Legislature(2023 - 2024)BARNES 124
03/07/2024 10:15 AM House ENERGY
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| Adjourn |
* first hearing in first committee of referral
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| += | HB 368 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
March 7, 2024
10:15 a.m.
MEMBERS PRESENT
Representative George Rauscher, Chair
Representative Stanley Wright
Representative Mike Prax
Representative Calvin Schrage
Representative Jennie Armstrong
MEMBERS ABSENT
Representative Tom McKay
Representative Thomas Baker
COMMITTEE CALENDAR
HOUSE BILL NO. 368
"An Act relating to clean energy standards and a clean energy
transferable tax credit; and providing for an effective date."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 368
SHORT TITLE: ELECTRICAL ENERGY & ENERGY PORTFOLIO STDS
SPONSOR(s): ENERGY
02/20/24 (H) READ THE FIRST TIME - REFERRALS
02/20/24 (H) ENE, FIN
02/22/24 (H) ENE AT 11:00 AM BARNES 124
02/22/24 (H) -- MEETING CANCELED --
02/27/24 (H) ENE AT 11:00 AM BARNES 124
02/27/24 (H) Heard & Held
02/27/24 (H) MINUTE(ENE)
02/29/24 (H) ENE AT 10:15 AM BARNES 124
02/29/24 (H) Heard & Held
02/29/24 (H) MINUTE(ENE)
03/05/24 (H) ENE AT 10:15 AM BARNES 124
03/05/24 (H) Scheduled but Not Heard
03/07/24 (H) ENE AT 10:15 AM BARNES 124
WITNESS REGISTER
BRANDON SPANOS, Acting Director
Tax Division
Department of Revenue
Anchorage, Alaska
POSITION STATEMENT: Provided invited testimony on the
department's fiscal note for HB 368.
DANIEL HECKMAN, Regulatory Manager
Golden Valley Electric Association
Fairbanks, Alaska
POSITION STATEMENT: Provided invited testimony on HB 368.
KERIANN BAKER, Chief Strategy Officer
Homer Electric Association
Homer, Alaska
POSITION STATEMENT: Provided invited testimony on HB 368.
JULIE ESTEY, Chief Strategy Officer
Matanuska Electric Association (MEA)
Palmer, Alaska
POSITION STATEMENT: Provided invited testimony on HB 368.
ACTION NARRATIVE
10:15:32 AM
CHAIR RAUSCHER called the House Special Committee on Energy
meeting to order at 10:15 a.m. Representatives Armstrong,
Schrage, and Rauscher were present at the call to order.
Representatives Prax and Wright arrived as the meeting was in
progress.
HB 368-ELECTRICAL ENERGY & ENERGY PORTFOLIO STDS
10:16:33 AM
CHAIR RAUSCHER announced that the only order of business would
be HOUSE BILL NO. 368, "An Act relating to clean energy
standards and a clean energy transferable tax credit; and
providing for an effective date."
10:18:04 AM
BRANDON SPANOS, Acting Director, Tax Division, Department of
Revenue (DOR), provided invited testimony on DOR's fiscal note
for HB 368. He stated that the fiscal note is indeterminant for
costs and revenue.
10:18:35 AM
The committee took a brief at-ease.
10:18:49 AM
MR. SPANOS continued his invited testimony. He stated that the
clean energy transferable tax credit proposed by HB 368 would be
administered by the Tax Division. He explained that the credit
could be taken against the tax for electric and telephone
cooperative taxes or any of the other 20-plus tax types
administered by DOR. The department would be required to issue
a clean energy transferrable tax credit certificate to a load
servicing entity as defined under AS 42.05.790 for qualifying
clean energy production that is produced under AS 42.05.910, and
DOR would publish the name and contact information for each
person provided a certificate. The tax credit certificate could
be sold, assigned, exchanged, conveyed, or otherwise transferred
in whole or in part to a tax paying entity to use against the
entity's tax obligations. Any portion not used by the taxpayer
could be used in a later tax period or further transferred to
another taxpayer. A clean energy transferable tax credit would
need to be used within five years of being issued by DOR and DOR
would be required to split the certificate or the value of
multiple certificates into specific denominations at the request
of the holder of the certificate so that the holder could
utilize or transfer the various amounts. The department would
be required to combine multiple certificates into one
certificate at the request of the holder of the certificate, an
example being a taxpayer that buys multiple certificates from
different entities and wanting to utilize them in one tax
return. The department would need to track the expiration dates
of the original certificates and include those dates and amounts
in the certificates that are split or combined. Splitting or
combining the certificates would not change or extend the period
in which each credit that is included in that combined
certificate must be used. As well, HB 368 would grant DOR the
authority to draft regulations to administer the transferable
credit program.
