Legislature(2011 - 2012)BARNES 124

02/24/2011 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

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08:05:13 AM Start
08:05:28 AM Overview: Regulatory Commission of Alaska (rca)
09:15:03 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overview: Regulatory Commission of Alaska TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                       February 24, 2011                                                                                        
                           8:05 a.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Cathy Engstrom Munoz, Chair                                                                                      
Representative Neal Foster, Vice Chair                                                                                          
Representative Alan Austerman                                                                                                   
Representative Alan Dick                                                                                                        
Representative Dan Saddler                                                                                                      
Representative Berta Gardner                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Sharon Cissna                                                                                                    
COMMITTEE CALENDAR                                                                                                            
OVERVIEW: REGULATORY COMMISSION OF ALASKA (RCA)                                                                                 
     - HEARD                                                                                                                    
PREVIOUS COMMITTEE ACTION                                                                                                     
No previous action to record                                                                                                    
WITNESS REGISTER                                                                                                              
ROBERT PICKETT, Chairman/Commissioner                                                                                           
Regulatory Commission of Alaska (RCA)                                                                                           
Department of Commerce, Community & Economic Development (DCCED)                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided an overview of the RCA.                                                                         
ACTION NARRATIVE                                                                                                              
8:05:13 AM                                                                                                                    
CHAIR  CATHY  ENGSTROM  MUNOZ  called   the  House  Community  and                                                            
Regional  Affairs  Standing Committee  meeting  to  order at  8:05                                                              
a.m.  Representatives  Foster, Austerman, Dick,  Saddler, Gardner,                                                              
and Munoz were present at the call to order.                                                                                    
^Overview: Regulatory Commission of Alaska (RCA)                                                                                
        Overview: Regulatory Commission of Alaska (RCA)                                                                     
8:05:28 AM                                                                                                                    
CHAIR MUNOZ  announced that  the only order  of business  would be                                                              
an overview of the RCA.                                                                                                         
8:05:44 AM                                                                                                                    
ROBERT  PICKETT, Chairman/Commissioner,  Regulatory Commission  of                                                              
Alaska  (RCA),  Department  of   Commerce,  Community  &  Economic                                                              
Development  (DCCED), began  by informing  the committee  that the                                                              
RCA is  a five-member board  with a staff  of 50 professionals  in                                                              
Anchorage.   Each commissioner  is appointed  for a six-year  term                                                              
by the  governor and  confirmed by the  legislature.   Mr. Pickett                                                              
opined  that  the  RCA's  work is  not  fully  understood  by  the                                                              
public.   In  AS 42.05,  the utility  statute, and  AS 42.06,  the                                                              
pipeline act,  the legislature has  charged the commission  with a                                                              
number  of activities  to  strike the  right  balance between  the                                                              
people who  pay for a monopoly  pipeline for utility  services and                                                              
the actual  provider of those services.   He pointed out  that the                                                              
most  effective form  of true  regulation  is competition.   In  a                                                              
competitive market  place, there is  no need for  regulation, save                                                              
some  very broad  guidelines.    Without that  competition,  there                                                              
needs  to   be  some   counter  veiling   force  to  achieve   the                                                              
appropriate   balance.     Mr.   Pickett   opined   that  it's   a                                                              
misconception  to interpret  the  RCA's mission  to  push for  the                                                              
absolute lowest  rates in all circumstances.   There are  those in                                                              
the public  who sometimes  believe that the  RCA is  a rubberstamp                                                              
for  those  [utilities]   that  want  to  obtain   more  money  by                                                              
increasing their  rates.  However,  the truth is  more complicated                                                              
and  is  somewhere in  the  middle.   Frequently,  the  RCA  finds                                                              
itself antagonizing  both the public  and the utilities,  but it's                                                              
being  done   based  on  very   formalized  proceedings   and  the                                                              
development  of  sound records  that  can  be defended  in  court.                                                              
Above  all, it's  a fair,  open,  transparent, and  understandable                                                              
process, he said.                                                                                                               
8:09:58 AM                                                                                                                    
MR. PICKETT,  turning to his  presentation, directed  attention to                                                              
slide  2, which  outlines  where the  RCA  receives its  statutory                                                              
authority.  The  RCA, created in 1999, is the successor  agency to                                                              
the  Alaska   Public  Utilities   Commission  (APUC).     He  then                                                              
highlighted the  definition of a  public utility, which  is fairly                                                              
broad,  as  evidenced  in  AS  42.05.990(4)   on  slide  3.    The                                                              
definition of  a public utility  describes the type  of activities                                                              
public utilities  perform and  when they are  covered by  AS 42.05                                                              
as well as  specifying the size.   Mr. Pickett explained  that the                                                              
RCA  issues  certificates  of  public  convenience  and  necessity                                                              
(CPCN), of which  there are about 600  in the state.   The CPCN is                                                              
a license  to do business  for that type  of activity  and without                                                              
it an entity has  no legal authority to collect  anything in rates                                                              
from anyone.                                                                                                                    
8:11:03 AM                                                                                                                    
REPRESENTATIVE  AUSTERMAN  asked if  some  utilities  are able  to                                                              
exempt themselves from RCA's regulation.                                                                                        
MR. PICKETT  replied yes, adding  that later slides  will describe                                                              
specifically  what  those exemptions  are  and  when they  are  in                                                              
8:11:32 AM                                                                                                                    
MR. PICKETT  pointed out that one  of the triggers is  on slide 6,                                                              
which continues the  definition a public utility.   He highlighted                                                              
the following  language:   "electrical service  for use  within an                                                              
area  that  is  certificated  ...  sales  of  electricity  exceeds                                                              
$50,000".    The  definition  continues  on  slide  7.    Slide  8                                                              
