Legislature(2023 - 2024)BUTROVICH 205
03/25/2024 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB217 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 217 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
SB 217-INTEGRATED TRANSMISSION SYSTEMS
3:31:10 PM
CO-CHAIR GIESSEL 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."
3:31:55 PM
MATTHEW PERKINS, CEO, Alaska Renewables, Anchorage, Alaska, gave
invited testimony for SB 217. He discussed his background,
including 10 years at General Electric and involvement in
multiple energy startups. Appreciation was expressed for the
committee's work on this important issue, and the company's
position, outlined 10 days ago, remains unchanged. Alaska
Renewables is currently engaged with all railed facilities on
wind energy projects. The ability to achieve the lowest power
costs is impacted by proposed legislation, which Perkins urged
should eliminate double taxation for Independent Power Producers
(IPP) and transmission wheeling charges across the high voltage
grid. The priorities highlighted were speed, clarity, and
fairness. He expressed urgency regarding these wind energy
projects, noting that ongoing price negotiations are directly
influenced by the legislation. Long-term fixed-price agreements,
typically used by IPPs, benefit ratepayers by removing cost
volatility and attracting low-risk, patient capital such as
pension funds. Unpredictable changes like taxes or tariffs
introduce financial risks that deter investment, making
legislative clarity essential for maintaining project financing.
Fair cost recovery for utilities investing in high voltage
transmission infrastructure was also emphasized. Cost recovery
should be based on transmission line usage rather than variable
fees. An example from Fort Knox was provided, illustrating that
while Golden Valley may own a transmission line, it should not
charge Chugach variable rates for its use. Market distortions
must be avoided to ensure fairness. The recent cold snap served
as a practical example of the importance of this legislation.
During that event, the proposed southern project at Little Mount
Susitna could have supplied around 20 percent of the region's
energy needs, according to third-party models. While wind power
and thermal assets are not always reliable, additional
generation from wind farms such as Belt and Shovel Creek would
have allowed more energy to be shared with Southcentral Alaska.
During the cold snap, large industrial customers, including
mines, were asked to reduce power usage to address an energy
shortage occurring 300 miles away. Collaboration among Railbelt
utility leadership and staff was key to maintaining the system
during the crisis. SB 217 is vital for securing low-cost power
and ensuring energy security for Alaska.
3:37:22 PM
CO-CHAIR GIESSEL expressed appreciation for the three priorities
he highlighted: speed, clarity, and fairness. She said that
these are important considerations as the committee reviews SB
217 and others.
3:38:19 PM
GWEN HOLDMANN, Associate Vice Chancellor, Research, Innovation,
and Industry Partnerships, University of Alaska Fairbanks (UAF),
gave invited testimony for SB 217. She said she is presenting
today as a representative of the Alaska Center for Energy Power,
where she holds a joint position alongside the Associate Vice
Chancellor. The goal at the university is to provide clarity on
complex policy challenges and address the energy issues
currently facing Alaska, along with the opportunities available.
3:38:54 PM
CO-CHAIR GIESSEL said a major reason for inviting Ms. Holdmann
today is to outline the topics being discussed, not only for the
committee's benefit but also to refresh the public's
understanding and increase awareness of the important issue of
modernizing and upgrading the grid transmission system.
3:39:23 PM
MS. HOLDMANN moved to slide 2 and noted that she appreciates the
reminder that many issues have been at the forefront during this
legislative session. She said that energy remains a major
concern for Alaskans now and in the future and commended the
committee's focus on keeping energy as a priority despite the
numerous other challenges being faced in the state. She
introduced the presentation outline:
[Original punctuation provided.]
Presentation Outline
• Current systemic challenges of the Railbelt Grid
• How SB 217 addresses issues
• What is not included in SB 217
• How SB 217 might be improved
3:39:28 PM
SENATOR KAUFMAN joined the meeting.
3:39:38 PM
SENATOR CLAMAN joined the meeting.
3:40:25 PM
MS. HOLDMANN moved to slide 3 and cited a study conducted on
electrifying Alaska's Railbelt. She noted that the study was
recently conducted by Bill White, an associate professor in
history and northern studies at the University of Alaska
Fairbanks. The study, titled "Electrifying Alaska's Railbelt:
Generation and Transmission History," complements the modeling
work by ASAP on future scenarios for the Railbelt grid. The
report, which will be published soon, reveals how many times
attempts have been made to address transmission issues. These
are not new challenges. She provided examples from the report,
mentioning a proposal from the 1950s for the Central Alaska
Power Association, initiated by two electric associations to
develop new generation on the Kenai Peninsula for an aluminum
smelter planned by Harvey Aluminum. The goal was to create a
power pool capable of offering "dump power rates" from hydro,
making electricity so inexpensive that it could support
industries like aluminum production. This historical context is
reminiscent of her discussions about Iceland's energy policies.
More recently, the Trans Alaska Electric Cooperative was formed
in the late 1960s and early 1970s by Golden Valley Electric
Association, MEA, and Copper Valley Electric Association. This
cooperative aimed to develop a transmission line between Palmer
and Glennallen to electrify pump stations for the Trans Alaska
Pipeline, which spurred the construction of additional
transmission lines, including the Rolodex transmission line. The
discussion has also included Artech, the Alaska Railbelt
Cooperative Transmission Electric Company, a partnership among
several entities. Additionally, there was a proposal about five
years ago for a for-profit transmission corporation with
American Transmission Corporation involving Homer and Chugach
Electric. She indicated the importance of these historical
examples.
3:43:40 PM
MS. HOLDMANN moved to slide 4 and spoke to the history of the
Railbelt Grid:
[Original punctuation provided.]
Historically, transmission has not been prioritized
Railbelt utilities solved reliability issues with
local and regional generation rather than investing in
interregional high-voltage transmission due to long
distances with few members to pay the cost.
The history of the Railbelt has been compared to an
Alaskan "Prisoner's Dilemma" - prioritizing individual
utilities' needs has resulted in a suboptimal system
for everyone.
There has never been single unified operator who was
concerned about the grid as a whole.
Prisoners Dilemma:
A paradox in decision analysis in which two
individuals acting in their own self interests do not
produce the optimal outcome.
