05/01/2024 01:30 PM House FINANCE

HOUSE BILL NO. 307                                                                                                            
                                                                                                                                
     "An Act  relating to the taxation  of independent power                                                                    
     producers; and increasing  the efficiency of integrated                                                                    
     transmission system charges and  use for the benefit of                                                                    
     ratepayers."                                                                                                               
                                                                                                                                
5:39:47 PM                                                                                                                    
                                                                                                                                
ANDREW JENSEN,  POLICY ADVISOR ON ENERGY  AND FOOD SECURITY,                                                                    
OFFICE OF  THE GOVERNOR, provided a  PowerPoint presentation                                                                    
titled  "HB  307   Integrated  Transmission  Systems:  House                                                                    
Finance Committee,"  dated May  1, 2024  (copy on  file). He                                                                    
began on  slide 2 titled "Governor  Dunleavy's Energy Policy                                                                    
Priorities                                                                                                                      
                                                                                                                                
     Open access that is nondiscriminatory  to the source of                                                                    
     power generation.                                                                                                          
                                                                                                                                
     The lowest  cost power moves from  anywhere to anywhere                                                                    
     without artificial barriers.                                                                                               
                                                                                                                                
Mr.  Jensen  elaborated  that  HB 307  was  focused  on  the                                                                    
Railbelt area  of Alaska.  He moved to  slide 3  titled "How                                                                    
does HB 307 achieve this:                                                                                                       
                                                                                                                                
     Elimination of "wheeling" rates in favor of a new                                                                          
     transmission  cost recovery  mechanism to  be developed                                                                    
     by an association of the Railbelt utilities                                                                                
   and approved by the Regulatory Commission of Alaska.                                                                         
                                                                                                                                
    Creates tax parity for Independent Power Producers                                                                          
     by providing the same tax exemption for power                                                                              
     generation as the tax-exempt cooperatives or                                                                               
     municipally owned utilities.                                                                                               
                                                                                                                                
Mr. Jensen  turned to slide  4 titled  "How could HB  307 be                                                                    
improved?":                                                                                                                     
                                                                                                                                
     Fix  the "double-tax"  issue for  IPPs and  provide for                                                                    
    the tax exemption to apply only to future projects.                                                                         
                                                                                                                                
     Provide for  a deadline  for the Railbelt  utilities to                                                                    
     submit the new transmission  cost recovery mechanism to                                                                    
     the Regulatory Commission of Alaska (RCA).                                                                                 
                                                                                                                                
     Technical  improvements  to language  and  definitions,                                                                    
     and clarification of responsibilities.                                                                                     
                                                                                                                                
Mr.  Jensen explained  the double-tax  issue. He  delineated                                                                    
that  the Independent  Power Producers  (IPP) would  pay the                                                                    
same  excise  tax  on  a  per kilowatt  hour  basis  as  the                                                                    
cooperatives and both were exempted  from the local property                                                                    
taxes. The  bill did  not address what  happened to  the IPP                                                                    
when they  sold their  power. They could  be taxed  a second                                                                    
time by  the utilities. The administration  wanted to ensure                                                                    
the power  was only taxed  one time.  He would like  to work                                                                    
with  the  committee  to  address   the  issue.  He  briefly                                                                    
reviewed  the last  2  bullet points.  He  pointed out  that                                                                    
regarding  the third  bullet point,  in current  statute the                                                                    
Electric Reliability Organization  (ERO) was responsible for                                                                    
creating  a cost  recovery standard  for  each utility.  The                                                                    
bill would change  that to require the  utilities to jointly                                                                    
file one tariff. He delineated  that the bill should clarify                                                                    
who  was  responsible  for   developing  the  cost  recovery                                                                    
standard.                                                                                                                       
                                                                                                                                
5:44:30 PM                                                                                                                    
                                                                                                                                
Representative  Hannan  asked   for  details  regarding  the                                                                    
deadline  for cost  recovery. Mr.  Jensen answered  that the                                                                    
provision was  related to when  the association  of Railbelt                                                                    
utilities would be required to  submit their plan to the RCA                                                                    
for  review. He  indicated that  the utilities  were already                                                                    
engaged   in  weekly   meetings  that   included  regulatory                                                                    
attorneys and  consultants concerning  the development  of a                                                                    
cost  recovery mechanism.  The utilities  relayed that  they                                                                    
could   have  a   mechanism  by   the  end   of  2024.   The                                                                    
administration felt that it would  be "helpful" to include a                                                                    
"reasonable  deadline"  in  the  legislation.  He  suggested                                                                    
language  such as  "the  Railbelt  Association would  submit                                                                    
their proposal to the RCA by  a certain date.  He would work                                                                    
with  the  legislature  on  what   a  good  date  would  be.                                                                    
Representative Hannan  noted there was already  an amendment                                                                    
deadline. She  wondered whether Mr. Jensen  was working with                                                                    
a member of the committee to draft amendment language.                                                                          
                                                                                                                                