10:21:28 AM
MR. SPANOS addressed the bill's revenue impact. He related that
when he wrote the first fiscal note, the revenue impacts
couldn't be determined due to the short timeframe to create the
fiscal note and the lack of knowledge about how much clean
energy would be produced resulting in clean energy transferable
tax credits. Further, he advised, it's impossible to know which
tax programs those credits would be claimed against and reduced,
or whether it would be general fund or designated fund. The
bill would have indeterminant negative impact on overall tax
revenue.
MR. SPANOS explained that the main challenge in creating a
precise fiscal estimate is figuring out how much new energy
might be eligible for the credit because it depends on specific
projects, ownership, implementation dates, capacity, how much of
a project's capacity then translates into energy provided, and
timing in claiming, transferring, and applying a credit against
a tax return. Compiling a statewide list and modeling would
therefore be a significant undertaking and is not in DOR's area
of expertise. He said the department's next fiscal note will be
updated with a simple example and the assumption that 1 percent
of the state's total energy production would be converted to
qualifying projects each year. The fiscal impact would be
$130,000 in credits the first year and $1.3 million in credits
the tenth year. These are credits generated with a lag in the
timing of reducing the taxes because they would be applied
against taxes in later years.
MR. SPANOS stated that DOR's implementation cost and impacts of
the bill couldn't be determined at the time he first drafted the
fiscal note. The main administrative burden, he related, is
transferring credits and being like a broker for those that
would be purchasing the credits, which he thinks could be done
with existing resources under the aforementioned numbers.
However, he advised, if those numbers were to climb, the Tax
Division would need to determine if it would be cost efficient
to automate some of those processes, such as utilizing
electronic certificates rather than paper certificates because
that would be simpler to track and do the splitting, combining,
and reissuing. The Tax Division would also explore utilizing
the web interface for certificates to be applied for,
transferred, combined, and split because that would lighten the
administrative burden. The Tax Division would need more time to
research the cost of that interface and there would likely be a
cost to buildout that interface and a module, but likely the
division wouldn't need additional personnel to administer.
10:25:32 AM
CHAIR RAUSCHER asked whether the new fiscal note would be large
if a transmission line must be built, and a commission is needed
to track the electrons running through the line and how they
correspond with the utility companies.
MR. SPANOS requested clarification as to whether there would be
additional credits because of how it is transmitted or whether
specific credit would be applied in addition to the utilities
generating a new source of energy.
CHAIR RAUSCHER said he is asking whether DOR would need to put
in another fiscal note for tracking the happenings of that and
the money going back and forth.
MR. SPANOS replied he can't comment because he needs to
understand it better. He said it would cost more for DOR to
administer if the credits were much larger because there would
be a lot more buying, selling, splitting, and merging of
credits, and an additional person might be required to oversee
that. Also, there is more of an administrative burden when the
credits being claimed are used against multiple tax programs.
However, he continued, putting this credit program into the
division's system and building out a web interface would be a
one-time cost, and the program could grow as large as it needs
to and not cost any more to do that administrative piece, it
would just be if more person hours are needed.
10:28:01 AM
REPRESENTATIVE PRAX pointed out that tax credits mean that money
thought to be available for something else won't be available if
a credit is issued. He submitted that there was some buyer's
remorse with the oil and gas tax credits. He asked if DOR would
soon come up with an order of magnitude impact.
MR. SPANOS answered that DOR intends to include in its updated
fiscal note an example of 1 percent of current electric power
generation being converted to a tax credit. Under that general
example which doesn't look at specific projects, the credit
would be $130,000 in year one and $1.3 million in year 10.
10:29:44 AM
CHAIR RAUSCHER stated that there are no plans to put oil and gas
into HB 368.
REPRESENTATIVE PRAX replied he understands that but asserted
it's the same thing a tax credit. One percent at $130,000
isn't a big deal, he allowed, but this will likely be much more
than 1 percent, which is a big deal that the legislature won't
be able to talk about 5-10 years from now. It needs to enter
the conversation, he maintained, because a decision is being
made that will affect revenue in the same way that the oil and
gas tax credits affected the income stream of the state.
