Legislature(2015 - 2016)CAPITOL 17
02/24/2015 10:15 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Copper River Valley Regional Energy Planning | |
| HB78 | |
| HB105 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 78 | TELECONFERENCED | |
| += | HB 105 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 78-REGULATORY COMMISSION OF ALASKA
10:47:34 AM
CO-CHAIR COLVER announced that the next order of business would
be HOUSE BILL NO. 78, "An Act bearing the short title of the
'Alaska Competitive Energy Act of 2015'; and relating to the
Regulatory Commission of Alaska."
10:47:44 AM
REPRESENTATIVE TAMMIE WILSON, Alaska State Legislature, sponsor
of HB 78, paraphrased from the following sponsor statement
[original punctuation provided]:
It is my honored to present HB78 on behalf of the
Alaska Independent Power Producers. Competition is
good. Competition brings out the best of America and
Alaska. Competition is the basis for a free and market
force driven society. Business and industrial sectors
that have vibrant competitive markets work hard to
drive down consumer prices. Competition sparks
innovation to improve production, shave unnecessary
costs, and continually improve customer service in the
never ending pursuit to meet or beat competition.
Alaskans understand and embrace competition as an
integral component of our existence as Alaskans.
Competition is not complicated. Alaskans understand
competition in the sports arena and in all endeavors
that require a pursuit of excellence. As with our
world famous Iditarod Dog Sled Race, we don't just
hand out trophies, we expect our Alaskan winners to
earn it. Our Alaska electrical energy laws and
regulations that not only discourage competition, but
more aptly pre-empt competition and discourage private
investment in our electrical energy infrastructure. As
a result to our economic counterproductive and
anticompetitive policies, Alaska ranks last of all 50
states in the production of competitive electricity
from independent power producers. Due, in part, to our
lack of wholesale electrical competition Alaska also
has the highest average cost of industrial, business
electricity rates in the nation. Also, Alaska almost
has the highest average residential electricity rates
in the nation. Our noncompetitive high electric rates
negatively impact our economic development and
unnecessarily burden our Alaskan businesses, mines,
entrepreneurs and households. Our high electrical
energy costs, not only impact our economy, they also
impact our local government operations, schools,
hospitals, and services. A school or hospital dollar
unnecessarily spent on uncompetitive electricity is a
dollar that could be more productively spent on
educating our youth or reducing the health care costs
for Alaskans. Wilson started out as a territory and as
a young state, we rightfully granted monopoly rights
to utilities and awarded exclusive service territories
in our effort to provide incentives to drive
electrical service to all urban and rural Alaskans
alike. However, we have outgrown this monopoly model
that now holds back the diversification and vibrancy
of our non-oil industry economy. We must integrate
wholesale competition to encourage private capital
investment into energy generation and transmission to
not only decrease electricity costs but also to
improve Alaskans long term energy security from future
rate increases. Fair play, open access to
transmission, nondiscrimination in the procurement of
lowest cost energy allows market forces to pick
winners and provides an avenue for Alaska to meet its
goals as stated in our State Energy Policy. The Alaska
Competitive Energy Act embraces competition as the
guiding principle for our electrical generation and
transmission industry because Alaskans know that
competition works.
REPRESENTATIVE WILSON said she has heard from private industry
that projects have already been built, but are unable to access
the grid. She stressed that private businesses are needed at
this time of the current state budget deficit, and the grid must
be shared. Representative Wilson directed attention to a letter
from "Chugach Power" found in the committee packet that
recommends waiting "for a report that may come out, my
understanding, may not come out until June." However, she
advised that residents in her legislative district are moving,
and businesses are not expanding, "because they keep waiting for
more affordable energy ...."
10:52:49 AM
REPRESENTATIVE TILTON asked why the legislature should not wait
for the Regulatory Commission of Alaska (RCA) to issue its
report.
