Legislature(2009 - 2010)

03/24/2009 08:06 AM Senate L&C


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08:06:00 AM Start
08:06:49 AM Overview: Regulatory Commission of Alaska
09:06:01 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
                         JOINT MEETING                                                                                        
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                           8:06 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
SENATE LABOR AND COMMERCE                                                                                                       
                                                                                                                                
 Senator Joe Paskvan, Chair                                                                                                     
 Senator Joe Thomas, Vice Chair                                                                                                 
 Senator Kevin Meyer                                                                                                            
                                                                                                                                
HOUSE LABOR AND COMMERCE                                                                                                        
                                                                                                                                
 Representative Kurt Olson, Chair                                                                                               
 Representative John Coghill                                                                                                    
 Representative Robert L. "Bob" Buch                                                                                            
 Representative Lindsey Holmes                                                                                                  
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
SENATE LABOR AND COMMERCE                                                                                                       
                                                                                                                                
 Senator Bettye Davis                                                                                                           
 Senator Con Bunde                                                                                                              
                                                                                                                                
HOUSE LABOR AND COMMERCE                                                                                                        
                                                                                                                                
 Representative Mark Neuman, Vice Chair                                                                                         
 Representative Mike Chenault                                                                                                   
 Representative Bob Lynn                                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
Overview: Regulatory Commission of Alaska by Robert M. Pickett,                                                                 
Chairman                                                                                                                        
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to consider                                                                                                  
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
ROBERT M. PICKETT, Chair                                                                                                        
Regulatory Commission of Alaska (RCA)                                                                                         
POSITION STATEMENT: Presented RCA overview.                                                                                   
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
8:06:00 AM                                                                                                                    
                                                                                                                                
CHAIR  JOE PASKVAN  called the  joint meeting  of the  Senate and                                                             
House Labor  and Commerce  Standing Committees  to order  at 8:06                                                               
a.m.  Present  at the  call  to  order  were Senators  Meyer  and                                                               
Paskvan and Representatives Holmes, Coghill, Buch, and Olson.                                                                   
                                                                                                                                
^Overview: Regulatory Commission of Alaska                                                                                      
            REGULATORY COMMISSION OF ALASKA OVERVIEW                                                                        
                                                                                                                                
CHAIR PASKVAN announced the business  before the committees is to                                                               
hear an overview from the Regulatory Commission of Alaska.                                                                      
                                                                                                                                
8:06:49 AM                                                                                                                    
ROBERT M. PICKETT, Chair, Regulatory  Commission of Alaska (RCA),                                                               
presented the  overview. He  said the  Commission was  created in                                                               
1999  to   regulate  public   utilities  and   pipeline  carriers                                                               
throughout  the   state;  it  replaced  the   old  Alaska  Public                                                               
Utilities Commission. It has five  commissioners appointed by the                                                               
Governor  for  a six-year  term.  He  was  elected chair  of  the                                                               
Commission  in July  2008. The  chairman is  responsible for  the                                                               
administrative functions  of the agency  and makes sure  the work                                                               
flow continues; he is also the spokesperson for the Commission.                                                                 
                                                                                                                                
The Commission's  authority comes from AS  42.05.990(a) that says                                                               
the RCA may  do all things necessary or proper  to regulate every                                                               
public  utility  engaged or  proposing  to  engage in  a  utility                                                               
business inside the state.                                                                                                      
                                                                                                                                
8:09:19 AM                                                                                                                    
The definition of public utility  is in AS 42.05.990(4) that says                                                               
a  "public  utility"  or  "utility"  includes  every  corporation                                                               
whether public  cooperative or otherwise, company  individual, or                                                               
association   of  individuals,   their   lessees,  trustees,   or                                                               
receivers appointed by the court,  that owns, manages or controls                                                               
any plant, pipeline or system for:                                                                                              
   · (A)    furnishing,   by    generation,   transmission,    or                                                               
     distribution, electrical service to the public for                                                                         
     compensation;                                                                                                              
   · (B) deals with telecommunications, which he would answer                                                                   
     question on;                                                                                                               
   · (C) furnishing water, steam, or sewer service to the public                                                                
     for compensation;                                                                                                          
   · (D) furnishing  by transmission  or distribution  of natural                                                               
     or manufactured gas to the public for compensation;                                                                        
   · (E)   furnishing  for   distribution   or  by   distribution                                                               
     petroleum   or  petroleum   products  to   the  public   for                                                               
     compensation  when the  consumer has  no alternative  in the                                                               
     choice of a comparable product at an equal or lesser price;                                                                
                                                                                                                                
