Legislature(2011 - 2012)HOUSE FINANCE 519
01/23/2012 04:00 PM House LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| Presentation: Update on the 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
JOINT MEETING
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
January 23, 2012
4:06 p.m.
MEMBERS PRESENT
HOUSE LABOR AND COMMERCE
Representative Kurt Olson, Chair
Representative Craig Johnson, Vice Chair
Representative Mike Chenault
Representative Dan Saddler
Representative Steve Thompson
Representative Lindsey Holmes
Representative Bob Miller
SENATE LABOR AND COMMERCE
Senator Dennis Egan, Chair
Senator Linda Menard
Senator Bettye Davis
Senator Cathy Giessel
MEMBERS ABSENT
SENATE LABOR AND COMMERCE
Senator Joe Paskvan, Vice Chair
COMMITTEE CALENDAR
UPDATE: REGULATORY COMMISSION OF ALASKA BY T.W. PATCH, CHAIRMAN,
REGULATORY COMMISSION OF ALASKA (RCA)
EXECUTIVE SESSION
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
T.W. PATCH, Chairman
Regulatory Commission of Alaska (RCA)
Anchorage, Alaska
POSITION STATEMENT: Presented an update on behalf of the RCA.
ACTION NARRATIVE
4:06:05 PM
CHAIR KURT OLSON called the joint meeting of the House and
Senate Labor and Commerce Standing Committees to order at 4:06
p.m. Representatives Holmes, Miller, Chenault, Johnson, Saddler,
Thompson, and Olson and Senators Giessel, Menard, Davis, and
Egan were present at the call to order.
^Presentation: Update on the Regulatory Commission of Alaska
4:07:35 PM
CHAIR OLSON announced that the only order of business would be
an update on the Regulatory Commission of Alaska by T.W. Patch,
Chairman, Regulatory Commission of Alaska (RCA).
4:07:46 PM
T.W. PATCH, Chairman, Regulatory Commission of Alaska (RCA), on
behalf of the RCA, expressed gratitude for the House and Senate
Labor & Commerce Committees' willingness to hold this hearing.
He thanked members for the opportunity to serve as a
commissioner at the RCA these past two years. He also passed on
Mr. Pickett's regards to members. He then offered to provide a
summary overview of the RCA's activities and to discuss cases in
more detail if asked to do so.
4:10:08 PM
MR. PATCH related that former Chief Justice Earl Warren had
adopted a ritual when he approached his U.S. Supreme Court
activities and duties. The chief justice passed on his advice
to a law clerk, which became a footnote to the legal lore that
surrounds decision making. Lore has it that Chief Justice
Warren, who started each day by reading the newspaper, had
suggested to maximize the knowledge contained the paper, it
should be digested by first reading the sports page since this
is the part of the paper that demonstrates effort, rewards
preparation and team work and catalogues accomplishments. Next,
Chief Justice Warren suggested people should read the front page
since this section points out the potential mood of the day, and
reports opinion - some good, some bad, some well-founded, and
some not so well-founded. This part of the newspaper also
catalogues failures in government and society. Chief Justice
Warren suggested it is possible to learn where and perhaps how
to do better by examining those failures. Lastly, Chief Justice
Warren suggested reading the comic pages to put a smile on one's
face and to restore one's perspective.
4:12:10 PM
MR. PATCH turned to what he coined as the RCA's "sports page."
He recalled last legislature during special session, when the
legislature considered the RCA's reauthorization. Legislators
debated the dates for RCA's extension and potential sunset and
ultimately determined the RCA should be extended from 2011 to
2014. The legislature directed the RCA to consider a proposal
to limit the time the RCA has to consider and reach a decision
to less than 15 months on a tariff filing for changes to a
utility's revenue requirement or rate design. The RCA
responded. Last week, the RCA presented the legislature a report
for a proposal to reduce its statutory timeline for tariff
filings to change a utility's revenue requirement or rate
design. This report was also enrolled electronically. He
offered to provide a personal copy to members, if desired. He
related that after an honest self-assessment, discussions with
academics, national leaders, state commissions, and after taking
and evaluating public comment, the RCA ultimately formulated its
plan.
4:14:14 PM
MR. PATCH stated that RCA has determined to open a series of
regulations dockets. He predicted that once the regulations
dockets are concluded the outcome should result in an improved
utility regulatory landscape, which will afford utilities
opportunities for cost savings in litigation expenses. He said
it will also afford utilities predictability with respect to the
timeframe that rate changes may be implemented and allow
utilities to recover their revenue requirement.
