Legislature(2023 - 2024)BARNES 124
05/04/2023 10:15 AM House ENERGY
Note: the audio ![]()
and video ![]()
recordings are distinct records and are obtained from different sources. As such there may be key differences between the two. The audio recordings are captured by our records offices as the official record of the meeting and will have more accurate timestamps. Use the icons to switch between them.
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Power Cost Equalization | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
May 4, 2023
9:47 a.m.
MEMBERS PRESENT
Representative George Rauscher, Chair (via teleconference)
Representative Tom McKay, Vice Chair
Representative Stanley Wright
Representative Mike Prax
Representative Calvin Schrage
Representative Ashley Carrick
MEMBERS ABSENT
Representative Josiah Patkotak
COMMITTEE CALENDAR
PRESENTATION: POWER COST EQUALIZATION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
BECKI ALVEY, Acting Advisory Section Manager
Tariffs Section Supervisor
Regulatory Commission of Alaska
Department of Commerce, Community, and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Gave a PowerPoint presentation, titled "The
Regulatory Commission and Power Cost Equalization."
KEITH KURBER, Chairman
Regulatory Commission of Alaska
Department of Commerce, Community, and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Answered questions during the hearing.
CURTIS THAYER, Executive Director
Alaska Energy Authority
Department of Commerce, Community, and Economic Development
Anchorage, Alaska
POSITION STATEMENT: Gave a PowerPoint presentation, titled
"Power Cost Equalization."
ZACHARY HANNA, Chief State Investment Officer
Treasury Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Gave a PowerPoint presentation, titled
"Power Cost Equalization Fund Investment Summary."
ACTION NARRATIVE
10:16:35 AM
VICE CHAIR TOM MCKAY called the House Special Committee on
Energy meeting to order at 10:15 a.m. Representatives Schrage,
Rauscher, McKay, Prax, and Wright were present at the call to
order. Representative Carrick arrived as the meeting was in
progress.
^PRESENTATION: POWER COST EQUALIZATION
PRESENTATION: POWER COST EQUEALIZATION
10:18:25 AM
VICE CHAIR MCKAY announced that the only order of business would
be a presentation on power cost equalization.
10:19:34 AM
BECKI ALVEY, Acting Advisory Section Manager, Tariffs Section
Supervisor, Regulatory Commission of Alaska, Department of
Commerce, Community, and Economic Development, gave a PowerPoint
presentation, titled "The Regulatory Commission and Power Cost
Equalization" [hard copy included in the committee packet]. She
began on slide 2 through slide 5 giving a brief overview of
Power Cost Equalization (PCE) and the Regulatory Commission of
Alaska (RCA). She stated that PCE is an effort to equalize
power costs per kilowatt hour (kWh) statewide to the average
cost per kWh of Anchorage, Fairbanks, and Juneau. The role of
RCA is to calculate the base rate for PCE, calculate PCE amounts
for each eligible utility, and determine which utilities are
eligible. She said that the base rate for PCE is adjusted
annually on July 1st, and its minimum rate is 12 cents per kWh.
The RCA compares the utility reports from Anchorage, Fairbanks,
and Juneau to the sales and costs of other utilities and
determines the base rate by putting together a weighted average.
10:22:12 AM
MS. ALVEY continued to slide 6 through slide 10, displaying
tables with information on sales, costs, base rate calculations,
and historical PCE base rates. She said that a weighted average
is the cost per kWh multiplied by the percentage of the
utilities' residential sales. The total cost of the weighted
average from Chugach Electric Association, Alaska Electric Light
and Power, Golden Valley Electric Association, and Matanuska
Electric Association is used for the final weighted average.
She stated that from 2001 until 2007, the PCE base rate
increased from the minimum of 12 cents per kWh to 20.36 cents
per kWh. In creating the PCE calculation for a utility, she
said, the following are factored in: non-fuel costs, fuel costs,
the PCE base rate, and the adjustments for not meeting
generation efficiency. She clarified that non-fuel costs
include all allowable costs other than return on the equity used
by RCA to determine the revenue requirement for each regulated
utility.
10:25:36 AM
REPRESENTATIVE PRAX asked whether RCA regulates costs and
investments for the Railbelt utilities.
10:26:48 AM
KEITH KURBER, Chairman, Regulatory Commission of Alaska,
Department of Commerce, Community, and Economic Development,
answered no; however, he explained that the plans the Railbelt
utilities present and enact are regulated by RCA.
REPRESENTATIVE PRAX asked whether RCA has the authority to
reject investments in a type of energy generation because of the
potential increase in cost to the ratepayers.
