SB 58-DEPT OF LAW: ADVOCACY BEFORE FERC  3:47:25 PM CHAIR GIESSEL called the meeting back to order and announced consideration of SB 58. She said this bill was sponsored by the Rules Committee at the request of the governor, with the Department of Law (DOL) as the bill manager. She said the DOL has its attorneys representing the interests of the consumers, that being the Alaska public, in proceedings before both the Regulatory Commission of Alaska (RCA) and the Federal Energy Regulatory Commissioner (FERC). How that representation is paid for and will continue to be paid in the face of lower general fund amounts is the subject of this bill. She welcomed Mr. Ed Sniffen. 3:48:15 PM ED SNIFFEN, Assistant Attorney General, Department of Law (DOL), presented SB 58. As background, he said all public utilities in Alaska and pipelines that operate in Alaska are regulated by the RCA; they regulate their rates, terms of service, and a host of other things. To pay for that regulation, the legislature has established a regulatory cost charge that is billed to the utilities and the pipelines, the entities that benefit from the regulation. It is then generally passed on to customers. That money pays for the staff of the RCA, all their analysts, and administrative functions of regulating the utilities and the pipelines. The Department of Law has a role in that process. It appears in matters before the RCA to protect the public's interests. For example, they represent the ordinary consumer to make sure the rates are just and reasonable when Enstar wants to raise its bill. The department's efforts are also paid for through that same regulatory cost charge. 3:49:54 PM MR. SNIFFEN said to understand the impact of this bill it is important to understand what the regulatory cost charge does, which is the subject of his presentation. What is the regulatory cost charge (RCC)? The RCC is a fee assessed on public utilities and pipelines that are regulated by the Regulatory Commission of Alaska (RCA). It is created by AS 42.05.254 and AS 42.06.286. Who Pays RCCs? Utilities and pipelines that are regulated by the RCA, including over 125 public utilities and about 20 common carrier pipelines with in-state deliveries. These utilities and pipelines may pass the charge onto customers that benefit from RCA regulation. Each year, the RCA assesses RCCs to utilities and pipelines based on the amount of work required for each industry sector. For example, if they are spending most of their time on electric cases one year, the electric utilities may pay a little more. It is based on where their efforts are being focused. 3:51:21 PM What does the RCC pay for? The money collected in the RCC provides funding for the Regulatory Commission of Alaska (RCA), which is responsible for the economic regulation of public utilities and intrastate common carrier pipelines in Alaska, and the Regulatory Affairs and Public Advocacy (RAPA) section in the Department of Law, which is charged with advocating for the public interest in matters related to the economic regulation of public utilities and pipelines. The total RCC is capped by the legislature at 0.87 percent of the adjusted gross revenue (derived from operations in Alaska) of the regulated utilities and pipelines. That is split between the RCA and the DOL; 0.7 percent of the adjusted gross revenues are used to pay the RCA's budget and 0.17 percent is what the DOL gets. The Regulatory Affairs and Public Advocacy's (RAPA) section of the DOL budget for 2017 was $2,333,700. The cap is $2,374,390; so they are pretty close to the cap. They are not asking to grow the cap, but the slice of the pie that is spent on pipelines right now is about 7 percent ($162,591) of the total pie. SB 58 will allow them to just increase the size of the slice of pie. So, if they are spending more time doing pipeline stuff, they want the authority to be able to charge to matters that are coming before the FERC, which authority they do not have right now. 3:53:09 PM What would SB 58 change? This bill does not change the .17 percent RCC cap. It doesn't create a new authority for the DOL. It just allows some costs incurred by the department in matters before FERC (TAPS pipeline tariffs) in the pipeline to be charged to the RCC. The actual dollar impact to the different shippers: If they wanted to burden the pipelines with another $100,000 of RCC costs, based on most recent information that would increase the pipeline RCC surcharge by about .041 percent ($4.10 per $10,000). Not huge. If that slice were increased by $200,000 it would be $8.20. 