REPRESENTATIVE WILSON explained that last year RCA requested
more direction on how it can better service Alaskans, and that
was the origin of the bill. There may be changes that can be
made through the legislative process, but to stop legislation
"instead of working in tandem," would slow progress on the
issue.
10:54:05 AM
DUFF MITCHELL, Executive Director, Alaska Independent Power
Producers Association (AIPPA), said AIPPA has worked on the bill
for three years. He provided an overview of HB 78, saying that
the bill embodies competition and fair play; the bill includes
non-discrimination elements, opens doors for access to
transmission, and sets basic ground rules. Currently, Alaska
differs from the rest of the nation in its regulation of
generation and transmission, and the bill brings Alaska in
alignment. Mr. Mitchell said Alaska ranks poorly in competitive
generation and high cost because it does not invigorate
competitive market forces. He disagreed that HB 78 is
deregulation; in fact, the bill creates wholesale competitive
regulation: Any contract by an independent power producer (IPP)
would be sold to a utility on a power purchase agreement (PPA)
and authorized by RCA. In addition, HB 78 follows the state
energy policy [passed in the 26th Alaska State Legislature]
which promotes the development of renewable energy, encourages
coal and other gas hydrates for electrical generation, and
encourages economic development by streamlined regulatory
processes. Yet today, "the RCA takes two years for a docket, in
the private business, that's a lifetime [and] puts you out of
business." Furthermore, in 2012, RCA heard testimony in which
the state energy policy was characterized as aspirational, thus
HB 78 is a reflection of that characterization.
10:57:43 AM
CO-CHAIR COLVER asked what the bill directs RCA to do, beyond
its current responsibilities.
MR. MITCHELL advised that some RCA rules are out of syncopation
with the Public Utility Regulatory Policies Act of 1978 (PURPA).
Further, although RCA narrowly addresses avoided cost, it does
nothing to address open access to transmission, equal costs, or
the nondiscriminatory aspects, and other aspects, of the state
energy policy. The bill transforms the state energy policy so
that RCA would be required to consider aspects of the state
energy policy, such as streamlining and making regulations more
equal and fair.
CO-CHAIR COLVER inquired as to the utilities' reporting
requirements, which affect their rate structure.
MR. MITCHELL said the bill asks utilities to produce and publish
avoided costs of generation; this is important so that proposed
energy projects can complete their prefeasibility studies and
compete against a known cost.
CO-CHAIR COLVER asked whether the reports are currently not made
public.
MR. MITCHELL acknowledged that some utilities publish an average
which may include the cost of hydroelectric power from a source
built 100 years ago, but do not publish the source and the cost
of each type of generation; an IPP needs to know the incremental
cost of diesel, for example.
11:00:43 AM
REPRESENTATIVE WOOL asked for the effect of avoided costs "on
the equation."
MR. MITCHELL recalled PURPA passed in 1978 and each state
implemented its version of PURPA. Prior to 1999, utility issues
were heard by the Alaska Public Utilities Commission (APUC) and
in 1982, APUC ruled that although incremental cost analysis was
appropriate, Alaska utilities were not sufficiently
sophisticated to calculate incremental costs. The ruling was to
be temporary. Therefore, although PURPA directs that the
utility displace the higher-cost source, usually oil, so an IPP
can compete with oil; if the costs are averaged, lower costs
from older power projects keep the avoided cost low. He noted
that the federal definition of avoided cost is an incremental
cost system, not an average cost system.
REPRESENTATIVE WOOL questioned whether having a transmission
company (TRANSCO) or an independent system operator (ISO)
dispatching energy over a robust transmission system would solve
grid access problems for IPPs.
MR. MITCHELL observed that HB 78 lays the ground rules of
nondiscrimination and equal treatment; however, a TRANSCO or ISO
would not solve problems without rules to follow. He pointed
out the great risk of an organization of utilities rule-making
without legislative direction, guidance, and principles.
CO-CHAIR VAZQUEZ requested that Mr. Mitchell summarize the
ground rules found within HB 78.
