Legislature(2009 - 2010)BUTROVICH 205
03/29/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB143 | |
| SB245 | |
| SB255 | |
| HB162 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 245 | TELECONFERENCED | |
| *+ | SB 255 | TELECONFERENCED | |
| + | HB 162 | TELECONFERENCED | |
| = | SB 143 | ||
| + | TELECONFERENCED |
SB 143-RAILBELT ENERGY & TRANSMISSION CORP.
3:34:44 PM
CO-CHAIR WIELECHOWSKI announced SB 143 to be up for
consideration. He said they would focus on the issue of how the
new Greater Railbelt Energy and Transmission Corporation (GRETC)
entity would be regulated by the Regulatory Commission of Alaska
(RCA).
3:35:02 PM
MARK JOHNSON, General Counsel, Chugach Electric Association, and
staff to the Joint Utility Task Force as well as former chair of
the RCA, said the task force does not support GRETC regulation
by the RCA, but they have agreed with the Governor's Office to
accept RCA regulation for five years. GRETC, like the utilities
that will provide the governance for it, will operate on a not-
for-profit basis to serve their member owners at the lowest
reasonable cost. GRETC is founded on the Bradley Lake model that
has worked well for 20 years; its books and operations are open
to the public and audits are performed annually. "If you follow
the Bradley Lake model, regulation is unnecessary," he said.
The governance of the boards and the board of GRETC are
democratically elected with one member appointed by the
governor. Mr. Johnson said this makes GRETC very different than
a for-profit utility and it is important to keep this in mind
throughout the discussion on regulation.
MR. JOHNSON said that Chugach does not believe GRETC needs to be
rate regulated, because nationally Chugach finds itself as the
only generation and transmission (G&T) cooperative that accesses
the public markets for all of its financing needs that is
regulated. Financers have told them they are concerned because
this increases risk in financing. They do not want to see GRETC
affected by the same risk.
He related that the state, through the just completed Regional
Integrated Resource Plan (IRP), has looked into the future and
analyzed what energy and transmission are required by comparing
customer needs with what is available, and further what new
resources, power supply and conservation measures can be brought
to bear on those needs. One of the greatest threats to consumer
interest is when utilities make large scale decisions on
investment without a transparent and public process. Currently
the IRP has substantially advanced transparency and public
process. If a utility or GRETC is going to follow the IRP in the
development of a particular project, that project is a
presumptively prudent and necessary investment decision. It
doesn't need additional regulatory review.
He asked the It appears now there are some pretty well defined
regulatory goals.
3:38:29 PM
MR. JOHNSON said the committee to consider regulatory goals in a
broader context and referred them to slide 3 that illustrated
how regulatory goals are addressed through the GRETC
legislation. One of the top ones was to protect consumers; and
the people who will govern and receive the services of GRETC are
the consumers. They will buy the energy and will have an
enormous interest in making sure that electricity and services
are reasonably priced and best serve consumers.
3:39:22 PM
SENATOR STEDMAN joined the committee.
3:40:32 PM
MR. JOHNSON said other more specific goals of regulation were
taken from a treatise called "The Regulation of Public
Utilities" by Charles Phillips. One is that regulation is
intended to prevent monopoly prices. In the case of GRETC the
entities that would be GRETC's customers also have other
options. They are not limited to a monopoly provider in GERTC;
they can choose to self-generate electricity or buy it from
IPPs.
Another goal is an effort to contain and define utility
investments. GRETC will act in compliance with the IRP plan, and
the directors that sit on the board have no interest (since they
are the consumers) in overinvestment. They want the best prices
for the companies that are going to buy energy. He said the
lenders also have a very strong interest in a right size of
utility plant and services.
3:41:45 PM
Along with the regulatory goal of insuring the lowest cost to
consumers, Mr. Johnson said, it's important to remember that the
generation of electricity is one of the few industries and
circumstances where you actually have economies of scale in
production. Consumers benefit from large projects because they
reduce overall costs to them, and that is one of the market
characteristics that exists in the case of electric generation.
MR. JOHNSON said the GRETC utilities have no interest in high
operating costs. When it comes to capital investment, GRETC has
a superior risk profile for investors and will, therefore, have
greater access to capital. So, they believe GRETC is a superior
arrangement in terms of insuring low overall capital cost to
consumers.
As it relates to certain consumer protection issues, whether or
not consumers are being fairly treated in the market place by
providers, Mr. Johnson said, GRETC will not serve retail
customers; the customers are at the wholesale level with the
large electric utilities. So, those concerns do not arise in its
case.
