Legislature(2023 - 2024)BUTROVICH 205
03/04/2024 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB243 | |
| SB217 | |
| Presentation: the Railbelt Transmission Grid | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 217 | TELECONFERENCED | |
| + | SB 257 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
| += | SB 243 | TELECONFERENCED | |
SB 217-INTEGRATED TRANSMISSION SYSTEMS
3:43:22 PM
CO-CHAIR GIESSEL reconvened the meeting and announced the
consideration of SENATE BILL NO. 217 "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."
3:44:22 PM
JULIE SANDE, Commissioner, Alaska Department of Commerce,
Community, and Economic Development, Anchorage, Alaska,
presented SB 217 on behalf of the administration.
3:44:51 PM
MS. SANDE moved to slide 2 of the presentation and spoke to a
map depicting the Railbelt Electrical Grid. She explained that
Railbelt comprises an interconnected grid and is approximately
700 miles long. This system provides electricity to
approximately 75 to 80 percent of Alaska's population of around
550,000 individuals.
3:45:43 PM
MS. SANDE moved to slide 3 and spoke to the legend depicting the
Railbelt Transmission Line and the corresponding service areas.
She said while the Railbelt Transmission System is
interconnected, it is not an integrated system. Ownership of the
transmission lines is shared between AEA and the Railbelt
utilities listed on the slide. Due to limited alternative
pathways, much of the Railbelt lacks redundancy. Although the
Copper Valley Electrical Association is connected by road, it is
not connected by the transmission line. The Railbelt
Transmission combines the Railbelt system and the transmission
lines connecting Matanuska, Valley Glenn Allen, and North to
Delta Junction. The current transmission system in Alaska as
inefficient, owned by a utility cooperative that imposes a per
mW/hr charge, also known as a "wheeling rate" or "pancaking."
Several of those tariffs or wheeling rates are stacked onto one
another and resemble an "extension cord." However, she argued
that comparing Alaska's grid to that of the lower 48 states is
inappropriate. She referenced an analogy likening it to a toll
road rather than a public highway. Wheeling tariffs primarily
serve as a revenue mechanism rather than facilitating true cost
recovery, which poses challenges and barriers within the system.
These costs are passed down to ratepayers and can hinder access
to purchasing the cheapest power available, therefore limiting
wholesale rates. She asserted that a grid the size of the Alaska
Railbelt does not necessitate multiple wheeling rates. If SB 217
becomes law, the RCA would be required to establish a gradual
transition process from the current transmission cost recovery
system to a new mechanism. This transition would entail the
elimination of wheeling rates, which limit access to wholesale
power transactions and prevent independent power producers
(IPPs) from engaging in power purchase agreements with
utilities.
3:48:36 PM
MS. SANDE moved to slide 4 and said SB 217 would amend AS
10.25.540(b), the statute related to taxation cooperations to
extend tax relief provisions to independent power producers
(IPPs) who sell their power to non-profit electric utilities.
Currently, taxes represent a significant portion of overhead for
IPPs, often delaying or halting the development of IPP projects.
Extending tax treatment to IPPs that non-profit utilities
already receive would benefit taxpayers by treating all sources
of power generation equally.
3:49:26 PM
MS. SANDE moved to slide 5 and explained the intent of SB 217:
[Original punctuation provided.]
What Does Senate Bill 217 Do?
• Senate Bill 217 aims to:
• Increase competition and efficiency within
Alaska's transmission system
• Reduce costs to the rate payer
• Encourage the development of new power projects
It aims to do this by:
• Requiring the Regulatory Commission of Alaska
(RCA) to change the current mechanism of
transmission cost recovery in the Railbelt
• Eliminating transmission "wheeling" rates for
inter-utility movement of electricity
• Extending tax relief provisions enjoyed by
Electric Co-ops to Independent Power Producers
(IPPs)
MS. SANDE said both measures reduce artificial barriers to the
economic dispatch of the lowest-cost power and to new power
generation projects that could otherwise deliver benefits to
consumers in Alaska.
3:50:45 PM
SENATOR WIELECHOWSKI asked for an explanation of wheeling rates.
3:50:59 PM
MS. SANDE invited Curtis Thayer, Executive Director of AEA,
to respond.