3:54:13 PM Why now? There are some suspicions the bill trying to do something other than what they intend it to do. But for over 30 years, outside counsel has represented the state on FERC pipeline matters. That has been an incredibly expensive contract. To reduce costs, DOL is developing the necessary expertise and bringing more of this work in-house. As part of doing that they found this mechanism to offset some of those costs, because it's the pipelines that are benefiting from their work. 3:55:11 PM This won't impact AKLNG, Mr. Sniffen said. That's an exclusively FERC regulated pipeline. There is no joint jurisdiction with RCA. It's a gas pipeline regulated under the Natural Gas Act unlike TAPS which is regulated under the Interstate Commerce Act. This is not related to the gas pipeline at all. 3:55:37 PM Is there a check on the RCC spending? The answer is yes. 1. RCCs to fund RAPA cannot exceed the 0.17 percent cap. 2. RAPA's budget is submitted annually to the RCA for review of RAPA's certified costs in a public docket where any interested party can comment. 3:56:25 PM SENATOR MEYER asked how much unrestricted general funds (UGF) is spent by DOL annually for FERC work. MR. SNIFFEN replied outside council has been paid $90 million in 30 years for FERK work on TAPS tariff issues. Some years are a lot higher when litigation is going on. This year an in-house assistant attorney general is focused on doing this work but still relying a little bit on outside counsel (their historical knowledge is not easily replaced) and they might spend $700,000. SENATOR MEYER asked if this bill passes will it cause a reduction in UGF. MR. SNIFFEN said yes, but it would be a small one. SENATOR MEYER said he didn't see that reflected in the fiscal note. SENATOR MEYER asked how much the DOL currently receives in RCC for RCA work. MR. SNIFFEN answered their budget for 2017 was $2,333,700. 3:59:01 PM CHAIR GIESSEL asked if the Department of Law has the expertise to completely take over this kind of oversight. MR. SNIFFEN answered no, but they are getting closer and big chunks of that work has already been taken over in-house. FERC work is very specialized and the department hasn't done it for 30 years. When the state had money, it wasn't an issue. Spending has been reduced by hundreds of thousands of dollars already this budget year. He added that FERC matters happen in Washington, D.C. and outside counsel will probably still be retained an advisory role. CHAIR GIESSEL asked if this bill would simply allow the department to do that in a more robust way. MR. SNIFFEN answered yes; it gives them more flexibility with using their budget. 4:00:36 PM SENATOR STEDMAN asked if a previous administration terminated a long standing relationship with FERC attorneys the state used back in the early Palin days. Didn't they shift gears to a different firm? MR. SNIFFEN said he wasn't aware of any shift. The department has used different firms for FERC work: Morrison Forrester, which they currently contract with, and Greenberg Traurig, which is working on other projects for the state. SENATOR STEDMAN recalled the later company was the one he was thinking of and asked if he knew Bob Loeffler. MR. SNIFFEN answered yes; Bob Loeffler is partner with Morrison Forrester, who recently retired. 4:01:46 PM SENATOR WIELECHOWSKI asked what percent of the costs incurred for this work comes from the general fund (GF) and what percent is incurred by the people who are being regulated. MR. SNIFFEN answered right now they are spending at least 90 percent GF money for FERC work, and to the extent they have direct RCA proceedings that involve a FERC matter they can also bill to RCCs. Their statute only allows them to recover money for work before the RCA for the FERC. SENATOR WIELECHOWSKI asked how much that costs. MR. SNIFFEN guessed about $500,000 - $700,000 year. 4:03:19 PM SENATOR WIELECHOWSKI asked if they would have to adjust the bill to get the companies to repay 100 percent of the costs and how much has been recovered over the years on these regulatory matters. 4:03:47 PM MR. SNIFFEN answered they had recovered over $230 million in the last several years in direct deposits to the Constitutional Budget Reserve (CBR) and the General Fund (GF) from work on pipeline matters involving TransAlaska Pipeline System (TAPS) tariff rates. To his first question: what it would take to cover that gap in completely funding all their work. They gave it some thought and have to grow the statutory .17 percent statutory cap to .23 percent. That would provide an additional $700,000 and pay in an average year for all their FERC work. 4:04:43 PM SENATOR MEYER asked if the statutory formula would have to be changed from .17 percent to .23 percent. MR. SNIFFEN answered yes; but just in rough terms. If the state wanted to recover an additional $700,000 - $750,000 through this mechanism that cap would have to increase by about .06 percent. CHAIR GIESSEL asked why that isn't proposed. MR. SNIFFEN said they didn't want to be greedy, and the department is still gaining more experience before adjusting billing. CHAIR GIESSEL opened public testimony. Seeing none, closed public testimony. CHAIR GIESSEL said SB 58 would be held in committee.