4:14:42 PM
MR. PATCH offered that these benefits to the utility companies
will not come at the risk of just and reasonable rates paid by
utility customers. He said the RCA also concluded that it could
streamline its internal processes used to achieve decisions. He
related that the RCA's report has not been released to anyone
prior to submission to the legislature; however, the utility
community is alert. Thus far, he has not received any negative
comments from any utility executive. He offered his belief that
by and large the utility community is behind the RCA's proposal.
MR. PATCH reported that the RCA's proposal will be announced to
the utility community at its first public meeting on February 1,
2012, in Anchorage. He emphasized that the RCA believes the
proposal will achieve significant reduction in the timelines for
decisions and it will do so in the current statutory framework.
At the time of the next sunset review in 2014, the RCA - as part
of its proposal - will provide the legislature hard numbers on
timelines of actual case results, including facts and timelines.
He reiterated that the RCA's proposal should result in shortened
timelines, continued reliable service, and with respect to some
of the regulatory proposals for utilities, should result in
decreased rates.
4:17:31 PM
MR. PATCH turned to what he deemed as the RCA newspaper's "front
page." He said members each should have received the RCA's FY
2011 Annual Report. The report lists and briefly describes the
RCA's significant events. He welcomed any comments or questions
from members as they review the annual report. He explained
that the RCA's annual report identifies the number and
complexity of a great number of proceedings. He highlighted
that the RCA's workload is very heavy. He offered to be brief
and not read the details today.
4:18:44 PM
MR. PATCH referred to the RCA newspaper's "comic pages," but
noted the absence of "comic pages" at the RCA. Instead, he
offered to present a series of numbers and to allow members to
contemplate what the figures might mean, after which he offered
to explain the figures.
MR. PATCH said, "$50 million in bankruptcy debt." He explained
that Naknek Electric Association (NEA) is seeking protection
from $50 million in debt in the federal bankruptcy court in
Anchorage. He pointed out while NEA is not a regulated utility,
it is an important utility since it serves a community that is
important to Alaskans.
4:20:31 PM
MR. PATCH said "907." He explained that due to the efforts of
the RCA, in conjunction with the service provider in Alaska, the
national numbering administrator has extended the exhaustion
date for the 907 area code from third quarter of 2012 until
2024. He affirmed that Alaska will remain under one area code.
4:21:52 PM
MR. PATCH said, "$250 million." He identified $250 million as
the estimated cost for Matanuska Electric Association to build
new generation to serve its member owners.
MR. PATCH said, "$41 million." He related that the Anchorage
Water and Wastewater Utility did not seek recovery of $41
million in its last rate case for the plant already installed.
MR. PATCH said, "$15 million." He advised that the RCA jointly
administers $15 million to improve or assure the delivery of
broadband services in rural Alaska. This helps ensure rural
Alaskans have the same access to the Internet as other Alaskans.
4:23:36 PM
MR. PATCH said, "$459 million." He identified this figure as
the amount that Anchorage Municipal Light & Power (AML&P)
expects to invest between now through 2015 - three short years -
to develop its generation assets, its Beluga natural gas field,
and enhance its distribution systems. He pointed out that this
figure is affirmed by the director of AML&P in a recent
publication, which he held up a copy for members to see.
4:24:44 PM
MR. PATCH asked members how well they had done to identify the
figures - noting it didn't matter - since members will now be
better informed. He emphasized what this committee did not
hear. The House and Senate Labor and Commerce joint committee
did not hear him mention anything about 100-year storms, or the
Snettisham power line. The committee did not hear about AEL&P's
inclusion of Lake Dorothy in its rate base, or the Cook Inlet
Natural Gas storage asset, which will begin injecting gas this
spring. He said he also didn't mention Chugach Electric's
Southcentral Power project, Golden Valley Electric Association's
wind project, or discuss options for coal generation from the
Healy Clean Coal plant on the northern end of what is lovingly
referred to as "our Intertie." Additionally, he said he didn't
mention independent power producers or power cost equalization.
Further, he didn't discuss the Federal Communications
Commission's (FCC's) order that changed the universal service
funding formula for all of America, which will also impact
Alaska. He assured members these matters are on the planning
horizon. He emphasized his staff, a 60-person agency that must
perform at a continual high level of professional precision, is
now being asked to deliver results in a shorter time. However,
he stressed that the health of the utilities cannot be
compromised or else utility service delivery will suffer. He
indicated RCA's staff must keep in mind that the public
convenience and necessity must be served at just and reasonable
rates, which is a daunting task. He noted this provides the
reason for his many sleepless nights.