discusses the  CPCN for  both AS 42.05,  public utilities,  and AS                                                              
42.06, pipeline  act.  The key for  a CPCN is that the  RCA has to                                                              
find  that  the  applicant  is   fit,  willing,  and  able.    The                                                              
aforementioned  applies   to  all  applicants,  whether   it's  an                                                              
economically  regulated  entity or  otherwise.    Slide 9  relates                                                              
some statutory  exemptions that  address electric utilities.   For                                                              
those  electric utilities  that  make less  than $50,000,  statute                                                              
makes a provision  for a joint action agency  (JAA).  Furthermore,                                                              
the Federal Energy  Regulatory Commission (FERC)  has a qualifying                                                              
facility  designation   that  exempts  [JAAs]  from   the  state's                                                              
jurisdiction.    Slide 10  relates  the statutory  exemptions  for                                                              
electric  [utilities] from  economic regulation.   The  exemptions                                                              
are  as follows:   a  utility owned  by  a political  subdivision,                                                              
except a  utility competing  with a  regulated utility;  utilities                                                              
making  between  $50,000 and  $500,000  that have  a  deregulation                                                              
election;  cooperatives  that have  a deregulation  election;  and                                                              
utilities  that receive  a  qualifying facility  designation  from                                                              
8:13:37 AM                                                                                                                    
REPRESENTATIVE  SADDLER  inquired  as to  whether  many  utilities                                                              
avail themselves of the aforementioned exemptions.                                                                              
MR.  PICKETT  replied yes.    For  example,  there are  about  150                                                              
communities served  by 127 electric  utilities in the state.   The                                                              
RCA  economically  regulates about  37  of  those.   The  electric                                                              
utilities that the  RCA regulates tend to be  the larger entities.                                                              
He  noted that  the RCA  doesn't regulate  most municipally  owned                                                              
utilities,  although they  still  have a  CPCN.   The RCA  becomes                                                              
involved if  there is a service  problem, dispute, or  the utility                                                              
collapses.   Once the  RCA is involved  there is  a show  of cause                                                              
hearing regarding whether the certificate should be revoked.                                                                    
REPRESENTATIVE  AUSTERMAN related  his  understanding that  Kodiak                                                              
is a cooperative  and elected to deregulate itself,  and therefore                                                              
isn't regulated by the RCA.                                                                                                     
MR.  PICKETT remarked  that  it's  a fairly  low  threshold for  a                                                              
cooperative.   He further remarked  that there are reasons  why an                                                              
entity would  choose not  to be deregulated.   Mr. Pickett  opined                                                              
that it's  fair to say  that the RCA strikes  a balance.   The RCA                                                              
is entering  into difficult  times as  the pressure on  ratepayers                                                              
is   intense,   while  simultaneously   utilities   and   pipeline                                                              
companies  face aging infrastructure  and  huge needs for  massive                                                              
capital investments.   Ultimately, the ratepayers are  asked to be                                                              
responsible  for  the  repayment  of debt,  building  of  capital,                                                              
increased  operating expenses,  etcetera.   As mentioned  earlier,                                                              
the role of the RCA is to strike the appropriate balance.                                                                       
8:16:16 AM                                                                                                                    
MR.  PICKETT  moved on  to  slide  11,  which provides  a  general                                                              
overview of  general issues  that are of  great concern.   The top                                                              
concern is the Cook  Inlet natural gas supplies.   Although it's a                                                              
regional issue,  it impacts a large  part of the state.   This has                                                              
been  developing   over  a  10-year   period,  and   therefore  it                                                              
shouldn't  be a  surprise.   Recently, there  was an  announcement                                                              
that the ConocoPhillips  and Marathon liquefied natural  gas (LNG)                                                              
export   facility   would   be    closing.      Some   view   [the                                                              
aforementioned]  as  a  benefit  to the  gas  situation  in  South                                                              
Central  Alaska.   However,  he  opined  that  such a  view  isn't                                                              
taking into consideration  the entire system as it's  a very small                                                              
market.  The  incentives are fairly tenuous.   He highlighted that                                                              
one still  needs a place  to sell the  gas and the  utility market                                                              
is  limited in  size.    The RCA,  he  pointed out,  doesn't  have                                                              
anything  to do  with  LNG.   The  RCA is  involved  with the  gas                                                              
supply agreements  with utilities.   However, the RCA  impacts the                                                              
market place  because one  must have all  the pieces  working well                                                              
together.   Therefore,  there may  be a point  at which  utilities                                                              
come  forward with  proposals to  import LNG  for the  short-term.                                                              
The responsibility  of  the RCA  is to ensure  that the  utilities                                                              
can continue to  provide the service they are  certificated to do.                                                              
Therefore, he predicted some very challenging times.                                                                            
8:18:43 AM                                                                                                                    
REPRESENTATIVE   AUSTERMAN  asked  if   the  RCA  regulates   what                                                              
consumers in Anchorage pay for natural gas.                                                                                     
MR.  PICKETT   clarified  that   the  RCA  doesn't   regulate  the                                                              
producers,  but it  does approve  gas supply  agreements that  the                                                              
utilities  negotiate   with  the  producers.    He   informed  the                                                              
committee that  House Bill  280 included a  provision that  as the                                                              
RCA  evaluates  gas  supply  agreements,   it  must  consider  the                                                              
alternatives   if  it   rejects  those   agreements  the   utility                                                              
negotiated with  the gas supplier.   There  are only a  handful of                                                              
players in the Cook Inlet gas market, at this point.                                                                            
REPRESENTATIVE  AUSTERMAN asked  if  a natural  gas supplier  that                                                              
wants to increase its rates would approach the RCA.                                                                             
MR. PICKETT replied  yes, adding that there are  different factors                                                              
that propel  rate increases.   In  the case of  natural gas  and a                                                              
local gas  distributor, such  as Enstar, about  80 percent  of the                                                              
customer's bill is  the actual cost of the gas and  the 20 percent                                                              
remaining  is  the  company's  overhead   and  investment  in  the                                                              
system.   With flow  through, rural  utilities,  and PCE and  fuel                                                              
charges for which  the fuel charge can be documented,  the RCA has                                                              
provisions that allow  it to flow through with  the tariff filing.                                                              
He  opined   that  it  doesn't   make  sense  to   have  expensive                                                              
