Legislature(2015 - 2016)CAPITOL 17
02/02/2016 10:15 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.
10:18:48 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."
10:20:00 AM
STEVE KONKEL, Staff, Representative Jim Colver, Alaska State
Legislature, and staff to the House Special Committee on Energy,
said he would address the issues of an independent systems
operator (ISO) - and its alternative, a unified systems operator
(USO) - along with electrical transmission issues in the
Railbelt area of Alaska, as related to HB 187. He advised that
the foregoing subjects have been of great interest to the
Regulatory Commission of Alaska (RCA) and the legislature for
the past two years. The topics of the presentation were as
follows: electrical transmission and region-wide generation;
utilities in the Railbelt area: four electrical cooperatives
and two municipal utilities; previous studies on grid
unification; RCA report to the legislature issued on 6/30/15;
transmission company (Transco) proposal; independent systems
operator; unified systems operator; benefits and challenges of
ISO or USO mechanism for pooling and economic dispatch [slide
1]. Mr. Konkel noted that the electrical utilities in the
Railbelt are connected by an integrated transmission line to
Golden Valley Electric Association (GVEA), Matanuska Electrical
Association (MEA), Chugach Electric Association (CEA), Homer
Electric Association (HEA), Anchorage Municipal Light & Power
(ML&P) and [City of Seward, Seward Electric System] [slide 2].
Grid unification has been discussed since the passage of the
Public Utility Regulatory Policy Act of 1978 (PURPA) because of
the benefits to the electrical utility industry garnered by
separating transmission and generation in the Lower 48; however,
in Alaska, the system differs. There have been studies of the
benefits of an integrated transmission system - known as a
Transco - and testimony from interested parties was heard during
the 1/28/16 hearing on HB 187. He explained that a Transco
would either be a for-profit or a nonprofit entity whose main
task would be to invest in transmission upgrades, planning,
construction, and maintenance [slide 3].
10:23:48 AM
REPRESENTATIVE WOOL asked whether a Transco can function in
either a for-profit or a nonprofit status.
MR. KONKEL advised that the proposals are submitted from
companies which are established as one or the other; for
example, the American Transmission Company (ATC) is a for-profit
company, and the Alaska Railbelt Cooperative Transmission and
Electric Company (ARCTEC) have both submitted proposals. He
said, "It could be either for-profit or parts of it could be
for-profit, parts of it could be profit ... this would have to
be regulated by the RCA, and the RCA, if [the Transco] invested
additional money in the Railbelt grid, would allow a rate of
return."
REPRESENTATIVE WOOL expressed his understanding that ARCTEC is
not a transmission company but is a USO. However, the status of
"a Transco, a company that's going to ... build infrastructure
or, you know, improve our transmission lines" is predetermined;
for example, ATC is a for-profit company.
MR. KONKEL agreed. He returned attention to slide 3, noting
that for the proposed Transco approach, financing is very
important, and studies have shown that additional investment is
needed to move electricity through the service territories, and
the rate of return would be based on regulation by RCA. Mr.
Konkel provided a brief history of recent activities related to
the generation of electricity in the Railbelt: in 2014 the
legislature appropriated $250,000 to RCA for a study which was
completed by the Alaska Center for Energy and Power (ACEP); RCA
sent a letter to the Alaska State Legislature on 6/30/15 which
outlined five key findings and recommendations in terms of the
benefits of an integrated grid and economic dispatch; benefits
of an integrated grid and economic dispatch flow to consumers;
economic dispatch as a direct result of PURPA saves consumers
millions of dollars; PURPA has been updated; nondiscriminatory
access to the grid is also an issue; major savings from grid
integration are estimated by ACEP to be $50 million to $150
million, which is of great interest in this budget climate. In
addition, forming a Transco is an approach to grid integration,
and RCA set two deadlines: 9/30/15 for the first status report
from the utilities, and [December 31, 2015] for the second
status report. Both reports have been signed and submitted by
all of the utilities and are included in the committee packet.
[Regulatory Commission of Alaska] also expressed interest in the
concept of region-wide management, planning, and integrated
resources planning, thus another deadline of 1/31/16 was set for
submittals related to recommendations comparing the concepts of
an ISO to those of a USO. Mr. Konkel reminded the committee
that according to previous testimony, the key terms for forming
an ISO or a USO are "independence" and "governance" related to
whether the members of the board of directors for either are
focused on the benefits for the region, or on specific service
territories [slide 4].
10:30:16 AM
CO-CHAIR COLVER asked for the difference between an ISO and a
USO.
MR. KONKEL opined there is a philosophical difference in the
amount of utility representation on each respective board. A
USO board could consist of all utilities and members
representing the public interest; an ISO envisions it would have
the capability to run a region-wide system with the
participation of utilities, but without utilities having a
majority interest on the board.
