Legislature(1995 - 1996)
03/07/1996 01:34 PM House CRA
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 54 - ELECTRIC UTIL SERVICE/ APUC Number 2381 CO-CHAIR IVAN noted that committee packets for SB 54 included fiscal notes and sponsor statements, as well as letters of support. TAPE 96-18, SIDE A Number 0026 BRUCE D. SCOTT, Director, Members and Public Relations, Matanuska Electric Association, Incorporated (MEA), testified via teleconference. He read the first portion of a four-page document dated March 7, 1996, included in the committee packets. He explained that MEA, incorporated since 1941, was now a member-owned nonprofit cooperative serving 29,000 members in Southcentral Alaska, with a service are of 3,360 square miles. He discussed the pricing structure of MEA and explained that of the four types of costs to customers, only the wholesale cost of energy went down when MEA lost a customer. Remaining costs were then spread to fewer customers. A few large, commercial customers were important to the cooperative; MEA's largest customer represented almost 3 percent of total sales, whereas the six largest customers represented 10 percent. Therefore, MEA was concerned about "cherry picking," where a competitor might pick up these high-consumption customers, resulting in higher costs to the other consumers. Therefore, MEA urged passage of SB 54, which he said would allow utilities to preserve their retail loads and avoid counterproductive and unfair cherry picking. They suggested the real opportunity for savings was in coordinated planning and operation of generation facilities. Number 0462 SAM COTTEN, Commissioner, Alaska Public Utilities Commission (APUC), testified via teleconference, indicating the committee had a copy of APUC's position paper on SB 54. He noted that fellow commissioner Alyce Hanley and Paul Morrison, chief of APUC's Engineering Section, were also present on teleconference. Mr. Cotten said the commission unanimously opposed SB 54, basically because it eliminated the opportunity for the commission to analyze potential benefits of competition. It also eliminated the potential choice of service options by consumers. He acknowledged concerns about "cherry picking" and said, "we're not aware of any case where the commission has allowed direct competition. While we must consider the effect on the current providers, the results could be better rates, better service, more choices." He added, "the commission feels that protection is already in place and feel that this bill would go against what is a national trend, that I think would apply to Alaska as well, and that's the potential for benefit from competition." ALYCE HANLEY, Commissioner, Alaska Public Utilities Commission, voiced via teleconference that she agreed with Commissioner Cotten's testimony but had no further comments. Number 0653 CO-CHAIR AUSTERMAN said, "There's been reference to APUC being able to control competition to some degree. And is that a correct statement, that if somebody wants to move into an area, that it does have to come through APUC and some competition, then, is controlled by APUC?" Number 0695 PAUL MORRISON, Chief, Engineering Section, Alaska Public Utilities Commission, answered via teleconference, saying, "Our current statutes require a waiver of objection be (indisc.) by a utility trying to get into another utility service area." MR. COTTEN added, "Basically, the answer is yes. In order, for example, for somebody to come into Kodiak and compete with Kodiak Electric for providing electric service, they'd have to come to the commission to get permission to do that." MS. HANLEY said, "And I think at the present time - there perhaps was one exception - there are no overlapping certificate areas. I think we basically have just one certificate in each area. I think, through some mistake some years ago, there got to be a portion of an area that overlapped, but for the most part, we have no overlapping. They're all pretty much monopoly services." Number 0765 DAVID HUTCHENS, Executive Director, Alaska Rural Electric Cooperative Association, indicated he had been asked to go through the bill section by section. He explained: "Section 1 is an intent provision that was put in, in one of the committees in the other body last spring, to make it clear that this legislation applies only to service areas for electric utilities, not any other kind of utility service. "Section 2 was a provision added in the Finance Committee in the other body that had been something that the APUC had requested so that if the budget ever provides for funding for special assistants to the commissioners, separate from the professional staff of the commission itself, as a whole, that they could be selected outside of the regular state employment system. "Section 3 is also something that the commission had recommended. This would eliminate the lame-duck appointment problem that you faced a year ago. And Section 6 goes with that - it's the transition provision - so that current commissioners would hold over until early the next year after their term would otherwise have expired in October. "Sections 4 and 5 are the heart of the bill, from our perspective, at least, and we would agree with the