Legislature(1999 - 2000)

03/16/1999 01:38 PM Senate L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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         SB 10-APUC JURISDICTION: UNDERGROUND UTILITIES                                                                         
                                                                                                                                
CHAIRMAN MACKIE announced SB 10 to be up for consideration.                                                                     
                                                                                                                                
SENATOR DONLEY, sponsor, said that SB 10 requires that the                                                                      
utilities in a community over 100,000 people have an ongoing                                                                    
program for placing overhead utility lines underground.  Currently,                                                             
it would only apply to the Municipality of Anchorage.                                                                           
                                                                                                                                
Through technological advances over the past number of years,                                                                   
underground utilities are much easier to maintain and less costly.                                                              
They are aesthetically more pleasing.  Having a minimum amount that                                                             
utilities can contribute to a long range plan of putting existing                                                               
overhead lines underground levels the economic playing field so                                                                 
there isn't the disincentive of competition where if one utility                                                                
does it and another utility doesn't do it, they can charge lower                                                                
rates.  Unless there are mandates to protect the public interest                                                                
and to encourage undergrounding, all incentive will be lost to do                                                               
it.  Many cities require "undergrounding" for new developments.                                                                 
The problem in Anchorage is that all new developments are                                                                       
"undergrounded," but the neighborhoods that were built before the                                                               
law went into place have overhead utilities.  Some areas of                                                                     
Anchorage that have two power deliverers have overhead power lines                                                              
running down both sides of streets and it's a mess.                                                                             
                                                                                                                                
The City tried to address this issue with an ordinance requiring                                                                
utilities to have a 10-year plan for an ongoing program of                                                                      
"undergrounding" overhead lines.  It requires utilities to spend up                                                             
to four percent of their gross revenues per year towards                                                                        
"undergrounding."  However, because of the words "up to" there's no                                                             
minimum amount, so they spend nothing towards it.  In the amendment                                                             
he is asking for just one percent; he would be happy with even a                                                                
half percent.  Just so there is some established minimum towards an                                                             
ongoing program of "undergrounding."                                                                                            
                                                                                                                                
SENATOR DONLEY said in the past objections from the utilities has                                                               
been that the APUC would make them go through all kinds of                                                                      
reporting hoops and may not allow them to spend the money or charge                                                             
for it in a rate base. When asked, the APUC commissioners have said                                                             
they wouldn't do that.  They think that underground is a great                                                                  
idea.  That is why he exempts APUC totally from the process.                                                                    
SENATOR DONLEY said he thought it was important to make a public                                                                
policy "call" in this direction.                                                                                                
                                                                                                                                
SENATOR LEMAN said he knows that cost of service studies for                                                                    
utilities are very expensive, even $1 million.  He thought it was                                                               
wrong for the APUC to require such an expensive exercise.  He                                                                   
didn't know if one percent was a good amount, but it didn't sound                                                               
like a lot.  He asked if Senator Donley wanted to add the one                                                                   
percent as a surcharge.                                                                                                         
                                                                                                                                
SENATOR DONLEY answered that they would just roll it into the rate                                                              
base which is what they do with their current "undergrounding"                                                                  
programs.                                                                                                                       
                                                                                                                                
Number 405                                                                                                                      
                                                                                                                                
MR. DON EDWARDS, General Counsel, Chugach Electric Association,                                                                 
said they are not opposed to "undergrounding" per se.  It's a                                                                   
matter of cost and reliability.  Reliable systems are built both                                                                
overhead and underground.  There are more underground distribution                                                              
lines than overhead lines.  It boils down primarily to the cost.                                                                
                                                                                                                                
MR. EDWARDS explained that roughly, as a rule-of-thumb, on the                                                                  
Chugach system, you can assume it would cost from $700,000 -                                                                    
$1,000,000 per distribution line mile to do underground                                                                         
distribution.  There are 334 line miles in their entire                                                                         
distribution system.  Chugach Electric's gross is around $140                                                                   
million.  Transmission is considerably more expensive to                                                                        
"underground" because of the high voltage use and having to use                                                                 
fluid-filled cables.                                                                                                            
                                                                                                                                
