Legislature(2009 - 2010)BUTROVICH 205
02/22/2010 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB220 | |
| SB277 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 220 | TELECONFERENCED | |
| *+ | SB 277 | TELECONFERENCED | |
SB 277-PUB. UTILITY EXEMPTION: RENEWABLE ENERGY
4:12:10 PM
CO-CHAIR WIELECHOWSKI announced SB 277 to be up for
consideration.
MR. PAWLOWSKI, staff to Senator McGuire, explained that SB 277
addressed the section of law they were just talking about with
the Regulatory Commission of Alaska (RCA). That is the
definition of public utility, which is relatively circular. The
definition of "utility" refers to "public" which then refers to
"utility" which refers back to "public." So there is some
confusion about what the appropriate role of independent power
producers is. Traditionally, Alaska has had large locally owned
cooperatives or municipally owned utilities serving in a
regulated marketplace. Senator McGuire discovered through her
research that the rate of penetration of renewable energy
sources within regulated and unregulated markets is
fundamentally different. He said their packets contained
information about competitive electricity markets; the author
suggested that the difference in approach to a project's risk
profile is fundamentally different between a regulated
monopolistic utility versus an investor owned utility.
SB 277 attempts to exempt from the regulations that are
explicitly in statute now independent power producers that
generate entirely from renewable energy sources and then sell to
a regulated utility. The theory being that the layer of
protection available to the consumer comes at the regulated
utility level, but in a familiar way as in gas contracts in Cook
Inlet where the producer of the gas is not regulated but the
contract for gas is regulated. Looking at that type of model for
renewable power in Alaska, he said, Senator McGuire believes
will encourage the development of renewable energy in Alaska,
and removing some of what could be considered duplicative
regulation in statute could open the door for private investment
in the sector so that the goal of 50-percent renewable energy
could be met by 2020.
4:14:15 PM
He said the bill is actually fairly simple. Sections 1 and 2 on
page 1, line 10, and page 2, line 1, insert conforming language
to the exemption that is prepared in Section 3. The exemption is
from the RCA authority over the renewable energy generator when
they sell to one or more utilities that are regulated by it.
4:15:15 PM
DANIEL PATRICK O'TIERNEY, Chief Assistant Attorney General (AG),
Department of Law (DOL), Supervisor, Regulatory Affairs and
Public Advocacy Section, said he was available for questions on
SB 277. He explained that his section performs the AG's public
advocacy role in regulatory matters under AS 44.23.020(e).
CO-CHAIR WIELECHOWSKI asked if he has experience with this or
indirect regulation of power producers or energy suppliers.
MR. O'TIERNEY answered that he assumed he meant that this posed
no direct regulation on a cost basis of an independent power
producer (IPP). The IPP's provision of power would be submitted
in a contract form with the utility to the commission for
approval. The commission would engage the contract at that point
in the process. If that is what he meant, he said he had some
experience with it.
CO-CHAIR WIELECHOWSKI asked if Enstar purchasing gas from a Cook
Inlet provider would be a correct analogy in deciding whether or
not the RCA can look at the costs of getting that gas to Enstar.
Mr. O'TIERNEY replied that he thought it was similar in the
sense that direct regulation would be focused upon a cost basis
for the purposes of determining revenue requirement and related
rate base return that yields rates in a regulated environment.
When a contract is submitted to the commission for its review,
from his perspective in practicing before the RCA, it would
apply its just and reasonable standard, but it doesn't have the
capability of scrutinizing the costs involved in providing the
service. So, it's then faced with having one party to a contract
submitting a contract and not having jurisdiction over the other
party in the contract. It's the party that has produced the
power and presumably has the related costs that normally is not
reviewed by the commission. He said he would leave it to the
Commission to speak to how it has dealt with the difficulties
involved in reviewing contracts under this standard.
CO-CHAIR WIELECHOWSKI asked if he believed the public's interest
could be adequately protected under this bill through the
process of exempting IPPs from regulation.
MR. O'TIERNEY answered that any end user of a commodity or
product wants some assurance that the price it's paying is
price-disciplined in some fashion. In a capitalist economy,
competition usually provides that price discipline and
regulation is a proxy for marketplace price competition to the
extent there is no market or there isn't an effective market to
do that job. Usually regulation is a substitute for free market
competition to the extent that there is no market or no
effective market to do that job. If he were looking at this
proposal, he would be asking the question: is there sufficient
competition in the market that would produce independent power
contracts for provisioning utilities that are sufficiently
market-disciplined. If not, then he would have some concerns and
one would ask why they wouldn't be regulating that service.
4:21:05 PM
CO-CHAIR WIELECHOWSKI asked him to submit an opinion on this
bill over the next few days.
