Legislature(2015 - 2016)CAPITOL 17
01/28/2016 11:00 AM House ENERGY
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| Audio | Topic |
|---|---|
| Start | |
| HB187 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 187 | TELECONFERENCED | |
HB 187-RAILBELT ELECTRICAL TRANSMISSION AUTH.
11:06:29 AM
CO-CHAIR COLVER announced that the only order of business would
be HOUSE BILL NO. 187, "An Act creating the Railbelt Electrical
Transmission Authority; and relating to the duties of the
Regulatory Commission of Alaska."
CO-CHAIR COLVER stated the committee's intent to hear public
testimony on HB 187, and outlined the meeting schedule.
11:07:28 AM
[The committee treated the hearing on HB 187 as open for public
testimony.]
11:08:34 AM
CHRIS ROSE, Executive Director, Renewable Energy Alaska Project
(REAP), informed the committee REAP is a coalition of utilities,
both on and off of the Railbelt, independent power producers
(IPPs), Native corporations, and non-governmental organizations
that are all promoting renewable energy and energy efficiency.
His organization has been active for twelve years, has sixty-
eight members, and has been working for two years on the issue
of a system operator, because renewable power providers are
unable to access the Railbelt grid due to access issues and
pancake tariffs. He explained the issues of access and pancake
tariffs remain because all of the utilities in the Railbelt are
allowed to charge a transmission tariff for the use of their
service territory. For example, Cook Inlet Region, Inc.,
attempted to sell wind power from Fire Island Wind to Golden
Valley Electric Association (GVEA) and even though buyers and
sellers were willing, "the transmission tariffs really killed
the deal." In addition, REAP and consumers are interested in
economic dispatch and regional planning as well. He said that
REAP is happy with the bill and happier that the Regulatory
Commission of Alaska (RCA), Department of Commerce, Community &
Economic Development (DCCED), is involved; in fact, RCA and the
bill have tasked the utilities in the same manner. Mr. Rose
also encouraged continued voluntary efforts by the utilities.
To reiterate, REAP seeks the following: a universal
transmission tariff so that all parties pay equally to access
the grid; open and nondiscriminatory access to the grid; an
impartial and independent system operator; economic dispatch;
and a system operator regulated by RCA. Currently, there are
several different balancing areas in the Railbelt, but one
balancing area for the Railbelt is needed in order to have
economic dispatch and efficiency in the system. Mr. Rose
provided a brief history, saying that the fragmentation of the
Railbelt happened over time for a variety of reasons, including
how the transmission system was built, which encouraged
fragmentation. A lot of money has been spent on studies and
efforts to consolidate, and there has been contention and
litigation between the utilities; however, new generation has
created more urgency for an efficient distribution of energy.
Mr. Rose opined RCA must consider the key question: does the
current institutional structure allow for maximum benefit to the
consumers? In April 2014, the legislature appropriated $250,000
to RCA for a study, which was completed by the Alaska Center for
Energy and Power (ACEP) in 2015, and followed by RCA's report of
findings. Findings and recommendations were as follows: the
need for reform and for an entity with the responsibility to
build transmission for the benefit of the whole; the need for an
independent transmission company; RCA authority for transmission
and generation; RCA explicit authority for an integrated
Railbelt plan; and that the utilities' provide reports in
September and December [2015]. Mr. Rose acknowledged that REAP
has not been involved in the transmission company (Transco)
process, and the amount of transmission needed in the Railbelt
is unknown; however, the independent system operator (ISO) needs
to be formed first, or simultaneously with the Transco, as it
will facilitate regional planning.