He stated that this legislation also addresses rate
discrimination and that some utilities feared making investments
they could not recover and wanted to be regulated. In the case
of GRETC, they seek to define very clearly how rate making would
take place. Another issue is market failure, and that boils down
to whether or not a utility is required to insure service
availability to various customers. Once again, GRETC has insured
statutorily that it will coordinate the functions of
transmission to distribute electricity throughout the Railbelt.
Also in the category of market failure is the question of
preventing duplicate facilities. If GRETC is complying with the
IRP process, it will have a very exceptional ability to insure
that they have appropriate facilities that serve all the
potential consumers of the energy produced by the utility.
Finally, Mr. Johnson said, the legislation addresses two other
potential regulatory goals - the environment and safety by
providing for the legislature to enact whatever state laws it
thought appropriate in addressing those issues.
3:44:47 PM
MR. JOHNSON said one of the goals over the years regarding
utility regulation is to promote economic development, a matter
of great interest to him when he was on the RCA. In the case of
the GRETC legislation, it is conceived to promote economic
prosperity and to provide low cost energy. They believe it is a
superior model. To sum up, he said, they believe this GRETC
legislation adequately addresses all the goals has see no
compelling need for closely crafted economic regulation.
MR. JOHNSON said in his opinion the legislation has been crafted
to provide a good framework for GRETC to move forward without
regulation. He said regulation is a red flag issue when it comes
to obtaining low cost financing; and the dangers of obtaining
fuel supplies under regulation are well known. Also, he
mentioned a significant risk in inconsistent application of the
regulations. Because statutes rarely provide the kind of
guidance that one would like to have, that unfortunately raises
the prospect that regulators, however well-intentioned, will
reach for solutions that aren't necessarily good ones. This is
not a good risk to take and it won't produce benefits to
consumers. Again, he said, they believe the classic formulation
of regulatory goals is addressed by this legislation.
3:49:09 PM
SENATOR FRENCH asked if anything in the bill forces GRETC to
follow the IRP in the development of a project or is that an
option - in referenced to Mr. Johnson's testimony that if a
utility or GRETC is willing to follow the IRP in the development
of a particular project, that project is a presumptively prudent
and necessary investment decision and it does not need
additional regulatory review.
MR. JOHNSON answered that language on page 12 says that GRETC
will adopt an IRP and follow it.
3:50:33 PM
CO-CHAIR WIELECHOWSKI thanked Mr. Johnson for his testimony and
held the bill. He then announced an at ease from 3:50 to 3:52
p.m.
3:52:00 PM
SB 143-RAILBELT ENERGY & TRANSMISSION CORP.
CO-CHAIR WIELECHOWSKI announced SB 143 to be back before the
committee. He asked Mr. Pickett to give his thoughts on the
bill.
BOB PICKETT, Chairman, Regulatory Commission of Alaska (RCA),
said he was referring to work draft version S and that the
legislative intent in section on page 2, starting on line 2, was
very critical in this matter. It provides the basis for the
interim five-year period that the RCA is being asked to provide
some sort of regulatory function.
He said that "In setting or reviewing rates" language on page 2,
line 27 was confusing, and explained that generally a utility
sets or changes its rates, files the tariff revision and then
the commission investigates and either approves or modifies
those revisions. He asked in what context the Commission would
actually review rates without setting them. Moving on to "rates
for" he said generally the Commission sets rates "of" the
utility and he wanted to know if something different was meant.
4:11:08 PM
Line 28 said "The Commission may not disallow in traditional
rate making that focuses on the end result just and reasonable
rates." It has none of the intermediate steps of determining the
revenue requirements, rate of return or rate base, and Mr.
Pickett wondered how this would be reviewed by the courts. Will
just and reasonable rates at the end of the process be the
source of the inquiry or will the rate making process now become
a mechanical application of some formula to the component parts?
Towards the end of line 28 in "a rate base or revenue
requirement" he wondered why "a" is used. Will GRETC have more
than one each? It's unclear. The subsection does apply to the
GRETC so the requirements are addressed to a single entity at a
time.
4:12:05 PM
Going down to the line that has "amounts necessarily reasonable"
he asked by what standard "reasonable" would be measured. He
said this is a new concept and asked how will the Commission
would know what a reasonable amount is when it is presented.
What evidence should be produced to support the proposition or
is it sufficient for the management to just assert that it's
reasonable?