litigation in  rate cases for things  that can merely  be reviewed                                                              
to ensure they're supported and the utility used diligence.                                                                     
8:21:18 AM                                                                                                                    
CHAIR  MUNOZ  asked  if  the  RCA has  the  ability  to  review  a                                                              
specific rate  of return  on a capital  investment when  reviewing                                                              
rate increases.                                                                                                                 
MR. PICKETT  replied  yes.  In  further response  to Chair  Munoz,                                                              
Mr. Pickett hesitated  to specify a standard rate of  return for a                                                              
for-profit  utility   on  a  large  capital  investment   as  it's                                                              
dependent  upon  many  factors.    He pointed  out  that  the  RCA                                                              
reviews the  return on  equity, overall  capital, debt  structure,                                                              
and the overall return for the utility as a whole.                                                                              
8:22:15 AM                                                                                                                    
MR.  PICKETT, continuing  his  presentation,  emphasized that  the                                                              
dollar  figures for  the large  infrastructure  needs of  electric                                                              
utilities  are  staggering.   He  recalled  that  the RCA  did  an                                                              
approval for  the recovery of costs  for a gas plant  in Anchorage                                                              
with Chugach  Electric last  summer.   Between Chugach  Electric's                                                              
share,  about  $200  million,  and  Municipal  Light  &  Power  it                                                              
amounts  to about  a $300  million  project.   The various  energy                                                              
studies  relate staggering  amounts of  money.   For example,  the                                                              
entire  depreciated rate  base of  the electric  utilities in  the                                                              
Railbelt is  about $1.6 billion.   There are proposals  that could                                                              
double  the  aforementioned.   The  ratepayers  will likely  be  a                                                              
large part  of paying for  it or folks  will seek assistance  from                                                              
the legislature.   He then  turned to the  PCE program,  which the                                                              
RCA  administers cooperatively  with the  Alaska Energy  Authority                                                              
(AEA).  For the  PCE program, the RCA is charged  with calculating                                                              
the  rates,  even for  the  noneconomically  regulated  utilities.                                                              
The  PCE  subsidy  is  calculated  by the  RCA  reviewing  a  cost                                                              
structure for  PCE as if  it were a  regulated entity in  order to                                                              
determine  the cost  per kilowatt  hour (kWh)  with a baseline  of                                                              
Anchorage,  Fairbanks,  and  Juneau.    The PCE  program  is  very                                                              
important to rural  Alaska and was significantly  expanded in 2008                                                              
when energy prices skyrocketed and communities were struggling.                                                                 
MR.  PICKETT  mentioned  that  he will  be  meeting  with  Senator                                                              
Hoffman's staff  on the following  matters.  The  renewable energy                                                              
grants have  created a  high level  of expectations regarding  who                                                              
will  actually  benefit,  and thus  he  anticipated  collision  of                                                              
expectations as  the projects come  on line.  He  highlighted that                                                              
renewable  projects that  offset  high priced  diesel will  lessen                                                              
the  impact to  the  PCE  program, which  is  good.   However,  he                                                              
reminded  the  committee that  the  PCE  program only  covers  the                                                              
first  500 kWh and  doesn't help  businesses.   When state  funded                                                              
renewable energy  projects are put  in place and a  customer can't                                                              
trace  through to  a  positive impact  on  his/her  bill, it  will                                                              
likely elicit questions about the program.                                                                                      
8:25:51 AM                                                                                                                    
REPRESENTATIVE  SADDLER  inquired   as  to  the  regional  factors                                                              
utilized in PCE.                                                                                                                
MR. PICKETT, noting  that these aren't total swag  numbers, stated                                                              
that it's  not uncommon to perform  the PCE calculations  as if it                                                              
was an  economically regulated utility  and the cost  of producing                                                              
the power is  54 cents per kWh.   The RCA then reviews  the annual                                                              
cost [of that  energy] in Anchorage, Fairbanks,  and Juneau, which                                                              
will likely be  close to 12.5 cents  per kWh.  The PCE  subsidy is                                                              
based on the difference  for the first 500 kWh.   Some communities                                                              
charge   much   more   than  the   actual   cost,   which   causes                                                              
consternation,  he noted.   Those communities aren't  economically                                                              
regulated by the  RCA and it doesn't have the  statutory authority                                                              
to address  that.   However, the community  is accountable  to its                                                              
residents, he pointed out.                                                                                                      
8:27:21 AM                                                                                                                    
REPRESENTATIVE  AUSTERMAN noted that  his district contains  about                                                              
14 communities that  are considered rural.  One  of the complaints                                                              
he hears  most often  is that  one community  will be  diligent in                                                              
maintaining  its  equipment  and  keeping  its  cost  down,  while                                                              
another  community doesn't  and the  energy cost  is higher.   The                                                              
more  efficient  community  loses  PCE  funds,  whereas  the  more                                                              
irresponsible community is given more PCE funds.                                                                                
MR.  PICKETT explained  that  the  RCA engineering  staff  utilize                                                              
various  calculations,   such  as   line  loss  calculations,   to                                                              
encourage  efficiency.     He  acknowledged   that  Representative                                                              
Austerman had hit  on a very good point.  However,  he pointed out                                                              
that the  responsible community is  benefiting the community  as a                                                              
whole  because  there  are many  businesses  and  individuals  who                                                              
utilize more  than 500  kWh.   He explained  that the PCE  filings                                                              
are paper filings  and the annual in-depth reports  provide a more                                                              
thorough analysis  that reaches  the non fuel  costs.   Still, the                                                              
RCA doesn't  perform  any field  audits.  Although  AEA does  have                                                              
circuit  riders to  ensure the  systems are  working, AEA  doesn't                                                              
have much staff to  do so.  Within DCCED there  is a rural utility                                                              
business assistance  program, which is an important  program.  Mr.                                                              
Pickett expressed concern  with regard to the state  of many rural                                                              
utilities.    Between  the  state   and  the  federal  government,                                                              
there's likely  been in excess of  $3 billion invested  in various                                                              
types  of infrastructure  over  the  last couple  of  years.   The                                                              