11:15:01 AM
MR. ROSE noted that the American Transmission Company (ATC) is
catalyzing the Transco process through models, and REAP
encourages like speed in the development of the ISO. The second
finding noted that the complexity of the ISOs found in the Lower
48 is not required for Alaska, and REAP agrees. He stressed
REAP favors merit-order dispatch which puts the most efficient
generators on first in one balancing area. The commission also
found that the Railbelt must have a universal transmission
tariff, open access, and economic dispatch, beginning with
voluntary power pooling. In order to determine the cost of the
aforementioned, RCA required quarterly reports, the first of
which is due. He said RCA agreed to review the quarterly
reports during 2016, and to develop a governance structure and a
system operator. The independent governance structure is
important to the members of REAP. The third RCA finding said
the commission is skeptical that the utilities will accomplish
the Railbelt project on a voluntary basis because of their
history of unsuccessful attempts, a lack of trust, and a
reliance on legislative appropriations. However, RCA
recommended giving the utilities a chance to complete a Transco
and an ISO within established timelines. The fourth RCA finding
and recommendation was to the lack of reliability rules and
standards and recommended that the Intertie Management Committee
(IMC) resolve its differences, particularly with the Homer
Electric Association (HEA). The fifth RCA finding and
recommendation was that the issues are challenging, and the
commission needs significant resources to implement its findings
and recommendations. Mr. Rose concluded, noting the importance
of hearing from all of the parties, and that REAP would like to
see alignment within the six utilities. He restated REAP's
concern that the Transco process is outpacing the process for
developing a system operator. Also outstanding is the question
of whether the governance structure will be an independent, or
unified, system operator, and Mr. Rose stressed the importance
of the distinction between the two structures. He suggested
forming a bigger board to dilute the utilities' power on the
board, and a transition time of five years to phase out the
presence of the utilities. Mr. Rose stressed REAP's desire for
an impartial and independent governing board.
11:21:32 AM
CO-CHAIR COLVER asked for a synopsis of the RCA ruling on grid
access for independent power producers (IPPs).
MR. ROSE said RCA Docket R-13-001 was related in part to the
definition of avoided cost under the Public Utility Regulatory
Policy Act of 1978 (PURPA), which was congressional action to
balance competition between fossil and renewable fuels. Public
utility commissions in most states have interpreted PURPA to
mean that qualified facilities can sell renewable power to a
utility if they can beat the avoided cost of the utility.
However, in Alaska, how to determine the utilities' avoided
costs was disputed until said RCA ruling which directs RCA to
consider incremental avoided cost. He concluded that access for
IPPs is now more open to the market, but the issue of pancaking
tariffs remains unresolved.
REPRESENTATIVE CLAMAN referred to discussion related to the
development of a unified system operator versus an independent
system operator, and opined the biggest issue is the
representation on the board, rather than its label. He asked
whether the real priority for REAP is that the utility
representation will be in a minority position on the board.
11:24:10 AM
MR. ROSE advised in a true independent system operator the
utilities would not have representation on the board, and the
utility expertise would come from paid utility executives out of
other jurisdictions. In Alaska, REAP suggested that if the
utilities are part of the governance structure, their
representation should be balanced by a group of stakeholders
representing a vast range of interests who are appointed to the
board.
REPRESENTATIVE CLAMAN expressed his belief that it will be
necessary to have utilities on the board for their expertise.
MR. ROSE said, "REAP has acknowledged that expertise ... if they
are on the board, we'd just like to have some other folks as
well."
11:25:36 AM
REPRESENTATIVE NAGEAK inquired as to who initially paid for
facilities and power lines, the power companies or the state.
MR. ROSE stated that most of the generation and some
transmission has been funded by individual power companies, the
cooperatives, and the municipalities of the Railbelt. The state
has also built and owns some transmission, such as the Northern
Intertie between Healy and Willow, and the undersea cable to
connect Fire Island Wind to the Chugach Electric Association
system. In further response to Representative Nageak, he
confirmed that the rates differ in each jurisdiction.
11:26:59 AM
CO-CHAIR VAZQUEZ asked Mr. Rose to explain how the present
congestion on the Railbelt grid affects the renewable energy
industry.
MR. ROSE explained that for variable resources such as wind and
solar, there are issues for integrating those sources into a
grid, especially in a small balancing area. Increasing the
balancing area to include the entire region would allow variable
sources to come into the grid at any time. For example, in
Iowa, 35 percent of electricity comes from wind, which can be
done without storage because there is a very big balancing area,
and wind can be easily integrated whenever it's available.
11:28:34 AM
REPRESENTATIVE WOOL surmised RCA is skeptical about the
neutrality or independence of a system operator, and whether a
board that includes the utilities may not be independent enough
to satisfy RCA. He asked Mr. Rose to envision the composition
of the board.