MR. KURBER responded no; furthermore, he added that a new
agency, the Electric Reliability Organization, would likely
handle questions such as this in the future.
10:31:31 AM
MS. ALVEY moved to slide 11 and slide 12 and stated that fuel
costs include the cost of diesel fuel and must be supported by
invoices. She explained that nonregulated utilities are
adjusted with fuel reports, and regulated utilities are adjusted
with the cost of power adjustment or the fuel cost rate
adjustment. She said that generation efficiency is measured by
the number of kWhs generated compared to the number of gallons
of fuel consumed, and the standard is based on the size of the
utility and kWh generation amount. If the standard is not met,
the fuel cost is calculated as if the standard were met after
reducing the number of gallons reported. She stated that line
loss is measured as kWh generated minus kWh sold, plus the
station service divided by kWh, and the minimum standard is 12
percent.
10:34:04 AM
REPRESENTATIVE PRAX asked whether the standards are set by
statute or regulation.
MS. ALVEY answered that current statutes allow RCA to create
regulations, and it sets the standard. In response to a follow-
up question, she said that RCA has given the utilities a chance
to give input into the regulations.
10:36:58 AM
MS. ALVEY continued to slide 13 and stated that eligible
utilities are defined by AS 42.45.150(3), which also includes
the definition for ineligible utilities. She stated that RCA
certifies electric utilities and collects reporting information
from utilities which benefit from PCE. It can recommend that
PCE disbursements be suspended for any utility which fails to
comply with these reporting requirements.
10:40:03 AM
CURTIS THAYER, Executive Director, Alaska Energy Authority,
Department of Commerce, Community, and Economic Development,
gave a PowerPoint presentation, titled "Power Cost Equalization"
[hard copy included in the committee packet]. He began on slide
2 through slide 5, giving a brief overview of the Alaska Energy
Authority (AEA) and PCE. He stated that AEA is involved in
Railbelt energy, PCE, rural energy, renewable energy, energy
efficiency, grants and loans for energy projects, and energy
planning. Established in 1985, he said, the PCE program is an
effort to equalize the high cost of energy in rural Alaska.
Eligible customers include residential and community facilities,
while state and federal facilities, commercial energy consumers,
and communities whose rates are lower than the PCE floor are
excluded.
10:42:53 AM
MR. THAYER. continued to slide 6 and slide 7 and stated that AEA
and RCA work together to administer the PCE program. He said
that 193 rural communities, 91 electric utilities, and 82,000
Alaskans benefit from PCE. The PCE endowment fund was created
in 2001 to give the fund a source of capital gains, and it is
managed by the Department of Revenue. He said that residential
customers are eligible to receive PCE credit for up to 750 kWhs
a month, and public facilities are eligible for credit up to 70
kWhs multiplied by the number of residents in a community. He
pointed out that in 2022, $27.4 million was disbursed by the PCE
fund. He stated that the current value of the fund is $978.8
million. He explained that the PCE fund uses a three-year
average to determine the market value appropriate for the fund.
10:46:17 AM
REPRESENTATIVE PRAX asked whether PCE should use a 5-year
average as opposed to the 3-year average.
MR. THAYER answered that this has been discussed, and the
decision is against the 3-year average.
10:48:25 AM
MR. THAYER continued to slide 8 and slide 9, displaying a chart
with the history of the PCE endowment and the PCE endowment
earnings. He stated that the fund has earned money in four of
the previous five years through capital investment and has
outflows such as administrative costs and management fees. In
2021, the fund earned approximately $150 million, of which the
first $40 million went toward PCE, and $30 million went toward
community assistance. He said that, depending on the level of
the fund, up to $25 million could be spent on projects such as
powerhouse upgrades or the renewable energy fund. He added that
the fund has only earned enough money to pay for these upgrades
on two occasions, of which 2021 was one.
10:51:49 AM
MR. THAYER continued to slide 10 and slide 11, giving an
overview of PCE terminology. He reiterated the definition of
the base rate and the effective rate. He stated that the PCE
ceiling is the maximum amount paid per kWh, which is $1. The
PCE effective rate is the rate charged by the utility minus the
PCE level, and the PCE level is the state reimbursement per kWh
for each community based on eligible and noneligible fuel costs.
He stated that AEA puts out an annual report on PCE, which is
available online. He said that in 2021, the PCE fund was ruled
to not be subject to the sweep provision in the Alaska State
Constitution, as PCE was found to be a separate fund outside of
the state's general fund. The significance of this is that the
fund is no longer a part of the legislative budgeting process;
therefore, the uncertainty for rural Alaska and AEA is removed.