MR. O'TIERNEY agreed and added that generally you have to be
able to compare apples to apples. So, if markets outside
involving IPPs are generally unregulated you have to compare and
contrast what our marketplace looks like for this service here
in order to be able to determine whether that is a relevant
factor in determining how to handle it in Alaska. He is not the
person to provide that analysis, but there are certainly some
who could.
CO-CHAIR WIELECHOWSKI said he is the person who is charged with
protecting consumers.
MR. O'TIERNEY said he is not an expert on IPP status in outside
jurisdictions.
CO-CHAIR WIELECHOWSKI said he understood that, but still wanted
his input.
4:22:57 PM
BOB PICKETT, Chairman, Regulatory Commission of Alaska (RCA),
said this would also mean that IPPs wouldn't file for a
Certificate of Public Convenience and Necessity (CPCN). A CPCN
makes findings, for instance, that this utility service is
actually needed by the public at this particular location, point
and time and that the financial managerial and operational
capacities are there to provide the service that is applied for.
He said the FERC issued a Notice of Inquiry a few weeks ago to
address a lot of these issues in the renewable energy arena. It
wants to promote renewable energy resources but in a way that
guarantees just and reasonable rates while eliminating the
impediments to these resources accessing the grid in the Lower
48.
As Mr. O'Tierney stated, Mr. Pickett said, Alaska has an "island
grid" that is disconnected and for all practical purposes is not
under the jurisdiction of the FERC. The FERC has taken used
market forces as a proxy for regulation in the Lower 48 and they
focus on the competitive wholesale electric markets. They
continuously monitor these markets and then enforce market rules
as needed with a fairly well established regime. They have also
come to the conclusion that system reliability is critically
important and that is the purpose of the Notice of Inquiry.
MR. PICKETT said he understood their concerns about timing with
a lot of the IPPs that many times find themselves without
significant public subsidy - whether that be from the state, the
federal government, direct subsidies or tax credits or whatever
- for projects that will not pencil out or make sense and could
not provide power at a competitive rate to the regulated
utilities. He said Fishhook, a small hydro project, petitioned
the RCA earlier for a strategy to address some of these.
4:26:10 PM
JAMES KEEN, Chief, Engineering, Regulatory Commission of Alaska
(RCA), explained that last year the Commission released two
different orders exempting small IPPs from certification on the
basis that it would see these utilities come forward through the
regulated utility they would be selling power to in a power
purchase agreement. The RCA believes it could serve the public
interest by simply looking at the power purchase agreement,
alone, regulating that rate to make sure a fair price is flowing
through to the ultimate consumers, but removing the burden of
certification and economic regulation from the IPP. This was
done in the case of Fishhook Renewable Energy, which is putting
in a small river hydro in Hatchers Pass, and South Fork Hydro in
Eagle River. Both of those would be selling power to Matanuska
Electric Association (MEA).
MR. PICKETT added that another approach is a qualifying facility
(QF) qualification under the FERC in which an IPP fills out the
application. If the FERC grants QF status, the state
jurisdiction is preempted. Then the QF will sell power to the
regulated utilities at an avoided cost basis.
4:27:55 PM
CO-CHAIR WIELECHOWSKI asked if a company is not directly
regulated, does the RCA have access to information regarding
power production costs when it is reviewing a contract between
the IPP and a regulated utility.
MR. PICKETT answered no.
CO-CHAIR WIELECHOWSKI asked if Cook Inlet natural gas had
created pricing issues for the RCA.
MR. PICKETT answered that it has created some intense
challenges. While several contracts have been recently approved,
it depends on how a case is presented, what interveners after
the filing is noticed become parties, and the strength of the
evidence presented in their arguments. Everybody's due process
rights are protected, but there is uncertainty, for sure.
CO-CHAIR WIELECHOWSKI asked if he had concerns over regulating
IPPs.
MR. PICKETT answered that he wouldn't speak for the Commission
on adopting a formal policy on any particular piece of
legislation or offer direct input; that takes an action at a
public meeting. But just speaking from what he has seen in his
time as commissioner and chairman, it does raise some question
marks, particularly if timing is a big issue. It's going to
depend on the nature of what the IPP brings in for the
interconnection agreement, which they will have to negotiate
with a regulated utility. Price is not the only issue. System
stability is very important. On the price side, they need to
negotiate the power sale agreement with the utility and then
present it to the RCA. The agreement will be reviewed as a whole
as to its reasonableness, and whether it is in the public
interest.
SENATOR STEDMAN asked if someone was to come in and build a 50
mgW hydro, would they need at CPCN if this bill passed.
MR. PICKETT replied their read is that they would not need a
CPCN.