commission that the present practice has been that the service areas be separate for electric utilities. And, frankly, the reason for the legislation is to make sure that it stays that way. This was the determination made by the state legislature in 1970, that up until that time, you did have overlapping service areas and utilities competing with each other at retail and it was a mess. And the legislature made the affirmative decision in 1970 to separate these service areas and gave the commission detailed instructions in the statute as to how to separate the service areas. And we had taken it for granted all these years that that was the natural order that the service areas would remain separate. But as one spokesman from the commission just now said, there is a good deal of national discussion about some kind of retail competition and that usually goes under the title of retail wheeling. And this, you know, we have people from the commission in recent years that have been going out to meetings with their counterparts from across the country and they hear a lot of discussion about retail wheeling and they come back, `oh, gee, wouldn't it be nice if we tried retail competition?' Well, we tried it in this state and it doesn't work very well in the Alaska setting." Number 0950 MR. HUTCHENS referred to a statement that he had submitted to the committee and said he would not discuss that in the interests of time. He then referred to a printout from the Kodiak Electric Association that had yellow and pink highlighted lines on it. "What I'd like to point out with this," he said, "is why it doesn't work very well in the Alaska setting. You have to have a flexible marketplace for competition to work. And we don't have that in the Alaska setting, nor are we likely to." Line 14 of the printout, highlighted in pink, showed that if Kodiak Electric were to lose the fish processors from their system, the rates for everybody else would rise by nearly 15 percent. He referred to line 6, highlighted in yellow, and said that showed the amount of investment devoted to each kilowatt hour of sale in the year. "You see, what would happen," he said, "is that from '95 to '96, with just losing the fish processors from the system, the amount of investment per kilowatt hour sold would increase from 50 cents to 68 cents. And that would mean a 36 percent stranded investment, investment that would not be utilized in 1996 that was utilized in 1995, just from the sheer fact of losing that volume of sales. The same thing would happen all over the state. The smaller the system, the greater the impact." Number 1129 REPRESENTATIVE ELTON said, "Using your sheet here, let's assume that somebody wanted to do that. What would they have to do now to provide service in Kodiak under existing law?" MR. HUTCHENS replied, "What they would have to do now to provide service, not self-generation, but provide service to somebody else, they would have to make an application to the APUC for authority to serve. And up to this point, up until very recently, the commission had always regarded the service areas as exclusive, based on the 1970 statute. And the last year or two, there have been some sounds coming out of the commission that, `well, we don't really mean those to be exclusive,' that we could provide overlapping service areas if we chose to do so. And the authority they cite for that was a 1968 case involving Chugach Electric, but that was before the 1970 act of the legislature that changed all the rules. But any rate, to answer your question, they'd have to apply to the commission; the commission would have to have a finding that it was in the public interest to permit this; and then they could take a certificate area away from [an] existing utility and assign it to the new one." Number 1211 REPRESENTATIVE ELTON asked if there would be public hearings throughout that process. MR. HUTCHENS replied, "That is correct. That's the way we would understand it. We think it would be unlikely that in a real thorough test that any of these items could be found in the public interest. But we've heard some statements from people at the commission that indicate an intention to proceed in that direction and it's to forestall court tests on this very point is the reason for the legislation." Number 1246 REPRESENTATIVE ELTON thought the use of the fishing industry as an example was interesting, from his perspective, because of the trouble that industry was facing. "What would happen if a couple of the fish processing people got together in Kodiak and said, `hey, we've got to cut costs; our production costs are too high, we can't compete with farmed salmon, for example, that's being produced at x number of cents a pound'? Under the proposed legislation, would they be prohibited from going together to generate their own power?" Number 1278 MR. HUTCHENS replied, "Under the proposed legislation, they would have the absolute right to provide their own self-generation. But in terms of some entity being created that would sell to the fish processors, they would be prohibited from doing that." REPRESENTATIVE ELTON asked if they could form a co-op to provide power to themselves. MR. HUTCHENS said, "My understanding of it