3:51:19 PM
CURTIS THAYER, Executive Director, Alaska Energy Authority,
Anchorage, Alaska, responded to questions on SB 217. He
explained that wheeling rates vary depending on the origin and
destination of the power, noting the importance of having
discussions on the matter. He cited an example where power
generated in Bradley is transported to Fairbanks, so it goes
through multiple utility load servicing areas. He noted
instances where power saved in Fairbanks originates from
generation in Anchorage and shipped North through the system. He
offered to follow up with the committee with analyses of
hypothetical scenarios.
3:52:15 PM
SENATOR DUNBAR noted that SB 257 was recently heard in the Labor
and Commerce Committee and would also eliminate wheeling fees.
He wondered whether provisions under SB 217 comprise functional
or legal differences between how this objective is accomplished
under the two bills.
3:53:07 PM
MR. THAYER replied that in principle, there are no differences
between the two bills. He indicated that both SB 217 and SB 257
aim to eliminate the wheeling rate and accomplish the same
objective. He invited Andrew Jensen, Policy Advisor for the
Office of the Governor, to provide further insight.
3:53:36 PM
ANDREW JENSEN, Policy Advisor, Office of the Governor,
Anchorage, Alaska, answered questions on SB 217. He stated that
although the Governor's Office is still in the process of
reviewing SB 257, there is a general consensus that a new method
of rate recovery for transmission costs needs to be established,
as wheeling rates impact decisions related to power purchases
and the development and location of independent power projects.
Both bills aim to achieve the same objective using RCA's
mechanism.
3:54:29 PM
SENATOR KAWASAKI asked whether independent power producers are
privately or publicly owned and whether they fall under
regulation by the RCA.
3:55:01 PM
MR. JENSEN invited Robert Doyle, Chair of RCA, to respond.
3:55:20 PM
ROBERT DOYLE, Chair, Regulatory Commission of Alaska (RCA),
Anchorage, Alaska, answered questions on SB 217. He said IPPs
are regulated under RCA and are generally private companies. As
an example, he mentioned Alaska Renewables, a private company
that initiated a project subject to RCA approval.
3:56:05 PM
SENATOR KAWASAKI asked whether the RCA would mandate IPPs to
transfer any savings from a lower tax rate to consumers through
the Electric Cooperative if the IPPs themselves pay a reduced
tax rate.
3:56:26 PM
MR. DOYLE responded that normally, the power purchase agreements
undergo review, and RCA would consider various factors. He noted
that the Department of Revenue would be responsible for
examining tax credit matters. Akin to income taxes, RCA would
incorporate this information into its assessment when
establishing rates based on revenue requirements.
3:56:57 PM
SENATOR KAUFMAN sought clarification on term definitions.
3:57:29 PM
MR. DOYLE clarified that similar to a toll system, a wheeling
tariff is imposed to allow electrons to pass through a system
owned by another entity. In states where this is practiced and
power predominantly originates from another state, power
purchase agreements are established. Therefore, the concept of a
toll serves as the most apt analogy, illustrating the notion of
a fee for crossing between systems.
3:58:06 PM
SENATOR KAUFMAN asked for the definition of "pancake rates."
3:58:10 PM
MR. JENSEN clarified that pancake rates occur when rates
accumulate and are added up over time, similar to paying
multiple tolls while driving from Homer to Fairbanks.
3:58:33 PM
SENATOR CLAMAN presented a hypothetical scenario regarding toll
rates and inquired whether the utility rate would decrease if
the wheeling rate were collected from other systems that cross
over the Chugach grid.
3:59:26 PM
MR. JENSEN replied that to the extent that wheeling rate could
be used as a revenue mechanism, the cost for a Chugach ratepayer
might be lower if it were then incorporated into the revenue
requirement from a transaction that traverses the system.
3:59:44 PM
SENATOR CLAMAN inquired whether, under the current structure,
Chugach consumers would experience any benefits from the
collection of wheeling rates imposed on other utilities
transmitting electricity across the Chugach grid.
4:00:14 PM
MR. JENSEN responded that all grids necessitate a revenue
requirement. If the revenue requirement is decreased by
collecting revenue from an alternative source, such as wheeling
rates from another utility, there is a potential for Chugach
ratepayers to benefit slightly because the total system
requirement is offset by ratepayers in another area.
4:00:39 PM
SENATOR CLAMAN asked if that is actually happening today.