MR. ROSE said RCA's skepticism was related to the utilities'
ability to voluntarily reform the Railbelt system, not how
independent the governance board should be. He directed
attention to a letter found in the committee packet from RCA to
the legislature, dated 6/30/15, which addressed ISOs and their
status necessary to make impartial decisions. The commission
has indicated it will assess quarterly reports from the
utilities over the next year to determine what the governance
and organizational structures should be.
11:30:31 AM
BRADLEY EVANS, Chief Executive Officer, Chugach Electric
Association, Inc. (CEA), informed the committee CEA is a
privately-held electric cooperative owning generation,
transmission, and distribution assets serving approximately
200,000 customers through over 82,000 meters in Southcentral,
and the seller of wholesale power in the open Railbelt market.
In addition, CEA is the only electric utility that interconnects
all of the Railbelt utilities via its privately-held
transmission system. Mr. Evans provided a brief personal
history of his extensive experience in the industry, and said he
has studied regional transmission operators and ISOs in the
Lower 48 as they are related to planning and integration of the
generation and transmission assets in the Railbelt. He stressed
that CEA supports the concept of an independent, unified system
operator (USO) for the following reasons: a USO allows for the
economic dispatch of electric power in the Railbelt which is a
crucial economic engine for success; a USO would provide for the
identification and implementation of cost-effective systems
upgrades; a USO would provide independent nondiscriminatory open
access and the implementation of uniform reliability standards;
a USO would condition the interconnection of new facilities and
integration into the grid. Further, CEA supports the
implementation of a Transco that supports the functions of a
USO, invests private capital, and develops and implements a
unified transmission tariff applied on an equitable basis. Mr.
Evans said CEA recognizes that short-term rate adjustments may
be necessary. Both a USO and a Transco are necessary, as
possible losses to utilities may be recouped by economic
dispatch, although projections indicate there will be a
"transition phase." The Transco would be similar to those found
in the Lower 48. In 2013, CEA was the first to introduce the
concepts of a USO, open access, system-wide economic dispatch,
unified transmission tariffs, and the potential customer
benefits of a rationalized Railbelt electric system. Further,
CEA hosted the first workshop in Alaska on grid restructure and
unified operations in collaboration with the American
Transmission Co. (ATC), which was attended by over 50
participants, and which inspired many further public events on
this topic.
11:35:38 AM
MR. EVANS continued, noting CEA is responding to instructions
from RCA regarding quarterly updates. In light of the
aforementioned recent progress and activities, he recommended
that the committee hold HB 187 for two reasons: (1) the
legislation would halt the current efforts by interested parties
to restructure, would overturn the current regulatory
instructions, and would result in budgetary problems; (2) the
authority proposed by HB 187 may not be needed. The latter is
important to utilities that have relayed their restructuring
efforts to their rating agencies, because their restructuring
efforts did not include the mandates of HB 187. Mr. Evans
opined that lenders are more comfortable with voluntary efforts
and collaboration, and he is unsure of their reaction to the
legislation. He said he appreciated the interest of the
committee and its continued attention to the progress of the
utilities, RCA, and the stakeholders. He encouraged the
committee to revisit HB 187 in the event the utilities fail to
bring change to the Railbelt electric utility infrastructure.
Mr. Evans said, "I encourage the legislation, I just ask for
time."
11:39:29 AM
REPRESENTATIVE NAGEAK asked whether rating agencies have found
discernable differences between the Railbelt utilities.
MR. EVANS said CEA and Anchorage Municipal Light & Power (ML&P)
are the only rated utilities in the Railbelt region of Alaska.
The other Railbelt utilities obtain financing through federal
funds and other sources; utilities are rated in order to access
capital through the public and private market.
REPRESENTATIVE WOOL recalled earlier testimony that REAP
supports a [USO] board with minimal or no representation by the
utilities. He asked for CEA's stance in this regard.
MR. EVANS said CEA envisions an independent USO board whose
members have no agenda outside of the operation of the system.
In fact, one who represents a specific sector would not likely
be placed on the board, but would exert influence on the board
through steering committees. The preferred board would consist
of current industry experts from the Railbelt and stakeholders,
who would be a blending of interests through a transition phase.
A future goal may be that the utilities do not have a majority.