8:10:10 AM                                                                                                                    
The  definition  of  "public"  or "general  public"  is  from  AS                                                               
42.05.990(3) and says:                                                                                                          
   · (A)  a group  of  10  or more  customers  that purchase  the                                                               
     service or commodity furnished by a public utility;                                                                        
   · (B) one  or more customers that  purchase electrical service                                                               
     for  use  within  an  area   that  is  certificated  to  and                                                               
     presently or formerly  served by an electric  utility if the                                                               
     total   annual  compensation   that  the   electric  utility                                                               
     receives  for sales  of electricity  exceeds $50,000  - this                                                               
     impacts  some  alternative  energy  projects  that  are  out                                                               
     there;                                                                                                                     
   · (C) a  utility purchasing the  product or service  or paying                                                               
     for  the  transmission  of  electrical  energy,  natural  or                                                               
     manufactured gas,  or petroleum products that  are resold to                                                               
     a person or  group included in (A) or (B)  of this paragraph                                                               
     or that  are used to  produce the service or  commodity sold                                                               
     to the public by the utility;                                                                                              
                                                                                                                                
MR.   PICKETT  explained   that  their   role  starts   with  the                                                               
Certificate of Public Convenience  and Necessity (CPCN) and there                                                               
currently are  650 CPCNs  across the state.  They cannot  issue a                                                               
certificate unless they  find that the applicant  is fit, willing                                                               
and able  to provide  the utility services  applied for  and that                                                               
the services  are required for  the convenience and  necessity of                                                               
the public.                                                                                                                     
                                                                                                                                
8:11:51 AM                                                                                                                    
He  said there  are  some statutory  exemptions  for electric  as                                                               
follows:                                                                                                                        
   - Exemptions  from certification  is any  utility making  less                                                               
     than $50,000 unless their  customers petition for regulation                                                               
     (AS 42.05.711(e)                                                                                                           
   - Any  Joint  Action  Agency established  by  AS  42.45.310(AS                                                               
     42.05.711(o))                                                                                                              
   - Possibly utilities  that receive a Qualifying  Facility (QF)                                                               
     designation from FERC                                                                                                      
                                                                                                                                
8:12:21 AM                                                                                                                    
SENATOR THOMAS joined the committee.                                                                                            
                                                                                                                                
MR.  PICKETT  explained that  another  level  of exemptions  from                                                               
economic regulation are:                                                                                                        
   - Utilities owned by a political subdivision with the                                                                        
     exception of a utility the competes with a regulated                                                                       
     utility (AS 42.05.711(b))                                                                                                  
                                                                                                                                
8:12:59 AM                                                                                                                    
REPRESENTATIVE  BUCH  asked  for   a  definition  of  "qualifying                                                               
facility".                                                                                                                      
                                                                                                                                
MR.  PICKETT  answered  that  it  is  a  category  of  electrical                                                               
producers that  the federal government  has deemed  important for                                                               
the   purposes   of   distributed  generation   encouraging   the                                                               
development  of   alternative  energy.  If  an   entity  that  is                                                               
proposing  to produce  power self-certifies  or goes  through the                                                               
formal FERC-certification  process, and  is trying to  sell their                                                               
power to an  electrical utility and perhaps  meets some reticence                                                               
there, this  is a "hammer"  to force the utility  into purchasing                                                               
the power.                                                                                                                      
                                                                                                                                
REPRESENTATIVE BUCH  asked if  the entity  would be  a generator,                                                               
not a distributor of energy.                                                                                                    
                                                                                                                                
MR. PICKETT replied yes, and this is a federal designation.                                                                     
                                                                                                                                
8:14:37 AM                                                                                                                    
He continued explaining the exemptions from economic regulation:                                                                
   - Utilities that make between $50,000 and $500,000 and they                                                                  
    have that have a deregulation election (AS 42.05.711(f))                                                                    
   - Cooperatives that have a deregulation election (AS                                                                         
     42.05.711(h))                                                                                                              
   - Utilities that receive a QF designation from FERC) (18                                                                     
     C.F.R. 292.602(c))                                                                                                         
                                                                                                                                
8:15:06 AM                                                                                                                    
The RCA regulates:                                                                                                              
Utilities                                                                                                                       
 Natural gas distribution                                                                                                       
 Natural gas pipelines                                                                                                          
 Electric power generation, transmission and distribution                                                                       
 Water and sewer                                                                                                                
 Telephone                                                                                                                      
 Solid waste                                                                                                                    
Pipelines                                                                                                                       
 Crude oil pipelines                                                                                                            
 Petroleum product pipelines                                                                                                    
 Natural gas pipelines                                                                                                          
                                                                                                                                
8:15:32 AM                                                                                                                    
SENATOR  THOMAS asked  if Fairbanks  Natural Gas  is economically                                                               
regulated.                                                                                                                      
                                                                                                                                
MR.  PICKETT replied  that it  continues to  not be  economically                                                               
regulated. A  number of legislators  petitioned to open  a docket                                                               
to reevaluate  that situation. Because  it is an open  docket, he                                                               
couldn't say much other than  the Attorney General has arrived at                                                               
a  stipulation  with Fairbanks  Natural  Gas  and the  Commission                                                               
would be acting on that shortly.                                                                                                
                                                                                                                                
