Legislature(2009 - 2010)BELTZ 105 (TSBldg)

03/22/2010 01:30 PM JUDICIARY


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 239 IGNITION INTERLOCK DEVICES/DUI/CHEM. TEST TELECONFERENCED
Moved CSSB 239(JUD) Out of Committee
+= SB 153 MOBILE HOMES AS REAL PROPERTY TELECONFERENCED
Scheduled But Not Heard
+= SB 277 PUB. UTILITY EXEMPTION: RENEWABLE ENERGY TELECONFERENCED
Heard & Held
+ HB 319 FIREARMS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
         SB 277-PUB. UTILITY EXEMPTION: RENEWABLE ENERGY                                                                    
                                                                                                                                
1:36:39 PM                                                                                                                    
CHAIR FRENCH announced the consideration of SB 277.                                                                             
                                                                                                                                
MICHAEL PAWLOWSKI,  Staff to  Senator Lesil  McGuire, said  SB 277                                                              
attempts  to streamline  the  regulatory  process  and clarify  in                                                              
statute that renewable  independent power producers  in Alaska are                                                              
exempt from regulation  by the RCA if the projects  were placed in                                                              
service before 2016,  generate less than 65 megawatts,  and do not                                                              
receive  state tax  credits  or grants.  The  experience in  other                                                              
states   has  been   that  streamlining   the  regulatory   system                                                              
facilitates  the  development  of   renewable  power.  In  Alaska,                                                              
independent  power producers  are  a relatively  new entrant  into                                                              
the market  and the  regulations are  fairly new,  but early  on a                                                              
project  in   South  Fork   and  one   in  Eagle  River   received                                                              
exemptions. According  to the  RCA, it took  about five  months to                                                              
receive these exemptions.                                                                                                       
                                                                                                                                
1:39:36 PM                                                                                                                    
SENATOR MCGUIRE joined the committee.                                                                                           
                                                                                                                                
ETHAN   SCHUTT,   Senior  Vice-President,   Cook   Inlet   Region,                                                              
Incorporated (CIRI),  said he is testifying in support  of SB 277.                                                              
CIRI believes  this will help to  set boundaries that  will foster                                                              
a  fair regulatory  environment and  enable  an independent  power                                                              
producer (IPP)  to negotiate with  utilities to sell  a commercial                                                              
block  of power  without  having to  run  the regulatory  gauntlet                                                              
that was structured  to regulate the public utilities  that sit in                                                              
the Railbelt  today. These are  utilities that have  customers and                                                              
monopoly  service  territories whereas  IPPs  have  none of  these                                                              
things, he said.                                                                                                                
                                                                                                                                
MR.  SCHUTT said  CIRI  believes  that this  version  of the  bill                                                              
strikes the  right balance.  It will  encourage rapid  development                                                              
of  renewable power  while protecting  the  public interest.  With                                                              
the  modifications made  in  the prior  committee,  both of  these                                                              
interests can be  served. As currently written, this  bill is good                                                              
public policy, he said.                                                                                                         
                                                                                                                                
CHAIR FRENCH  asked if the  current law would  in any way  force a                                                              
utility to buy power from the CIRI wind project.                                                                                
                                                                                                                                
MR. SCHUTT said  no and that doesn't change under  this bill. CIRI                                                              
believes   that  the   utilities  have   sufficient  leverage   to                                                              
negotiate   fair  business   points   on  their   power   purchase                                                              
agreements  and there  is nothing  that would  compel them  to buy                                                              
power from CIRI.                                                                                                                
                                                                                                                                
1:42:54 PM                                                                                                                    
CHAIR  FRENCH  summarized  if  the  utility  reaches  a  point  of                                                              
impasse in  their negotiations with  CIRI, they can walk  away and                                                              
CIRI would  be forced  to change its  business practice  "get back                                                              
in the ballgame."                                                                                                               
                                                                                                                                
MR. SCHUTT replied  that's correct; if no compromise  can be found                                                              
on any  particular point,  the IPP  can concede  the point  to the                                                              
utility, find another customer, or find another project.                                                                        
                                                                                                                                