MS. HOLDMANN noted that the recurring challenge is seeing good
ideas gain momentum but ultimately facing dissent, preventing
progress. This is why a legislative solution is necessary. If it
wasn't required, these industry best practicescommonplace in
other marketswould already be implemented. Expecting utilities
to simply figure it out on their own is unfair. Using the
example of the "prisoner's dilemma," she said cooperative
utilities are primarily beholden to their local customers. While
cooperative ideals include collaboration, local interests often
conflict with the greater benefit of the whole. This can create
situations where decisions prioritize local constituents rather
than the overall system's efficiency. She pointed out the irony
that no utility is advocating to leave the Railbelt grid, as
being interconnected benefits everyone by increasing
reliability. The transmission grid allows power sharingwhether
from renewables like Mr. Perkins' wind farms or traditional
sources like coalwhich is critical for all utilities in the
long term.
3:46:01 PM
CO-CHAIR BISHOP said page 3 shows a 1952 map and encouraged her
to take a moment later to look at the proposed Devil's Canyon
power plant.
3:46:14 PM
MS. HOLDMANN noted that the map relates to the Susitna-
Watana Hydroelectric project. She stated that it illustrates
several high-voltage transmission lines with built-in redundancy
as part of the 1952 proposal. She said this highlights that the
issues being discussed are not new.
3:46:39 PM
MS. HOLDMANN moved to slide 5 and spoke to opportunities for
cooperation:
[Original punctuation provided.]
Shared opportunities create incentives for cooperation
Effective Railbelt cooperation most often occurred
when state entities (legislature or AEA) provided
capital for generation and transmission (Bradley Lake
and Alaska Intertie).
To operate these joint assets, Railbelt utilities had
to find a way to work together.
Federal Funding (GRIP) create that incentive today.
MS. HOLDMANN said that historically, there have been times when
utilities have collaborated to develop significant projects, as
noted in the report. Examples include the Bradley Lake
Hydroelectric Project and the Alaska Intertie Project. These
successes have often stemmed from opportunities and financial
incentives, such as the chance to develop large-scale projects.
The Bradley Lake project, in particular, brought together
various stakeholders to establish a framework for effective
management. This collaborative effort has proven successful in
navigating the diverse opinions and nuances present among
individual cooperatives.
3:47:44 PM
MS. HOLDMANN moved to slide 6 and spoke to constraints on the
Railbelt Grid:
[Original punctuation provided.]
Constraints on the Railbelt Grid
Technical Constraints
• Inadequate
• physical infrastructure
Economic Constraints
• economic dispatch
• wheeling
• small market
• economies of scale
Institutional Constraints
• Management and operation of assets for the
benefit of the whole
MS. HOLDMANN mentioned the potential for generational
investments in new transmission assets to strengthen the grid,
emphasizing that Alaska has one of the weakest electric grids in
the United States. This vulnerability has led the Federal
Government to prioritize funding for Alaska, which has received
the fifth highest amount under this competitive initiative due
to its aging utility grid that urgently needs repair. SB 217
aims to mitigate some of these challenges, particularly the
small market limitations that hinder the development of
economies of scale. She pointed out the need to tackle
institutional constraints that impede progress. Currently, there
is no organization focused on the transmission system as a
whole. Although the State of Alaska, the Alaska Energy
Authority, and rail belt cooperatives collaborate through the
Bradley Project Management Committee for federal funding
applications, this framework does not adequately address the
overall transmission system or consider the collective benefits
to all stakeholders within the interconnected grid.
3:50:05 PM
SENATOR WIELECHOWSKI inquired about the legislation passed two
years ago, which created the Regulatory Commission (RRC) under
Senator Giessel's bill. He mentioned receiving considerable
feedback from the RRC in recent weeks. He wondered about their
role in planning the transmission and generation systems and
asked for her thoughts on their effectiveness in that capacity.
3:50:35 PM
MS. HOLDMANN explained that the Alaska Railbelt Reliability
Council (RRC) serves as the Electric Reliability Organization
(ERO) for the Railbelt Grid and has critical mandates, including
developing reliability standards and planning for the overall
system through SB 123. While this planning function is
essential, it is not typically associated with a reliability
organization, which primarily focuses on setting standards
rather than managing assets. The RRC is not expected to take
ownership of or manage these assets comprehensively. Instead,
their role involves setting standards and conducting planning.
There has been some discussion about whether the RRC's
responsibilities should shift, but currently, they do not
include managing the entire transmission system. She referenced
discussions from 2019 about forming a transmission organization,
noting that a bill had already been passed in 2020, indicating
that efforts to establish a mature energy market were already in
progress.
3:52:31 PM
CO-CHAIR BISHOP inquired about the economic constraints and
whether utilizing either SB 217 or SB 257, or a combination of
both, could help address these issues. He asked if this
legislative approach would unlock economic constraints and
attract new capital investments.
3:53:08 PM
MS. HOLDMANN referenced comments made by Matt Perkins, noting
the emphasis on speed, clarity, and fairness as key objectives.
She emphasized that the focus is not solely on renewables, which
present a near-term opportunity, especially given current
federal incentives. However, the economic constraints discussed
are not limited to renewable energy sources but are relevant to
all energy types, including nuclear and coal. She urged that
having an open transmission system is crucial for integrating
various energy sources into the grid, allowing for the delivery
of low-cost power to benefit customers. This aspect of a
functioning transmission system is essential for meeting energy
needs efficiently.
3:54:09 PM
CO-CHAIR BISHOP emphasized to the audience that this discussion
is central to achieving the primary goal of lowering electric
prices.
3:54:24 PM
SENATOR CLAMAN referenced slide six, which mentions
institutional constraints, recalling an economist's observation
about Anchorage. He noted that, unlike other communities of
similar size, which typically have a single utility provider,
Anchorage is served by multiple utilities. He asked whether this
fragmentation is a reflection of those constraints.