Furthermore, outside experts are not needed, but the utilities
are needed to supply resident expertise so that the regulators
know the system. Mr. Evans expressed his belief that the state
cannot populate a truly independent board with members who do
not have other interests. He acknowledged that CEA and REAP
disagree on this point, which is up for public debate; CEA does
support a mix of independent, segment stakeholders, and utility
members on the board who have been through a rigorous vetting
process.
11:44:55 AM
BRIAN HICKEY, Executive Manager, Grid Development, CEA, directed
attention to a document entitled, "Restructuring Opportunities
in the Railbelt," dated 1/28/16, found in the committee packet.
He provided a short personal background of his experience in the
industry. Mr. Hickey said that the progress that has been made
over the last three years, and especially during the last six
months, is unprecedented, due to the impetus provided by a RCA
study which was funded by the legislature; in fact, all six
utilities are rationally discussing both a Transco and a USO.
The current effort is to establish two entities: a
transmission-only utility with regional authority and rate
recovery for planning, financing, and operating and maintaining
the Railbelt transmission system; and a non-asset owning,
revenue neutral, stakeholder governed USO under the authority of
RCA, with regional responsibility for economic dispatch, cost
settlement and benefit allocation, planning and interconnection
protocols, and maintaining reliability standards [slide 2].
Challenges to the Railbelt grid are: no mechanism for making
regional decisions; a lack of regional economic dispatch;
coordination between multiple grid operators creates
difficulties; a lack of a unified transmission tariff impedes
independent project developments; difficult to make regional
transmission improvements without equitable cost recovery;
difficult to maintain universal reliability standards with no
uniform rules of the road [slide 3]. To solve these problems,
at the behest of all six Railbelt utility managers, the chief
executive officer of the Alaska Railbelt Cooperative
Transmission and Electric Company (ARCTEC) is facilitating
discussions related to staffing the governing structure of a USO
[slide 4].
11:51:34 AM
MR. HICKEY continued to slide 5, just to add that CEA is
seriously responding to the 6/30/15 letter from RCA to the
legislature. Five utilities have executed a joint development
agreement and formed a steering committee tasked with developing
a Transco through the work of nine subcommittees: governance;
operations and maintenance, and transitional agreements;
economic dispatch based on agreed-upon models; cost and benefit
allocations and analysis, including establishing protocols and
agreed-upon ratios for reallocation to offset higher costs borne
by certain utilities and avoid "rate shock"; conform reliability
standards between Homer Electric Association and the Intertie
Management Committee; HR and organizational structure, which has
completed an organizational chart with staffing and costs;
finance, which has created a five-year model of a unified
company with all of the Railbelt assets combined;
communications, which handles press releases to public;
regulatory, which has completed a draft unified tariff for the
Railbelt [slide 6]. Mr. Hickey said a report on the
subcommittees' work was submitted to RCA on [12/31/15] and is
available to the committee. He praised the influence of the
American Transmission Co., which has been integral in the work
of the subcommittees, and "had the ability to bring all of the
utilities together." Finally, he summarized the completion
schedule as follows: documents will be presented to governing
boards in the late second or early third quarter of 2016; if
approved, the restructuring process would begin in early 2017;
and the statutory change request from RCA to the legislature
would be possible in the 2017 session [slide 7]. Mr. Hickey
restated CEA's request to hold HB 187 in committee [slide 8].
12:00:00 PM
KRISTEN COLLINS, representing herself, said she supports HB 187
because it will save Alaskans money on the cost of electricity
and would increase the generation of renewable energy in the
Railbelt. She encouraged legislators to keep climate change at
the forefront of their concerns and said the bill is necessary
to integrate more renewable energy generation and reduce carbon
emissions, and is a step forward.