SENATOR THOMAS  asked him why  it was not  initially economically                                                               
regulated.                                                                                                                      
                                                                                                                                
MR. PICKETT  replied that it was  believed that its size  was too                                                               
small  at  the  time  to   sustain  the  financial  burden.  That                                                               
designation was  given with  the understanding  that it  would be                                                               
continually reevaluated as the utility grew.                                                                                    
                                                                                                                                
SENATOR THOMAS added that there  was also the aspect of competing                                                               
with fuel oil and alternatives.                                                                                                 
                                                                                                                                
8:17:15 AM                                                                                                                    
MR.  PICKETT said  the  Commission  has a  role  in  a couple  of                                                               
current  energy supply  issues and  he  would focus  on three  in                                                               
particular:  the  Cook  Inlet  natural   gas  supply  issue,  the                                                               
electric utility current infrastructure  needs and the power cost                                                               
equalization (PCE) program.                                                                                                     
                                                                                                                                
MR.  PICKETT said  the RCA  does  not regulate  the producers  of                                                               
natural  gas in  Cook Inlet,  but  rather it  evaluates gas  sale                                                               
agreements (GSA)  between the utilities and  the producers. Their                                                               
standard  of review  considers  whether the  utility  acted in  a                                                               
prudent manner, whether  the terms of the GSA  are reasonable and                                                               
whether the  GSA insures reliable  and reasonably  priced utility                                                               
service.                                                                                                                        
                                                                                                                                
CHAIR  PASKVAN said  they don't  regulate producers,  but on  the                                                               
page before he  said they regulate the supplies and  he asked him                                                               
to explain that.                                                                                                                
                                                                                                                                
8:18:39 AM                                                                                                                    
MR. PICKETT  replied that on  the previous page he  was outlining                                                               
the overall  Cook Inlet  natural gas  supply issue,  because it's                                                               
important  to recognize  that it  operates  as a  system and  the                                                               
utilities are  but one part of  that system. The RCA  has nothing                                                               
to  do  with  the  LNG  plant or  certain  large  commercial  and                                                               
industrial customers.                                                                                                           
                                                                                                                                
CHAIR PASKVAN asked if a  producer's discoveries are regulated by                                                               
the RCA or its information made available to it.                                                                                
                                                                                                                                
MR. PICKETT replied that the  RCA does not regulate the operation                                                               
of the  gas fields  in Cook Inlet.  It works with  DNR to  try to                                                               
assess situations with information that  is public already. A lot                                                               
of things are not known.                                                                                                        
                                                                                                                                
8:20:07 AM                                                                                                                    
REPRESENTATIVE BUCH  remembered that  the Kenai  Peninsula Liquid                                                               
Line (KPLL)  was the  first natural  gas pipeline  the Commission                                                               
regulated and  asked if that  line was considered as  a component                                                               
of the Cook Inlet natural gas configuration.                                                                                    
                                                                                                                                
MR. PICKETT replied yes.                                                                                                        
                                                                                                                                
REPRESENTATIVE BUCH asked what other  pipelines they have purview                                                               
over such as the one that comes from Beluga.                                                                                    
                                                                                                                                
MR.  PICKETT  replied  that  Beluga   has  a  tariff  before  the                                                               
commission now  so he couldn't comment,  but yes it is  under the                                                               
RCA's jurisdiction.                                                                                                             
                                                                                                                                
REPRESENTATIVE BUCH asked what other  pipelines they have purview                                                               
over  that pertain  particularly to  the Cook  Inlet natural  gas                                                               
system.                                                                                                                         
                                                                                                                                
MR. PICKETT replied the Cook  Inlet Gas Gathering System (CIGGS),                                                               
the  South  Kenai  Peninsula Pipeline  and  the  Enstar  Pipeline                                                               
System.                                                                                                                         
                                                                                                                                
8:21:00 AM                                                                                                                    
He  related that  the  RCA Standard  of review  is  guided by  AS                                                               
42.05.431(a).  Under  this  subsection  the RCA  is  required  to                                                               
determine  whether  a  gas sale  agreement  or  particular  terms                                                               
within  such  an  agreement   are  unjust,  unreasonable,  unduly                                                               
discriminatory  or  preferential.   This  determination  must  be                                                               
viewed in the  context of the Cook Inlet market,  which is unique                                                               
among regional natural gas markets in the United States.                                                                        
                                                                                                                                
He explained that  gas markets in the Lower 48  are connected and                                                               
interconnected by  a very sophisticated  and extensive  series of                                                               
pipelines such that if one  particular field is not producing the                                                               
way folks  think it  should, there  are alternatives.  Cook Inlet                                                               
doesn't have that nearly to the extent it is available Outside.                                                                 
                                                                                                                                
The reserve to  production ratio for Cook  Inlet is approximately                                                               
10:1, and, he said,  this is in the same range  as is typical for                                                               
Lower  48  production areas.  It's  lower  than past  years  just                                                               
because  there was  such an  abundance  of natural  gas that  was                                                               
found as a byproduct of looking for oil.                                                                                        
                                                                                                                                