3:55:06 PM
MS. HOLDMANN acknowledged that having a single utility could
lead to greater efficiencies within the system. However, she
noted that diversity among utilities can also provide value. For
example, Hawaii essentially operates under a single utility
structure, with Hawaiian Electric Company (HECO) managing all
aspects, including transmission assets. Alaska's geographic
diversity allows for local distribution utilities to focus on
their customers' needs, which is beneficial. She then addressed
the challenges of utility consolidation, particularly among
cooperative utilities. Merging two cooperative utilities
requires a substantial proportion of membership participation at
annual meetings, making it difficult to achieve the necessary
voting thresholds. Achieving a 60 percent turnout for a merger
vote is an almost insurmountable barrier. Therefore, beyond
minor consolidations, such as those under discussion in Seward,
substantial mergers are challenging to realize in the short
term.
3:56:59 PM
SENATOR CLAMAN asked whether it would be more effective to
create an entirely new organization to handle transmission
duties or to expand the existing Electric Reliability
Organization's (ERO) role, which is currently focused on
standards and planning. He inquired about her perspective on
whether it's better to enhance the authority of the ERO to
include additional responsibilities or to start a new entity for
this purpose, considering the progress already made by the ERO
in addressing related issues.
3:57:59 PM
MS. HOLDMANN replied that clarified that SB 217 does not propose
any changes to the ERO. She acknowledged that the question about
expanding responsibilities could be broader. She highlighted the
importance of considering the current ownership of transmission
assets on the Railbelt Grid, which includes five owners: four
cooperative utilities and the state of Alaska, currently owning
about one-third of these assets. This percentage is expected to
rise as more projects funded through the grid initiative will be
state-owned, potentially increasing the state's share to about
50 percent. For effective management of these assets, there
needs to be significant involvement from the asset owners,
including a controlling interest, as they manage these assets
for their members and ratepayers. The ERO is primarily focused
on setting reliability standards, enforcing them, coordinating
joint planning through an Integrated Resource Plan process, and
ensuring consistent interconnection protocols. However, it is
not designed to manage the system as a whole or act as a unified
system operator. The ERO has experienced a slow start, and
adding more responsibilities could hinder their progress. As an
alternative, she suggested the possibility of establishing a
transmission corporation within the state, similar to the
approach taken for the Bradley Lake project. This would allow
for state control and flexibility, enabling adjustments as
needed. If, in the future, the ERO demonstrates capability, the
transmission function could be transitioned to an outside
entity, allowing for adaptability while remaining organized
under the state's umbrella.
4:01:22 PM
MS. HOLDMANN moved to slide 7 and spoke to legislative
objectives for SB 217:
[Original punctuation provided.]
SB 217 How It Will Help
Objective #1:
Tax exemptions for IPP's
• puts IPP's on a level playing field with
cooperative utilities.
• Encourages competition and unleashes free market
principles.
• Supports development of a power market to
increase diversification and reduce costs to
consumers.
• Not limited to renewable IPP's, can also be coal,
nuclear or other technology.
Objective #2:
Improves Transmission Cost Recovery Mechanism
• Eliminates economic constraints of buying and
selling power between utilities, and between
utilities and IPP's.
• Develops an association similar to low-cost, low-
overhead structure that managers existing telecom
universal service charge in Alaska.
• Allows free market to act to drive down costs.
• Enables local control of power decisions.
MS. HOLDMANN reiterated that the bill is not solely focused on
renewable energy. Rather, it applies to all energy sources. The
provisions are designed to be agnostic regarding the type of
energy, indicating their relevance even if renewable energy were
not the primary focus. These aspects are valuable considerations
for the overall energy landscape.
4:01:59 PM
CO-CHAIR GIESSEL inquired whether the vast majority of
independent power producers (IPPs) are primarily focused on
renewable energy sources such as solar, wind, and hydroelectric
power.
4:02:15 PM
MS. HOLDMANN acknowledged that while a significant portion of
IPPs focus on renewable energy sources, this is not universally
true. She cited Aurora Energy, a coal generator in Fairbanks, as
an example of an IPP that does not fit the renewable category.
Additionally, she mentioned that the University of Alaska
Fairbanks sells power into the grid from a coal-based resource,
further demonstrating this diversity. Historically, the trend
has leaned towards renewables, particularly given current
federal incentives and decreasing equipment costs, which create
opportunities for an increase in renewable energy projects.
However, she pointed out that it has been over a decade since
the last wind farm was constructed on the Railbelt Grid. There
is a growing consensus among utilities that there is capacity on
the grid for additional renewable resources, provided they can
be integrated economically for consumers.
4:03:33 PM
SENATOR WIELECHOWSKI mentioned that it has been suggested to
include a provision in the tax exemptions for independent power
producers (IPPs) stating that the cost savings from the tax
exemption should be passed on to consumers. He asked for her
perspective on that recommendation.
4:03:48 PM
MS. HOLDMANN responded that if costs were subject to taxation,
they would ultimately be passed on to consumers. However, she
indicated that she does not have a specific perspective on the
suggestion regarding tax exemptions for IPPs. She mentioned that
Steve Colt has been actively researching taxation issues related
to clean energy standards and suggested inviting him to
contribute to the discussion.
4:04:33 PM
MR. COLT expressed his hope that tax savings for IPPs would
enable them to offer lower prices to utilities. He emphasized
the importance of honest negotiation in ensuring that utilities
secure the best deals for ratepayers. By doing so, utilities
would essentially encourage and force IPPs to pass on the
benefits of tax savings rather than retaining them.
4:05:20 PM
SENATOR WIELECHOWSKI asked whether the legislature, as a matter
of public policy, should mandate that IPPs pass along tax
savings to the local community, considering that these tax
exemptions could represent a significant amount. He questioned
whether it is sufficient to hope that IPPs will voluntarily pass
on the benefits or if there should be a regulatory requirement
to ensure that these savings are transferred to consumers.
4:05:46 PM
MR. COLT expressed uncertainty about the effectiveness of
mandating that IPPs pass along tax savings. He noted that while
it is possible to calculate the difference between what the
taxes would have been under the previous tax structure and what
they will be under the new system, it remains unclear what this
would be subtracted from. Given that IPPs and utilities will
negotiate contracts, he suggested that determining a
counterfactualcomparing the negotiated contract price under the
new taxation system with what would have been agreed upon under
the old systemwould be quite challenging. Therefore, he
personally leans towards trusting the competition and
negotiation process to yield the best outcomes.
4:07:17 PM
CO-CHAIR GIESSEL inquired about the role that the Regulatory
Commission of Alaska (RCA) currently has or could potentially
have in the context of IPPs, and the tax exemption provisions
being discussed.