1:44:16 PM                                                                                                                    
MR.  PAWLOWSKI  said  the  March  18 letter  from  CIRI  raised  a                                                              
concern  about  a  qualifying facility  (QF)  under  federal  law.                                                              
Whereas this  bill regulates a person  or a facility,  federal law                                                              
is  specifically related  to  a facility  and  the  type of  power                                                              
being  generated. Both  relate to  renewable energy,  but what  is                                                              
somewhat  confrontational  about  qualifying  facilities  is  that                                                              
under federal  law a qualifying facility  has the power  to compel                                                              
purchase  of their power.  Absent  something like  SB 277,  the de                                                              
facto encouragement  is for potential independent  power producers                                                              
to go the  federal qualifying facility route.  Although facilities                                                              
of certain sizes  can be exempt from state regulation  through QF,                                                              
the  bill seeks  an Alaska  solution  that is  in  between the  QF                                                              
status and still allows for commercial negotiations.                                                                            
                                                                                                                                
CHAIR  FRENCH asked  if the  CIRI  project is  too large  to be  a                                                              
qualifying project.                                                                                                             
                                                                                                                                
MR. PAWLOWSKI said that's correct.                                                                                              
                                                                                                                                
CHAIR  FRENCH asked  for  a summary  of the  3/5/2010  legislative                                                              
research  report for  the  record  and noted  that  it appears  as                                                              
though Alaska  is an outlier  with respect  to the way  it handles                                                              
this kind of transaction.                                                                                                       
                                                                                                                                
MR. PAWLOWSKI  said legislative  legal offered  the view  that the                                                              
regulatory environment  in Alaska  is somewhat interesting.  If an                                                              
individual  facility sells  power to another  person and  receives                                                              
more  than $50,000  in income,  the facility  is regulated.  Other                                                              
states  don't regulate  that  way,  but the  power  market in  the                                                              
Lower 48  isn't stranded,  it's much  more competitive,  and power                                                              
has the  ability to  move across state  lines. Even Hawaii,  which                                                              
is also  stranded from a national  grid, doesn't regulate  in this                                                              
manner.                                                                                                                         
                                                                                                                                
The policy  call in this legislation  is to remove  the regulatory                                                              
impediments  to renewable  energy  to incentivize  private  sector                                                              
investment,  which will encourage  commercial negotiation  between                                                              
utilities and power suppliers.                                                                                                  
                                                                                                                                
1:47:40 PM                                                                                                                    
CHAIR FRENCH  recapped that in the  Lower 48 this type  of project                                                              
would  be  exempt  from  local  regulation.   FERC  would  be  the                                                              
regulatory body  and would  look at it as  a matter  of intrastate                                                              
power sales.  He asked if FERC would  still regulate if  an IPP in                                                              
Colorado was selling to a utility with no intrastate aspect.                                                                    
                                                                                                                                
MR.  PAWLOWSKI  replied  it  would  depend  on  the  size  of  the                                                              
facility  and   if  it   was  a   qualifying  facility,   but  his                                                              
understanding   is  that  intrastate   sales  are  not   typically                                                              
regulated.                                                                                                                      
                                                                                                                                
SENATOR MCGUIRE  pointed  out that the  research report  indicates                                                              
that  some   states  specify  that   the  local   regulatory  body                                                              
regulates by virtue  of regulating the utility that  the IPP sells                                                              
to, which is  what this bill does.  She agreed that if  it doesn't                                                              
cross a state line, FERC would not by definition have authority.                                                                
                                                                                                                                
She emphasized importance  of alternate energy to  people here and                                                              
pointed out  that this  is the  first meaningful  commercial-level                                                              
project  in the state.  It's a  project that  could move  forward,                                                              
but it has an  excessive regulatory burden that  has the potential                                                              
to  add  years   to  the  project  and  could   possibly  kill  it                                                              
altogether.  The consumer certainly  has to  be protected  at some                                                              
level, but  that occurs because the  utility is regulated  and RCA                                                              
oversees that  utility. She asked  the committee to think  about a                                                              
broad-level  solution and  noted that the  philosophy that's  been                                                              
adopted by many  other states is one of competition.  The price to                                                              
the  consumer will  ultimately  decrease as  more  IPPs enter  the                                                              
marketplace  and the supply  of independent  power increases,  she                                                              
said.                                                                                                                           
                                                                                                                                