MR. PICKETT  said that Cook  Inlet is unique  as the home  of the                                                               
only plant  in the U.S. that  liquefies natural gas and  ships it                                                               
out of  the immediate areas as  LNG. This is also  the oldest LNG                                                               
export facility  in the world.  The RCA in  its last review  of a                                                               
natural gas sales  agreement, EO 858, found that Cook  Inlet is a                                                               
natural  gas  production basin  as  opposed  to  a city  gate  or                                                               
consuming type of area.                                                                                                         
                                                                                                                                
ConocoPhillips, Marathon and Union  Oil of California, a division                                                               
of Chevron (Union)  control the vast majority of  the natural gas                                                               
supplies in  the Cook Inlet.  Of these three,  ConocoPhillips and                                                               
Marathon are the  largest and these two own the  Kenai LNG export                                                               
facility as well.                                                                                                               
                                                                                                                                
                                                                                                                                
The  Cook Inlet  market  is vertically  integrated  with the  two                                                               
largest producers being  the best customers through  its sales to                                                               
the LNG export facility.                                                                                                        
                                                                                                                                
8:23:25 AM                                                                                                                    
REPRESENTATIVE BUCH asked how they  came to this situation again.                                                               
In the  1920s this  issue was  resolved in  a Supreme  Court case                                                               
against Standard  Oil and vertical  integration was  considered a                                                               
monopoly. So,  now we are  back to  that same realm  of operation                                                               
where producers have that same access to all phases.                                                                            
                                                                                                                                
MR. PICKETT replied it is  important to make the distinction that                                                               
EO 858 the RCA  in found for market power, which  is not the same                                                               
as a monopolistic  finding. The RCA worked closely  with the AG's                                                               
office on  a number of  these issues  and found no  evidence that                                                               
anything  illegal is  going on  in  Cook Inlet.  Market power  is                                                               
legal and  can be a  business strategy. The point  the Commission                                                               
is  making is  when  those conditions  exist  with an  individual                                                               
utility trying to  get natural gas supplies, there  is a mismatch                                                               
at the negotiating table.                                                                                                       
                                                                                                                                
8:25:13 AM                                                                                                                    
MR.  PICKETT said  the  Cook  Inlet market  is  not  an open  and                                                               
transparent gas market. It has  few transactions and they tend to                                                               
be somewhat intermittent - and some  of them are not available in                                                               
a public form. There is  no commonly acceptable pricing mechanism                                                               
in Cook  Inlet, and  that makes  it a  challenge, because  in the                                                               
2001  RCA/Henry  Hub Order  a  variety  of pricing  proxies  were                                                               
considered by the  utilities, the producers, the AG  and the RCA,                                                               
but none  of them were accepted  by all of the  parties that need                                                               
to have  that understanding.  None of  these pricing  proxies has                                                               
resulted in  an RCA  approved gas  sale agreement  that currently                                                               
delivers gas to  utility customers. "Given the  fact that several                                                               
of the  utilities are headed  for a cliff  in terms of  their gas                                                               
supply agreements in the next couple  of years and out, this is a                                                               
matter of most serious public concern. In my opinion."                                                                          
                                                                                                                                
8:27:00 AM                                                                                                                    
REPRESENTATIVE COGHILL  asked what has been  the discussion about                                                               
the  export supplies  and the  utility  need with  regard to  the                                                               
RCA's regulation and knowing that natural gas is being exported.                                                                
                                                                                                                                
MR.  PICKETT  replied that  the  RCA  is  very cognizant  of  the                                                               
situation.  That deal  was entered  into  EO 858  because of  the                                                               
information it  presented at  that time.  The RCA  recognized the                                                               
importance of the  LNG export facility, because  the utility rate                                                               
payers and the  amount of gas consumed there  is not sufficiently                                                               
large  to   create  the  incentives   needed  to   encourage  the                                                               
exploration and production  that would have to take  place in the                                                               
Inlet. "It's a very, very tricky situation."                                                                                    
                                                                                                                                
The  LNG  plant is  operating  under  a two-year  export  license                                                               
starting  next week,  he explained.  Within  the 2008  settlement                                                               
agreement  with  the  state  there   were  terms  that  indicated                                                               
conversations were  going on between  the producers, DOE  and the                                                               
state  for a  five-year export  license if  sufficient quantities                                                               
could be demonstrated.                                                                                                          
                                                                                                                                
Deliverability is a  key issue within the Inlet  now. Enstar came                                                               
before the  Commission with other  utilities at a  special public                                                               
meeting  in  early  January  during the  cold  snap  about  their                                                               
ability to deliver, because even  two years before that they felt                                                               
they were close to hitting  the deliverability wall. These fields                                                               
aren't like a  big balloon with a  valve on it that  you can open                                                               
it up to high. It's much  more complicated than that, and storage                                                               
is a big part of the issue.                                                                                                     
                                                                                                                                