4:00:54 PM
MR. JENSEN deferred to RCA for a detailed response to the
question. He said the current rate case involving Chugach
anticipates a significant increase in the tariff for power
transmitted north to Golden Valley Electric, with a cost
estimate of approximately $700,000.
4:01:32 PM
MR. DOYLE replied that any revenue generated, whether from
economic energy sales or power production at lower costs,
contributes to the comprehensive rate, benefiting Chugach
ratepayers. He explained that all revenues are factored into
their tariff, which could have both positive and negative
implications for ratepayers. Transmission costs, among other
expenses, are always considered. He expressed his belief that SB
217 aims to establish a single flat rate for the backbone. Under
this system, debt covenants would be paid for, resulting in no
winners or losers. There would be one uniform rate from
Fairbanks to Homer.
4:02:58 PM
SENATOR CLAMAN asked whether, if the legislation successfully
implements a flat rate, this could potentially lead to higher
rates in certain areas because utilities would no longer be able
to collect higher fees for transmission passing through their
systems.
4:03:53 PM
MR. DOYLE replied yes and noted a slight potential for higher
rates in certain areas. However, he emphasized the Regulatory
Commission of Alaska's commitment to maintaining rates at
reasonable and equitable levels. He reiterated that there would
still be transmission costs, but the objective is to establish a
single flat rate and adjust the mechanism accordingly. Mr. Doyle
suggested exploring the coincidence peak under SB 257 and ratio
sharing under SB 217 as potential avenues. The goal is to
establish a fair rate and promote equity across the board. He
encouraged the committee to assess whether utilities are
charging more than the rates for wheeling transmission or if the
costs remain consistent, factoring in the expenses associated
with constructing and maintaining transmission infrastructure.
4:05:18 PM
MR. JENSEN presented the sectional analysis for SB 217:
[Original punctuation provided.]
SECTIONAL ANALYSIS
SB 217: Integrated Transmission Systems
Version A
Section 1 - Updates the uncodified law of the State of
Alaska by setting forth the purpose of the
legislation: to eliminate pancaked rates and increase
efficiency of integrated transmission systems of the
state.
Section 2 - The bill amends AS 10.25.540related to
the taxation of electric cooperativesto include
independent power producers. Under the bill,
independent power producers would pay a "sales" tax on
the kilowatt hours of electricity in lieu of any state
or local ad valorem, income, or excise tax. The bill
defines an independent power producer as a utility
that only sells wholesale power to cooperative or
municipal utilities.
Section 3 - The bill creates a new article in AS 42.05
relating to integrated transmission system cost
recovery (AS 42.05.900 - 42.05.915).
Proposed AS 42.05.900 states the legislative findings
for increasing the efficiency of providing electricity
service to consumers.
Proposed AS 42.05.905 requires the Regulatory
Commission of Alaska ("RCA") to establish a
transmission cost recovery mechanism and to provide a
process where the electric utilities will transition
from recovering transmission costs in utility rates to
a transmission cost recovery mechanism. More
specifically, this section requires the RCA to develop
a cost recovery mechanism that achieves the
legislative findings and allocates transmission costs
in a way that recognizes a load-serving entity's local
consumption compared with the total consumption on the
system as a whole. The section further requires the
RCA to establish a process whereby the transmission
owning utilities will gradually transition from the
current cost recovery mechanism, in which transmission
costs are recovered in base rates and wheeling
charges, to the new transmission cost recovery
mechanism.
Proposed AS 42.05.910 provides that the RCA will
require all transmission-owning utilities to form an
association whose only purpose is to have a tariff
setting out how the transmission cost recovery
mechanism is collected and disbursed, and to collect
and disburse the transmission costs through the new
recovery mechanism. The association will be regulated
as a public utility.
Proposed AS 42.05.915 provides definitions for the new
article. The section clarifies what sort of electric
utility assets are deemed to be "transmission assets,"
subject to the cost-recovery mechanism of the new
article. These include AEA's contractual charges for
transmission to the Railbelt utilities, but would
exclude radial transmission lines that are built to
connect independent power producers who sell their
power to utilities under wholesale contracts. The cost
of such radial lines will instead continue to be
recovered in the cost of power provided, as is
customary. This ensures that a load-serving entity
that is not buying power from the independent power
producer is not forced to shoulder the cost of
connecting that power to the grid. The section also
provides definitions for the terms "electric
reliability organization" and "load-serving entity."