4:07:32 PM
MR. COLT explained that the RCA has, and will continue to have,
review and approval authority over contracts between IPPs and
utilities. He noted that the depth of the RCA's review process
depends on their discretion, similar to how they handle gas
supply contracts. While the existing statutory framework allows
the RCA to thoroughly examine IPP contracts, it ultimately
determines how deeply it wants to investigate, particularly if
it suspects that an IPP is excessively benefiting from tax
breaks granted by the legislature.
4:09:00 PM
CO-CHAIR BISHOP acknowledged the previous question but presented
a different perspective, suggesting that if electricity costs
are lowered, it could attract new businesses to the borough or
city. This influx of businesses might lead to the construction
of large facilities, ultimately benefiting the local tax base.
4:09:34 PM
CO-CHAIR GIESSEL acknowledged Senator Bjorkman's arrival.
4:09:42 PM
MS. HOLDMANN moved to slide 7 and spoke to the second objective
of SB 217:
[Original punctuation provided.]
Objective # 2: Improve Cost Recovery Mechanism
• SB 217 intends to accomplish this by:
• Adding up all the transmission system costs.
• Allocating costs annually based on each
utilities' proportional load through an
"association".
• Uplifting costs directly to end-users (note end
user pays all costs regardless).
MS. HOLDMANN referenced Dr. Scott's presentation from about ten
days ago, noting that the aim is to consolidate all transmission
system costs and allocate them based on each utility's
proportional load through an association formed among the
utilities that currently own transmission assets, excluding the
state of Alaska. This approach will directly uplift those costs
to end users. End users will ultimately pay these costs
regardless, stating that the change primarily involves how these
costs are recouped from consumers. While it may seem like an
accounting difference, she asserted that this shift could
significantly impact the overall cost recovery process.
4:10:56 PM
MS. HOLDMANN moved to slides 9 - 10 and explained the intent of
eliminating wheeling:
[Original punctuation provided.]
Why does eliminating wheeling matter?
Decisions about investment in projects or economic
dispatch should not be inhibited by the cost of
transmission, or the need to move power across
transmission lines with different ownership
There are discrepancies to the utilities' current
system of accounting, and how costs are allocated and
recovered. Bottom line ? its complicated!
Get rid of the toll road, create an open access
highway that does not discriminate in terms of who
generates the power, or what form of generation is
used
MS. HOLDMANN revisited a slide presented previously to the
committee, updating it with the actual toll numbers from Dr.
Scott's recent presentation. She explained that if Matthew
Perkins with Glass Renewables aims to develop the Shuttle Creek
wind farm in Fairbanks, and if a cooperative from Homer wishes
to participate in the project, they currently face accumulating
additional costs throughout the system. This process could
result in power costs reaching 10 cents per kilowatt-hour by the
time it reaches Alaska Electric Transmission Association (AETA).
Due to these inflated costs, utilities may opt for cheaper
alternatives, while dispatchers might find the proposed
renewable energy more expensive compared to readily available
resources. She highlighted the significance of this issue for
decision-making regarding investments in projects and the
dispatching of the most cost-effective resources on the grid at
any given time.
4:12:22 PM
SENATOR CLAMAN noted that a few meetings ago, testimony
highlighted the significant impact of group funding in the
current dynamics of transmission investment. He emphasized that
this funding allows for substantial investments in transmission
infrastructure without relying on ratepayer contributions
through individual utilities. While the presentation did not
explicitly focus on the importance of GRIP funding, he indicated
that it plays a critical role. Without GRIP funding, much of the
necessary transmission construction would need to be financed
through utility member rates, complicating the situation. He
whether she agrees that this aligns with previous testimony
underscoring the essential nature of GRIP funding for the
overall effectiveness of the proposed changes.
4:13:06 PM
MS. HOLDMANN concurred on the importance of GRIP funding in
removing constraints related to the transmission system,
particularly the challenges faced in getting power on and off
the Kenai Peninsula, which currently relies on a single line,
which makes the area extremely vulnerable She acknowledged the
serious need to upgrade the physical attributes of the
transmission system, stating that these upgrades are essential
even if the legislation is valuable in alleviating economic
constraints. As these constraints are addressed, new
opportunities for power movement will arise. She highlighted
that GRIP funding is crucial for reducing the burden on
consumers in a small market where fixed transmission costs are
significant due to the limited number of customers and expensive
power. She expressed a desire for the state to leverage federal
resources, if possible, to expand the transmission assets
effectively.
4:14:42 PM
MS. HOLDMANN moved to slide 15 and explained how SB 217 handles
cost recovery. She highlighted the discrepancies in how
utilities calculate costs for their transmission assets, noting
that each utility has its own approach due to the complexities
involved in accounting. Some utilities may include all
transmission assets, such as radial lines, in their wheeling
charges, while others might only charge for the specific
contract path used for transmitting electricity. She clarified
that this variance is not indicative of any wrongdoing but is
approved by the regulatory commission. The bill does not
adequately address whether all transmission assets, including
radial assets, are considered in cost recovery. For instance, it
is questionable whether a consumer in Homer should be
responsible for paying for a radial line that benefits another
utility. She suggested that SB 217 should focus on defining
backbone transmission assets essential for moving power across
the grid, as this would help clarify cost allocations and
improve the effectiveness of the bill. There is an opportunity
to enhance the definitions related to backbone transmission
assets to ensure better alignment with the legislation's
objectives.
4:17:09 PM
SENATOR WIELECHOWSKI noted that Chugach Electric Association
(CEA), the utility serving his district, charges 1.4 cents per
kilowatt-hour, which constitutes a significant portion of their
revenue. He questioned whether removing this charge would result
in a loss of revenue for CEA, potentially leading to increased
rates for ratepayers due to the need for subsidies.