12:01:03 PM
CORY BORGESON, President and Chief Executive Officer, Golden
Valley Electric Association (GVEA), informed the committee the
utilities in the Railbelt are working in a cohesive and positive
manner to bring changes to the Railbelt. A different system is
important and needed to address the changes in transmission in
the region. The Railbelt has always had economic dispatch, but
it was simpler when electrical generation was by CEA, ML&P, and
GVEA. Currently, more regulation and a systematic approach are
needed. Mr. Borgeson stated changes will require the utilities
to compromise, and there will be "winners and losers." He
expressed his belief that while working with ATC, the utilities
will achieve a Transco, and ultimately a USO with an independent
board over a period of time. Mr. Borgeson advised that the
present system in the Railbelt is extremely reliable and
reminded the committee that the utilities are like public power
in that they are not owned by investors, therefore, economic
dispatch is in their members' best interest. There is a role
for ARCTEC related to the USO and a role for ATC related to
transmission, the finance aspects of economic dispatch, and the
settlement process. He concluded that the utilities are
committed to bring forward a new system to increase reliability
and reap economic benefits from an efficient and economic
system; however, he cautioned that the needed upgrades to the
transmission line system in the Railbelt will be expensive and
will raise rates because the state will not help build the
infrastructure. Finally, he agreed that renewable energy and
wind power are good, but renewable power is expensive, and power
sourced from independent power producers (IPPs) will not drive
down the cost of power.
12:06:43 PM
REPRESENTATIVE WOOL described the procedures related to economic
dispatch. He asked whether the potential savings from economic
dispatch are known, and will be sufficient to offset the cost of
upgrades to the Railbelt transmission system.
MR. BORGESON assured the committee that GVEA is always searching
for the cheapest power; integrating with other utilities in a
more complex system will add savings but the amount is unknown,
although there have been estimates of $100 million per year.
American Transmission Co. has a model underway that may provide
insight into the amount of potential savings. He confirmed that
the savings will be utilized to invest into a more robust and
reliable transmission system.
12:09:25 PM
ERIC MYERS, Manager of Business Development, American
Transmission Company, informed the committee ATC is a
transmission-only electric utility owned by cooperative,
municipal, and investor-owned electric utilities. Founded in
2001, ATC was the first multi-state transmission-only utility
(Transco) in the U.S. The focus of ATC is to build a
transmission system which allows energy producers to transport
electric power in a manner similar to the interstate highway
system, with high-voltage electricity traveling on the
transmission system wire like vehicles on the highway. The goal
today is to provide an update on the progress of voluntary
efforts by the Railbelt's six utilities to identify and achieve
improvement to the region's transmission assets and benefits
from more efficient utilization of generation. In 2013, ATC
began to work with each of the Railbelt utilities about how
ATC's experience in forming a transmission-only utility through
the collaborative effort of all of the utilities might work in
Alaska. Before the utilities can decide to form a Transco they
have to commit to the achievable economic benefits, including
both local and regional impacts. In 2014, the Railbelt
utilities endorsed a set of guiding principles for forming a
Transco, and assigned senior staff to a working group. The task
of the working group included validation of the potential
benefits of improving economic dispatch by a model, as well as
to validate dispatch analysis. In addition, Railbelt utilities
have committed to working with ATC to complete a process that
informs an ultimate decision on whether to form a Transco. Key
objectives of the process are: validate and or verify the
potential economic benefits; design an effective transmission-
only utility structure to operate, maintain, and improve the
infrastructure under a common set of standards and planning
criteria; identify a tariff and cost allocation methodology that
can provide open access to network transmission service, which
is a tariff allocation process; support the development of
approaches to settling power transactions under a pooled or
unified dispatch of generation, which is the settlement process.
Mr. Myers said the Railbelt utilities have committed substantial
staff and resources to addressing the above; however, before
proceeding all must agree to completing the process, and
providing the results to leaders and associated governance
organizations. Copies of the progress reports issued in
September and December of 2015 were provided in the committee
packet.
12:14:33 PM
CO-CHAIR VAZQUEZ requested further identification of the
aforementioned documents.
MR. MYERS said the reports to RCA were prepared on behalf of all
of the utilities and ATC, and were [dated 9/30/15 and 12/22/15].
There followed further clarification of the documents.
12:16:12 PM
DAVID GILLESPIE, Chief Executive Officer, Alaska Railbelt
Cooperative Transmission & Electric Company, informed the
committee the members of ARCTEC are: GVEA, Matanuska Electric
Association (MEA), CEA, the City of Seward, and Copper Valley
Electric Association. Each member exists to provide low cost,
sustainable, and reliable energy service to its residents and
cooperative owners. Mr. Gillespie noted his complete written
testimony is included in the committee packet; he summarized his
written statement by emphasizing that he supported the unanimous
view that something needs to be done, and there is much in
common as to how to do so. He said progress continues to be
made, and he urged the committee not to move HB 187, but to wait
for updates on further progress.