1:51:32 PM                                                                                                                    
SENATOR  COGHILL asked  her  to discuss  the  thought process  for                                                              
selecting  65  megawatts  because  the  Alaska  Power  Association                                                              
(APA) has indicated that it may be too high.                                                                                    
                                                                                                                                
SENATOR MCGUIRE  said it  was a  compromise. Senator  Wielechowski                                                              
in  particular  had  concerns that  regulations  increase  once  a                                                              
project reaches  the 100  megawatt range. She  said she's  open to                                                              
discussion because her  view is that the consumer  is protected by                                                              
the very specific  language about selling to a  utility and Alaska                                                              
law is very clear that utilities are regulated by RCA.                                                                          
                                                                                                                                
SENATOR COGHILL  said his thought  was that this is  obviously for                                                              
the  utility  in  the  Anchorage  and  Southcentral  area  so  the                                                              
assumption must be that 65 megawatts is reasonably possible.                                                                    
                                                                                                                                
SENATOR MCGUIRE said  the previous committee received  a number of                                                              
letters from  people in Fairbanks  who want to participate  in the                                                              
market and  sell power and  she wonders if  the net effect  of the                                                              
bill will be to open up more competition in places like that.                                                                   
                                                                                                                                
SENATOR COGHILL remarked  that the problem in the  small Fairbanks                                                              
market is how  to accept certain  power and have a base  load that                                                              
can compensate for  the fluctuations in wind power.  He mused that                                                              
somewhere along the  line that's going to be an  expensive problem                                                              
to solve.                                                                                                                       
                                                                                                                                
1:56:07 PM                                                                                                                    
MR.  PAWLOWSKI said  he  would  provide Senator  Coghill's  office                                                              
with  more information  on  the QF  process  because  the bill  is                                                              
specifically trying  to avoid situations  where small  players get                                                              
to a  place where  they force  local utilities  to purchase  their                                                              
power.                                                                                                                          
                                                                                                                                
CHAIR FRENCH  asked for clarification  that the bill  doesn't rely                                                              
on  the  FERC  process  to the  extent  that  a  qualifying  power                                                              
producer of  35 megawatts  or less would  bring a federal  mandate                                                              
for a power sales agreement with the utility.                                                                                   
                                                                                                                                
MR. PAWLOWSKI said that's correct.                                                                                              
                                                                                                                                
1:56:58 PM                                                                                                                    
CHAIR  FRENCH asked  him  to discuss  the  timing  aspect and  the                                                              
federal aid.                                                                                                                    
                                                                                                                                
MR. PAWLOWSKI  said  the stimulus  tax credits  have a very  short                                                              
timeline   within   which   to  complete   construction   and   he                                                              
understands that  it takes about  five months to get  an exemption                                                              
from the RCA.                                                                                                                   
                                                                                                                                
SENATOR COGHILL noted  that the state put about  $300 million into                                                              
renewable power  and asked  the rationale for  saying that  an IPP                                                              
that's state funded will be regulated.                                                                                          
                                                                                                                                
MR.  PAWLOWSKI said  it's an  important  policy call  to say  that                                                              
when the  state contributes money to  a project the RCA  should be                                                              
involved to ensure  that the state's contribution  travels through                                                              
to  the consumer.  If  the state  doesn't  have  its private  risk                                                              
capital on  the line, then having  the RCA regulate the  return on                                                              
equity  or   the  overall   economics  of   the  project   is  not                                                              
appropriate. That  should be left  to the commercial  negotiations                                                              
between a regulated utility and the IPP.                                                                                        
                                                                                                                                
SENATOR MCGUIRE added that that too was part of the compromise.                                                                 
                                                                                                                                
2:00:13 PM                                                                                                                    
BOB  PICKETT,  Chairman,  RCA,  said   he's  available  to  answer                                                              
questions.                                                                                                                      
                                                                                                                                
CHAIR FRENCH asked  if he'd like to amplify or  correct the record                                                              
about anything he'd heard so far.                                                                                               
                                                                                                                                
MR. PICKETT  clarified for the record  this will be a  policy call                                                              
for  the Legislature.  The RCA  hasn't  adopted a  position on  SB
277, but they  have had conversations with the  sponsor's staff to                                                              
identify areas that should be considered.                                                                                       
                                                                                                                                