infrastructure  depends   upon  a  well  functioning,   reasonably                                                              
affordable electric utility.                                                                                                    
8:30:18 AM                                                                                                                    
REPRESENTATIVE  AUSTERMAN  surmised  that  the issue  isn't  being                                                              
addressed within the rate structure of PCE.                                                                                     
MR. PICKETT  said, "Not  as well  as it  should be."   One  of the                                                              
main problems  is that 15-20  communities have difficulty  filling                                                              
out  a two-page  form to  be eligible  for PCE.   Personally,  Mr.                                                              
Pickett remarked that  a community's inability to fill  out a two-                                                              
page  form   calls  into   question  how   well  a  community   is                                                              
maintaining    the    generation   and    transmission    systems.                                                              
Unfortunately, the  RCA doesn't know  until there is a  problem at                                                              
a  certain level,  which  is  a poor  manner  in which  to  create                                                              
public policy.                                                                                                                  
8:32:19 AM                                                                                                                    
REPRESENTATIVE  DICK pointed  out that along  the Kuskokwim  River                                                              
villages are  sold electricity  from utilities  and there  is also                                                              
delivery  of  fuel via  the  river.    He asked  if  what's  being                                                              
discussed applies to the delivery of fuel as well.                                                                              
MR.  PICKETT answered  that it  could  conceivably.   He told  the                                                              
committee that a  couple of years ago in Adak, the  city owned the                                                              
electric utility.   After the  city manager advised  the residents                                                              
to leave the  island because the utility wasn't  going to function                                                              
that  winter,  the  RCA  held  a   show  cause  hearing  regarding                                                              
possible revocation  of the  certificate.   Although it  wasn't an                                                              
entirely clear cut  desirable response, there is  an argument that                                                              
delivery  of fuel  could be  covered.   However, to  date the  RCA                                                              
hasn't entered into such.                                                                                                       
REPRESENTATIVE   DICK  clarified  that   he's  referring   to  the                                                              
delivery of  petroleum products on  the Kuskokwim River  and asked                                                              
if that's  what Mr. Pickett is  speaking about.  He  expressed his                                                              
desire for  those utilities  receiving the  petroleum products  to                                                              
have input regarding the delivery of petroleum products.                                                                        
MR. PICKETT  informed the  committee that  similar arguments  have                                                              
been  made  with  petroleum  distributors   on  the  road  system,                                                              
although these  are isolated communities.   He offered  to provide                                                              
the  committee information  from  the Adak  proceeding, which  may                                                              
provide insight into the matter.                                                                                                
8:36:10 AM                                                                                                                    
REPRESENTATIVE GARDNER  asked if it would be  appropriate to refer                                                              
or   require  someone   from  the   Department  of   Environmental                                                              
Conservation  (DEC) or the  Rural Alaska  Fuel Services  (RAFS) to                                                              
review  the  local   system,  when  the  RCA  receives   a  poorly                                                              
completed  report or  application  or other  sign  that the  local                                                              
community isn't maintaining its energy systems.                                                                                 
MR. PICKETT  related that the RCA  works closely with  the circuit                                                              
riders of AEA,  which does what it  can with its staff  as is also                                                              
the  case with  the Rural  Utility  Business Analyst  (RUBA).   He                                                              
opined that it's  a matter of people, just as it  is with the RCA,                                                              
which has  faced tremendous staffing  challenges.  In  fact, about                                                              
four  years  ago  there was  a  joint  legislative  and  executive                                                              
branch task force  regarding the RCA's [staff level],  but nothing                                                              
came  of  it.   Therefore,  the  RCA  is  confronted  with  fairly                                                              
significant staff  turnover in certain  areas and  "pancaking [the                                                              
Trans-Alaska  Pipeline  System]  TAPS  rate  cases  and  strategic                                                              
reconfiguration."   Simply  put, Mr.  Picket said  he has  to make                                                              
decisions regarding  where the staff resources are  allocated.  At                                                              
this point, TAPS is quite important.                                                                                            
REPRESENTATIVE  GARDNER  surmised  then that  mechanisms  such  as                                                              
what  she described  are  in place,  but  staffing  is a  problem.                                                              
Therefore,  there is  a lack  of efficiency  and thoroughness  and                                                              
money could  be saved  and the  PCE program  could have  a greater                                                              
impact if these  communities knew how to maintain  their equipment                                                              
and follow through.                                                                                                             
MR. PICKETT opined  that AEA does a good job, but  it doesn't have                                                              
unlimited staff and  resources.  At some point, he  opined that it                                                              
would  behoove the  legislature to  take a broader  look as  there                                                              
are many interrelated  issues.  When the RCA  regulates a utility,                                                              
it reviews  the entire  picture.  The  RCA has various  regulatory                                                              
structures, such  as depreciation expense, in order  to ensure the                                                              
utility is operating  on a sustainable basis per the  law and that                                                              
it plans and  performs maintenance and plans  future replacements.                                                              
Mr.   Pickett  emphasized   that   although  there   has  been   a                                                              
significant amount  of investment [in utility  infrastructure] and                                                              
it's still  fairly  new and better  engineered  than in the  past,                                                              
there still  will be a day  when the aforementioned  rural utility                                                              
issues will come to the forefront.                                                                                              
8:39:35 AM                                                                                                                    
REPRESENTATIVE  GARDNER  recalled mention  of  the potential  debt                                                              
level  and increased  costs for  Enstar and  Chugach Electric  and                                                              
that their  consumers might  face very high  rate increases.   She                                                              
further   recalled   mention   of   the   possibility   that   the                                                              
aforementioned  might result  in a request  for state  assistance.                                                              
If  PCE is  calculated  as a  ratio  of the  urban  areas, then  a                                                              
dramatic  increase in  rates in  the urban areas  would cause  PCE                                                              
values to drop, she surmised.                                                                                                   
MR. PICKETT cautioned  the committee because it  could potentially                                                              
