Legislature(2011 - 2012)BARNES 124
02/02/2011 03:15 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| Overview: Regulatory Commission of Alaska | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 2, 2011
3:18 p.m.
MEMBERS PRESENT
Representative Kurt Olson, Chair
Representative Craig Johnson, Vice Chair
Representative Dan Saddler
Representative Paul Seaton
Representative Steve Thompson
Representative Lindsey Holmes
Representative Bob Miller
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW: REGULATORY COMMISSION OF ALASKA
- HEARD
Division of Insurance
- REMOVED FROM AGENDA
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
ROBERT PICKETT, Commissioner; Chair
Regulatory Commission of Alaska (RCA)
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Presented an overview of the Regulatory
Commission of Alaska (RCA)
ACTION NARRATIVE
3:18:52 PM
CHAIR KURT OLSON called the House Labor and Commerce Standing
Committee meeting to order at 3:18 p.m. Representatives Olson,
Miller, Johnson, Saddler, Thompson, and Holmes were present at
the call to order. Representatives Seaton arrived as the
meeting was in progress.
3:19:40 PM
^Overview: Regulatory Commission of Alaska
Overview: Regulatory Commission of Alaska
3:19:53 PM
CHAIR OLSON announced that the only order of business would be
an overview by the Regulatory Commission of Alaska (RCA).
3:20:20 PM
ROBERT PICKETT, Commissioner; Chair, Regulatory Commission of
Alaska (RCA), began his PowerPoint overview by explaining that
the RCA is an independent agency, nested in the Department of
Commerce, Community, & Economic Development (DCCED) for
administrative purposes, consisting of five commissioners,
appointed by the governor for six-year terms, and confirmed by
the legislature. He characterized the current timeframe as a
critical juncture for the RCA, since it faces numerous
challenges and dockets. He stated that the RCA's statutory
authority is AS 42.05 for public utilities and AS 42.06 for
state pipelines. He acknowledged that striking a balance
between the interests of the utilities, pipeline carriers, the
public and ratepayers is challenging given the Railbelt alone.
Utilities in that area are making tremendous capital investments
to replace aging infrastructure. In the past 18 months alone,
the RCA has been asked to expedite determinations on the new
Chugach Electric Southcentral power plant, which is a joint
venture.
3:23:18 PM
MR. PICKETT related the RCA has expedited the natural gas
storage facility, Cook Inlet Natural Gas Storage System
(CINGSA), which is a natural gas storage facility on the Kenai
Peninsula, essentially is a utility about the size of ENSTAR.
He offered the examples to indicate the types of things the RCA
is asked to do in a compressed time frame. At the same time,
the ratepayers have constraints and need to be assured that the
process that leads to increased rates is sound, credible,
professionally performed, and that someone is looking out for
their interests. He offered his belief that the overlay is the
need for a stable regulatory environment that all parties can
depend upon and have some assurance. He contrasted his role at
the Alaska Housing Finance Corporation (AHFC), in which the
outcome was assisting parties to achieve an outcome such as
build a housing project, and his role as commissioner and chair
of the RCA, is that the RCA must strive for the correct balance
and in doing so cannot please everyone.
3:25:31 PM
MR. PICKETT said the RCA has recently received the first filing
on a policy initiative, the Renewable Energy Grant Programs.
The RCA will integrate its legislative goals with current
statute and regulatory practice. He offered to keep members
apprised of any bumps in the road. He reported the natural gas
issues in Cook Inlet will occupy time, even with the additional
storage and incentives the legislature put in place, some long
term trends will impact all of the Cook Inlet utilities and
northern Railbelt region.