CHAIR FRENCH  asked if he agrees  that five months is  a realistic                                                              
estimate for  how long it  might take to  apply for and  obtain an                                                              
exemption.                                                                                                                      
                                                                                                                                
MR. PICKETT  replied, "Given  our workload, a  four to  five month                                                              
timeframe  would  not  be  unrealistic."   The  maximum  statutory                                                              
period is six months.                                                                                                           
                                                                                                                                
CHAIR  FRENCH  asked  what  factors RCA  would  consider  when  it                                                              
analyzes the application.                                                                                                       
                                                                                                                                
MR. PICKETT replied it would essentially be a rate case.                                                                        
                                                                                                                                
2:01:57 PM                                                                                                                    
STUART  GOERING,  Assistant  Attorney   General,  Civil  Division,                                                              
Commercial  and Fair Business  Section, Department  of Law  (DOL),                                                              
informed the  committee that  he had been  assigned to  advise the                                                              
RCA.  Responding  to  Senator French's  last  question  about  RCA                                                              
approval of  an exemption,  he explained that  the standard  in AS                                                              
42.05.711(d),  which is  the RCA's  power to  partially or  wholly                                                              
exempt  public   utilities  from   regulation  under   the  Public                                                              
Utilities  Regulatory Act,  is a  question of  whether or not  the                                                              
exemption is  in the  public interest.  The evidence presented  by                                                              
the  applicant  and  other  parties who  might  intervene  in  the                                                              
process  would certainly  be included  in  the determination,  but                                                              
generally the  public interest looks  at factors that  are similar                                                              
to  those   in  an  application   for  a  Certificate   of  Public                                                              
Convenience and  Necessity (CPCN).  That is if  there is  a public                                                              
need  for  the  public  utility  service  and  if  there  is  some                                                              
demonstration that,  even with the exemption, the  applicant would                                                              
be able  to provide  the public  utility service  on a  reasonably                                                              
continuous and reliable basis.                                                                                                  
                                                                                                                                
2:03:10 PM                                                                                                                    
SENATOR EGAN joined the committee.                                                                                              
                                                                                                                                
CHAIR FRENCH  asked if in  this case it would  be a factor  in the                                                              
RCA's considerations  that the IPP  is selling power to  a utility                                                              
in  an arm's  length  transaction  and  that the  resulting  power                                                              
selling agreement is subject to RCA approval.                                                                                   
                                                                                                                                
MR. GOERING  said that has  been a consideration  in the  past and                                                              
was found  to be  a compelling  factor in  the Fishhook  Renewable                                                              
Energy  application  for  an  exemption.  In  that  case  the  RCA                                                              
specifically  found that  the  sole customer  of  the project  was                                                              
going  to  be a  sophisticated  regulated  utility  and  therefore                                                              
there was no public  interest reason to regulate the  project as a                                                              
public  utility. He  emphasized that  in any  given situation  the                                                              
RCA's  determination is  based not  only  on past  considerations,                                                              
but  also   by  the  factual   evidence  that's  brought   by  the                                                              
contracting parties  and other interveners. He noted  that in this                                                              
case,  no interveners  had problems  with the  analysis, but  it's                                                              
difficult  to  say  that  the RCA  would  handle  every  exemption                                                              
application in the same way.                                                                                                    
                                                                                                                                
2:05:34 PM                                                                                                                    
CHAIR FRENCH  said that's an important  caveat. He asked  how much                                                              
power was at stake in the Fishhook application.                                                                                 
                                                                                                                                
MR. PICKETT  answered  it was a  small, 2  megawatt hydro  project                                                              
that had firm  and dispatchable power, as opposed  to intermittent                                                              
power. He  added that it hasn't  been discussed, but there  has to                                                              
be an interconnection  agreement between the IPP  and the utility,                                                              
and  the  utility's  perspective  may  be  that  expenses  may  be                                                              
required to connect and maintain system reliability.                                                                            
                                                                                                                                
CHAIR  FRENCH asked  if that  negotiation would  be separate  from                                                              
the power sales agreement.                                                                                                      
                                                                                                                                
MR. PICKETT said  the technical issues would have  to be addressed                                                              
in a separate interconnection agreement.                                                                                        
                                                                                                                                