set  in  stone inefficiencies  with  no  mechanisms  to  encourage                                                              
efficiency.  The aforementioned is the problem with subsidies.                                                                  
8:41:02 AM                                                                                                                    
REPRESENTATIVE  SADDLER  asked  if  there's a  requirement  for  a                                                              
regulated  entity  to  have  a  proactive  set  aside  for  future                                                              
capital needs.                                                                                                                  
MR. PICKETT  clarified that he wouldn't  characterize it as  a set                                                              
aside.    He  explained  that  when there  is  a  rate  case,  the                                                              
[utility] has to  prove up a revenue requirement.   A component of                                                              
the revenue  requirement is a determination  of the rate  base for                                                              
the utility.   The  rate base calculations  consider the  physical                                                              
assets the  utility has  and there is  also a depreciation  study,                                                              
in terms of how  the assets are declining.  Mr.  Pickett said that                                                              
the RCA  reacts to  the filings  and doesn't  demand utilities  do                                                              
specific  things.  However,  if there  are patterns/concerns,  the                                                              
RCA  has  the ability  to  investigate  on  its  own motion.    In                                                              
further   response   to  Representative   Saddler,   Mr.   Pickett                                                              
confirmed that  a set aside for  future capital needs is  a factor                                                              
not a  mandate.   He added  that well-managed  utilities do  so as                                                              
it's part of how business is done.                                                                                              
8:42:44 AM                                                                                                                    
REPRESENTATIVE  FOSTER asked  if the  earlier testimony  regarding                                                              
the renewable energy  fund was meant to relate that  as grants are                                                              
made, the benefits aren't always passed on to the consumer.                                                                     
MR. PICKETT  said that  there are  a few  different scenarios  and                                                              
it's dependent upon  the recipient of the funds.   The independent                                                              
power  producers  are one  of  the  allowable recipients  for  the                                                              
funds.   He explained  that the  independent power producers  have                                                              
to enter  a power  sale agreement  with a utility.   When  the RCA                                                              
calculates the  PCE for a  particular community,  the [independent                                                              
power producer]  is treated  as any other  factor.  If  the result                                                              
of the power sale  agreement is to decrease the cost  of a certain                                                              
block of kW,  it will cause the  PCE subsidy to that  community to                                                              
decrease.   There will  be a  benefit to  the non PCE  [entities],                                                              
the  entities using  over 500  kWh  and businesses.   Mr.  Pickett                                                              
opined  that this  information hasn't  been  clearly presented  to                                                              
8:44:20 AM                                                                                                                    
MR.  PICKETT,  continuing  his  presentation,  reviewed  slide  12                                                              
entitled  "RCA Role  in  Cook Inlet  Gas."    He highlighted  that                                                              
although the  RCA doesn't  regulate the  producers of  natural gas                                                              
in  the Cook  Inlet,  it does  evaluate  the  Gas Sale  Agreements                                                              
(GSA)  between  the utilities  and  the  producers.   Mr.  Pickett                                                              
clarified  that   the  RCA   reviews  whether  utilities   behaved                                                              
prudently.   However, he  clarified that the  RCA isn't  trying to                                                              
set a price  per unit of gas.   House Bill 280  provided direction                                                              
for the RCA, he  noted.  Moving on to slide 13,  which relates the                                                              
electric utilities  infrastructure needs, he highlighted  that the                                                              
Alaska Railbelt  Electrical  Grid Authority  (REGA) Study  of 2008                                                              
estimates  [cumulative  capital] investment  requirements  ranging                                                              
from $2.5 to  $8.1 billion over the  next 30 years.   Much of that                                                              
investment is  frontloaded over  the next 10-15  years.   Slide 14                                                              
relates  the  assumptions  of  the  Railbelt  Integrated  Resource                                                              
Plan.    The  pie chart  on  slide  15  illustrates  the  existing                                                              
installed Railbelt  generation, which is mainly natural  gas.  The                                                              
chart  on  slide   16  relates  the  existing   generation  versus                                                              
proposed generation  in the Railbelt.   He noted that some  of the                                                              
natural  gas generation  at the  Beluga Field  will be retired  in                                                              
MR. PICKETT  remarked that  the state has  set an aggressive  goal                                                              
for renewable  energy.   However, the  aforementioned causes  some                                                              
issues  from a  regulatory  perspective in  terms  of firm  versus                                                              
non-firm power  supplies, the  definition of  which is  related on                                                              
slide 17.   Firm power, base load  power, is power that  a utility                                                              
can dispatch 24/7  365 days a year and it has  a particular value.                                                              
Non-firm  power  is  unpredictable   and  has  a  different  value                                                              
because  the  capital investment  for  base  load power  can't  be                                                              
displaced with  non-firm power;  the [base load power]  generation                                                              
has  to remain  in place.   With  adequate storage,  hydro can  be                                                              
included in the  firm power portfolio because the  reservoir would                                                              
be considered  the battery.  Therefore,  hydro has a  higher value                                                              
than a series of  windmills that provide power only  30 percent of                                                              
the time.   In certain  locations, the  two can be  complimentary.                                                              
Mr.  Pickett  moved on  to  slide  18 entitled  "Greater  Railbelt                                                              
Energy   &  Transmission   Company  (GRETC)"   and  informed   the                                                              
committee that  although the legislature  declined to  do anything                                                              
with GRETC  last year,  the factors  motivating and propelling  it                                                              
remain.  In fact,  five of the utilities in the  Railbelt formed a                                                              
generation and  transmission cooperative that is  authorized under                                                              
current  statute.   The RCA will  review various  projects  in the                                                              
future.   He opined that [GRETC]  can limit redundancies,  achieve                                                              
economies  of  scale,  and  be a  useful  long-term  planning  and                                                              
execution  vehicle.    Slide  20  reiterates  continuing  Railbelt                                                              
energy issues.   Slides 21-22 provide a brief overview  of the PCE                                                              
program, which the committee has already discussed.                                                                             
8:50:04 AM                                                                                                                    
MR. PICKETT,  referring to slide  23, informed the  committee that                                                              
the  RCA has  a number  of federal  mandates, such  as the  Energy                                                              
Policy  Act  of  2005.   The  aforementioned  act  required  state                                                              