Capital expenditures is the more important consideration.  There                                                                
are some savings one might expect to get on operation and                                                                       
maintenance, but they are dwarfed by the capital expenditures.                                                                  
They are very sensitive to their customers' concern for cost since                                                              
they are a member-owned association.  He recommended making very                                                                
sure customers want to buy this kind of "undergrounding."   Also,                                                               
the legislation might require "undergrounding" of perfectly good                                                                
overhead lines which have not yet been depreciated.  This could                                                                 
degrade equity levels and damage the organization financially.                                                                  
                                                                                                                                
MR. EDWARDS advised the committee to have their lawyers look at the                                                             
constitutionality of the "cap" on the amount of recovery that is                                                                
allowed to the extent that expenditures of money are required to                                                                
implement this legislation.                                                                                                     
                                                                                                                                
SENATOR DONLEY responded that the cap only applies to the                                                                       
regulatory powers of the APUC.                                                                                                  
                                                                                                                                
MR. EDWARDS replied that to him the cap means the annual recovery                                                               
of revenue for "undergrounding" may not exceed 10 percent of a                                                                  
utility's annual gross income.                                                                                                  
                                                                                                                                
SENATOR DONELY said it doesn't say that; it says the exception to                                                               
the Commission's regulation only applies to the first 10 percent                                                                
and after that it would be subject to regulation by the Commission.                                                             
He said he would ask the drafters to make that clear.                                                                           
                                                                                                                                
MR. EDWARDS said he thought discussions should take place among the                                                             
utilities about what might be doable, but as it stands, Chugach                                                                 
would not support this legislation.                                                                                             
                                                                                                                                
Number 471                                                                                                                      
                                                                                                                                
CHAIRMAN MACKIE asked if it was true that a majority of their lines                                                             
are underground now and asked if that included high voltage                                                                     
distribution lines.                                                                                                             
                                                                                                                                
MR. EDWARDS replied no and explained that they make a distinction                                                               
between lower voltage distribution lines and higher voltage                                                                     
transmission lines.  More than half of their distribution lines are                                                             
underground now and all new distribution lines are underground.                                                                 
Burying transmission cable is much more expensive, because it is                                                                
fluid-filled cable which are higher maintenance and are much more                                                               
expensive to install.                                                                                                           
                                                                                                                                
CHAIRMAN MACKIE asked if any transmission lines were underground                                                                
now.                                                                                                                            
                                                                                                                                
MR. EDWARDS answered a few of them are and the main one is the                                                                  
submarine cable that cut across from the west side of Cook Inlet to                                                             
a point close to the Anchorage airport.  There is probably 8 - 12                                                               
miles on the entire system of "undergrounded" transmission lines.                                                               
                                                                                                                                
CHAIRMAN MACKIE asked if they are putting transmission lines                                                                    
underground now in new developments.                                                                                            
                                                                                                                                
MR. EDWARDS answered no, because transmission lines are expensive                                                               
to put underground and there is a serious earthquake hazard.                                                                    
                                                                                                                                
SENATOR KELLY asked what fluid-filled cable was like.                                                                           
                                                                                                                                
MR. EDWARDS explained that a hollow cable has fluid in it that                                                                  
seeps through the conductor that is in segments.  The fluid                                                                     
impregnates paper that is wrapped in many layers of thin sheets and                                                             
has to be under light pressure at all times to make sure the paper                                                              
stays impregnated and impervious to elements.  Outside of that                                                                  
there are all kinds of armoring to try to keep the cable safe,                                                                  
particularly during installation.  The fluid pressure has to be                                                                 
monitored constantly.                                                                                                           
                                                                                                                                