3:26:48 PM
MR. PICKETT turned to FY 12, and pointed out the biggest
challenges for the commission will relate to the Trans-Alaska
Pipeline System (TAPS) and reconfiguration issues. He
elaborated by stating that the RCA has concurrent hearings
scheduled with the Federal Energy Regulatory Commission (FERC)
beginning on November 1, 2011. The hearings will be held for
four weeks in Anchorage and four weeks in Washington D.C. He
offered his belief that from discussions he has held, with
respect to previous rate cases, that this is an optimistic
schedule. He said he thinks it is fair to state that the TAPS
matters will take considerable focus, time, and energy beginning
this spring. He stressed the importance in having adequate
staffing resources to do so. He offered his belief that
legislators will hear from constituents on utility matters,
which receive some press coverage that is basically correct, but
some salient points may not be pointed out. He urged members to
contact him with questions. He related the RCA's workload is
heavy but the RCA is as responsive as possible.
3:29:16 PM
REPRESENTATIVE HOLMES referred to the TAPS issue. She asked
what that would mean to the RCA in terms of the workload.
MR. PICKETT responded that the TAPS rate review will create a
rather challenging balancing act for the RCA. He expanded on
this, such that the RCA has statutory deadlines for its filings.
The RCA has largely been successful in meeting the deadlines,
but have had to at times extend a statutory deadline for good
cause. He hoped that would not happen frequently, but he said
it is fair to say that TAPS needs the consideration and
attention it is due given the significance of TAPS to the State
of Alaska (SOA).
3:30:17 PM
REPRESENTATIVE HOLMES offered her willingness to hear any ideas
of what can be done to ensure things move forward on all fronts.
MR. PICKETT answered that he has also held discussions with the
executive branch. He pointed out that in 2008, an RCA task
force was finalized, and many of the recommendations were sound,
and identified problems that persist to this day, which still
must be addressed.
3:31:15 PM
MR. PICKETT stated that the RCA works closely with the Alaska
Energy Authority (AEA), since it has some overlapping
jurisdiction. He used that to segue into the joint
responsibility between the AEA and the RCA, the Power Cost
Equalization (PCE) program. He explained that the RCA performs
the calculations of the baseline rate or floor for communities,
and for the specific utility applying for the assistance. That
relationship has improved, particularly the staff to staff
communication, but some areas still need attention. The SOA
and federal government have invested significant money in rural
Alaska, probably in excess of $3 billion in the past 15 years.
Currently, 125 certificated electric utilities lie in rural
Alaska, serving about 170 communities. This infrastructure
requires reliable electric service that is reasonably affordable
to survive. He cautioned that it is not pleasant to consider a
utility going down in the middle of the winter in an isolated
community. He mentioned some issues including an inability to
file timely PCE paperwork, noting the RCA's staff works hard to
assist the utility in the event it is "bounced out" for
noncompliance to try and resolve the problem. He related some
instances in which the RCA has held some "show cause" hearings
to revoke the Certificate of Public Convenience and Necessity
(CPCN), which is the license the commission gives the pipeline
company or utility to operate and collect freights.
Approximately 600 CPCNs exist statewide. With respect to the
electric utilities, the RCA only economically regulates 37 of
125 utilities, although it certificates all of them. If a
problem arises, the RCA must hold hearings in instances in which
the utility is not willing, fit, and able to provide electric
utility service it is approved to offer. He recalled a show
cause hearing held in Adak recently, noting other proceedings of
this nature may arise.
3:34:18 PM
MR. PICKETT referred to exemptions to this regulation, turning
to the broad statutory authority for the RCA and the definition
of a public utility [slides 2-4]. He then turned to the
definition of "public" or "general public" which he read: (A) a
group of 10 or more customers that purchase the service or
commodity furnished by a public utility; [slide 5]. He offered
that the next definition deals with the certification area and
total annual compensation that must be met, which triggers the
$50,000 for the sales of electricity [slide 6].
MR. PICKETT pointed out the definition of public is expanded
[slide 7]. He noted the CPCN is detailed, including the "bottom
line" for the RCA, which is that they must be fit, willing, and
able, which also encompasses financial fitness as well as
managerial fitness and experience [slide 8].