CHAIR RASCHER said he appreciates the comment, but tax credits
encourage investment and development that bring people,
businesses, and jobs, and therefore they pay for themselves in
the long run.
CHAIR RAUSCHER thanked Mr. Spanos for his testimony and invited
the next witness to testify.
10:31:37 AM
DANIEL HECKMAN, Regulatory Manager, Golden Valley Electric
Association (GVEA), provided invited testimony on HB 368. He
stated he is representing GVEA from an operational and
regulatory perspective because GVEA's board of directors hasn't
yet taken a position on HB 368 for a clean energy standard. He
said HB 368 has improvements from the bill for a renewable
portfolio standard which has mandates that would affect GVEA's
ability to recover costs of penalties that could be imposed for
not meeting specific and prescriptive goals. Those improvements
include not being prescriptive as to a certain type of energy
source, utilizing an incentive-based mechanism in the form of
renewable tax credits to achieve the legislation's goals rather
than harmful penalties, setting dates that are more achievable
and realistic, and specifically recognizing that the buildout of
an adequate transmission system is required and entities should
not be subject to the clean energy standard before the
transmission lines are upgraded to the minimum standard required
to ensure seamless end-to-end electrical energy transmission.
MR. HECKMAN urged that the legislature provide the state
matching funds required to receive the $206.5 million grant
awarded by the [US] Department of Energy to the Alaska Energy
Authority (AEA) to reduce the transmission constraints between
the Kenai and Anchorage areas. This funding, he said, is a
first piece for helping to build out adequate transmission to
allow the Railbelt electric utilities to share site specific
renewable resources. He expressed GVEA's support for the
Senate's recent bill for a Railbelt transmission organization to
oversee and govern the Railbelt electric system. He urged that
any provisions pertaining to net metering and net billing be
addressed in stand-alone legislation due to the regulatory
considerations involved.
MR. HECKMAN stated that under its strategic generation plan,
GVEA is actively continuing its efforts to de-carbonize its
power generation regardless of any statewide mandate. He said
GVEA needs flexibility to pursue all options and alternatives
that are in the best interests of its members, and state policy
and legislation should be the same.
10:38:00 AM
CHAIR RAUSCHER requested elaboration on GVEA's net metering and
net billing position.
MR. HECKMAN responded that the GVEA board believes broader
regulatory and operational aspects need to be considered and so
a stand-alone approach should be taken.
CHAIR RAUSCHER thanked Mr. Heckman for his testimony and invited
the next witness to testify.
10:40:19 AM
KERIANN BAKER, Chief Strategy Officer, Homer Electric
Association (HEA), provided invited testimony on HB 368. She
said the bill is a step in the right direction and has a lot to
like, such as the lack of penalties a cost that would be
passed on to HEA members. She advised that even nominal costs
are not trivial to those HEA members who are least able to
afford it.
MS. BAKER related that HEA is currently about 80 percent reliant
on Cook Inlet gas with about 15 percent provided by other
sources such as hydropower and solar. While the percentages
fluctuate, she continued, HEA's predominant reliance on Cook
Inlet gas means the board cannot tell its members it got the
best deal, rather the board got its members the only deal there
was. The market is pushing all utilities to diversify and
because technology is changing so quickly the HEA board has
decided to be technology agnostic and has adopted a policy that
requires HEA to become fuel and energy diverse.
10:44:20 AM
MS. BAKER addressed transmission. Currently only one line
extends from South Kachemak all the way to Fairbanks, she
pointed out, and this lack of redundancy is imprudent. The
Railbelt comprises 80 percent of Alaska's population of 750,000
and spreading the cost of transmission over this small
population base is painful. Being able to freely transfer
electrons throughout the organization, regardless of where the
electrons are produced, would provide economies of scale so
power could be bought at the lowest cost.
MS. BAKER urged that HB 368 not come into effect until the
transmission is de-constrained. Without the ability to freely
transfer electrons, the utilities will do independent generation
and meet the standard, she explained, but not necessarily at the
cost that legislators are thinking. She said HEA would not
support any quota type system and wants an energy policy to be
adopted that focuses on energy security and diversity and is
technology agnostic. A free and open market without physical
and other constraints would allow HEA to get the lowest cost.
10:48:51 AM
REPRESENTATIVE PRAX opined that in relation to subsidies and
incentives the legislature must decide between funding schools
and funding energy. He asked whether the HEA board is trying to
keep the cost apparent to its customers rather than chasing
after a subsidy.