On lines 29-30 "for the corporation to fund a cost reasonably
anticipated" Mr. Pickett asked if costs that were anticipated
but never incurred would be subject to repayment to ratepayers
and if costs that are anticipated and incurred but never benefit
ratepayers ever removed from rate base. How do you calculate
depreciation or amortization of an anticipated cost? To become a
just and reasonable cost (line 30) - he said costs themselves
are not generally evaluated as "just and reasonable" except in
the aggregate when the rates themselves are reviewed. The usual
method of evaluating operating costs is whether they are related
to the provision of public utility service and in an amount that
is not excessive. The usual method of evaluating capital related
costs is whether the investment is used and useful in an amount
that is prudently incurred.
4:13:28 PM
On page 2, line 31 through page 3, lines 1 and 2, he asked if
"including costs for the repair, replacement and retirement of a
project owned and operated by the corporation" meant they can
recover future capital replacement cost of an asset they don't
own. And if so, based on what theory?
He asked if the language on page 3, lines 3 and 4" "including
costs to permit the corporation to build reasonably necessary
equity for future operations" is an attempt to allow the
corporation to derive a desired profit number and kind of set
the rates to achieve that target. He explained that usually the
attraction and accumulation of equity is not a cost; it's a
capital transaction or the product of profitable operations.
He also questioned using the conjunctive "and" in language
saying "including costs by the corporation and incurred to
permit". Do both conditions have to be met or is it just a list
of non-exclusive costs that can be passed through to the
ratepayers?
MR. PICKETT said a number of policy and technical questions had
arisen. An underlying policy assumption that auditing equals
regulation, but the Commission has not taken a position on that,
and he said, "I think nothing could be further from the truth."
Also, he said language on page 13, lines 28-31, references the
corporation issuing equity and debt. How is it proposed that
GRETC will issue equity? He was under the impression GRETC was a
not-for-profit, and was this a contribution on the part of the
members?
MR. PICKETT said he had other questions. Bradley Lake has often
been sighted as an example of a project that clearly
demonstrates there is no need for regulatory oversight of GRETC.
It is fair to raise the example of Healy clean coal and if
deregulation is a de facto main goal of GRETC, that decision
should be transparent and out in the open with the ratepayers
well aware of what is going on. Currently in AS 42.05.711(h) and
AS 42.05.712 there are clear provisions for deregulation -
elections. He said the Commission would be taking this up at 9am
on Wednesday.
4:16:50 PM
SENATOR FRENCH said if the Bradley Lake model is so successful,
why is that not a good example to look at in considering this
bill.
MR. PICKETT replied that it is a successful example of the
public private partnership, but it is important to keep in mind
that it produces a very small percent of the overall electrical
generation capacity of the Railbelt. Comments last week about
one of the major changes in this version of GRETC versus what
was originally presented to the legislature is a bit of a
softening of its monopolistic posture that perhaps it had in the
earlier version. The individual utilities could choose to opt
out for instance.
MR. PICKETT stated that it is also fair to say that this bill
has positioned GRETC as being the primary recipient of state
funds, and there are good public policy reasons for that. Mr.
Johnson raised the concern of the capital markets, and at its
inception GRETC will have minimal assets. The key and critical
element is going to be how it will generate equity. Will the
legislature have to fund it or will there be riders to build up
equity from the respective member cooperatives and participating
utilities to prefund capital projects? Those are good questions
and in the end that will be what will shape GRETC's ability to
attract capital.
CO-CHAIR WIELECHOWSKI asked his views on sunsetting the RCA
review after five years.
MR. PICKETT answered that he is a skeptic and believes in checks
and balances for federal and state government. He didn't think
that auditing was an adequate proxy for regulation. There are
models that address rather unique situations which GRETC will
present such as the area of capital project surcharges and the
use of operating ratios rather than rate of return for utilities
that are essentially startups or that have contributed plant or
are fully depreciated, simplified rate making rules, and
adjustment clauses for fuel and purchase power costs.
CO-CHAIR WIELECHOWSKI said he had given them a lot to think
about and it is obvious that the bill has some questions that
still need to be answered and it would not move today.
SENATOR STEDMAN commented that this bill came into the body late
in the session it and should be set aside and worked on over the
interim.
CO-CHAIR WIELECHOWSKI agreed.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 245 - Bill Packet.pdf |
SRES 3/29/2010 3:30:00 PM |
SB 245 |
| SB 255 - Bill Packet.pdf |
SRES 3/29/2010 3:30:00 PM |
SB 255 |
| HB 162 - Bill Packet.pdf |
SRES 3/29/2010 3:30:00 PM |
HB 162 |
| GRETC - Joint Utility Task Force.pdf |
SRES 3/29/2010 3:30:00 PM |