SENATOR  MCGUIRE  asked if  the  commission had  discussed  adding                                                              
positions or  establishing a  separate section  within the  RCA to                                                              
deal with renewable energy.                                                                                                     
                                                                                                                                
MR.  PICKETT  replied  the  RCA has  received  3-4  year  stimulus                                                              
funding for  two positions  to target  this subject. One  position                                                              
is a financial analyst and the other is an engineering position.                                                                
                                                                                                                                
2:08:12 PM                                                                                                                    
MARILYN  LELAND,  Executive Director,  Alaska  Power  Association,                                                              
said APA  is the trade association  for more than 30  utilities in                                                              
the state.  She related  that APA  members provide  power to  most                                                              
Alaskans and  she is  testifying in opposition  SB 277.  She asked                                                              
that the  letter that APA  sent to the  sponsor when the  bill was                                                              
initially filed  be made part  of the record.  It details  some of                                                              
APA's concerns and  states that they couldn't support  the bill at                                                              
that time.  Since then the APA board  has met to discuss  the bill                                                              
more  thoroughly and  they voted  unanimously to  oppose the  bill                                                              
for the reasons stated in the letter.                                                                                           
                                                                                                                                
APA  believes  that the  exemption  may  not be  necessary.  Under                                                              
federal  law, renewable  energy  utilities  that  propose to  sell                                                              
power only to  another electric utility can already  become exempt                                                              
from state  regulations by  becoming a  qualifying facility.  They                                                              
can also petition  the RCA to become exempt by  demonstrating that                                                              
the exemption would be in the public interest.                                                                                  
                                                                                                                                
MS.  LELAND said  a  primary concern  is  that  the exemption  may                                                              
impair the  ability of the  RCA to ensure  that the  rates, terms,                                                              
and  conditions   of  service  are  just,  reasonable,   and  non-                                                              
discriminatory.  In the case  of a utility  entering into  a power                                                              
purchase agreement  with an  exempt facility,  the RCA  would have                                                              
to  approve  the  agreement  because  the  utility  is  regulated.                                                              
However, the RCA  could not compel the IPP to  provide full access                                                              
to  its costs.  This  could  be particularly  problematic  if  the                                                              
exempt facility  was selling power  to more than one  utility. The                                                              
big concern  there is  that the IPP  could broker different  deals                                                              
with  different utilities.  That is  not in  the public  interest.                                                              
One suggestion  the commission made to  the sponsor was  to hold a                                                              
meeting of  all interested  parties to  discuss the issues.  We're                                                              
again making that suggestion, she said.                                                                                         
                                                                                                                                
2:11:13 PM                                                                                                                    
DEAN THOMPSON,  Legal Counsel for  Alaska Power Association,  said                                                              
he also  represents several  electric utilities  that are  members                                                              
of APA  and he regularly  practices before  the RCA.  He clarified                                                              
that  APA's concern  is  to ensure  that  the  public interest  is                                                              
protected  and that  the RCA  is  equipped to  protect the  public                                                              
interest in these cases.                                                                                                        
                                                                                                                                
MR. THOMPSON  reiterated Ms's Leland's  statement that  a majority                                                              
of  renewable resources  facilities  would be  able  to be  exempt                                                              
from RCA  regulation by  becoming a  qualifying facility.  Earlier                                                              
he heard a statement  that facilities don't want to  go that route                                                              
because that involves  forcing the utility to purchase  power from                                                              
the  IPP, but  that need  not be  the case.  There are  qualifying                                                              
facilities that  enjoy the benefits  of exemption  from regulation                                                              
by RCA, but  if they have a product  to sell at a price  and under                                                              
terms and  conditions that a  utility would find  beneficial, they                                                              
are  free  to  do that.  He  said  he  understands  the  dichotomy                                                              
between  qualifying facilities  and  independent power  producers,                                                              
but  he  doesn't  see  that  becoming  a  qualifying  facility  is                                                              
unappealing. It's a simple self-certification process with FERC.                                                                
                                                                                                                                
CHAIR FRENCH  asked if the  CIRI project  is too large  to qualify                                                              
under that federal statute.                                                                                                     
                                                                                                                                