MS. BAKER surmised Representative Prax is asking whether HEA is
in favor of the subsidies in HB 368 and, if so, whether HEA
would speak about that to its members.
REPRESENTATIVE PRAX replied yes. For example, he continued, the
legislature must decide between providing a matching grant of
about $200 million for the [power] line between Homer and Beluga
or funding roof repairs for schools since only one or the other
can be done with that amount of money. He asked whether the HEA
board is discussing that with HEA members.
MS. BAKER responded that she hasn't discussed the school budget
with HEA's members and doesn't think [the HEA board] would. She
offered her appreciation for the challenge faced by the
legislature when weighing priorities. She shared that HEA
recently made the agonizing decision to raise its base rate by
3.5 percent because HEA's inflation rate went up 19 percent over
the several years since its rates were last raised.
10:53:46 AM
REPRESENTATIVE SCHRAGE recognized the difficulty involved in
having to raise rates but opined that rate increases are coming
no matter what is done because of Alaska's natural gas
situation. He further opined that had utilities raised rates
and invested in renewables awhile back they would have been less
vulnerable to natural gas prices now. He said he is aware,
however, that the RCA would have denied a utility from doing
that because it was cheaper at current natural gas prices to
continue with the status quo instead of investing in renewables
and diversification. He asked whether HEA has had any internal
discussions in this regard.
MS. BAKER confirmed that HEA would have been prevented from
diversifying fuel sources for generation if those were higher
than natural gas. However, she said, industry is changing
quickly, and HEA is excited about the competitive numbers it has
been seeing for all sources. She urged the committee to
consider setting a time limit for how long someone can hold on
to a state land lease without producing the project that was
proposed for the lease.
10:59:12 AM
REPRESENTATIVE SCHRAGE noted that tax incentives provide a
carrot instead of a stick, but that the money comes after a
utility has made those investments. He asked whether HEA needs
the money up front to make the necessary investments in
renewables.
MS. BAKER replied that each utility would give a different
answer. She said HEA is cash positive, but its margins are
thinner than it would like because of investing in a battery
energy storage system. She allowed HEA doesn't have the money
to do everything it wants but said it has enough to pursue
projects as a group with other utilizes or with independent
power producers.
CHAIR RAUSCHER thanked Ms. Baker for her testimony and invited
the next witness to testify.
11:02:08 AM
JULIE ESTEY, Chief Strategy Officer, Matanuska Electric
Association (MEA), provided invited testimony on HB 368. She
said Alaska is at a critical point with scarcity in gas making
the old ways of producing power expensive, new innovative power
options that are either here or on the horizon, and renewables
that are now competitive. Federal funding is available that
cuts MEA's costs in half and MEA is making significant
generation changing impacts to its grid. Sixty to seventy
percent of MEA members say they want MEA to produce more of its
power with renewables, but not if it is going to cost more.
MS. ESTEY stated that governor and legislature are motivated to
making changes to the energy pathway to allow Alaska to grow.
It takes a team to find solutions, so MEA is working with other
utilities and stakeholders. Tony Izzo, MEA's chief executive
officer, served as the Railbelt utility representative on the
governor's Energy Security Task Force and was co-chair of the
Railbelt Subcommittee. After dozens of meetings, presentations,
discussions, and public process, the group came together around
three main strategies for cost competitiveness and energy
security transmission unification, growing load, and
diversifying power generation. Transmission unification, she
explained, is the most important step for [Alaska's] energy
future regardless of what electron is favored. Growing load
spreads the same fixed costs over more kilowatt hours, reducing
the costs for all, but the cost of upgrading infrastructure for
growth shouldn't be overlooked. Diversifying generation
provides energy security, resilience, and ability to remain cost
competitive. The first action for diversification, ratified by
the task force, was to develop a clean energy standard with
incentives, which HB 368 does. Ms. Estey related that the MEA
board has established its own goal of 50 percent clean energy by
2050.