regulatory   authorities  to   consider  adoption   of  five   new                                                              
standards.   The basic  motivation of  the aforementioned  act was                                                              
to  encourage the  development  of  small and  alternative  energy                                                              
sources.  The standards  the RCA addressed are listed  on slide 24                                                              
and include  net metering,  fuel sources,  fossil fuel  generation                                                              
efficiency,   demand  response   and   time-based  metering,   and                                                              
interconnection  standards.   After the RCA  opened a  rule-making                                                              
docket on  the aforementioned,  the RCA declined  to adopt  any of                                                              
the  federal  standards as  they  stood  because they  didn't  fit                                                              
Alaska well.                                                                                                                    
8:51:04 AM                                                                                                                    
REPRESENTATIVE   GARDNER  requested   an  explanation   of  demand                                                              
response and time-based metering.                                                                                               
MR. PICKETT mentioned  the smart grid and smart  meter and related                                                              
that the idea  is to get technology  and the system to  a point at                                                              
which  it's   more  feasible   to  have   more  dynamic   pricing.                                                              
Therefore,  it  may  be  based   on  the  time  of  day  when  the                                                              
generation resources  are available but underutilized,  such as in                                                              
the  middle of  the  night,  and a  price  signal  is provided  to                                                              
consumers  to  make  decisions.   In  response  to  Representative                                                              
Austerman, Mr.  Pickett pointed  out that forthcoming  slides will                                                              
discuss net metering in Alaska.                                                                                                 
8:52:40 AM                                                                                                                    
MR. PICKETT reiterated  that the RCA declined to adopt  any of the                                                              
federal  standards.   However,  based on  the  proceedings over  a                                                              
two-year  period it was  obvious that  there was  a high  level of                                                              
interest   in   net  metering   and   interconnection   standards.                                                              
Therefore,  the  RCA  opened rule-making  dockets  for  those  two                                                              
standards.   In  response to  Representative  Foster, Mr.  Pickett                                                              
stated that  in the  2005 federal act  there are no  ramifications                                                              
for the RCA not adopting the standards.                                                                                         
8:53:40 AM                                                                                                                    
MR. PICKETT,  continuing his  presentation, directed  attention to                                                              
slide  26, which  references the  two  dockets the  RCA opened  to                                                              
consider  net  metering  and  interconnection   standards.    With                                                              
docket R-09-1,  net metering,  the RCA tried  to create  an Alaska                                                              
rule that would  encourage [the development of  distributed small-                                                              
scale  renewable generation,  while  maintaining system  integrity                                                              
and    fairly    apportioning    costs   among    consumers    and                                                              
consumer/producers].   He opined that although the  RCA's goals in                                                              
these dockets  are essentially  the same as  those of  the federal                                                              
standards,  the  federal standards  are  too restrictive  for  the                                                              
conditions  in  Alaska.    The   RCA  approved  the  net  metering                                                              
regulations and the  effective date on those regulations  was June                                                              
16,  2010.    The  regulations  apply  to  economically  regulated                                                              
utilities with  total retail  sales of 5  million kWh or  more and                                                              
the  affected   utilities  are   required  to  interconnect   with                                                              
eligible  customer   generation   systems.    The   aforementioned                                                              
regulations  applied to  about eight  or  so utilities  throughout                                                              
the state.                                                                                                                      
8:54:32 AM                                                                                                                    
CHAIR  MUNOZ asked  if the  aforementioned  regulations mean  that                                                              
Representative Olson's legislation is unnecessary.                                                                              
MR.  PICKETT   related  his   understanding  that   Representative                                                              
Olson's legislation  is similar to  the RCA's regulations,  but he                                                              
wasn't  sure of  the sponsor's  intent.   Because the  regulations                                                              
have been  in effect less than  nine months and the  utilities are                                                              
still filing  their tariffs,  it might be  appropriate to  let the                                                              
regulations go  forward, especially  since regulations  are easier                                                              
to change than statute.   In further response to  Chair Munoz, Mr.                                                              
Pickett reminded  the committee that  the regulations have  a size                                                              
limitation.  Referring  to slide 28, Mr. Pickett  opined that this                                                              
net  metering regulation  is tightly  contained.   The problem  is                                                              
that if there's  a small utility and a sufficient  surge of energy                                                              
at a  point in the  system, it could  cause stability  issues with                                                              
the  system.    Rather  than  try  to  foresee  all  the  possible                                                              
problems,  it's better  for a  utility to  determine the  problems                                                              
and  review the  work the  RCA performed  and adopt  parts of  it.                                                              
The  larger   utilities  are  better   positioned  to   make  [net                                                              
metering]  work.   He  noted that  with  the  net metering  docket                                                              
there was  vigorous participation  from an  array of entities  for                                                              
about a year.                                                                                                                   
8:57:04 AM                                                                                                                    
CHAIR MUNOZ  surmised then that  the regulations are in  place for                                                              
the larger utilities and individual consumers can participate.                                                                  
MR. PICKETT  confirmed that  to be the  case, and added  that many                                                              
of  the   larger  utilities  have   already  filed   their  tariff                                                              
provisions to implement these [regulations] with the RCA.                                                                       
8:57:24 AM                                                                                                                    
MR. PICKETT,  in response  to Representative  Dick, explained  net                                                              
metering as follows.   Many renewable energy producers  produce an                                                              
amount  of energy in  excess of  their needs,  and therefore  they                                                              
wanted the ability  to sell that excess power back  to the utility                                                              
and  would either  receive  a credit  on their  bill  or a  check.                                                              
[The RCA] created a form of credit on the bills.                                                                                
8:58:45 AM                                                                                                                    
REPRESENTATIVE   AUSTERMAN  returned   to  the   portion  of   the                                                              
regulations that  apply to  economically regulated utilities  with                                                              