4:17:48 PM
MS. HOLDMANN moved to slide 16 and spoke to the cost recovery
under the current model. She explained that CEA occupies a
unique position in the transmission system, being situated in
the middle of the system and historically acting as a backbone
for moving bulk power north and south. They own many important
components of the transmission system. CEA aggregates all
transmission costs into one charge, which includes debts related
to operations and maintenance, along with various components
lumped together. This allows CEA to charge for electricity
moving through their system, resulting in a credit for
ratepayers. She emphasized that this cost-shifting means that
ratepayers in other areas avoid certain costs because they are
being covered by others. This situation is true for all
utilities, but CEA has the most transmission and associated
costs. The way these costs are recovered can vary, allowing for
some flexibility in accounting practices. While some utilities
have low transmission costs by minimizing what is included,
others have higher costs. This system allows for the
redistribution of cost burdens across different users, and any
changes could equalize costs, leading to everyone paying the
same amount. Although some utilities may pay slightly more or
less in the short term, the overall impact involves small
differences in cents or sub-cents rather than significant dollar
amounts. The potential economic value of removing constraints
from the transmission system greatly outweighs the minor cost
differences for individual users. In the long term, the aim is
for Anchorage consumers to benefit from energy projects
developed in other regions, such as wind farms or hydro
projects, as these are unlikely to be built within CEA's service
territory. Therefore, while there may be some short-term
reshuffling of costs, the long-term benefits for all utilities
are clear.
4:23:22 PM
SENATOR KAUFMAN inquired about the overall dollar amounts
involved in aggregate concerning transmission costs,
specifically asking if there is a sense of these amounts at the
unit rate.
4:23:36 PM
MS. HOLDMANN asked whether he is asking about the cost for
transmission.
4:23:44 PM
SENATOR KAUFMAN replied that he is asking about the total volume
and its contribution to the overall dollar amount per year. He
noted that this aggregation through the grid, which charges that
rate, has implications for offsetting costs and the broader
macroeconomic impact on the utility.
4:24:23 PM
MS. HOLDMANN indicated that she could provide specific
calculations regarding the aggregate dollar amounts if
requested. She clarified that some costs are integrated into
capital or long-term debt, making it challenging to separate
them from operational and maintenance (O&M) expenses, which are
distinctly outlined as a separate line item in reports to the
RCA. While those O&M figures are available in the presentation,
they do not encompass all costs related to transmission. Long-
term debt and other categories also contribute to transmission
costs but are not fully represented in the O&M figures.
4:25:21 PM
SENATOR KAUFMAN reiterated the need to break down the discussion
into unit rates and the corresponding volume. He emphasized that
understanding the total dollar amount impact on the system would
be beneficial, especially in light of the changes being
proposed. This insight would provide clarity on the broader
financial implications for the utility.
4:25:51 PM
CO-CHAIR GIESSEL suggested referring back to slide 11 to help
address the question regarding financial impacts. He noted that
there are confidential financial documents that the utilities
provide to the RCA for review. She stated that requesting Ms.
Holdmann to provide precise numbers may not be possible.
4:26:22 PM
SENATOR KAUFMAN clarified that the discussion is focusing on
substance in terms of unit rates rather than in aggregate
amounts. He sought confirmation on this distinction.
4:26:37 PM
MS. HOLDMANN moved to slide 14 and spoke to a chart breakdown of
Railbelt Electric Utilities total cost as of 2021. She noted
that she did not verify this data with the utilities but
attempted to break out the transmission and distribution costs.
The operation and maintenance cost for transmission is $16.4
million. This figure does not include long-term interest and
debt, depreciation, or some wheeling charges, which would likely
fall under the purchase power component. While this does not
represent all associated costs, it provides an idea of the
magnitude, particularly for the operations and maintenance of
transmission. Additionally, she mentioned that the two
components combined account for slightly more than half of the
total.
4:28:08 PM
CO-CHAIR GIESSEL invited Mr. Perkins to comment about the
potential for IPPs to pocket tax benefits.
4:28:31 PM
MR. PERKINS addressed concerns about the perception regarding
developers potentially benefiting from tax exemptions or tariff
eliminations. He explained that the pricing provided to the
utilities includes both tax-inclusive and tax-exclusive figures
to ensure transparency. He agreed with Professor Colt's
assertion that the financial implications are calculable and
clear to the utilities and the RCA, estimating a potential
variation of plus or minus 10 percent of the total cost. As an
Alaska-based company developing projects for Alaskans, public
confidence in fairness is paramount. Currently, the public has
limited options: either rely on a monopoly cooperative or opt
for off-grid solutions. The introduction of competitive
projects, such as those by Golden Valley Electric, creates a
third option. These cooperatives run competitive Requests for
Proposals (RFPs) to identify the best projects. While he
acknowledged potential skepticism regarding trust in developers,
he emphasized the integrity of the competitive landscape
established through utility procurement processes. He further
highlighted that multiple projects are under development by
various entities in multiple jurisdictions, which fosters
competition based on property tax implications and applicable
wheeling rates. This competitive environment ensures that only
the most economically advantageous projects are advanced by
utilities. Additionally, he noted that all relevant boroughs
have unanimously supported property tax exemptions, which
reinforces the collective endorsement of eliminating certain
wheeling rates, ultimately benefiting the utilities and the
communities involved.
4:31:28 PM
MS. HOLDMANN moved to slide 18 - 19 and spoke to the elimination
of wheeling:
[Original punctuation provided.]
How SB 217 Handles Elimination of Wheeling
Directs utilities to create an "association" for the
purpose of calculating total transmission system
costs.
Directs the RCA to establish a transmission cost
recovery mechanism taking into account each utility's
proportion of the "total load on the integrated
transmission system."
• How is this fair? Members pay for all
transmission costs now just in a different way.
• Assuming that "total load" is interpreted as
coincident peak demand on the system, it best
aligns with the cost causer = cost payer
principle.
The "Association" calculates the total annual cost of
an "integrated transmission system" and allocates a
share of this lump-sum cost to each utility (LSE).
• Does not distinguish 'backbone' transmission for
power N-S, or radial lines to connect loads
specific to an LSE (means all consumers need to
pay for transmission that only benefits one LSE)
• Calculation is open to RCA's interpretation as to
what "total load on the integrated transmission
system" means. (by contrast, a utility's
contribution to coincident peak demand is a less
ambiguous metric.)
MS. HOLDMANN noted that the committee previously discussed the
formation of an association among utilities owning transmission
assets. This association would calculate annual costs, resulting
in a lump sum payment that each utility would be accountable
for, reflected in ratepayer bills. However, SB 217 lacks clear
definitions regarding what constitutes transmission assets. From
the utility industry's perspective, there are established
definitions distinguishing between transmission assets and
backbone transmission assets, which are essential for the
movement of power in and out of specific service territories.