MR. THOMPSON  said if the  CIRI project  is above 30  megawatts it                                                              
wouldn't have  exemption from state  regulation, but that  goes to                                                              
another issue  with the  bill, which is  that the limitations  are                                                              
very  broad. It  applies to  a CIRI  wind  farm and  all sorts  of                                                              
projects  that  could be  developed  in  the next  several  years.                                                              
Moreover,  it  would  apply  to facilities  that  use  waste  heat                                                              
energy. This could  mean cogeneration, which means  the Ship Creek                                                              
Power Plant that  uses natural gas for a thermal  purpose when the                                                              
real goal  is to use  natural gas to  produce electricity  to sell                                                              
to the utilities.                                                                                                               
                                                                                                                                
2:15:09 PM                                                                                                                    
CHAIR  FRENCH asked  if  the Ship  Creek  facility would  generate                                                              
electricity   entirely  from   renewable   energy  including   the                                                              
cogeneration portion.                                                                                                           
                                                                                                                                
MR. THOMPSON  replied  he believes  that would  be the case  since                                                              
the statute referenced  in the bill includes waste  heat recovery.                                                              
He  explained that  often the  electric cycle  of cogeneration  is                                                              
produced  from the  leftover heat  from  a thermal  cycle, but  at                                                              
bottom the  thermal cycle is  fueled by  natural gas or  diesel or                                                              
some  other  fossil fuel.  He  said  he realizes  that  particular                                                              
aspect  probably  wasn't intended,  it  was simply  convenient  to                                                              
reference  that   statute.  That   demonstrates  how   broad  this                                                              
exemption actually is and it's a concern, he said.                                                                              
                                                                                                                                
CHAIR FRENCH  said he  doesn't see  how you  get to "entirely"  if                                                              
the  thermal cycle  is  fueled from  natural  gas, which  wouldn't                                                              
qualify.                                                                                                                        
                                                                                                                                
MR.  THOMPSON said  the thermal  process typically  wouldn't be  a                                                              
regulated utility service. He continued:                                                                                        
                                                                                                                                
     Say  the  facility  is  producing   heat  to  warm  fish                                                                   
     hatchery  water,   so  they  use  the  fossil   fuel  to                                                                   
     generate  that   heat  process.  That's   not  typically                                                                   
     regulated by  the RCA and then whatever waste  heat that                                                                   
     results  from that,  they  convert that  to  electricity                                                                   
     and sell  that. In the  Lower 48 there  are a number  of                                                                   
     processes like  that that make  sense and Alaska  hasn't                                                                   
     seen those  types of projects. Typically  it's difficult                                                                   
     to find a  truly useful and beneficial  thermal process,                                                                   
     but  the developer  wants  to  sell the  electricity  so                                                                   
     they invent  a thermal  process in  order to either  get                                                                   
     qualifying  facility status to  compel the utilities  to                                                                   
     purchase power  as we discussed earlier or  in this case                                                                   
     it would be  to enable them to become exempt  from RCA's                                                                   
     regulation.                                                                                                                
                                                                                                                                
CHAIR FRENCH asked him to continue with his prepared testimony.                                                                 
                                                                                                                                
2:18:12 PM                                                                                                                    
MR. THOMPSON  restated that APA's  interest is to ensure  that the                                                              
RCA has  the ability  to protect  the public  interest. They  have                                                              
the expertise to  do that. He related that the  main argument he's                                                              
heard for this bill  is that RCA regulation is  a large impediment                                                              
to  development  of renewable  resources  facilities,  but  having                                                              
gone  through  certificate  proceedings, rate  cases,  and  public                                                              
interest exemption  cases, he questions  how large the  burden is.                                                              
He said he  has heard that it's  a four to five month  timeline to                                                              
grant an  exemption from regulation,  but the commission  can move                                                              
faster  than  that  if  there's  a  good  reason.  A  request  for                                                              
expedited consideration  in some  cases requires a  certificate of                                                              
public convenience  and necessity,  which  isn't difficult  but it                                                              
does take  time. You  have to  prove that  you're able to  provide                                                              
the  service  and you  have  to  prove  that  it's in  the  public                                                              
interest.                                                                                                                       
                                                                                                                                