CO-CHAIR COLVER asked for an explanation of the briefings
requested by RCA, and its intent in this regard.
MR. KONKEL explained that RCA made findings and recommendations.
The findings are that there are benefits from integration and
economic dispatch which can be realized, and that RCA prefers
that the utilities working together develop a voluntary approach
to do so. However, RCA also said it would work with the
legislature and the executive branch toward implementation if
the voluntary approach does not make sufficient progress.
Further, RCA expects to see - from the reports requested from
the utilities - the progress made by each and their
arrangements.
CO-CHAIR COLVER opined barriers between the utilities are being
broken down and they are now looking for common ground to
facilitate economic dispatch.
MR. KONKEL agreed that is true for some. However, participation
from all of the parties is needed in order to move power
throughout the system and to add renewable power where it is
needed.
REPRESENTATIVE WOOL surmised independent power producers (IPPs)
will be included along with the utilities. He recalled that
recently some of the utilities downplayed the estimated savings
from economic dispatch, and asked whether all of the utilities
agree that savings from economic dispatch could reach $50
million to $100 million.
10:35:29 AM
MR. KONKEL expressed his understanding that all of utilities,
ARCTEC, and ATC, agree with RCA that there are substantial
benefits from grid integration and economic dispatch; however,
utilities want to recover costs for their ratepayers. He
assured the House Special Committee on Energy that he has heard
that all of the utilities agreed that there should be
nondiscriminatory access for qualifying facilities.
CO-CHAIR COLVER asked Mr. Konkel to explain why utility
executives testified recently that a systems operator and a
Transco are needed because the utilities have incurred
substantial - but unequal - debt to increase generation
capacity. He asked:
Did you talk with many of the executives and the folks
in utilities on how they're trying to balance cash
flows, and that they felt like they needed both of
those systems to be in place for it to work?
MR. KONKEL said he met with some utility representatives but did
not discuss specific plans for financing and the recovery of
debt. The aforementioned problem has developed over four
decades during which utilities have invested in new facilities,
thus there is excess capacity and needed rates of return to pay
for said facilities. Although the point of unequal debt is
pertinent, another point is how to redistribute regional
benefits. Modeling is one answer, but there needs to be a
negotiated settlement among the utilities. The savings from an
integrated system are sufficient to allow utilities to recover
from their investments, and also to provide a direct economic
benefit to consumers in the Railbelt. He relayed that most of
the utilities urge for patience, due to complex negotiations and
that working groups will progress at different rates. Mr.
Konkel opined a road map and milestones are needed, with the
exception that all have agreed with the idea of a Transco to
deal with grid integration. However, there are still the
following key questions: How to approach integrated resources
planning? How much generation is needed? Are the new investments
environmentally acceptable? Does the project pay for itself? Do
people want the project? Unquestioned is the need for an ISO or
a USO.
10:41:01 AM
REPRESENTATIVE TILTON referred to the concept of winners and
losers, and inquired as to whether a "win-win" type of
settlement has been proposed.
MR. KONKEL suggested that the negotiations could be structured
through RCA as a single-text negotiation, using the RCA letter
to the legislature. He opined the letter was very clear and
articulated a plan and milestones, although a change of culture
may be required.
CO-CHAIR COLVER said the situation is similar to the successful
negotiations related to gas-balancing agreements on the North
Slope. He remarked:
Because there's different amounts of savings,
depending on who's got the cheapest power, so they ...
told us ... that you needed the transmission entity
and the independent system operator and then there has
to be benefits that flow from each because each
individual utility has different cost structures. And
so that the benefits need to flow, you need both of
them to make it work. ... There's different cash flows
involved. ... You can't just do a transmission
cooperative that may benefit some utilities, and
burden others, but with the independent system
operator and in combination with the transmission
[cooperative] ... benefits can flow to both.
CO-CHAIR COLVER added that the governance structure is also an
issue and he was also told highly-paid professional members were
needed on an independent board of directors.
MR. KONKEL said:
That's exactly the point behind the Public Utilities
Regulatory Policy Act, is this separation between
transmission. And open competitiveness and open
access is good for renewables, but it's, it's good for
the system, system-wide, and it's good for the cost of
power production, and more level, more of a level
playing field, and the governance issues are huge.
10:45:08 AM
REPRESENTATIVE CLAMAN expressed his understanding that a USO is
comprised of power companies without a consumer presence on its
governing board; a "pure" ISO would have no utilities
represented on its governing board. He surmised the committee
is discussing a combination of a USO and an ISO, with consumers
and utilities on the board, and with the utilities holding a
minority position.