would be that if it were some kind of a separate entity created, this entity would have to sell power to the fish processors and that would be prohibited." Number 1322 ROBERT MARTIN, JR., General Manager, Tlingit-Haida Rural Electric Association (THREA), noted that he had submitted copies of his testimony, a four-page document. He discussed the national trend toward competition in the generation and transmission part of the utility business. He noted that the entire continent was joined in an interconnected grid of transmission and distribution lines except for Alaska, where only Hyder was connected to the continental grid. MR. MARTIN mentioned large loads being targeted by neighboring utilities or independent producers. In many rural communities, there were only one or two large loads, the school and perhaps the village store. Because of fixed costs for the utility serving residential consumers, rates would necessarily rise to the remaining customers if those large loads were lost to a competitor. The remaining customers would lower consumption, leading to what was known in the industry as a death spiral. Number 1480 MR. MARTIN said, "We support passage of this because it would protect the rural utilities from unfair competition." He mentioned steps taken in his region to keep costs down. "It is important to remember," he said, "that the experience with deregulation in other industries has led to great benefits for the urban areas but has led to decreased service and higher costs in the rural areas." Number 1566 BOB CRAIG testified that he was strongly opposed to SB 54. "At least in the urban environment, I think there is a need for competition," he said. He thought the fiscal note might be incorrect. "Competition almost always reduces prices," he said. "We've seen it time and again. When Mapco came to Juneau, the price of gasoline dropped 30 cents overnight. With the millions of dollars that the state spends on their power cost equalization program, the state has a great vested interest in seeing more competition come in and the price being reduced." He added, "I think the bill should be studied more and at least it should be amended by this committee to exclude large future customers. Any of the aspects brought up by utilities are for their existing customers. They have made an investment and perhaps they should keep those as exclusive. But future customers, I believe, should be for whoever can produce power at the lowest possible cost, such as the large mines that are coming in around the Juneau area and other communities." He thought he could produce power competitively. "But if I sell it to AEL&P and they resell it, it'll never happen," he added. Number 1669 CO-CHAIR AUSTERMAN said, "I've made no bones about my opposition to this bill. I think that it creates monopolies and I'm against the fact that we would try to run free enterprise out by creating these exclusive areas." He noted that he was distributing to committee members a letter from Chugach Electric Association to Representative Mark Hanley that showed that Chugach Electric was also opposed to the bill. Number 1701 CO-CHAIR IVAN indicated he thought more work needed to be done on the bill. He assigned SB 54 to a subcommittee chaired by Representative Vezey. REPRESENTATIVE KOTT asked who else would be on the subcommittee and asked Co-Chair Austerman if there were any way to alleviate his concerns. CO-CHAIR AUSTERMAN replied, "I've looked at this really hard and I don't see any. I'm concerned with -- in my area, I've got an 18 cent kilowatt hour that it costs me to live there and I'm on a hydro project. So I think if I got a hydro project that also, now, all of a sudden, becomes exclusive at 18 cents a kilowatt hour, I'm very concerned that it's going to be 24 or 30 cents a kilowatt hour before we're done there. And if there's no competition, I think that's where it might direct." Number 1770 REPRESENTATIVE ELTON expressed that he was somewhat in between. "I think we're trying to deal with different problems in different parts of the state with one approach," he said. "And I'm not sure that necessarily works, because I think the problems in a rural area where you have very high up-front costs for establishing infrastructure, and then if you allow cherry picking to occur, I can see where that could be very, very destructive to the residential consumers, especially. I'm not so sure that is something that necessarily occurs in the urban areas." He cited the example of cable TV in Juneau. "I happen to think that if there were competition, I wouldn't have to spend $50 a month for cable TV," he said. "I'm just not sure that we've got an approach that works for both areas." He suggested that structuring a system in which APUC could use public input to protect the different types of areas was the best way. "I'm not sure that this bill does it," he emphasized. Number 1865 CO-CHAIR IVAN noted that he represented a small, rural community. He referred to APUC, which controlled rates depending on population and the amount of revenue, and said "I've enjoyed their protection." He asked Representatives Kott and Elton to sit on the subcommittee for SB 54.
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