CO-CHAIR VAZQUEZ asked Mr. Gillespie to clarify his present
role.
MR. GILLESPIE provided a short personal background, noting his
experience in the electric utility industry working with large
and small entities. In further response to Co-Chair Vazquez, he
said ARCTEC's primary role is to facilitate USO-based
activities, and to implement a USO in the Railbelt. Although
not all of the utilities are ARCTEC members, ARCTEC has been
able to gain the support and participation of all of the
utilities, and hopes to issue a filing with broad support. In
response to Co-Chair Colver, he said the aforementioned filing
is due 1/31/16 and will be available to the committee shortly
thereafter.
12:20:50 PM
REPRESENTATIVE TILTON expressed her appreciation of the progress
that has been made by the utilities, and reviewed some of the
work that has been completed. She said she supported holding HB
187 in committee.
CO-CHAIR COLVER expressed his appreciation of the attention
garnered by this issue, and of RCA's leadership. The proposed
legislation is acting as a vehicle to support the utilities'
efforts and to encourage the utilities to work together and
resolve this issue.
CO-CHAIR VAZQUEZ recalled that some of the related issues have
been a problem for decades. She recognized the work of all of
the utilities and that of the RCA, and noted that the Railbelt
consists of six utilities - reaching from Seward and Homer to
Fairbanks - which provide electricity to about three-fourths of
the state's population.
REPRESENTATIVE TALERICO recommended that the participating
parties provide any appropriate information to the committee so
that the committee can remain active in the progress on this
issue. He stated that one of his concerns regarding HB 187 was
that the major consumers of power did not have a voice in the
bill. In addition, if there is a progression from a unified
system operator to an independent system operator, an outline
for the progression is necessary. Representative Talerico
opined that Alaska has sufficient expertise in this matter.
REPRESENTATIVE CLAMAN cautioned that the biggest issue is how to
construct the [board] that makes up either the independent or
[unified] system operator, and opined that consumers - large or
small - desire that the utilities have a minority role in the
number of seats on the board. This would send a message to
constituents statewide that the work being done on the
electrical grid in the Railbelt is what is best for Alaska.
CO-CHAIR COLVER announced at the meeting of 2/2/16, the
committee is scheduled to hear from staff an overview of RCA
documents, dockets, filings, and activity to date on this
matter.
12:28:06 PM
HB 187 was held over with public testimony open.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB187 Scheduling Memo (for 28Jan2016 Hearing_Capitol17_Rvn).pdf |
HENE 1/28/2016 11:00:00 AM |
HB 187 |
| HB187 Docs RCA_Findings_Reccomendatns_(6p_30June2015 (002).pdf |
HENE 1/28/2016 11:00:00 AM |
HB 187 |
| HB187 Docs 2nd Submittal to RCA Railbelt (22Dec2015).pdf |
HENE 1/28/2016 11:00:00 AM |
HB 187 |
| White Paper Railbelt Issues Grid+Iso_Uso (RSK_28Jan2016 Hearing) (1).pdf |
HENE 1/28/2016 11:00:00 AM |
White Paper_IssuesAssoc ISO/USO/Transco Railbelt |
| HB187 - Prepared Remarks of Chugach Electric Association - Presented to ....pdf |
HENE 1/28/2016 11:00:00 AM |
HB 187 |
| House energy 1-28-16 progress report Bwe comments - Final (rsk).pptx |
HENE 1/28/2016 11:00:00 AM |
Chugach Electric Association ppt Restructuring Opportunities in the Railbelt |
| HB 187 ARCTEC 1-28-2016.pdf |
HENE 1/28/2016 11:00:00 AM |
HB 187 |
| HB0187A BASIS referenced Jan2016.pdf |
HENE 1/28/2016 11:00:00 AM |
HB 187 |
| HB187 Fiscal Note (22Jan2016).pdf |
HENE 1/28/2016 11:00:00 AM |
HB 187 |