MR. KONKEL agreed. He said:
One other way to think about governance ... is 'How do
we maximize the benefit to Railbelt consumers?' So,
if somebody brings to the board expertise in power-
pooling ... that could help increase that benefit from
reducing the cost of power and distributing, and what
we don't want is people with a special interest that
want to be on the board to protect [their special
interest] because that will mean the region-wide view
will have to be compromised.
REPRESENTATIVE CLAMAN observed that nationally, groups with
specialized interests are often the power generators, but in
Alaska there are individual consumers and large commercial
entities, such as mining companies, that fit within the
definition of power consumers.
MR. KONKEL advised that Alaska can benefit from experience
gleaned elsewhere; however, Alaska knowledge is important in
order to expand the electrical grid without subsidizing
uneconomic projects.
10:48:57 AM
REPRESENTATIVE WOOL asked whether the estimated $900 million in
needed infrastructure includes the Susitna-Watana Hydroelectric
Project (Susitna-Watana). He expressed his understanding that a
Transco would build the infrastructure and the projects would be
paid for by charges to ratepayers through increased rates.
MR. KONKEL responded that the estimated $900 million does
include Susitna-Watana. Benefits from grid integration and
investments would reach to all ratepayers, and are of relatively
low cost when compared to a major investment in generation such
as Susitna-Watana.
REPRESENTATIVE WOOL observed that four of the six utilities are
cooperatives, and system integration will save the ratepayer
money. He questioned whether the fact that four utilities are
member-owned cooperatives, which are not trying to maximize
profit, is beneficial to system integration, rather than six
private, for-profit entities trying to maximize profit.
MR. KONKEL stated that cooperative utilities in Alaska have
evolved historically due to lower electrical loads. In the
Lower 48, there would be one or two entities for electrical
loads of similar size. He opined there is a clear vision of
grid integration and economic dispatch.
CO-CHAIR COLVER described the ownership of the grid, and pointed
out there are bottlenecks at Bradley Lake that impede economic
dispatch between the utilities. One hurdle to grid management
is that some utilities have more invested in infrastructure than
others thus it is difficult to balance ownership and equity.
Another question is the role of the Alaska Energy Authority
(AEA), Department of Commerce, Community & Economic Development
(DCCED), in the ownership of the system.
10:55:02 AM
MR. KONKEL observed that moving electrons throughout the grid
efficiently is important to lowering costs; however, the
transmission of power through multiple service areas adds cost
through pancaking, which is a series of tariffs that add
transmission costs at each area. A Transco approach can solve
this problem by developing a postage stamp rate, which is one
rate for each electron put into the grid, or by a unified system
of tariffs, which is close to one price, but that allows for
slight adjustments in rates.
CO-CHAIR COLVER inquired as to whether the solution could be the
creation of a cooperative that would develop internal tariffs
related to the distance of transmission, and that would share in
the cost of upgrades to the system. Or another solution could
be to bring in a fully capitalized entity and negotiate for
contributing capital and shares thereof.
MR. KONKEL agreed that a cooperative is possible, but to expand
and strengthen the grid will require financing based on an
acceptable rate of return and regulated by RCA. In further
response to Co-Chair Colver, he opined the role of AEA would be
to continue to be responsible for feasibility studies on
Susitna-Watana and on integrated resources power planning. He
noted that AEA "takes positions on these things ...." Further,
AEA's testimony to RCA was that there are benefits to grid
integration and to economic dispatch. Mr. Konkel cautioned that
AEA's testimony may be affected by its board of directors and
its role that can be similar to that of a utility. He returned
to the presentation, noting that three key milestones that RCA
set out in its 6/30/15 letter to the legislature were:
· first status report on Transco was issued 9/30/15
and was signed by all of the utilities
· second status report was issued 12/22/15 and
reported on progress
· third report dated 1/31/16 is currently being
interpreted by RCA
MR. KONKEL, in response to Co-Chair Colver, said for the third
milestone RCA is looking for insight into how an ISO and USO
would take advantage of the benefits of grid unification - from
the prospective of the utilities - along with a progress report
within a timeframe. Other challenges recognized by RCA are
balkanization, the many contested regulatory proceedings,
problems with moving power through various service
jurisdictions, and the institutional structure of the region
which necessitates a culture change related to grid integration,
economic dispatch, and open competition [slide 5].
11:03:28 AM
REPRESENTATIVE WOOL asked whether some ratepayers will pay more
or less due to their proximity to electric generation.
MR. KONKEL acknowledged that this is an issue that still needs
to be resolved; in fact, the exact level of the benefits of grid
unification to ratepayers is undetermined, although there has
been progress. He continued to slide 6, and pointed out that
benefits from a more efficient operation of the regional system
are estimated to be greater than $50 million annually.