REPRESENTATIVE  COGHILL asked  if  the RCA  as  a regulator  will                                                               
require  storage  or  does  the Legislature  need  to  give  them                                                               
authority.                                                                                                                      
                                                                                                                                
MR. PICKETT  replied the RCA  doesn't regulate the  producers and                                                               
each one  of them  has its  own business  model to  determine its                                                               
level of  investment. Many of these  companies are international,                                                               
and with  the collapse of  commodity prices and the  implosion of                                                               
the financial  markets, it's a  very challenging  environment. He                                                               
emphasized there  needs to be  some sort  of agreement on  how to                                                               
price gas in  Cook Inlet that is  fair to the rate  payers and is                                                               
defensible based  on some sort of  record through the RCA  or the                                                               
Legislature.   Somehow  the   producers   must  have   sufficient                                                               
incentives to explore and produce more gas in Cook Inlet.                                                                       
                                                                                                                                
8:32:03 AM                                                                                                                    
REPRESENTATIVE COGHILL  asked if  the capacity  to fill  the need                                                               
and convenience  of the customer  base that has already  been set                                                               
put  pressure  on  the  state to  support  the  companies'  sales                                                               
agreements in selling LNG on the market.                                                                                        
                                                                                                                                
8:32:28 AM                                                                                                                    
MR. PICKETT replied that is a  factor that can be considered. The                                                               
producers also know it is in  their interests to have utility gas                                                               
sales agreements  in place,  because that  makes a  stronger case                                                               
for the five-year  extension - "And you don't  want the utilities                                                               
going before, as  they are right now, the Ninth  Circuit Court of                                                               
Appeals attempting to overturn."                                                                                                
                                                                                                                                
REPRESENTATIVE COGHILL  said that LNG  requires a lot  of storage                                                               
and that  could be the  reason behind the collapsing  balloon for                                                               
the  winter season  in Anchorage.  But  he asked,  "Should we  be                                                               
selling our gas when we so desperately need it?"                                                                                
                                                                                                                                
8:34:08 AM                                                                                                                    
CHAIR OLSON asked if part of  the problem is that Enstar has peak                                                               
demand only  for about 10 weeks  during the winter and  the sales                                                               
to  the Tokyo  Electric  Utility  is the  same  volume every  two                                                               
weeks. Right  now nothing else  needs that volume of  gas outside                                                               
of the 10 week period.                                                                                                          
                                                                                                                                
MR. PICKETT believed  that to be true. The diversion  of gas from                                                               
the LNG plant  into the utility in January/February  2009 is what                                                               
provided the cushion  in the past. But now  Enstar's 2009 figures                                                               
show that  period took away  most of  its margin. That's  why gas                                                               
storage is a critical issue  in the Inlet. Several producers have                                                               
their own  storage by pumping  gas into essentially what  are old                                                               
fields. DNR is  looking to have RFPs and  offerings for potential                                                               
storage sights on the Beluga field.                                                                                             
                                                                                                                                
8:36:07 AM                                                                                                                    
REPRESENTATIVE  BUCH asked  what  he  saw as  the  RCA's role  in                                                               
resolving this dilemma and asked for an outline of their plan.                                                                  
                                                                                                                                
MR. PICKETT said the RCA  would keep the Legislature appraised of                                                               
how  both  the  storage  and  natural  gas  pricing  dockets  are                                                               
proceeding by putting members on a modified distribution list.                                                                  
                                                                                                                                
8:38:18 AM                                                                                                                    
CHAIR PASKVAN  asked if his comment  about a cliff in  the coming                                                               
years meant  that supplies are going  to be scarce in  the coming                                                               
years.                                                                                                                          
                                                                                                                                
MR.  PICKETT responded  that  it  is important  to  not be  over-                                                               
alarmist. Cook  Inlet still has gas;  it's a matter of  price and                                                               
what  it will  take to  get  it produced.  The drop  off is  much                                                               
sooner without more exploration and investment.                                                                                 
                                                                                                                                
CHAIR PASKVAN  asked if he  was trying to regulate  pricing based                                                               
upon a perception  that it could be whatever someone  wants it to                                                               
be in a vertically integrate market.                                                                                            
                                                                                                                                
MR. PICKETT  replied there is  an element  of truth to  that, and                                                               
the information they get is highly imperfect.                                                                                   
                                                                                                                                
8:40:45 AM                                                                                                                    
SENATOR  THOMAS asked  if Cook  Inlet gas  is worth  more to  the                                                               
producers for instate use or for export.                                                                                        
                                                                                                                                
MR. PICKETT replied  that markets are moving  targets. It depends                                                               
on the  length of  contracts for  one thing.  Before there  was a                                                               
shortage of  both supply  and boats, but  now Japan  has released                                                               
tankers from service, as has Korea,  Taiwan and Spain. So the LNG                                                               
market has a lot of excess capacity right now.                                                                                  
                                                                                                                                