Co-Chair Foster asked  if anyone had worked  with Mr. Jensen                                                                    
thus far. Mr. Jensen answered  in the negative. He explained                                                                    
that the  recommendations were relayed  to him on  the prior                                                                    
day.  He  deduced  that  the  amendments  would  be  "fairly                                                                    
simple."                                                                                                                        
                                                                                                                                
Representative Hannan  pointed to the third  bullet point on                                                                    
slide  4 stating  "technical  improvements  to language  and                                                                    
definitions."  She  related  that  she was  waiting  to  see                                                                    
specific definitions in a timely manner.                                                                                        
                                                                                                                                
5:47:31 PM                                                                                                                    
                                                                                                                                
Mr. Jensen referenced the April  25, 2024, committee meeting                                                                    
and   relayed  that   the   amendment   language  had   been                                                                    
recommended by  Mr. Authur Miller, Chief  Executive Officer,                                                                    
Chugach Electric  during the hearing. He  believed they were                                                                    
"simple fixes" and could be drafted in a timely manner.                                                                         
Representative Coulombe  asked about slide 2,  regarding the                                                                    
governor's  policy  priorities.  She  was  looking  for  the                                                                    
cheapest cost for power. She  asked how the bill would lower                                                                    
costs for  ratepayers. Mr. Jensen responded  that currently,                                                                    
the transmission costs were  recovered through the wholesale                                                                    
transaction,  which  worked  as  a fixed  cost  added  to  a                                                                    
variable   cost  and   made  it   more  expensive   possibly                                                                    
preventing  the  transaction.  He explicated  that  if  they                                                                    
changed  the point  of cost  recovery  to the  end user  the                                                                    
amount  of money  utilities  needed to  pay  for the  system                                                                    
would  still  be recovered  at  the  middle of  the  process                                                                    
rather than  at the  wholesale process. He  exemplified that                                                                    
when Fire Island  wanted to expand and sell  power to Golden                                                                    
Valley   Electric   Association    (GVEA)   but   when   the                                                                    
transmission costs  were added it  was no longer  the lowest                                                                    
cost power  even if it  was at  the point of  generation. He                                                                    
summarized it as  not allowing the fixed cost to  get in the                                                                    
way  of the  lowest  cost of  power;  the transmission  cost                                                                    
would be the same regardless of the energy source.                                                                              
                                                                                                                                
5:50:19 PM                                                                                                                    
                                                                                                                                
Representative   Coulombe  asked   if  the   variable  costs                                                                    
referred  to  the wheeling  rate.  Mr.  Jensen answered  the                                                                    
variable costs  would be  the cost  of power  generation and                                                                    
the  transmission   cost  was   fixed.  He   expounded  that                                                                    
calculating  costs at  the point  of power  generation could                                                                    
prevent the cheapest cost  power from moving. Representative                                                                    
Coulombe  offered that  Chugach Electric  and several  other                                                                    
utilities requested  the committee  add the  ancillary parts                                                                    
of  generating power  to the  new tariff.  She asked  how he                                                                    
felt  about it.  Mr.  Jensen  replied that  it  was a  well-                                                                    
founded  suggestion. He  explained that  the Federal  Energy                                                                    
Regulatory  Commission used  the Mansfield  test using  five                                                                    
separate criteria  that were industry standards  to define a                                                                    
transmission  asset, which  included ancillary  services. He                                                                    
believed that Mr. Miller's suggestion  was in alignment with                                                                    
industry  standards.  Representative  Coulombe asked  if  it                                                                    
would  add  to the  tariff.  Mr.  Jensen answered  that  the                                                                    
ancillary  costs  were  already  embedded  in  the  cost  of                                                                    
electricity.                                                                                                                    
                                                                                                                                