3:36:22 PM
MR. PICKETT elaborated on the Statutory Exemptions from
certification [slides 9-10]. He explained that the first
bullet describes an exemption for any utility making less than
$50,000 unless their customer(s) petition for regulation (AS
42.05.711 (e)); a joint action agency, which is a current
statutory provision for exemption, and any qualifying facility
(QF) designation from the FERC, noting the threshold has
changed.
3:37:08 PM
MR. PICKETT, in response to Representative Saddler, clarified
that the $50,000 or less refers to net revenues. He then
referred to the exemptions from economic regulation [slide 10].
He clarified that the prior four pages applied to exemptions
from certification, but economic regulation means the commission
does not have any statutory jurisdiction to enforce a cost of
service rate making methodology on an entity. This refers to a
utility owned by a political subdivision, with the exception of
a utility owned by the subdivision but has competition with a
regulated entity. He mentioned some instances in larger
communities a municipality may own a utility, but other
utilities exist that are subject to the RCA's regulation.
3:38:25 PM
MR. PICKETT explained that the second bullet refers to utilities
between $50,000 and $500,000 that have a deregulation election.
The third bullet pertains to cooperatives that have a
deregulation election, if the cooperative chooses not to be
subject to the RCA's regulation. Again, that fourth bullet
pertains to utilities that receive a QF designation from the
FERC.
MR. PICKETT pointed out the challenging set of circumstances,
with respect to Cook Inlet natural gas. The region has been
fortunate for the past 40 years to have access to some of the
most available and cheap gas in country. Five fairly major
fields were discovered as a byproduct of oil exploration. About
10 years ago, those times changed as fields have become depleted
and utilities have been pressured to find adequate natural gas
for their services. He offered his belief that this is
something that the RCA will deal with the foreseeable future.
"There is no silver bullet and the answers are going to come
with a price tag," he said.
3:40:00 PM
MR. PICKETT related, as previously noted, that the utilities are
confronted with an aging infrastructure. This continues to put
pressure on the utilities' finances, and stresses ratepayers.
He stressed it is imperative RCA "gets this balance" right.
MR. PICKETT stated that most of electric utilities
infrastructure needs listed have been derived from the AEA's
Railbelt Integrated Resource Plan (RIRP) [slide 13]. He
remarked that they provide some "eye popping numbers, noting one
study estimated the cumulative capital investment requirements
ranging from $2.5 to 8.1 billion over the next 30 years. He
characterized these numbers, including projections for the
proposed Susitna Dam and proposed in state natural gasline as
staggering numbers.
3:41:16 PM
MR. PICKETT stated the assumptions for the RIRP are outlined
[slide 14].
MR. PICKETT turned to the "Installed Railbelt Generation" slide
which provides an assessment of the Railbelt generation and
proposed projects [slides 15-16]. He pointed out that the
majority of the generation is natural gas in Cook Inlet, with
several power plants responsible for about 50 percent of the
generation of electricity in the Railbelt.
MR. PICKETT indicated that the projects listed below the dotted
line on the bar graph represent proposed generation projects.
He indicated that lots of capital pieces are in motion. He
explained that last summer the RCA held a proceeding on the
proposed Southcentral Power Plant, 183 megawatts (MW). The
Chugach Electric was given approval to recapture its capital
investments in rates. That process is currently underway and is
a joint project with the Municipal Light & Power. He
anticipated that the RCA will hold a meeting this spring on the
proposed Matanuska Electric Association (MEA) since in 2014 its
power sale agreement will end. The MEA has been planning
generation at Eklutna and will be informing the RCA of its
plans. He offered to keep legislators apprised. The Homer
Electric also has proposed plans to increase its generation, he
stated.
3:43:53 PM
MR. PICKETT recalled changes to the Fire Island wind project,
which he read has been scaled back although he has not yet seen
any filings to date.