8:43:21 AM                                                                                                                    
MR.  PICKETT   continued  talking  about  the   electric  utility                                                               
infrastructure needs  primarily focusing on the  Railbelt. Alaska                                                               
Railbelt Electrical Grid Authority  Study (REGA) released in 2008                                                               
estimated  a cumulative  capital  investment requirement  ranging                                                               
from  $2.5  to   $8.1  billion  over  the  next   30  years.  The                                                               
transmission  infrastructure  in  the   Railbelt  is  aging,  and                                                               
investment is needed for  generation and transmission replacement                                                               
and expansion.                                                                                                                  
                                                                                                                                
8:45:00 AM                                                                                                                    
He showed  charts of installed  and existing  Railbelt generation                                                               
along  with proposed  projects. They  indicated the  dominance of                                                               
natural gas for  generation purposes in the  Railbelt, which ties                                                               
back to the  issue of natural gas supplies in  Cook Inlet. Of all                                                               
the  proposed  projects the  Susitna  Hydro  Project would  dwarf                                                               
anything  else. He  also remarked  that the  Fire Island  Project                                                               
would eek out a little more power with its new configuration.                                                                   
                                                                                                                                
REPRESENTATIVE BUCH  said the new  configuration for  Fire Island                                                               
is 100 MW instead of 30 MW.                                                                                                     
                                                                                                                                
8:46:37 AM                                                                                                                    
MR. PICKETT said some regulatory issues  have to be dealt with as                                                               
new  generation  comes  on,  particularly  with  the  alternative                                                               
energies and more distributed forms of generation.                                                                              
                                                                                                                                
Under  firm vs.  non-firm  power supplies,  Mr.  Pickett said  by                                                               
definition firm power  is a predictable source of  power that can                                                               
be  scheduled  by  a  utility  and that  offsets  both  fuel  and                                                               
generation  capacity  expenses. In  this  category  you see  some                                                               
hydro, co-generation,  geothermal. Essentially you have  a switch                                                               
that you can flip and the "power is going to be there."                                                                         
                                                                                                                                
Non-firm  power is  a  more unpredictable  source  of power  that                                                               
cannot  be scheduled  by  a utility.  The  provision in  non-firm                                                               
power only  offsets the  use of fuel  by the  utility. Generation                                                               
capacity needs  to be maintained  to provide power when  the non-                                                               
firm  power   is  unavailable.  RCA  regulations   require  spare                                                               
capacity to be available at all times.                                                                                          
                                                                                                                                
8:47:24 AM                                                                                                                    
REPRESENTATIVE COGHILL asked how much they require.                                                                             
                                                                                                                                
MR. PICKETT  replied, "It has  to do with the  largest generation                                                               
unit  that  you have  if  it  were to  go  off  line." Beluga  is                                                               
actually  a series  of  generators  - the  theory  being if  some                                                               
generation goes off line, the ability to make it up is there.                                                                   
                                                                                                                                
8:49:05 AM                                                                                                                    
The RCA  has a  number of  unfunded mandates given  to it  by the                                                               
federal and state governments. Under  the Power Cost Equalization                                                               
(PCE) program,  the state  pays a portion  of the  electric bills                                                               
for consumers  served by utilities participating  in the program.                                                               
A regulatory  cost charge (RCC) of  .7 percent is on  a utility's                                                               
bill   indicating   its   contribution.  Over   150   communities                                                               
participate in this program.                                                                                                    
                                                                                                                                
Different industry groups have a  different calculation as to how                                                               
much of  that is applicable, but  most of the small  utilities in                                                               
the  PCE program  are not  regulated.  So, in  essence, the  rate                                                               
payers  and  the  regulated  utilities are  paying  for  the  PCE                                                               
program. The  RCA has made OMB  aware of this and  he thought the                                                               
administration would  provide some  relief through  a cooperative                                                               
agreement with the Alaska Energy Authority (AEA).                                                                               
                                                                                                                                
REPRESENTATIVE COGHILL asked what a  rebate to the RCA would look                                                               
like for those several utilities.                                                                                               
                                                                                                                                
MR. PICKETT  replied that he hopes  to pick up a  couple of staff                                                               
equivalents to  do the filings  and work  with some of  the small                                                               
struggling   utilities  that   have   difficulty  getting   their                                                               
paperwork together to eligible for  the program. "It's a staffing                                                               
problem, primarily."                                                                                                            
                                                                                                                                
AS  42.45.110(c)(2)  provides  that the  Commission  during  each                                                               
fiscal year adjust  the power costs for which PCE  may be paid to                                                               
an  electric  utility  based  on   the  weighted  average  retail                                                               
residential rate in Anchorage, Fairbanks  and Juneau - subject to                                                               
the statutory  ceiling, whatever that  is at that point  in time.                                                               
The actual PCE, itself, is administered by the AEA.                                                                             
                                                                                                                                