11:10:09 AM
MS. ESTEY expressed MEA's appreciation for certain components of
HB 368: attainable yet aspirational goals and a clean energy
standard with incentives; acknowledgement of the key role that
transmission plays; provisions to count progress and waive
requirements if progress is being made but the goal has not yet
been reached; allowing a calculation for net metering energy;
allowing for energy efficiency and fuel conservation on both the
supply side and demand side; reinforcing collaboration to
achieve the goals; incentivizing change through tax credits, and
the net billing concept. Speaking to Representative Prax's
question, Ms. Estey said the tax credits are modest and may not
change the economics or be a deal maker, but they would benefit
MEA's members through the cost of power. The net billing
concept would provide a mechanism for the RCA to vary the rates
paid back to members based on how helpful that power is to the
system and to the rest of the members at any time. She advised
that MEA's diversification goals aren't helped by motivating
members to push lots of power on a sunny summer day when that
power isn't needed in the system; instead, MEA would rather
incentivize them to invest in say, a battery system, and then
the power can come back to the system when it is more helpful
and that decreases cost for the entire membership.
11:16:50 AM
MS. ESTEY discussed the provisions in HB 368 for which MEA
suggests a second look. She said the opt out provision may be
unnecessary because the provisions for waivers are adequate and
because the bill is incentive based with no penalties. If kept
in the bill, she continued, MEA proposes allowing for those
long-term effects to include reliability as well as rates. She
said another look should be taken at the transmission
description since two bills currently in the Senate focus on the
transmission backbone. She offered MEA's support for language
that would align the bill's transmission backbone language to
that of SB 257. She suggested elimination of the reference to
the Railbelt transmission system as it may not be necessary in
this legislation. Regarding whether coal needs to be in HB 368,
she related that MEA is looking at its options to fill the gap,
especially on April 1 when MEA's gas contracts go away. She
posited that coal likely has a lower environmental footprint
than importing liquified natural gas (LNG), likely has a lower
cost and lower risk, and coal would keep money in the Alaskan
economy. She expressed MEA's appreciation for the bill
acknowledging that all options need to be on the table and that
if MEA's board decided to use coal in its diversification plan
MEA believes it could adequately account for it in the non-
designated percentage of generation not covered by the clean
energy standard.
MS. ESTEY, regarding whether HB 368 is necessary, stated that it
is up to the legislature as to what role it thinks the
government should play in the energy transition. She said MEA
received its wakeup call a year ago from Hilcorp, its primary
gas supplier, at which time scarcity and price sensitivity
entered MEA's thoughts. She related MEA's belief that economics
and the free market will naturally drive a more diverse energy
portfolio. She said MEA understands that there is benefit in
setting a standard to give clear direction, certainty, and
market signals to the broader market, which could provide clear
direction to the RCA and to the co-op boards to make bold moves
towards a common vision. With a few adjustments, HB 368 is the
best option on the table for a commonsense energy standard and
can act as a catalyst for energy transmission, diversification,
and stabilized costs. She concluded by offering MEA's
appreciation for being brought to the table to be part of the
solution.
11:22:20 AM
CHAIR RAUSCHER invited the testifiers to suggest changes or
corrections to the bill. He said the committee would like to
make improvements but wants to be expedient in completing the
bill this year.
REPRESENTATIVE PRAX agreed about deciding this year and urged
that people focus on what to do with HB 368.
CHAIR RAUSCHER gave credit to the governor's task force, the
governor, the Alaska Power Association (APA), and everyone who
contributed to the making of HB 368.
11:25:30 AM
REPRESENTATIVE SCHRAGE noted that Alaska is only in the first
phase of its grant applications for improving transmission in
the state and that some proposals have been to fund the grid at
low levels, such as $30-$40 million, as opposed to the full $200
million in matching funds to fully realize the federal funds on
the front end. He requested Ms. Estey's thoughts on whether
that is adequate and whether a failure to invest in these
projects hinders MEA's ability to best serve its customers.
MS. ESTEY replied that transmission is MEA's number one
priority. She said MEA has exactly the transmission system that
it can afford right now, and the federal funding represents a
unique and "once in a generation opportunity" opportunity to
gain a transmission system that can provide significant cost
savings, energy security, and energy diversity that would drive
economic development in the state and solve problems. Making
sure that Alaska shows it is equally as invested in the success
of the state as is the federal government is going to be
critical. Ms. Estey said she doesn't think she can tell
legislators that this must be prioritized over all else, but she
can say that lowering costs of electricity allows for state
dollars to stretch farther throughout the state.
11:29:39 AM
REPRESENTATIVE SCHRAGE opined that priorities are a decision for
legislators as they look at the budget and policies this year.
Being able to leverage this once-in-a-lifetime grant of federal
dollars would be a boon to energy security and reliability and a
boon to promoting business development.
CHAIR RAUSCHER thanked the witnesses for their testimony.
[HB 368 was held over.]
11:31:19 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:31 a.m.
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