MR. THOMPSON  said the goal of  rate regulation is to  ensure that                                                              
the utility and  ultimately the utility's end use  customers don't                                                              
pay rates that  are unjust or unreasonable. Typically  the utility                                                              
will enter into  a long-term, 20 plus year, contract  with the IPP                                                              
because  that's   the  only  way  these  projects   get  financed.                                                              
Ordinarily   the  commission   looks   at   the  rate   adjustment                                                              
procedures  in  the contract  or  how  that contract  compares  to                                                              
other contracts  to other customers  to ensure that the  public is                                                              
protected.                                                                                                                      
                                                                                                                                
MR. THOMPSON  pointed out  that in some  cases the utilities  that                                                              
want to purchase  power from an  IPP will support the  request for                                                              
an exemption, but  this broad statutory fix would  put an absolute                                                              
exemption on  whatever project. It may  not always be a  good idea                                                              
and the utility  isn't always going to know if it's  in the public                                                              
interest for  the entities  to be  unregulated until the  contract                                                              
is  negotiated or  close  to that  point in  time.  But once  this                                                              
statute is  adopted, the  RCA will  lack jurisdiction to  regulate                                                              
service.                                                                                                                        
                                                                                                                                
He said  the problem  with the  argument that  the public  utility                                                              
can protect  its rights when it  negotiates the contract  with the                                                              
IPP  is   that  it  doesn't   adequately  contemplate   unforeseen                                                              
circumstances  and  unresolved  disputes.   When  the  utility  is                                                              
regulated and  there's an unresolved  dispute, the utility  can go                                                              
to the  RCA and  complain and  the RCA  can review the  situation.                                                              
With this broad  statutory exemption, the utility's  only recourse                                                              
is  to  file a  complaint  in  state  or federal  court.  This  is                                                              
costly,  involves   huge  delays  and  sometimes   a  request  for                                                              
injunctive relief.  Ultimately you're dealing with  an adjudicator                                                              
who doesn't  understand the subtleties  of utility rate  making or                                                              
cost allocation.  Whereas the RCA  is a very convenient  forum for                                                              
adjudicating complaints in these very long-term contracts.                                                                      
                                                                                                                                
2:23:50 PM                                                                                                                    
CHAIR FRENCH  asked him  to comment on  Ms. Leland's  concern that                                                              
there could be  situations in which an IPP has  brokered different                                                              
deals with different utilities, and why that would be a concern.                                                                
                                                                                                                                
MR. THOMPSON  said some  of the most  contentious rate  cases he's                                                              
participated  in   at  the  RCA  were  between   Chugach  Electric                                                              
Association  and  its wholesale  customers.  They  have  long-term                                                              
power sales  agreements, but when  they have a dispute  it's about                                                              
rates  and  costs  and  all  the  things  the  RCA  looks  at.  In                                                              
addition,  there   have  been   allegations  from  one   wholesale                                                              
customer that  Chugach cut too  good a deal  for one of  the other                                                              
wholesale  customers, which  is  discriminatory.  The most  recent                                                              
case involved  how firm the service  was to one  customer. Chugach                                                              
and that  customer agreed that  the rate and the  interruptibility                                                              
were reasonable,  but the  other wholesale  customer thought  that                                                              
the deal  they cut  was too good.  That dispute  was taken  to the                                                              
RCA for adjudication.                                                                                                           
                                                                                                                                
In  the  IPP  context  it might  be  that  a  subsequent  customer                                                              
imposes degradation  of the  reliability of  service to  the other                                                              
customers.  Then you'd have  to look  at the  contract to  see the                                                              
reliability of service  that was contracted. To sort  this out you                                                              
have  to  get  into  the operational  data  of  the  facility  and                                                              
compare the  contracts. The RCA  does a good  job at this  sort of                                                              
analysis.                                                                                                                       
                                                                                                                                
MR.  THOMPSON   said  he  understands   that  it's   a  completely                                                              
different  situation for  IPPs  in the  Lower  48 because  they're                                                              
supplying  power   into  a  very  robust  competitive   grid  with                                                              
regional  transmission organizations.  This  is mostly  interstate                                                              
commerce so  FERC has jurisdiction,  but FERC has allowed  IPPs to                                                              
set   market-based  rates   because  the   market  is   regulating                                                              
wholesale transactions.  He said  he can't  speak for Hawaii,  but                                                              
in  Alaska wholesale  competition  is not  robust.  There are  few                                                              
buyers and  even fewer  sellers and the  market can't  be depended                                                              
upon to  do the regulating.  The RCA is  charged by statute  to do                                                              
that and has been  doing so for the last 30 years  for these types                                                              
of transactions.                                                                                                                
                                                                                                                                