SENATOR KELLY asked how much of their system is transmission line                                                               
versus distribution line.                                                                                                       
                                                                                                                                
MR. EDWARDS said he didn't even have a ballpark figure on that.                                                                 
                                                                                                                                
Number 531                                                                                                                      
                                                                                                                                
SENATOR LEMAN said he thought Senator Donley was referring to the                                                               
distribution lines and asked if Mr. Edwards had identified his                                                                  
costs, breaking them down into generation, transmission, and                                                                    
distribution and what the distribution costs are in Anchorage.                                                                  
                                                                                                                                
MR. EDWARDS answered yes, they have distribution and transmission                                                               
cost data, but they have not really broken it down to residents                                                                 
within Anchorage, although he didn't think it would be difficult to                                                             
do.                                                                                                                             
                                                                                                                                
Number 565                                                                                                                      
                                                                                                                                
MR. SAM COTTEN, Executive Director, Alaska Public Utilities                                                                     
Commission, said the Commission decided to take a neutral position                                                              
on this policy call.  However, they have a couple of technical                                                                  
concerns.  They suggested using the term "revenue" instead  of the                                                              
term "annual gross income" so there is no question about what money                                                             
they are talking about.   MR. COTTEN explained that the full actual                                                             
cost might involve the potential for cost shifting.  Typically, a                                                               
utility has to justify cost and there is a prudency standard that                                                               
has to be met, but in this case it wouldn't be.  His staff                                                                      
recommended going with a surcharge rather than increasing rates,                                                                
because it would be simpler to manage administratively.  For                                                                    
instance, there are a couple of utilities that operate within the                                                               
Municipality of Anchorage and it's only a small part of their                                                                   
business.  Matanuska Electric and Matanuska Telephone provide                                                                   
service to Eagle River, which is part of the Municipality, so the                                                               
rates for those people in Eagle River would be affected, whereas if                                                             
they lived in Palmer or Wasilla, they wouldn't be affected (under                                                               
this bill).  Rather than doing a rate redesign, a simpler method                                                                
would be to add a surcharge to the affected members.                                                                            
                                                                                                                                
MR. COTTEN reported one commissioner was interested in knowing who                                                              
would be responsible for setting the standards they deal with in                                                                
cost cause or cost repair.  This bill  leaves it unclear who is                                                                 
responsible.                                                                                                                    
                                                                                                                                
TAPE 99-7, SIDE B                                                                                                               
Number 590                                                                                                                      
                                                                                                                                
MR. COTTEN said the fiscal note the Commission endorsed is $91.8                                                                
thousand for a half-time engineering analyst.  Not all the members                                                              
agreed that there was a high risk of litigation, but they allotted                                                              
$54,000 per year for three years for it.                                                                                        
                                                                                                                                
SENATOR DONLEY responded that the bill says the APUC would have no                                                              
role in the one percent, so he didn't understand what the fiscal                                                                
notes are for.                                                                                                                  
                                                                                                                                
MR.  COTTEN asked how the actual cost would be placed on the rates.                                                             
                                                                                                                                
SENATOR DONELY answered that the utilities would make that                                                                      
assessment themselves and if it's under the cap that's in the bill,                                                             
the APUC would just accept those numbers.                                                                                       
                                                                                                                                
MR. COTTEN replied that he understands that, but the Commission                                                                 
approved the proposition that they would have to be involved in                                                                 
establishing rates regardless of the wording.  He asked if Senator                                                              
Donley meant for the surcharge to be added on to what the                                                                       
Commission approves as a rate.                                                                                                  
                                                                                                                                
SENATOR DONLEY replied that is what he intends.                                                                                 
                                                                                                                                
Number 561                                                                                                                      
                                                                                                                                
SENATOR DONELY moved to delete "income" on page 1, line 9 and page                                                              
2, line 1 to "revenue".  There were no objections and it was so                                                                 
ordered.                                                                                                                        
                                                                                                                                