MR. MITCHELL summarized that all parties have an equal stake,
pay the same rate, are treated equally, have the same rules of
integration and interconnection, and have a voice in future
decision-making. Unlike the bylaws of the Alaska Railbelt
Cooperative Transmission & Electric Company (ARCTEC), these
rules ensure IPPs have a role and stability so they can get
private financing.
11:06:13 AM
CO-CHAIR COLVER opened public testimony on HB 78.
11:06:27 AM
SUZANNE GIBSON, Senior Director, Energy Development, expressed
the support of Cook Inlet Region Inc. (CIRI) for HB 7. Ms.
Gibson said the new legislation would facilitate the state's
energy policy goal to encourage renewable and alternative
generation. Her role at CIRI is to develop energy projects such
as Fire Island Wind, which has delivered renewable wind power to
Chugach Electric Association Inc., (CEA) since September, 2012.
Fire Island Wind has generated more than 120,000 megawatt hours
and substantially lowered the consumption of natural gas;
however, to develop projects, CIRI recognizes the need for the
cooperation of the purchasing utilities. In 2014, CIRI began
the second phase of the project; however, although power was
offered at a cost of 6.3 cents per kilowatt hour, no utilities
executed a power purchase agreement. Without a buyer, CIRI
considered proceeding as a qualifying facility (QF); however,
the regulatory framework was insufficient upon which to make
investment decisions. The proposed rules before RCA in Docket
R-13-002 are intended to clarify regulations on cogeneration,
small power production, and QFs, and may be met with more
resistance from utilities and attempts to "water down the
language." Even if PURPA regulations are adopted, additional
action is needed from the legislature; Docket R-13-002 does not
provide a framework for creating competitive wholesale
electricity and does not ensure access to the transmission
system by QFs and IPPs, but this can be accomplished by HB 78.
A clear legislative framework has been requested by IPPs and RCA
commissioners, and a lack of legislative rules regarding fair
consideration and nondiscriminatory open access transmission
service were the primary barriers preventing the successful
development of Fire Island Wind Phase 2. Ms. Gibson said her
experience led her to be an advocate for appropriate and
necessary changes so that Alaska can adopt practices implemented
by the energy utility industry across the U.S. In 2015, CIRI
planned to invest $50 million to add capacity to the wind
project, expand the diversity of fuel supply, provide economic
stimulus, cut carbon emissions, and move toward the state's
renewable energy goal; however, a lack of definitive rules
allows the utilities to reinforce their barriers to IPP
development. She provided the following examples: CEA's
existing tariff discriminates against IPPs because no IPP can
qualify to be an eligible customer without a process that takes
18 months; utilities have full discretion including penalties
for the use of generators, the capital cost of new equipment,
assumed losses of value from hydroelectric resources, additional
personnel costs, punitive natural gas price increases, and
uncertain transmission wheeling rates. Ms. Gibson closed,
saying the lack of rules is difficult for utilities and IPPs and
leads to repeated negotiations with certain utility executives.
11:14:40 AM
JOEL GROVES, Project Manager, Fishhook Renewable Energy,
informed the committee Fishhook Renewable Energy is developing a
run-of-river hydropower project in Hatcher Pass. Mr. Groves
said the experience of Fishhook Renewable Energy affirms that of
AIPPA and CIRI: The existing regulatory framework is hostile to
IPPs in Alaska. Since 2006, his company has suffered delays to
the project stemming from the existing regulatory framework.
Generally speaking, the management of the Matanuska Electric
Association (MEA) and CEA have been conducive to the development
of IPPs; however, management can change, thus the reforms in HB
78 are critical to moving Alaska's electrical sector toward a
more competitive framework and lower costs.