SENATOR STEDMAN asked if he should be concerned about that.
4:31:49 PM
STEWART GARY, Assistant Attorney General Representing the RCA,
Department of Law (DOL), clarified that his role is found in AS
42.04.040(a), where it says it the responsibility of the
Attorney General to provide legal counsel to the Commission. So,
from the Commission's perspective he would echo what Mr. Pickett
said - the IPP would not be required to apply for or receive a
CPCN from the Commission. But other questions about the extent
that other provisions might apply are open, particularly related
to interconnection.
SENATOR STEDMAN asked again if he should be concerned.
MR. GARY answered yes. The CPCN process is a gatekeeper
function. For practical purposes, it determines what someone as
an individual investor decides to build is something that the
public actually needs - the public convenience and necessity
part of it. The other aspect is the fit, willing and able part -
is the proposed party financially capable of doing it, are they
managerially capable of doing it, and are they operationally
capable of doing it. CPCNs protect the public from interruptions
in utility service. Society has come to expect public utilities
to meet a higher standard and that is to provide their services
reliably 24 by 7. The only way to do that is to put up a
threshold across which the utility has to pass. Yes, he would be
concerned.
4:34:59 PM
MR. PICKETT said he would stand by for questions.
4:35:20 PM
ETHAN SCHUTT, Cook Inlet Region, Inc. (CIRI), said he wanted to
provide some context on SB 277. It is important in making
regulatory fit amenable with the private development of
renewable resources for IPPs while striking a balance to protect
the public interest to make sure the rate is fair and the
service is reasonable.
He said that the status quo is that they only have public
utilities providing electrical service on the Railbelt. The
CPCN, the rate case and regulatory oversight functions that take
place with the RCA are entirely appropriate given that public
utilities have been established in areas where they have a
monopoly service for electricity. So to the degree that a public
utility makes good or bad business or financial judgments or
investments or that they are operationally efficient or not, the
cost and benefit of all that decision making, he said, the
bottom line is that existing public utilities have a rate case.
So, for better or worse, their decision making as it affects
their cost structure gets passed through to their customers who
can't do anything about it.
CIRI is not proposing to have retail customers, but rather
developing a project and then having to go through a negotiated
process for power sales through PPAs with two or more existing
public utilities in order to sell their power to a commercial
customer who happens to be a regulated utility. They envision as
part of that process, that the utilities will demand a certain
amount of information justifying their own costs into the
project. That same package of information that they use for
their own purposes for the negotiation will also be used in
making their case to the RCA - why this contract is allowed to
be put into their rate and be part of their rate base as part of
their regulated function.
RCA staff and lawyers have testified that they won't have any
ability to look at costs, but that from a strictly absolute
interpretation. It's a little misleading in that these utilities
aren't just going to buy power without being able to look at
certain financial and cost information.
MR. SCHUTT pointed out in the notion of a market that the cost
is not the only piece of the puzzle on the financial side. A
significant amount of risk is allocated to the IPP side of the
table that remains long after the contract has been entered
into. Some of the more significant risk that remains in the case
of a wind project is the resource risk. In their case they have
10 years, a long history, of data from Fire Island, much longer
than the two or three years that are commercially used in many
locations of two or three years. If the IPP gets that wrong in
negotiating its price of power, and the wind resource is
actually less than what the modeling indicates it should have
been, that loss falls on the IPP side of the ledger. There is no
real way to allocate that risk any differently through a long
term contract.
IPPs also maintain the long term risk of equipment failure, cost
overruns or other executional issues in the construction or
operation of the plant itself. By contrast, if this was a
project that was developed by a public utility, all of those
risks would be borne directly by the rate payer.
4:42:59 PM
MR. SCHUTT said the current structure proposed by SB 277 fairly
allocates risks and rewards for an IPP with a renewable resource
when the only customers are a regulated utility.
4:44:47 PM
CO-CHAIR WIELECHOWSKI said that he would keep public testimony
open. Finding no further questions, he adjourned the meeting at
4:44 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 220 version K.pdf |
SRES 2/15/2010 3:30:00 PM SRES 2/18/2010 3:30:00 PM SRES 2/22/2010 3:30:00 PM SRES 2/24/2010 3:30:00 PM |
SB 220 |
| SB 277 Bill Packet.pdf |
SRES 2/22/2010 3:30:00 PM |
SB 277 |
| Possible Amendment - 26-LS1197K.11.pdf |
SRES 2/22/2010 3:30:00 PM |
|
| Possible Amendment - 26-LS1197K.10.pdf |
SRES 2/22/2010 3:30:00 PM |
|
| Possible Amendment - Energy Policy_Nuclear.pdf |
SRES 2/22/2010 3:30:00 PM |