MR. COTTEN commented additionally that the FY2000 budget for the                                                                
Commission proposed by the Governor includes some new positions and                                                             
they feel if that budget is approved, "they could get by with the                                                               
resources contained in that budget."  This was an effort by the                                                                 
staff and Commission to identify the cost a account for it.  If the                                                             
budget were approved, the Commission could agree to a zero fiscal                                                               
note.                                                                                                                           
                                                                                                                                
CHAIRMAN MACKIE asked if the Commission would have to review the                                                                
rate increases if they occur.                                                                                                   
                                                                                                                                
MR. COTTEN replied that he wasn't clear how that would work.  The                                                               
Commission is still responsible for approving rates and he would                                                                
review the issue again knowing what Senator Donley's intent is.                                                                 
                                                                                                                                
CHAIRMAN MACKIE asked if he would have problems with the bill if                                                                
there was clarification of the intent in the bill.                                                                              
                                                                                                                                
MR. COTTEN replied that if it's as simple as Senator Donley thinks                                                              
it is, he couldn't imagine any expense for the Commission other                                                                 
than the potential for litigation which he didn't think existed.                                                                
He said he would work with Senator Donley on clarifying the rate                                                                
issue.                                                                                                                          
                                                                                                                                
SENATOR DONLEY proposed further clarifying language on page 1, line                                                             
14.  He moved to replace the last sentence of the bill with, "This                                                              
Section only applies to undergrounding programs that do not exceed                                                              
five percent of the utilities' annual gross revenue."  This makes                                                               
it really clear there is no cap on what they do for                                                                             
"undergrounding" and limiting the APUC jurisdiction up to five                                                                  
percent.  There were no objections and it was so ordered.                                                                       
                                                                                                                                
SENATOR LEMAN wanted to see the distinction between distribution                                                                
versus generation and transmission revenues.  This legislation                                                                  
would make more sense to know what revenues come from distribution.                                                             
 He thought they wanted to address situations like the ones on                                                                  
Northern Lights Blvd. and Muldoon Rd.                                                                                           
                                                                                                                                
SENATOR LEMAN suggested on line 9 after "utilities annual gross                                                                 
revenue from" insert "distribution to".  He said they are only                                                                  
talking about electric lines now, but there are probably some                                                                   
telephone cable that are not distribution lines.  He wanted to                                                                  
limit the revenues to only those that are associated with the                                                                   
distribution instead of the generation and transmission.                                                                        
                                                                                                                                
SENATOR DONLEY agreed with that change saying that it clarifies his                                                             
intent.                                                                                                                         
                                                                                                                                
SENATOR LEMAN moved that as a conceptual amendment.                                                                             
                                                                                                                                
SENATOR KELLY shared Senator Leman's concern, but hesitated because                                                             
he thought they had to differentiate between high voltage                                                                       
transmission lines and all other distribution lines which are                                                                   
basically low voltage and could include telephone, electric, and                                                                
cable.  However, he thought the committee should figure out if they                                                             
really want high cost transmission lines buried.  They don't know                                                               
how many transmission lines there are or how they are defined.                                                                  
                                                                                                                                
SENATOR LEMAN explained that there is a break point of kilovolts                                                                
and then it drops down and go to distribution.                                                                                  
                                                                                                                                
SENATOR DONLEY said it's clear with Chugach's numbers, it would                                                                 
take over 100 years to get to the point where they have to deal                                                                 
with transmission lines even if they were covered by the bill.  The                                                             
other issue is that there may be some perfectly good overhead lines                                                             
and they would want to wait for them to depreciate before doing                                                                 
this.  There is probably 150 years of flexibility here.                                                                         
                                                                                                                                
CHAIRMAN MACKIE asked for a committee substitute to be prepared for                                                             
further discussion with that language in it and adjourned the                                                                   
meeting at 3:40 p.m.                                                                                                            

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