8:51:02 AM                                                                                                                    
REPRESENTATIVE HOLMES  asked if the  RCA made an  adjustment when                                                               
Juneau went to use diesel last winter.                                                                                          
                                                                                                                                
MR. PICKETT  said the Commission  made a one-time  adjustment for                                                               
that situation.                                                                                                                 
                                                                                                                                
8:51:28 AM                                                                                                                    
MR. PICKETT went on to explain  that the RCA opened Dockets R-09-                                                               
1  and  R-09-2  to  consider  net  metering  and  interconnection                                                               
standards  with regard  to renewable  and alternative  energy. He                                                               
explained  that  in  the  2005 Energy  Policy  Act,  the  federal                                                               
government mandated that all  commissions consider standards that                                                               
include net  metering, interconnection, smart grid  and things of                                                               
that nature. The RCA conducted  a two-year proceeding on that and                                                               
elected not to  adopt any of the federal  standards, because they                                                               
were not  appropriate for  Alaska conditions.  That is  when they                                                               
opened these two  dockets and those are currently  under way. The                                                               
RCA's goal in the R-09-1 docket  on net metering is "to create an                                                               
Alaskan rule  that will encourage the  development of distributed                                                               
small-scale   renewable  generation   while  maintaining   system                                                               
integrity  and  fairly  apportioning costs  among  consumers  and                                                               
consumer/producers."                                                                                                            
                                                                                                                                
The  RCA had  technical workshops  on that  in late  February and                                                               
last  week  on the  interconnection  standards.  The industry  is                                                               
heavily engaged  in that  with the  utilities, proponents  of net                                                               
metering and some  of the alternative energy. They  have had more                                                               
input on  the net metering  docket than  any other docket  in the                                                               
last couple of years.                                                                                                           
                                                                                                                                
REPRESENTATIVE COGHILL  asked when  the RCA rejected  the federal                                                               
standards, did it  come up with a "packet  of rationale," because                                                               
that  might help  the  Legislature in  its  deliberations on  net                                                               
metering standards.                                                                                                             
                                                                                                                                
8:53:30 AM                                                                                                                    
MR.  PICKETT  replied  that  when they  declined  to  accept  the                                                               
federal standards they  provided a rationale in  their order. The                                                               
issues are fairly well clarified at this point.                                                                                 
                                                                                                                                
REPRESENTATIVE OLSON asked  him what kind of time  frame they are                                                               
working with.                                                                                                                   
                                                                                                                                
MR. PICKETT  replied when  the Commission  declined to  adopt the                                                               
federal standards,  they committed to  as expedited a  process as                                                               
possible. The issues are fairly clear at this point.                                                                            
                                                                                                                                
REPRESENTATIVE  BUCH asked  him to  make those  available to  the                                                               
chairman.                                                                                                                       
                                                                                                                                
CHAIR PASKVAN said there is  an alternative method other than net                                                               
metering - some sort of a tariff system.                                                                                        
                                                                                                                                
MR. PICKETT  replied maybe he  was referring to the  SNAP program                                                               
that Golden Valley has instituted.                                                                                              
                                                                                                                                
CHAIR PASKVAN said that Germany  adopted this system that is like                                                               
phased-in tariffs.                                                                                                              
                                                                                                                                
MR. PICKETT said he wasn't familiar with that.                                                                                  
                                                                                                                                
8:55:41 AM                                                                                                                    
He  continued  saying   that  Docket  R-09-2  is   to  create  an                                                               
interconnection standard  that recognizes Alaskan  conditions and                                                               
provides  uniformity in  interconnection requirements  of Alaskan                                                               
electric  utilities and  simplifies  the interconnection  process                                                               
for small distributed resources.  Some real technical issues have                                                               
to  be dealt  with, because  a large  project can  throw a  small                                                               
utility  into   imbalance  quickly.  Even  some   of  the  larger                                                               
utilities  have concerns  about  system integrity  as this  issue                                                               
progresses.                                                                                                                     
                                                                                                                                
Another issue is  that the AEA is requiring  that all independent                                                               
power producers receiving renewable  energy grants from the state                                                               
obtain a  Certificate of Public Convenience  and Necessity (CPCN)                                                               
from the  RCA. The  RCA has  had discussions  with the  AEA about                                                               
what protections they might want in addition to the CPCN.                                                                       
                                                                                                                                
REPRESENTATIVE  COGHILL asked  given the  standards, what  is the                                                               
timeline for the certificate.                                                                                                   
                                                                                                                                
MR. PICKETT  replied that  would depend  on how  many certificate                                                               
requests it gets  at the same time; the RCA  is severely stressed                                                               
in  terms of  staff. "If  it's a  handful, they  will be  handled                                                               
expeditiously  subject   to  our   workload  and   the  statutory                                                               
deadlines and all of our other  dockets. If we were to receive 30                                                               
or  40  of  them  simultaneously,   that  would  be  an  entirely                                                               
different matter,  and I would  not be able  to give you  a clear                                                               
answer on that."                                                                                                                
                                                                                                                                