total retail  sales of 5  million kWh or  more and inquired  as to                                                              
Kodiak's position.                                                                                                              
MR.  PICKETT   answered  that  since  Kodiak   isn't  economically                                                              
regulated, it's not mandated to participate [in net metering].                                                                  
8:59:21 AM                                                                                                                    
REPRESENTATIVE  FOSTER recalled  Mr. Pickett's comments  regarding                                                              
Representative  Olson's  net  metering legislation  and  asked  if                                                              
Representative Olson's office has worked with the RCA.                                                                          
MR. PICKETT replied yes.                                                                                                        
9:00:02 AM                                                                                                                    
REPRESENTATIVE  AUSTERMAN surmised  then  that since  Kodiak is  a                                                              
non regulated  community,  it would be  up to  the members  of the                                                              
cooperative to decide.                                                                                                          
MR.    PICKETT    agreed    with     Representative    Austerman's                                                              
understanding,  but added  that the cooperative  could review  the                                                              
RCA's regulations and use them as a model.                                                                                      
9:00:36 AM                                                                                                                    
REPRESENTATIVE  DICK  opined that  in  his small  village  feeding                                                              
energy back  into the power system  wouldn't provide a  savings to                                                              
anyone.  He posed  an example of a 25 kWh generator  that burns 10                                                              
gallons  at  full load,  whereas  at  a  half  load it  burns  9.5                                                              
gallons.  Therefore,  pumping energy back into  the system doesn't                                                              
help  because  the  pistons  still have  to  turn  and  everyone's                                                              
electric bill would  increase.  Therefore, the  benefit of feeding                                                              
energy back  into the system would  depend upon whether  the large                                                              
utility  has the  ability to  save  fuel as  a [consumer]  returns                                                              
energy to  the system.   If there's no  fuel savings, it  seems to                                                              
just be an illusion of savings, he remarked.                                                                                    
MR.  PICKETT acknowledged  that  there are  elements  of truth  in                                                              
Representative  Dick's comments.    Directing  attention to  slide                                                              
28, he pointed out  that the net metering cap  is very restrictive                                                              
cap as  it's capped at  1.5 percent of  the average  retail demand                                                              
for the  entire system of  that utility.   Furthermore, 25  kW was                                                              
the maximum  size for  any generation  unit.   Mr. Pickett  opined                                                              
that [net  metering] isn't going  to have a significant  impact on                                                              
the  operations of  the  six to  seven  largest  utilities in  the                                                              
REPRESENTATIVE  DICK   surmised  that  whether  there   is  actual                                                              
savings  or  the  illusion  of   savings  is  dependent  upon  the                                                              
generating system of  the main utility.  The  savings is dependent                                                              
upon whether  that energy returned  to the system causes  the fuel                                                              
the utility uses to provide energy decreases.                                                                                   
MR. PICKETT  agreed that there  is truth  in that, and  added that                                                              
savings would  be related to the  efficiency of the utility.   The                                                              
University  of  Alaska's  Center   for  the  Study  of  Power  has                                                              
received  U.S. Department  of Agriculture  (USDA)  funds to  study                                                              
wind-diesel  hybrid systems in  the Bush.   The aforementioned  is                                                              
appropriate  because  thus  far mainly  anecdotal  information  is                                                              
available.   If the state is  going to continue to  give renewable                                                              
energy  funds,   the  aforementioned  is  the  type   of  baseline                                                              
information that's necessary.                                                                                                   
9:03:50 AM                                                                                                                    
MR.  PICKETT,   returning  to   his  presentation,   directed  the                                                              
committee's    attention   to    slide    29   entitled    "R-09-2                                                              
Interconnection   Standards".      With  these   new   distributed                                                              
renewable  sources,   interconnection  is  critical   and  greatly                                                              
concerns the  utilities, he  opined.  Referring  to slide  30, Mr.                                                              
Pickett informed  the committee  that the  RCA will soon  consider                                                              
draft interconnection  regulations.   He then turned  attention to                                                              
slides 31-33  regarding the Energy  Independence and  Security Act                                                              
of 2007  (EISA).  The new  Public Utility Regulatory  Policies Act                                                              
of  1978 (PURPA)  standards in  EISA  include integrated  resource                                                              
planning, rate  design modification  to promote energy  efficiency                                                              
investments,  consideration of  smart grid  investment, and  smart                                                              
grid information.   The RCA opened a docket on  the aforementioned                                                              
and took  comments through December  and the docket will  be taken                                                              
up at  a public meeting  in the near  future.  Referring  to slide                                                              
34 entitled  "Challenges Ahead for  the RCA", Mr.  Pickett pointed                                                              
out  the challenge  of telecommunications.   The  RCA is  involved                                                              
with   the  incumbent   local  carriers   that  are   economically                                                              
regulated  as well  as the  Federal Universal  Service Fund  (USF)                                                              
and   provide  certifications   to   the  Federal   Communications                                                              
Commission  (FCC)  annually.     Most  people  don't  realize  the                                                              
significance  of  USF  to  the  State  of  Alaska.    However,  he                                                              
highlighted  that  it's a  subsidy  approaching $200  million  per                                                              
year to support  the state's telecommunications system.   He noted                                                              
that the  national broadband  plan may  have a significant  impact                                                              
on  the   telecommunications   income  stream   if  there   is  no                                                              
recognition as to  Alaska's unique nature.  He  also mentioned the                                                              
challenge  of  major  capital investments  by  utilities  and  the                                                              
struggling  rural  utilities.   He  related  his concern  for  the                                                              
struggling  rural   utilities,  which   he  opined  needs   to  be                                                              
addressed  rather   than  waiting   to  address  broken   [utility                                                              
equipment and systems].                                                                                                         
9:06:17 AM                                                                                                                    
REPRESENTATIVE   SADDLER   recalled    Mr.   Pickett's   testimony                                                              
regarding  the  major  capital investments  by  utilities  in  the                                                              
amount of  $8.5 billion over  the next 15  years or so.   He asked                                                              