10:56:11 AM
REPRESENTATIVE CARRICK asked why there are more active projects
in Southwest Alaska than the North Slope Borough.
MR. THAYER answered that there are more communities in Southwest
Alaska.
10:58:51 AM
CHAIR RAUSCHER asked how ratepayers receive their
reimbursements.
MR. THAYER answered that checks are issued to utilities or
communities monthly. He added that communities have up to three
months to submit their expenses to AEA for reimbursement.
11:01:06 AM
REPRESENTATIVE PRAX asked how the court ruling affected AEA's
ability to regulate.
MR. THAYER answered that it has made regulation easier for AEA.
in response to a follow-up question, he said that money
available for additional projects would depend on the capital
gains of the fund.
REPRESENTATIVE PRAX questioned whether the legislature should
work to make the fund's earnings less volatile.
MR. THAYER expressed the opinion that this is worth considering,
although the fund was not designed to be the main source of
funds for a project. In response to a follow-up question, he
reiterated that the maximum amount of money which can be
contributed towards new projects is $25 million. He added that
the Department of Revenue would have a better understanding of
how to manage the investments to potentially allow for more
project funding.
11:08:47 AM
CHAIR RAUSCHER asked whether decreased prices on the Railbelt
from the use of renewable energy would affect rural communities.
MR. THAYER expressed uncertainty whether enacting RPS would
affect PCE. In response to a follow-up question, he said that
PCE reimbursement would increase if Railbelt prices increased.
CHAIR RAUSCHER asked how PCE would be affected if prices were to
increase to over a dollar.
MR. THAYER answered that rural Alaska would be negatively
affected. In response to a follow-up question, he said that PCE
will always be paid out, but to different amounts based on the
costs for urban Alaskan communities.
11:15:18 AM
REPRESENTATIVE PRAX asked whether cheaper prices and less PCE
payouts means more money would be available for capital
investments.
MR. THAYER answered that the PCE fund is not designed to pay for
capital projects. In response to a follow-up question, he said
that significant capital gains in the endowment fund would be
necessary for large-scale capital project funding.
11:18:50 AM
ZACHARY HANNA, Chief State Investment Officer, Treasury
Division, Department of Revenue, gave a PowerPoint presentation,
titled "Power Cost Equalization Fund Investment Summary" [hard
copy included in the committee packet]. He began on slide 2
through 4, stating that the Treasury Division manages
approximately $49 billion in assets for Alaska, including $9
billion for the PCE fund. The division creates an investment
plan for each fund it manages on an annual basis. He said that
PCE investment policy is based in statute, and it is designed to
maximize the total return of the fund, with a high-risk
tolerance. The fund has an investment of approximately 70
percent in equity and 30 percent in bonds. He said that the
expected return of the fund is 6.83 percent and 4.33 percent
when accounting for inflation.
11:22:11 AM
MR. HANNA continued to slide 5 and slide 6, stating that stock
and bond performances were both low in 2022. Losses in 2022
mostly occurred in the first half of the year, with the second
half of 2022 showing some recovery for investments. He said
that the PCE fund has seen growth of 6.3 percent since the start
of fiscal year 2023, and the long-term performance has been
strong despite 2022 being a down year. The growth of PCE assets
and investments have met or exceeded expectations and provided
modest excess returns.
11:25:40 AM
MR. HANNA moved to slide 7, giving a brief overview of the
history of PCE cashflow. He reiterated that the fund has
performed well despite losses in 2022, and the fund has a 6.8
percent total return, exceeding the expected return of 4.3
percent. Prior to 2022, the average return was 9.2 percent. He
stated that over the long term, the fund will continue to be
able to provide the reimbursement it was created to provide.
11:28:35 AM
REPRESENTATIVE PRAX asked how the expected performance of the
fund was determined.
MR. HANNA answered that the benchmark is based on average
industry standards for such funds. In response to a follow-up
question, he said that the excess funds are enough to cover
administrative costs.
11:30:34 AM
MR. HANNA continued to slide 8, stating that the Department of
Revenue has a comprehensive and transparent process for the
implementation of investment policies. He stated that PCE's
asset allocation is designed to maximize total return while
considering inflation, and the results of the fund long term are
expected to continue to meet or exceed expectations.
11:32:00 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:32 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| DOR-PCE-H.ENE-May-2023.pdf |
HENE 5/4/2023 10:15:00 AM |
PCE |
| RCA Power Cost Equalization presentation H ENE 05.04.23.pdf |
HENE 5/4/2023 10:15:00 AM |
PCE |
| AEA PCE Overview Presentation to House Energy Committee 05.04.23.pdf |
HENE 5/4/2023 10:15:00 AM |
PCE |