She emphasized the need for legislative clarity on whether the
focus is on all transmission assets or primarily on backbone
transmission assets. She raised concerns about the
interpretation of "total load on the integrated transmission
system." Best practices within the utility industry emphasize
assessing coincident peak demand or load rather than merely the
volume of energy transferred through the system. This
distinction is crucial for understanding when congestion occurs,
akin to identifying traffic jams on a highway. Therefore, it is
essential to recognize the industry's best practices for
determining cost allocation. While the intention behind the
legislation may align with these principles, further
clarification would be beneficial.
4:34:05 PM
MS. HOLDMANN moved to slide 21 and spoke to best practices to
eliminate wheeling:
[Original punctuation provided.]
Best practice framework for elimination of wheeling
Coincident peak demand - period when electricity usage
(demand) is at its highest across the entire system
Load share ratio - considers users' overall energy
consumption over a specific period
Transmission lines (like highways) are typically built
for peak demand, not how much energy (traffic) flows
through the system.
Texas operates as an electrical "island" and because
power generated in Texas is not sent outside of the
state, Texas is exempt from federal FERC regulation
(like Alaska and Hawaii)
"?pool backbone transmission system costs and allocate
those costs based on a coincident peak or load share
ratio basis" - Adapted from Texas Substantive Rule
25.192
4:34:26 PM
MS. HOLDMANN highlighted the unique nature of Alaska's energy
market, noting the scarcity of analogous markets for comparison.
She stated that while it is challenging to find best practices
directly applicable to Alaska, the state lags behind wholesale
energy markets, which offer numerous examples to learn from. She
identified three specific markets as valuable sources of
insight:
1. Iceland: The structure of a regional transmission
organization in Iceland serves as a best practice for grid
management.
2. Texas: The state has effectively managed wheeling costs and
implemented strategies to eliminate them, establishing a
model worth emulating.
3. Hawaii: Known for its innovative long-term planning in
energy management, Hawaii is aggressively pursuing a 100
percent decarbonization goal. Its approach to all-inclusive
grid planning presents another best practice that could
benefit Alaska as it seeks to incorporate new assets and
enhance transmission efficiency.
4:35:43 PM
MS. HOLDMANN moved to slide 22 and explained what SB 217 does
not address:
[Original punctuation provided.]
SB 217 Does Not Address Bigger Questions
SB 217 does not address AEA (state) owned assets.
These currently include about 30% of all Railbelt
"backbone" transmission assets, and this will increase
with GRIP-funded projects.
Questions:
• How will new AEA-owned assets be managed?
• Will the Bradley Lake regulatory exemption extend
to these new assets? (presumably, yes)
• What is the long-term strategy for asset
management and ownership?
MS. HOLDMANN expressed concerns regarding SB 217 and its
approach to managing new state-owned assets related to the grid
project. She wondered about the future handling of these assets,
particularly if the project is funded and proceeds as planned.
She emphasized the need for clarity on whether these assets will
be organized under a structure similar to the Bradley Project
Management Committee, which operates with exemptions from
regulation. She suggested that the state has an opportunity to
reconsider how to manage these assets, advocating for a redesign
that enhances transparency and accountability in operations,
management, and rate-setting for state-owned assets. This
moment, she noted, presents a chance for the state to establish
a more effective framework that aligns with its investment and
participation goals in future grid projects.
4:37:01 PM
SENATOR CLAMAN addressed the issue of transmission ownership,
referencing an earlier question about the ownership structure of
transmission assets. He highlighted that while the existing
utilities currently own the transmission structure, there is a
need to consider how the state-owned assets fit into this
equation. He pointed out that the ownership interest of the
current utilities in any new entity managing transmission assets
is crucial. However, the state-owned assets, such as those
associated with the Bradley Project, complicate this landscape.
He asked for confirmation of his understanding that it is
important to find a solution that incorporates both state and
existing utility ownership for effective management of
transmission assets.
4:38:01 PM
MS. HOLDMANN acknowledged the astuteness of the point raised
regarding the ownership structure of transmission assets. She
noted the need for a unique construct, referencing Iceland's
approach where individual municipal utilities combined their
transmission assets to form a transmission organization under
state oversight. She highlighted that the Bradley project serves
as a good template for this structure, especially in terms of
dispute resolution and organization. However, she emphasized
that a balance is needed between state-owned assets and
privately owned assets, such as those from cooperative
utilities. While there is no suggestion to change ownership
immediately, the gradual transfer of asset ownership toward the
state, as seen in Iceland, is a model to consider, though it is
not a prerequisite for developing an effective management
framework.
4:39:22 PM
MS. HOLDMANN moved to slide 23 and spoke to the future of the
Railbelt Grid:
[Original punctuation provided.]
Future of the Railbelt Transmission Grid
STEP 0: Establish reliability standards: SB 123
(2020), now RR
STEP 1: Eliminate wheeling: SB 217, SB 257
STEP 2: Create a centralized transmission authority:
SB 257
STEP 3: Seize the resulting opportunities to develop,
transmit, and use low-cost power
Upgrade transmission assets - GRIP
MS. HOLDMANN acknowledged the frustrations felt by legislative
members, who may have believed past issues had been resolved
years ago. The current efforts are incremental steps toward
establishing a modern transmission system, highlighting the
importance of reliability standards established by the Electric
Reliability Organization, as exemplified by SB 123 However, she
pointed out that while SB 217 and other proposals aim to
eliminate wheeling charges, they primarily address economic
limitations rather than the structural limitations that persist
within the system. Despite these challenges, she commended the
legislature for its attention to these issues, noting that any
advancements made will contribute significantly to fostering a
competitive energy market in the future. She underscored the
importance of exploring alternative solutions at this critical
juncture.
4:40:56 PM
MS. HOLDMANN moved to slide 24 and presented a picture from
Iceland illustrating their control center. She explained that it
represents their perspective on the transmission system
operator's role as integral to the overall system.
4:41:16 PM
MS. HOLDMANN moved to slides 25 - 26 and spoke to the governor's
recent press release regarding SB 217:
[Original punctuation provided.]