MR. PICKETT brought up regulatory issues and the distinction
between firm power and power [slide 17]. He advised that from a
regulatory perspective the distinction between firm and non-firm
power. He offered that firm power is power that can be
dispatched "24/7. You flip the switch. The power is there," he
said. Non-firm power is fueled by some source that is
unpredictable and cannot be scheduled by a utility on a "24/7"
basis, he said. From the perspective of regulators a different
value is assigned because non-firm power cannot displace firm
power capital assets, since those must be still in place. He
explained that if something happens on the non-firm side, the
firm power is then used. He explained that as we integrate
renewable energy into the system this will be an economic fact
of life, unless something changes in statute, he stated.
3:45:42 PM
MR. PICKETT turned to the Greater Railbelt Energy & Transmission
Company (GRETC) [slide 18]. He related his understanding that
five utilities have created a cooperative. He was uncertain of
the cooperative's priorities, but said he thought what was
driving the GRETC were limited redundancy, limited economies of
scale, heavy dependence on fossil fuel, CI natural gas
deliverability and storage issues [slide 19 ]. He reported that
the RCA approved the CINGSA storage in the lower Kenai River
Cannery Loop facility. Additionally, besides issuing that
order, the RCA also issued an order to ENSTAR, authorizing the
utility to capture firm storage rates in its service agreement.
3:47:11 PM
MR. PICKETT outlined other challenges, including aging
generation and transmission infrastructure, inefficient fuel
use, and financing challenges [slide 20]. He thought the new
cooperative could begin to address some of these things, either
on the transmission piece or some project, which he
characterized as a good development over time. He provided a
brief synopsis on the Power Cost Equalization (PCE) Program
[slides 21-22]. He related that the PCE represents a
significant investment of state resources to "level the playing
field" for rural Alaska's communities. Under the PCE program,
the state pays a portion of the electric bills for consumers
served by utilities participating in the program. He stated
that the program applies to the first 500 kilowatt-hours (KWh)
of residential consumption but not to businesses or for
consumption beyond 500 KWh. The high KWh charges in rural
Alaska create a burden for communities and viable renewable
projects could lessen some of the burden. The fuel displaced is
one evaluation the AEA uses when awarding grant funds, he said.
3:48:38 PM
MR. PICKETT assessed the RCA's staffing challenges due to the
federal government's unfunded mandates. As a self-supporting
agency, the RCA collects regulatory cost charges from the
ratepayers and pipeline carriers. He pointed out that of the
RCA's $8.5 million budget, less than $140,000 is from general
fund (GF) monies appropriated for the PCE program. He commended
his staff's efforts, acknowledging the additional work garnered
from federal initiatives, such as the Energy Policy Act of 2005
(EPAct). He viewed the intent of the EPAct as good and has
directed the RCA to open proceedings on net metering, fuel
sources, fossil fuel generation efficiency, demand response and
time-based metering, and interconnection standards [slide 24].
He explained that commissions nationwide were asked to address
the federal standards. However, the RCA realized after
undergoing a two year process that the federal standards were
not generally applicable to Alaska. He characterized the
process as "pounding a square peg in a round hole." He
acknowledged that the RCA found merit in the net metering and
interconnection standards to open up a follow-up docket on its
own motion to develop state standards. He reported that net
metering standards went into effect last summer. He offered his
belief the regulatory process was a good one, in that it engaged
the renewable energy advocates and the utilities in a fairly
intense dialogue. The RCA has received more comments on this
issue than nearly any other docket in the recent past. While
not everyone has been happy with the final regulations, the
consensus seemed to be that this is the best that the RCA could
do at this point. He pointed out that the regulations do not
apply to all electric utilities due to a size threshold.
Although small rural utilities are not covered, most of the
larger utilities have filed tariff filings for net metering. He
hoped the RCA could finalize an Alaska-specific regulation on
its docket for interconnection standards.
3:51:56 PM
MR. PICKETT related net metering standards [slides 27-29]. He
provided a brief update on R-09-02, the interconnection
standards [slide 30]. He noted significant interest has been
expressed by utilities to the process moving, that the RCA held
a technical conference on July 12, 2010. He anticipated that
draft regulations would be dealt with reasonably soon.