5:52:18 PM                                                                                                                    
                                                                                                                                
Representative Coulombe  was still  skeptical that  the bill                                                                    
would lower the cost for  consumers. Mr. Jensen replied that                                                                    
the  costs would  not  decrease  immediately. He  elaborated                                                                    
that a diverse energy supply  was needed; over 80 percent of                                                                    
power was  generated by gas.  The utilities were  looking at                                                                    
other  sources of  power generation  to  reduce reliance  on                                                                    
gas. Wheeling rates or local property  tax got in the way of                                                                    
alternative power sources and the  bill was trying to remove                                                                    
the barriers  and enable the  utilities to  pursue different                                                                    
sources  of power  generation. He  furthered that  utilities                                                                    
needed  to  partner with  another  power  generator if  they                                                                    
could  not develop  another source  of power  generation. If                                                                    
that entity was  taxed the economics may break  down and the                                                                    
project  would  not  be developed.  He  concluded  that  the                                                                    
provisions  would  change  how   costs  were  recovered  and                                                                    
"smooth  the  way  for additional  power  projects  to  come                                                                    
online and  would offset  the demand  for gas."  He remarked                                                                    
that imported gas was far  more expensive than other sources                                                                    
of  power.  Representative   Coulombe  asked  if  artificial                                                                    
barriers were wheeling rates and  property tax. She wondered                                                                    
what the  artificial barriers were.  Mr. Jensen  answered in                                                                    
the  affirmative. He  reiterated that  it was  considered an                                                                    
artificial  barrier   if  the   way  power   generation  was                                                                    
presently carried  out created a barrier  to development. He                                                                    
delineated that  the cost could  still be recovered  if done                                                                    
differently. In addition, the issue  of property taxes was a                                                                    
barrier. The cooperatives' power  generation was not subject                                                                    
to  tax.  Therefore,   a  new  power  generator   was  at  a                                                                    
disadvantage.  The administration  was trying  to level  the                                                                    
playing  field  regarding  taxes.  He  clarified  that  only                                                                    
wholesale power would be tax exempt.                                                                                            
                                                                                                                                
5:55:12 PM                                                                                                                    
                                                                                                                                
Co-Chair Foster  indicated that  Co-Chair Edgmon  joined the                                                                    
meeting.                                                                                                                        
                                                                                                                                
Representative Galvin relayed  that throughout prior invited                                                                    
and  public testimony  the committee  had  heard some  mixed                                                                    
messages.  The committee  had heard  John Burns,  President/                                                                    
Chief   Executive   Officer,    Golden   Valley   Electrical                                                                    
Association,  emphasizing the  need to  act immediately  yet                                                                    
other  testimony  lacked the  sense  of  urgency. She  asked                                                                    
about  the  apparent  immediacy  of the  bill  and  why  the                                                                    
administration  wanted  to get  it  done  this session.  Mr.                                                                    
Jensen answered  it would  take some time  to deal  with the                                                                    
wheeling rate issue and unwind  it. He believed that dealing                                                                    
with the cost recovery issue  would be a lengthy process and                                                                    
stakeholder   concerns  could   be  addressed   through  the                                                                    
collaborative   process.  He   held   that  expediency   was                                                                    
necessary  for project  development. He  elucidated that  if                                                                    
the legislation  passed in the current  session, it provided                                                                    
project developers  the cost certainty to  move forward with                                                                    
the utilities.  Adopting the legislation  set the  policy in                                                                    
place  to  allow project  development  to  move forward.  He                                                                    
reiterated  that the  utilities were  meeting weekly,  which                                                                    
indicated they  were ready to implement  the legislation. He                                                                    
felt that it  was important to try to take  advantage of the                                                                    
momentum and presented  a rare moment of  alignment in light                                                                    
of the  Grid Innovation  and Resilience  Partnerships (GRIP)                                                                    
opportunity. He thought  it was an opportunity  they did not                                                                    
want to miss.                                                                                                                   
                                                                                                                                
5:59:01 PM                                                                                                                    
                                                                                                                                
Representative Galvin  thought that  the GRIP was  the first                                                                    
piece that  was necessary.  She wondered if  the legislation                                                                    
was needed  immediately. She queried  whether HB 307  had to                                                                    
pass to allow "the building  blocks to progress." Mr. Jensen                                                                    
answered  that it  was necessary  to provide  regulatory and                                                                    
cost certainty. He  expounded that if the  issue of wheeling                                                                    
rates  was  still floating  aroundno    one would  invest in                                                                    
that uncertain environment. Letting a  whole year go by left                                                                    
project  development in  limbo.  He  relayed that  currently                                                                    
Chugach  and  Golden  Valley  were  working  with  IPPs.  He                                                                    
emphasized  that taking  advantage of  the work  in progress                                                                    
was very important in the current year.                                                                                         
                                                                                                                                
Co-Chair Foster  noted the  amendment deadline  of May  2 at                                                                    
5:00 p.m.                                                                                                                       
                                                                                                                                
Mr.  Jensen thanked  the committee  for  the opportunity  to                                                                    
present and hear about the governor's priorities.                                                                               
                                                                                                                                
HB  307  was  HEARD  and   HELD  in  committee  for  further                                                                    
consideration.