six
utilities, he is interested in the future rates and thinks the
RCA could play an effective role in making sure all voices are
heard. Also, consistent (from administration to administration)
state funding during the transition period will be very
important. With that, he said he looks forward to working with
the committee and the other utilities to get this legislation
enacted, because fundamentally it may be the only way they can
meet the challenges of upgrading transmission lines and meeting
the potential shortage of oil and natural gas, and for financing
large and efficient power plants, and finally to keep power
affordable and available in Alaska.
1:13:42 PM
CHAIR MCGUIRE agreed that this is one of the single most
important issues the state is facing, and said she hopes to keep
the legislature moving forward. SB 143 was held in committee.
Finding no further business to come before the committee, Chair
McGuire adjourned the meeting at 1:13 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 143 - Bill Packet.pdf |
SENE 3/19/2009 11:00:00 AM |
SB 143 |