11:17:25 AM
TIM MCLEOD, President, Alaska Electric Light and Power Company
(AEL&P), said AEL&P is a utility that has served Juneau for over
120 years and is now a subsidiary of Avista Corp. Mr. McLeod
said HB 78 would raise the cost of energy in Alaska. He stated
that all of the power-generating units in Juneau were paid for
with private funds; in fact, AEL&P is an investor-owned utility
that owns Gold Creek, Annex Creek, Salmon Creek, and Lake
Dorothy projects, and has financial responsibility for the
Snettisham Hydroelectric Project which was built by the federal
government. He opined that throughout the state most of the
projects are being paid for through rates and private
investment. Mr. McLeod said AEL&P's corporate goals are:
provide reliable and safe electrical service from renewable
resources; provide among the lowest rates and maintain financial
integrity; use electrical resources efficiently. In addition,
AEL&P thrives on the well-being of its community. He pointed
out that AEL&P has the capability of becoming an IPP; however,
to do so would raise rates. Most other utilities in the state
have similar goals, and that is why they are opposed to the
proposed bill. The plans that utilities make in order to
provide low-cost power can be interrupted by existing
regulations; for example, a utility is required to buy power
from a QF and his understanding is that AEL&P's incremental cost
may be the cost of diesel generation. Mr. McLeod advised that
Inside Passage Electric Cooperative is in the process of
building a small hydroelectric project in Hoonah - by using
grant funds - built the facility for less than an IPP building
with private funds could have, and significantly lowered the
cost of energy. Mr. McLeod urged for the legislature to defer
to RCA, because it has the expertise to write policy for the
utilities to follow.
11:22:36 AM
MIKE CRAFT informed the committee he entered the energy market
in 2007 because his community was in decline. He questioned
whether any planning was done by the utilities then or now. He
referred to the letters of support and opposition to the bill
that are found in the committee packet, and noted that
opposition testimony by the utilities does not provide reasons,
justification, or an explanation of how the bill would raise
rates. He stated this is untrue; in fact, the more power he
sells to the utility, the lower the price becomes. When
competing with diesel, the cost is 37 cents per kilowatt hour
(kWh), with coal, the cost is 6.5 cents per kWh, making the
average cost 9.8 cents per kWh, and the cost comes down. On a
federal level, costs based on averages are illegal, and
camouflage the true cost of producing power across the state.
Mr. Craft said RCA asked for direction from the legislature
because it is a regulator and - as such - cannot act on policy
that has not passed out of the legislature. Returning to the
subject of time, and concerns that the bill is progressing
quickly, he stressed that the residents of Fairbanks are out of
time, and cannot wait one more year. He restated that the
Railbelt utilities do not engage in collective long-term
planning; however, IPPs have projects ready right now that will
bring the cost of power down and create jobs.
11:26:28 AM
JODIE MITCHELL, Chief Executive Officer/General Manager, Inside
Passage Electrical Cooperative (IPEC), urged the committee to
wait for RCA to decide on Docket R-13-002 because it is the
appropriate body to address the foregoing questions. The
utilities understand the time that is needed for RCA to issue
decisions. She advised that the high cost of power is due to
the size of the state and the lack of interconnection or
superhighways of transmission assets. Ms. Mitchell said HB 78
puts the burden of costs on the utilities which will be passed
along to consumers, and she cautioned against frivolous costs.
In her position, she hears many proposals for low-cost power
that are not working projects; however, if an IPP can truly
displace diesel she would purchase its power. The fixed rate of
return at IPEC is 4 percent or less, and she expressed her
belief that an IPP could not exist on a similar rate of return
and would have to prove its cost savings.
11:29:12 AM
CO-CHAIR COLVER stated HB 78 was [held over] with public
testimony open.
REPRESENTATIVE CLAMAN asked when the RCA report is expected.
CO-CHAIR VAZQUEZ advised RCA is discussing the issue on 2/25/15;
however, the report that is expected in June is very restrictive
in its scope; it is to consider whether an ISO is the most
efficient way to deal with Railbelt congestion, and may not
address the issues within HB 78.