2:28:30 PM                                                                                                                    
MARK FOSTER,  Principle, Mark A.  Foster and Associates,  said his                                                              
testimony represents  his own views and not necessarily  any past,                                                              
present,  or  future  client.  He  related that  he  was  an  APUC                                                              
commissioner  when the  telecommunications  market  was opened  to                                                              
competition. Subsequent  to that he worked in  the energy industry                                                              
and  other regulated  industries looking  at transactions  between                                                              
IPPs,  industrial  buyers,  and  the utilities.  He  said  he  was                                                              
struck  by  how   much  of  the  testimony  on   this  legislation                                                              
parallels the  conversations about telecommunications  competition                                                              
in Alaska in the '80s and '90s.                                                                                                 
                                                                                                                                
MR. FOSTER  encouraged the  committee to  review AS 42.05.800  for                                                              
the findings  of the  bill that opened  the market to  competition                                                              
and some of the  purported benefits. He suggested  they think back                                                              
on that and look  at today's market and realize that  there were a                                                              
number of  benefits that  were generated  from opening  the market                                                              
to new  players. It basically changed  the pricing around  and let                                                              
new  and  innovative  things  come  into  the  marketplace.  As  a                                                              
general proposition  I would encourage  the committee  to consider                                                              
moving in the direction  of SB 277 and create less  regulation for                                                              
the new players to get into the marketplace, he said.                                                                           
                                                                                                                                
MR. FOSTER  mentioned the particulars  in Section 3  and suggested                                                              
that instead  of placing a  narrow timeframe  as it does  on lines                                                              
9-10, another  alternative  is to  extend that  out to allow  more                                                              
opportunity  for   biomass,  geothermal,  tidal,  or   hydro  IPPs                                                              
because  project development  lead  time takes  a  fair amount  of                                                              
time. Keeping  it narrow might  unduly narrow the  availability of                                                              
IPPs  to   take  advantage  of   this  light  regulation   scheme.                                                              
"Ultimately  if you  sell to a  regulated utility,  there will  be                                                              
limits on the kinds  of deals you can cut and  the utility getting                                                              
those approved, as  we've learned all too well in  the gas markets                                                              
in Cook Inlet," he said.                                                                                                        
                                                                                                                                
CHAIR FRENCH  said he's been  analyzing this from  the perspective                                                              
that the utility  and the IPP are sophisticated  business entities                                                              
that  are operating  in an  arms-length transaction  and with  the                                                              
ability to agree  to or reject the offerings that  will take place                                                              
in  the course  of  negotiating their  power  sales agreement.  He                                                              
asked Mr.  Foster if  he sees  this as  a protection for  consumer                                                              
that's built into the negotiating process.                                                                                      
                                                                                                                                
MR. FOSTER  replied a utility that  is considering buying  from an                                                              
IPP or a QF  will evaluate their avoided cost for  each option. If                                                              
an IPP has  the better idea and  a power block that they  can sell                                                              
at less cost,  they have leverage in the negotiation.  The utility                                                              
can  look at  it as  an opportunity  to  get lower  cost power  to                                                              
their rate  payers. The  tension that you  ultimately face  is the                                                              
extent to  which someone can compel  you to buy cheaper  power. In                                                              
that regard,  there is certainly  the federal qualifying  facility                                                              
regime. In  the history of  the APUC and  RCA there  are instances                                                              
of  other entities  going  directly  to the  RCA  saying they  are                                                              
offering  the better  deal  and the  utility  should therefore  be                                                              
buying  their   power.  There  is   that  tension   but  utilities                                                              
basically have a  concern about spending a lot  of money defending                                                              
those kinds  of cases. He  suggested that  one way to  get through                                                              
that  is to  ultimately ask  the  RCA to  streamline that  process                                                              
rather than taking  them on an ad  hoc basis, one at  a time. That                                                              
may  be an  area  where  additional  regulatory clarity  would  be                                                              
helpful, he said.                                                                                                               
                                                                                                                                
CHAIR FRENCH closed  public testimony and announced  he would hold                                                              
SB 277 in committee.                                                                                                            
                                                                                                                                

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