MR. PICKETT turned to the report on the Energy Independence and
Security Act (EISA) [slide 31]. The EISA is a follow-up to the
2005 Act. The EISA directed the state regulatory authorities to
consider adopting four new standards, which are articulated in
slide 32. The standards include integrated resource planning,
rate design modification to promote energy efficiency
investment, consideration of "Smart Grid" investment, and "Smart
Grid" information. He reported that the RCA opened a docket to
consider these standards and has taken public comment through
December 9, 2010. The RCA will continue to proceed on this
docket in the coming months.
3:53:18 PM
MR. PICKETT outlined challenges ahead for the commission [slide
34]. He characterized these challenges as significant
challenges, including telecommunications issues. He highlighted
that one regulation docket successfully completed last summer
pertained to access charge reform, the in-state access charges
that local exchange carriers charge long distance carriers. He
offered this as one reason it costs more to call from Kenai to a
rural community for intrastate than it does to the Lower 48.
The docket's goal was to obtain parity between interstate and
intrastate rates. The issue is a complicated issue because "all
of the pieces had to move at the same time." This process
ensued for a two-year period and at times seemed as though it
would not be resolved. Some challenges the RCA faced included
the carrier of last resort challenges of the incumbent rural
carriers, declining intra-state decline in minutes used, and
local carrier dependency on access charges as part of their
overall financial picture.
MR. PICKETT suggested most Alaskans are not aware of how heavily
subsidized phone system is due to the benefits of the universal
service fund at the federal level. Alaska receives
approximately $190 million in federal funds each year to support
its system. At the end of the day, the rural coalition, AT&T,
and GCI agreed to the approach the RCA decided upon. The
Attorney General did not officially "sign on" but Mr. Pickett
said he thought it was fair to say the AG's office supported
many of the elements of the proposed regulations. He reported
that the regulations are currently before the Lt. Governor, for
approval. He anticipated the regulations would be implemented
sometime this summer. He said the RCA is "keeping a careful eye
on the Universal Service Fund (USF) federal reform since it will
impact Alaska. He related that the late U.S. Senator Ted
Stevens was a powerful advocate as the Chair of the Senate
Commerce Committee. He noted with current pressures on the
federal budget and the strong initiatives on the part of the
Federal Communications Commission (FCC) that the RCA needs to
continue to watch the developments carefully.
3:56:45 PM
MR. PICKETT continued. He read from a list, including major
capital investments by utilities, struggling rural utilities,
renewable energy goals, Cook Inlet natural gas, TAPS strategic
reconfiguration and rate cases, and RCA staffing issues. He
stressed the importance of having staff with experience, which
he deemed as critical in the RCA. He remarked that it is much
easier to accomplish tasks when people remain with an
organization and develop their expertise. He related that with
considerable staff turnover an organization spends a lot of time
covering bases, conforming to statutory deadlines, and training
people.
3:58:03 PM
REPRESENTATIVE THOMPSON asked for clarification on net metering.
CHAIR OLSON responded that some homeowners "on the grid"
generate more power than they use. Homeowners would like to
sell the excess power at the retail rate, but the industry norm
is to purchase it at a wholesale rate. He stressed safety
concerns and the importance of standardization throughout this
process to ensure linemen are safe. He highlighted one major
concern, which is to ensure that net metering is done in an
equitable manner.
MR. PICKETT also referred members to slides 27 and 28 of his
PowerPoint overview since these slides illustrate the
limitations on net metering regulations the RCA put into effect.
He concurred with Chair Olson's outline of utilities' concerns,
noting that one reason for the threshold of 5 million KWh was to
ensure viability for small rural utilities. Thus, individual
generation has been capped at 25 KWh. He stated that a small
electrical utility may only have a couple hundred customers on a
transmission line at end of the system and even that amount of
surge could pose problems. The RCA decided to leave it up to
the utilities to figure out if it could integrate the additional
generation, he said.