REPRESENTATIVE COGHILL said the  Office of Legislative Budget and                                                               
Audit (LB&A)  would be  watching those closely;  so they  need to                                                               
have a  good handle on what  is coming and what  staff needs will                                                               
be.                                                                                                                             
                                                                                                                                
REPRESENTATIVE  OLSON asked  how  the new  timelines are  working                                                               
out.                                                                                                                            
                                                                                                                                
MR.  PICKETT  replied  that  the RCA  is  meeting  the  statutory                                                               
deadlines  although they  have had  to be  extended occasionally.                                                               
They are  frustrating for the  Commission in one sense,  but they                                                               
have a way of focusing attention.                                                                                               
                                                                                                                                
8:59:09 AM                                                                                                                    
REPRESENTATIVE BUCH asked  for an outline today of  how the price                                                               
of natural gas is established for  the consumer, and how it comes                                                               
to  Alaskans  -  within  the   realm  of  the  commodity  pricing                                                               
structure of the United States.                                                                                                 
                                                                                                                                
9:00:08 AM                                                                                                                    
MR. PICKETT  replied in Alaska  it's fair  to say the  pricing of                                                               
natural gas is determined by  the contracts between the utilities                                                               
and the  producers. Some  of these contracts  have been  going on                                                               
for many,  many years, if not  decades. Each one has  a different                                                               
pricing mechanism imbedded within it.  Some are tied to the price                                                               
of  crude oil  or to  Henry Hub,  for instance.  The RCA  did not                                                               
approve  the  latest  Enstar  gas  supply  agreements  that  were                                                               
restructure  for two  years,  because under  the  terms of  their                                                               
existing tariff,  there is  the weighted average  cost of  gas in                                                               
Cook Inlet (WACOG) option, which  looks at all of these contracts                                                               
and comes up  with a weighted average depending on  the price and                                                               
volumes associated  with the  contract. As long  as they  came in                                                               
under  the  WACOG,  they  had  the ability  to  claim  those  gas                                                               
charges.                                                                                                                        
                                                                                                                                
CHAIR  PASKVAN said  he is  interested  in how  broadband can  be                                                               
brought to Alaska  - in relation to federal stimulus  moneys - so                                                               
Alaska can be competitive in a business environment.                                                                            
                                                                                                                                
9:01:44 AM                                                                                                                    
MR. PICKETT replied  that the RCA has been  involved in receiving                                                               
a broadband grant from the  U.S. Department of Agriculture (USDA)                                                               
Rural  Utility  Services for  a  couple  of years.  The  original                                                               
figure was  $15 million and  they have roughly $7.5  million left                                                               
because  of  the  conditions  that  go  along  with  it  and  the                                                               
definitions  of  broadband  that  are   way  too  low  -  totally                                                               
inadequate. People who had dial-up  or very slow service were not                                                               
eligible to upgrade.  The system ahs some gaps;  for instance, an                                                               
area  of   the  state   has  some   of  the   most  sophisticated                                                               
telemedicine in  the nation that is  linked to a network  that is                                                               
microwave-based,  but  then it  comes  to  a  point of  having  a                                                               
satellite  uplink,  and  that's  the  bottleneck  for  the  whole                                                               
system. Another  part of  the state  has a gap  on the  ground to                                                               
where you  can't interconnect to  undersea cable, and  that would                                                               
seem to be a very logical  type of project if stimulus funds were                                                               
to be available.                                                                                                                
                                                                                                                                
He  said the  RCA  provided a  lot of  comments  on the  stimulus                                                               
package, but  the federal side  has some unresolved  issues. Some                                                               
of  the  funds  would  go   directly  to  the  telecommunications                                                               
companies, but  rules and regulations  have not  been established                                                               
for prioritizing funding. It would be  helpful if the state had a                                                               
comprehensive broadband  vision. The RCA regulates  some of these                                                               
entities  which puts  it in  a  tenuous position;  they can't  be                                                               
picking winners and losers and regulate them at the same time.                                                                  
                                                                                                                                
9:04:15 AM                                                                                                                    
REPRESENTATIVE BUCH asked  if other states have set  this up, and                                                               
can Alaska follow another existing model.                                                                                       
                                                                                                                                
MR. PICKETT replied  a number of states  have, particularly those                                                               
that are more rural. He  couldn't emphasize enough, however, that                                                               
when it  comes to  telecommunications, Alaska is  in a  league of                                                               
its own.                                                                                                                        
                                                                                                                                
REPRESENTATIVE BUCH asked how many dockets the RCA has open.                                                                    
                                                                                                                                
MR. PICKETT replied around 150.                                                                                                 
                                                                                                                                
9:06:01 AM                                                                                                                    
CHAIR PASKVAN thanked Mr. Pickett and adjourned the meeting at                                                                  
9:06 a.m.                                                                                                                       

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