if  there   is  anticipation   of  other   large  investments   in                                                              
infrastructure  for  energy generation.    He also  asked  whether                                                              
it's necessary to  choose a direction in terms of  the type of new                                                              
capacity  generation there  will be  and whether  that will  drive                                                              
the major  capital investments by  utilities or are  they fungible                                                              
whatever the source.                                                                                                            
MR.  PICKETT pointed  out that  the capital  investment amount  to                                                              
which  Representative Saddler  referred  was from  the AEA  study.                                                              
Mr.  Pickett  then   highlighted  that  utilities   have  to  make                                                              
decisions  in real-time  because  there are  real needs  now.   To                                                              
date, the  state's energy plan or  goals are more  aspirational in                                                              
nature  rather than  a plan  of executable  specific action  steps                                                              
with timelines  and dollar  figures attached.   If the  state does                                                              
become  involved in  a major energy  project  and invests  its own                                                              
resources  in it,  the more  timely such  a decision  is made  the                                                              
better in  order to avoid  potential utilities making  investments                                                              
in the  next few  years that would've  potentially made  different                                                              
decisions had other tracts been moving faster.                                                                                  
REPRESENTATIVE   SADDLER  surmised  then   that  the   sooner  the                                                              
decisions  are made, the  better.   However, the  RCA has  to make                                                              
decisions  based  on  the  current  situation  or  the  reasonably                                                              
foreseeable future.                                                                                                             
9:08:10 AM                                                                                                                    
MR.  PICKETT, returning  to  his presentation,  characterized  the                                                              
state's   renewable   energy   goal   as   very   aggressive   and                                                              
aspirational.   The state's  goal of producing  50 percent  of the                                                              
state's  energy  from renewable  sources  by  2025 could  only  be                                                              
achieved with  a significant commitment  to large scale  hydro, he                                                              
said.   The  Cook Inlet  gas situation  will  remain a  challenge.                                                              
With regard  to the TAPS cases  he mentioned earlier, the  RCA has                                                              
joint   hearings   with   the   FERC   in   October   to   address                                                              
reconfiguration issues  on TAPS and  setting the tariff.   Another                                                              
challenge is the continuing RCA staffing issues.                                                                                
9:09:07 AM                                                                                                                    
REPRESENTATIVE  AUSTERMAN, referring  to  the pie  chart on  slide                                                              
15, directed attention  to the Bradley Lake Hydro  project and the                                                              
percentage  of  energy it  supplies  to  the  Railbelt.   He  then                                                              
suggested  that the  members consider  the  Susitna Hydro  project                                                              
and the potential  energy it would've supplied  versus the Bradley                                                              
Lake Hydro  project.  Representative  Austerman related  that [the                                                              
pie  chart] illustrates  why one  must  think 20-30  years in  the                                                              
future.   Still, he  noted his appreciation  for the  Bradley Lake                                                              
Hydro project as it forced the Four Dam Pool hydro projects.                                                                    
MR. PICKETT  related that  the Bradley Lake  Hydro project  is the                                                              
cheapest power  in the  portfolio of  the utilities that  invested                                                              
in it.                                                                                                                          
9:10:51 AM                                                                                                                    
REPRESENTATIVE  SADDLER  inquired  as  to  the  questions  members                                                              
should ask  the FERC  commissioners regarding  the TAPS  strategic                                                              
MR. PICKETT  clarified that the  FERC structure is  very different                                                              
than that of the  RCA as the FERC delegates a  lot of authority to                                                              
the   administrative  law   judges.     At  this   point  in   the                                                              
proceedings, the  FERC likely won't  have a whole lot  of specific                                                              
information  and   have  restrictions  regarding   what  they  can                                                              
discuss in terms of an open docket.                                                                                             
9:11:58 AM                                                                                                                    
CHAIR MUNOZ  thanked Mr.  Pickett for  his help  with a  couple of                                                              
issues  in Juneau.    She then  sought  comment  from Mr.  Pickett                                                              
regarding  the upcoming  Alaska  Electric  Light  & Power  (AEL&P)                                                              
rate increase proposal.                                                                                                         
MR.  PICKETT  clarified that  he  can't  speak to  any  particular                                                              
facts or  merits of the  case.  However,  he related that  the RCA                                                              
decided to  have the hearing in  Juneau [the week of May  9th] and                                                              
is currently  trying to find a  suitable venue.  Once  the details                                                              
are available, those in Juneau will be informed.                                                                                
9:13:07 AM                                                                                                                    
CHAIR MUNOZ  mentioned the need for  pay phones at some  points of                                                              
entry,  such as ferry  terminals  and airports.   She related  her                                                              
understanding that the RCA has opened a docket on that issue.                                                                   
MR. PICKETT  said that the  RCA opened a  docket about a  year ago                                                              
when the  Alaska Communication Services  (ACS) began  removing pay                                                              
phones.   A similar situation is  occurring in Anchorage  with the                                                              
removal  of private  pay  phones  that are  owned  by the  telecom                                                              
company.   After thorough  research, it  has been determined  that                                                              
the RCA's authority  is very limited by the FCC  regarding what it                                                              
can do.   The RCA will  address this matter  next week and  make a                                                              
determination  going  forward.    He  explained  that  public  pay                                                              
phones  are subsidized  pay phones  that are  funded through  some                                                              
public funding  mechanism.   As Chair  Munoz mentioned,  there may                                                              
be  good reason  to consider  whether  there should  be a  certain                                                              
number  of public  subsidized  pay  phones in  certain  locations.                                                              
Although  the   docket  hasn't  yet   been  opened,  it   will  be                                                              
considered next week.                                                                                                           
9:15:03 AM                                                                                                                    
There being  no further business  before the committee,  the House                                                              
Community  and Regional  Affairs  Standing  Committee meeting  was                                                              
adjourned at 9:15 a.m.                                                                                                          

Document Name Date/Time Subjects