SB 217 Press Release February 2nd, 2024
"Currently, there are electrical tariffs on the
Railbelt system that stand in the way of transmitting
the lowest-cost power," said Governor Dunleavy. "This
legislation would eliminate these tariffs and
transform the system into a public highway rather than
a series of toll roads. This would lower costs for
ratepayers and create new opportunities for
independent power producers."
HB 307 (SB 217) improves how electricity transmission
costs are managed in Alaska. These regulatory measures
would eliminate the current method of charging per-
unit wholesale transmission fees and instead would
require the Regulatory Commission of Alaska (RCA) to
create a system that will allow for the economic
dispatch of the lowest-cost power at all times. It
will also provide fair and reasonable cost recovery
for the utility companies and clarifies which electric
utility transmission assets are subject to this
system.
This is exactly what we aspire to do ? but needs to be
clarified in SB 217
MS. HOLDMANN noted that the governor's press release articulates
shared goals for Alaska's energy systems. However, upon reading
SB 217, she observed discrepancies between the aspirational
goals outlined in the press release and the actual language in
the legislation. She emphasized the opportunity for
clarification and strengthening certain components of the bill.
She highlighted several areas from the governor's statement that
reflect commendable roles, which would be difficult for anyone
to disagree with.
4:42:10 PM
MS. HOLDMANN moved to slide 27 and explained what SB 217 fails
to do:
[Original punctuation provided.]
SB 217 What it Doesn't Do
• Does enable Gov's goal of a 'public highway' for
transmission, but does not indicate how it will
be managed for the greater good. (SB257)
• Does not require or subsidize renewable
generation (or any new generation) but enables
it.
• Does not require any new transmission to be built
to be effective important regardless of GRIP
funding, but does enable GRIP investments to be
maximized.
• Does not limit utility/state ability to recover
costs.
• Does not change who pays for transmission rate
payers now pay for transmission through wheeling
and will continue to, but eliminates the cost
from distorting the economic decision of
assessing generation options.
MS. HOLDMANN discussed the concept of a public highway as a
metaphor for transmission assets, noting that while it
represents a shared resource, there is currently no management
structure in place to oversee it for the greater good. She
highlighted that neither the ERO, the state, nor individual
utilities are positioned to manage these assets effectively, nor
is the existing association equipped for such responsibilities.
This raises the question of who will ensure the overarching
benefit of the transmission system. The discussion is not about
subsidizing renewable energy but rather about establishing a
framework beneficial to all power users, regardless of the
energy source. She emphasized the importance of addressing this
issue now, particularly with funding opportunities available, to
ensure that the system is organized for future improvements.
This restructuring will not alter the total transmission costs
borne by end users; it simply reallocates how those costs are
accounted for, which she believes is a significant adjustment.
4:43:55 PM
MS. HOLDMANN moved to slide 28 and summarized areas for
improvement within SB 217. She suggested that clarifying the
role of the ERO may be worth consideration.
4:44:21 PM
MS. HOLDMANN moved to slide 29 and spoke to broader
considerations:
[Original punctuation provided.]
Other (broader) considerations:
• If GRIP funds are matched, what expectations
should the ratepayers have of the state to ensure
the transmission investments are properly managed
for the greater good?
• How can the state reinforce the individual local
cooperatives efforts to work for the benefit of
the entire state vs individual service
territories?
• How can Alaska demonstrate to energy developers
that we are open for business and have a
consistent, reliable economic platform to operate
within.
• With energy as a priority, what commonalities can
we find among current legislative vehicles to
streamline action at this point in the
legislative session?
MS. HOLDMANN questioned the expectations ratepayers should have
when state funds are matched and how the state can ensure these
transmission investments benefit the greater good. She also
raised concerns about the need for incentivizing cooperatives to
work in the state's best interest, emphasizing the importance of
creating a stable market environment that signals to developers,
like Matthew Perkins, that Alaska is open for business.
Furthermore, she inquired whether there are additional energy
legislations with synergies that could be leveraged to create a
comprehensive energy package for this session that the committee
could take pride in.
4:45:41 PM
MS. HOLDMANN moved to slide 30 and spoke to the vision for the
Railbelt:
[Original punctuation provided.]
A Vision for our Railbelt
We want a system that:
• Allows cheapest cost power to get to end -users
wherever it is produced, whatever the source is,
and wherever that generation is located.
• Facilitates innovative energy projects at scale
for energy security and diversification.
MS. HOLDMANN reiterated her vision for the future of the
Railbelt, emphasizing the need to incentivize economic
development and provide low-cost power to citizens throughout
the region regardless of location.
4:46:19 PM
SENATOR WIELECHOWSKI inquired about the best approach for
funding the GRIP initiative, specifically whether it would be
more advantageous to secure a single state funding allocation or
to consider a more gradual funding approach. He expressed
interest in understanding the historical context of state
project funding, the financial dynamics involving utilities and
ratepayers, and the overall appropriateness of different funding
strategies.
4:47:10 PM
MS. HOLDMANN expressed concern regarding the signals sent to
federal agencies, particularly the Department of Energy,
regarding funding and project management capabilities. She
emphasized the importance of demonstrating that the organization
receiving funding can secure matching funds and manage the
project transparently. A well-articulated plan for matching
funding is essential to show that Alaska is committed to
attracting federal resources, not only for urban areas like the
Railbelt but also for rural Alaska. Recent successes in
obtaining additional project funding should reinforce this
commitment. While acknowledging the myriad of funding priorities
at both federal and state levels, she stressed the significance
of signaling the importance of this initiative through state
funding, as it will ultimately benefit ratepayers and the state
as a whole.
4:49:00 PM
SENATOR WIELECHOWSKI noted that the state has funded billions of
dollars in energy initiatives. He asked whether there is any
precedent for the state requiring ratepayers to contribute a
portion toward projects that the state has funded.
4:49:16 PM
MS. HOLDMANN highlighted that there are several examples of
state funding structures, noting that the Bradley project was
funded with 50 percent from a grant and 50 percent through a
bonding process. The utilities repaid approximately $12 million
annually, effectively resulting in ratepayers contributing to
that 50% share of the project's cost.