4:08:47 PM
SENATOR CLAMAN asked him for his perspective on the implications
of Senate Bill 123, regarding the electric reliability
organization, that was passed a few years ago, in relation to SB
217. He stated that he had anticipated a faster moving outcome
in establishing a new transmission entity.
4:09:19 PM
MR. THAYER replied that the Railbelt Reliability Council is
still organizing the electric reliability entity and is working
to establish a president or CEO, with interviews scheduled this
week. He mentioned that the Railbelt Reliability Council has
held meetings, has adopted regulations, and is working towards
establishing an organization with a president or CEO, with
interviews scheduled for this week. He noted that utilities
collectively support the concept of having a mechanism to assist
in eliminating tariffs and pancaking rates for consumers. While
he agrees with Senator Claman that it is taking longer than
expected, the delays are not intentional and are simply the
result of unexpected complications, especially in finding and
hiring candidates for the positions. He said AEA owns a 40-mile
transmission line along with the Alaska Intertie, both of which
do not charge wheeling rates. The state's ownership of the
transmission line between Willow and Healey saves the Fairbanks
economy approximately $37 million, as they can purchase power
more affordably from the Railbelt and ship it North. That is not
due to the power being shipped but the power is cheaper, and one
advantage of state ownership over that line is the absence of a
wheeling rate or tariff.
4:11:39 PM
SENATOR CLAMAN asked if the committee could view SB 257 and SB
217 as measures to accelerate the process of establishing a
unified rate for transmission on the Railbelt.
4:12:11 PM
MR. DOYLE replied yes.
4:12:17 PM
MR. JENSEN added that the statutory responsibilities of the
Electric Reliability Organization (ERO) do not involve setting a
transmission rate or addressing the wheeling issue. Its
responsibilities include electric reliability standards,
integrated resource planning, and open access provisions. These
provisions were not included under SB 123 and are complementary
rather than altering or detracting from the ERO's duties.
4:13:25 PM
SENATOR KAUFMAN referred to the term "pancake" mentioned on page
2 of SB 217 and questioned whether such informal terms should be
further defined.
4:13:56 PM
MR. JENSEN responded that the bill is currently in the hands of
the committee, so it falls under its purview to make that
decision.
4:14:12 PM
SENATOR DUNBAR referenced page 2 of SB 217 and noted potential
contrasts with SB 257, which envisions transitioning planning
responsibilities from the Electric Reliability Organization
(ERO) to the transmission systems operator. He wondered whether
inconsistencies exist between the two bills.
4:14:55 PM
SENATOR GIESSEL advised that members could not compare other
bills that are absent from the committee agenda.
4:15:15 PM
SENATOR DUNBAR said some people have envisioned the Alaska
Energy Authority (AEA) owning multiple assets. He questioned
whether this differs from the provisions outlined in Section
42.05.910 regarding integrated transmission association.
4:15:39 PM
MR. DOYLE replied that ownership is not specifically defined in
SB 217. He mentioned that AEA currently owns approximately one
third of the transmission lines, totaling around 210 miles.
While AEA owns a significant portion of the transmission
infrastructure on the Railbelt, SB 217 does not detail
ownership. He mentioned that RCA is not classified as a public
utility.
4:16:34 PM
CO-CHAIR GIESSEL held SB 217 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 217 Sponsor Statement.pdf |
SFIN 5/2/2024 9:00:00 AM SRES 3/4/2024 3:30:00 PM |
SB 217 |
| SB 217, version A.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 217 |
| SB 217 Sectional Analysis, version A.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 217 |
| SB 217 Fiscal Note RCA 2.2.24.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 217 |
| SB 217 Fiscal Note AEA 2.2.24.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 217 |
| Presentation_AK Railbelt Transmission Issues_Holdmann SRES 03.04.24.pdf |
SRES 3/4/2024 3:30:00 PM |
|
| SB 217 SRES Presentation 03.04.24.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 217 |
| SB 243 Amendment #1.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 243 |
| SB 243 Amendment #2.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 243 |
| SB 243 Amendment #3.pdf |
SRES 3/4/2024 3:30:00 PM |
SB 243 |