4:00:21 PM
CHAIR OLSON brought up one side issue, that certain alternative
energy sources would not have an impact on peak demand. Often
times, in his region, the coldest days are not windy or sunny so
wind or solar energy cannot be counted on as an alternate
source, whereas other types of energy sources such as
geothermal, or nuclear energy are consistently available "24/7".
MR. PICKETT said it is fair to say that utility ratepayers
expect power to "come on" when they flip a switch no matter what
the weather.
4:01:52 PM
MR. PICKETT reported that this is a sunset review year and the
RCA is scheduled to expire on June 30, 2011. In 2010, the
legislative auditors conducted an audit. Auditors were present
for most of the year and the RCA's staff worked extensively with
them. He pointed out that the auditors had some issues with the
star information system as well as with some reports as they fed
into its annual report with respect to statutory deadlines. The
RCA has a regulatory process underway to review the e-filings
issues and plans to incorporate some of the auditor's findings
and to make the necessary administrative changes. He added that
the auditors recommended continuing with the RCA's discovery
regulations, which it has done. He characterized the audit as a
"pretty fair-minded" audit. The audit recommended an extension
to 2019, he said.
4:03:50 PM
REPRESENTATIVE JOHNSON asked Mr. Pickett to comment on the
overall economic health and viability of utilities in the state.
He further asked him what mechanisms are in place in the event
of failure of a larger utility.
MR. PICKETT answered that he thought it was fair to say the RCA
must evaluate utility health on a utility-by-utility basis,
particularly with respect to the larger economically regulated
utilities because of their need to come before the commission on
rate cases, appreciation studies, and for major capital
investments. The RCA has kept abreast of what is happening and
continues to monitor utilities in the state. He said he
believes that the utilities have the tools to do what is
necessary. He reiterated that the RCA continues to carefully
monitor utilities.
4:05:42 PM
REPRESENTATIVE JOHNSON alluded to some rumors circulating. He
asked, "Are they too big to fail?"
MR. PICKETT responded that it is a very serious thing for the
RCA to evaluate the fitness of any entity to operate a utility,
regardless of size. He said the RCA must take into account the
realistic options for ratepayers and customers. He said that
Alaska is unique in that its largest utilities are small
utilities and its systems are islands. He said that even the
biggest island, the Railbelt, is still a relatively small
entity. He offered that Alaska's natural gas system is
disconnected from the rest of the world, outside of the
liquefied natural gas (LNG) transported to Japan. He
illustrated the differences in the Lower 48 noting that outside
of the pricing indices, the Lower 48 has 3 million miles of
pipeline and thousands of storage facilities. However, Alaska
is separated from the Lower 48 and cannot use this intricate
system. He offered that regulation in Alaska must be reality
based, but at the same time the concerns raised by Vice Chair
Johnson are probing questions which should be "kept in the back
of our minds."
4:07:44 PM
REPRESENTATIVE JOHNSON referred to the pricing structure just
mentioned. He related his understanding of the fine balance
between deliverability economics, and the RCA's ability to
explore to provide that deliverability. He asked whether Alaska
has limited new exploration by linking to Henry Hub and if
Alaska has been hobbled by doing so.
MR. PICKETT answered that has not been the case if one examines
recent contracts. He said those contracts tend to be the older
legacy, tied to some crude oil index. When contracts are in
place, the contracts will be honored. However, in going
forward, the question alluded to is whether the pricing
structure represents the appropriate price signal to encourage
exploration in CI. That is an open question, he said. He
offered his belief that there are a lot of variables to
consider. The legislature took action last year to incentivize
production and exploration in CI. He remarked on some initial
signs of success. However, he thought it is too early to say
what the ultimate impact will be. He offered that the RCA is
aware of a number of new small independent fields with a small
annual production, which perhaps could lead to other things. He
stated that must be evaluated against the backdrop of the
mammoth fields in CI and take into consideration the level of
decline in those fields. He pointed out that it takes a lot of
small fields to make up for the decline.
4:09:59 PM
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
4:10 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 2011 RCA Overview 2011-2-2.pdf |
HL&C 2/2/2011 3:15:00 PM |
RCA Overview |