4:49:58 PM
CO-CHAIR BISHOP expressed a desire to send the right signal
regarding funding. He emphasized the rarity of this opportunity
given the current state of the country's finances. He inquired
about the estimated timeline for the RCA to implement the
proposed measures and navigate the regulatory process. He asked
whether this would take one, two, or three years or if there was
any clarity on the timeline.
4:50:54 PM
MS. HOLDMANN appreciated his question. She highlighted the
significant responsibilities placed on the RCA under SB 217. She
noted that the RCA typically opens dockets, which can take
around 300 days, approximately one year, just for data
collection. While she emphasized that the RCA would be better
positioned to provide a specific timeline regarding the cost and
duration of the regulatory process, she pointed out that
previous experiences, such as with the ERO, indicate it may take
about two years to implement regulations. Even after regulatory
approval, transitioning to new rate structures would require
further evolution, allowing for a gradual shift that considers
individual utilities' unique circumstances and minimizes impact
on their ratepayers.
4:52:44 PM
SENATOR CLAMAN asked a follow-up to Senator Bishop's question,
linking it to his earlier inquiry about managing the ERO in the
context of transmission. He expressed frustration over the
prolonged timeline for the ERO to get started and voiced concern
that creating a new organization might take even longer than
expected. While he acknowledged that one approach could involve
moving forward with the existing organization to expedite
progress, he also questioned whether simply adding more
responsibilities to the ERO would accelerate their work, given
that they have already begun addressing some issues. He noted
the challenge of creating a regulated entity that ends up taking
years to function properly, leaving everyone wondering what went
wrong. He requested ideas on how to manage this situation
effectively.
4:53:53 PM
MS. HOLDMANN acknowledged the collective frustration over the
slow pace of action on many issues. She clarified that the RRC
was a privately formed group that applied to become the ERO for
the Railbelt. It was not organized at the mandate of the state
but instead responded to the requirement that the Railbelt must
have such an organization. The RRC was the sole applicant to
serve as the ERO for the state, making its formation distinct.
She highlighted that there is now an opportunity to establish
something within the state that could potentially lead to faster
action.
4:54:47 PM
SENATOR CLAMAN reflected on the discussions surrounding House
Bill 123, which created the ERO. He recalled the debate on
whether the state should establish the entity or simply create
the requirement and allow the market to respond. The decision
was made to take a market-driven approach, leading to the
formation of the ERO, with only one group, the RRC, applying. He
emphasized that this outcome was based on legislative choices
informed by feedback suggesting that letting the market figure
it out would be a better approach. He affirmed that the RRC's
existence resulted from decisions made by the legislature.
4:55:40 PM
SENATOR WIELECHOWSKI referred to slide 28, which addressed areas
for improvement regarding the cost recovery mechanism in section
AS 42.05.905. He inquired about the basis for allocating costs
and asked for suggestions on how SB 217 might be improved.
4:55:57 PM
MS. HOLDMANN questioned whether all fixed costs were being
pooled and reapplied in the same manner, treating them as
variable costs tied to energy movement across the system. Her
first impression was that this was happening, though she did not
believe it was the intent. She raised concerns about whether the
costs were being applied as a charge to the energy units or
allocated to the end user, as had been discussed. While she was
now more confident that the intent was the latter, the language
in the bill could be clarified. She emphasized the need to avoid
a scenario where individuals, like Mr. Perkins, end up paying a
single large "pancake" charge, underscoring the importance of
clarity in the bill beyond just intent.Bottom of Form
4:57:25 PM
SENATOR DUNBAR asked for clarification regarding the difference
between the cost recovery needed to fund transmission assets and
the concept of a "pancake" charge.
4:57:39 PM
MS. HOLDMANN replied that the main difference lies in how costs
are recovered. One approach ties cost recovery to the movement
of energy through the system, treating transmission costs as
variable expenses linked to the sale of power. In this case,
costs are applied when power is sold in the system. The
alternative approach treats transmission costs as fixed, with
all parties agreeing to cover these expenses on an annual basis,
independent of energy movement. This method would ensure that
everyone pays a consistent amount, without tying it to power
flow. She emphasized the goal of avoiding a "pancake" charge,
which would still link costs to energy movement. The intent is
to prevent economic constraints on energy movement within the
system based on the location of energy production and
consumption.
4:58:51 PM
SENATOR DUNBAR noted that the proposed cost recovery structure
could create some distortions. He observed that it likely costs
more to transmit energy from Fairbanks to Homer than from
Anchorage to the Mat-Su. He asked for confirmation that, under
the proposed system, there would be no additional charges for
moving energy from Fairbanks to Homer compared to Anchorage to
the Mat-Su. He clarified that this would not involve "artificial
toll roads," but rather a single rate, where all end users,
including utility members, would pay the same. He sought to
confirm whether this meant that someone in Homer would pay the
same transmission costs as someone in Anchorage.
4:59:43 PM
MS. HOLDMANN replied that the proposed approach separates
transmission costs from the movement of energy. She emphasized
that moving an additional electron through the system does not
incur a higher cost, meaning there is no significant marginal
cost associated with transmitting one more unit of energy. This
method ensures that transmission costs are not tied to the
physical movement of energy across the system.
5:00:05 PM
SENATOR DUNBAR noted that there is a higher average cost because
of the infrastructure required to extend to the ends of the
system.
5:00:12 PM
MS. HOLDMANN stated that once the system reaches the point of
maximizing its capabilities, that observation is absolutely
true.
5:00:25 PM
CO-CHAIR BISHOP referred to the second bullet point and asked if
Ms. Holdmann is wanting to ensure that an open access pipeline
for new energy is truly created if the goal is to ensure the
creation of an open access pipeline for new energy.
5:00:36 PM
MS. HOLDMANN responded that is entirely true.
5:00:53 PM
CO-CHAIR GIESSEL held SB 217 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 217 Holdmann SRES Presentation 3.25.24.pdf |
SRES 3/25/2024 3:30:00 PM |
SB 217 |
| SB 217 Letter of Support RIPP 3.24.2024.pdf |
SRES 3/25/2024 3:30:00 PM |
SB 217 |
| SB 217 Letter of Support AKPIRG 3.25.24.pdf |
SRES 3/25/2024 3:30:00 PM |
SB 217 |