MR. KONKEL advised establishing an ISO or a USO is a critical
and complicated issue, although RCA has set up two dockets, I-
15-001, and I-13-001, which deal with grid integration and
transmission, qualifying facilities for renewable energy, and
access to the grid. In addition, RCA has established that the
Railbelt electrical region needs a non-asset owning entity - an
ISO or a USO - in conjunction with a Transco. He said creating
the Transco is progressing, but creating an ISO/USO has been
slow and uncertain; although the utilities "seem to be willing
to go forward" many questions have been raised. One approach
RCA can take is to pause and see what the utilities accomplish,
or it can ask for legislative authority to address the ISO
issue. He concluded that the transmission "side" is moving and
does not require new legislation, but does need agreement
between the utilities. Policies of the executive and
legislative branches of government need to involve all of the
parties [slide 9].
11:11:17 AM
CO-CHAIR COLVER asked Mr. Konkel to contact AEA and familiarize
the committee with its various projects and assets, so that the
committee can make recommendations. He added:
So that we can like maybe have a recommendation on
what role they would have, going forward. ... We have
oversight over what they're doing and to a certain
extent, it's a state-owned asset.
MR. KONKEL said he is well-versed in this field through his
experience with power plant construction and at the Oak Ridge
National Laboratory, U.S. Department of Energy, and noted that
AEA has issued its most recent Renewable Energy Fund (REF)
report. He spoke to the value of competitiveness in the
electrical energy marketplace in Alaska.
REPRESENTATIVE WOOL returned attention to the response to RCA
from the utilities, dated 9/30/15, found in the committee
packet. On page 3, paragraph 2 read [in part]:
Independent Transmission Company
... Governance of the Transco must balance the need to
effectively operate and invest in the Railbelt's
transmission infrastructure ....
REPRESENTATIVE WOOL surmised the Transco would be making
investment decisions about the overall transmission system, and
inquired as to the governance of the Transco.
MR. KONKEL said the Transco is not governed by an ISO but works
in conjunction with regional planning for generation; the
Transco may buy all of the transmission assets from the
utilities, or follow one of many business models.
REPRESENTATIVE WOOL directed attention to the same document on
page 6, paragraph 4, which read [in part][original punctuation
provided]:
Governance
The Governance Subgroup has been tasked with creating
the Transco's governance and organizational structure
....
REPRESENTATIVE WOOL observed that the foregoing relates to the
structure of the Transco, the company that owns the transmission
lines, and not the systems operator.
MR. KONKEL said correct. He added that the Transco's tasks are
straightforward such as economic dispatch, integrated resources
planning, and "the like."
11:15:35 AM
REPRESENTATIVE CLAMAN explained that the legislature has a
choice to advance a bill that would dictate what an ISO/USO
looks like in Alaska, or to let the utilities continue a process
through RCA to develop an ISO that responds to representation
from the interests of consumers and utilities. He advised that
the Alaska State Legislature can take action if there is
consensus to do so.
MR. KONKEL agreed. In further response to Representative
Claman, he agreed that if Susitna-Watana were removed from the
estimate of needed transmission upgrades, the cost would be
reduced significantly.
REPRESENTATIVE TILTON supported allowing the utilities to work
together and make progress through RCA. In addition, she said
the ultimate winners in this endeavor should be the ratepayers.
MR. KONKEL agreed. He opined RCA wants to see milestones such
as identifying problems, viable alternatives, an open grid, and
economic dispatch, which are in the best interest of consumers.
CO-CHAIR COLVER concluded that the committee highly regards and
supports the leadership of RCA, and its efforts to make progress
toward an ISO/USO and a Transco. After further filings from
RCA, the committee will review the findings with its staff.
[HB 187 was held over.]
| Document Name | Date/Time | Subjects |
|---|---|---|
| Scheduling Memo HENE Week Feb 1-5 (Konkel28Jan).pdf |
HENE 2/2/2016 10:15:00 AM |
HB187 Second hearing date Feb 2 (2016) No Mtg Feb 4 |
| HB 187 Issues TRANSCO_ISO_USO (Staff_Briefing_2Feb2016_Rvn).pdf |
HENE 2/2/2016 10:15:00 AM |
HB 187 |
| HB187_1stStatusRpt RCA (RailbeltMilestone_Docket No. I-15-001_Filed30Sept2015).pdf |
HENE 2/2/2016 10:15:00 AM |
HB 187 |
| HB187 Docs 2nd Submittal to RCA Railbelt (22Dec2015)sk.pdf |
HENE 2/2/2016 10:15:00 AM |
HB 187 |