4:27:14 PM
MR. PATCH pointed out that Chief Justice Warren's newspaper
instructions did not reach the realm of miscellaneous. He said
he sometimes thumbs through the paper to ensure he doesn't miss
something. As he prepared to come before the committee, he
asked his staff to anticipate the RCA's 2012 workload. His
finance staff estimated the RCA would receive a total of 30 rate
cases, with 14 simplified rate filings, delivered on five
different dates by the electric cooperatives. He added that the
RCA must also address the Cook Inlet Natural Gas Storage Alaska,
LLC (CINGSA) injection rates, and with respect to pipelines,
should anticipate four major filings by the Trans-Alaska
Pipeline System (TAPS). His engineering staff informed him in
2012 nearly 50 wastewater utilities - one per week all year long
- will require some level of attention. He acknowledged that
most of the small water utility have [Department of
Environmental Conservation] (DEC) concerns. Some utilities
deliver service from old and under maintained plants, and under
collect in rates, while simultaneously the federal government
has been cutting back on drinking water funding programs.
Additionally, his staff informed him the RCA is currently
monitoring a federal proceeding that may impact gas delivery to
Fairbanks. Additionally, the RCA's telephone group has been
reviewing an 800-page order on the reformation of the Universal
Service Fund (USF). He advised members that he will attend a
conference in Washington D.C. to enhance Alaska's role and
minimize the USF's impact on Alaska. He emphasized the
magnitude of the RCA's review of the 800-page order.
4:30:46 PM
MR. PATCH related his understanding that the legislature may
take up tax reform this year. He then turned to the TAPS. He
informed members that the RCA has been involved in seven weeks
of hearings. More than ten years ago, the TAPS owners were
considering investments in the line to achieve a number of
understandable goals. The owners wanted to address any safety
concerns, lower their operating costs, and obtain efficient
operations with lower throughputs. He related that this
investment planning came to be known as the Strategic
Reconfiguration Project (SRP). This matter has come under
scrutiny, with respect to whether the planning has been adequate
and thorough. He acknowledged that over 12,000 project change
orders occurred to date, which has resulted in the turnover of
numerous highly qualified, dedicated project managers. He
characterized this as due to the managers simply having been
overwhelmed by the magnitude of the duties. He referred to
numerous studies he has been asked to read that explain TAPS'
problems in hopes to identify possible solutions.
4:33:04 PM
MR. PATCH said the case to consider whether the investment in
the SRP was prudent came before the Federal Energy Regulatory
Commission (FERC) and the RCA in concurrent hearings last fall.
He highlighted the importance of this case to Alaska. He
recalled that last legislative session, U.S. Senator Murkowski
mentioned in her remarks to the legislature that 87 percent of
the net wealth of state is directly related to TAPS. He
observed that the importance of TAPS to Alaska is the reason
legislators went to Washington D.C. to participate in an energy
conference. It is also the reason that RCA has been attempting
to participate in a meaningful fashion. He suggested that
members were probably aware of a recent Superior Court decision
issued by Judge Sharon Gleason. He characterized this decision
as an interesting decision. As the SRP's hearing concluded, the
FERC's chief judge set another proceeding, which will
effectively continue the matter. The FERC's judge has asked for
a briefing by parties on Judge Gleason's decision to assess how
this decision will impact the further proceedings before both
commissions. He suggested that legislators have heard a great
deal about the SRP, which some may come to know as a prudence
phase of the proceeding. He acknowledged that the committee
members recognize the importance of TAPS, but cautioned that
while the prudence phase has just concluded, the rate case is
long from over.
MR. PATCH predicted that as the rate case continues to unfold
numerous long and complex evidentiary hearings will be held
before this round of TAPS ends. The RCA will hold hearings,
engage in deliberations, seek briefings from lawyers, and reach
a decision to establish the post-reconfiguration rate base. The
RCA will take into account Judge Gleason's decision on the life
of the [TAPS] line. The RCA will make conclusions based on a
developed record about the [TAPS] assets, and the appropriate
depreciation on these assets as the depreciation flows through
to rates. Additionally, he added that the RCA will also
consider allowable operating expenses and eventually determine
rates to be charged to shippers on the intrastate rates, but not
for the interstate rates. He advised members that FERC will
decide the other side of the equation [the interstate rates].
He characterized the interstate case as massive and unbelievably
complex. He also acknowledged that it is hotly litigated.
4:38:00 PM
CHAIR OLSON thanked Mr. Patch for his efforts to resolve the
timelines.
MR. PATCH predicted that utility executives will be pleased to
receive earlier determinations on rate case filings. He
emphasized that the reputation of the RCA will also benefit from
the change and this matters to him.
4:39:37 PM
REPRESENTATIVE HOLMES referred to the summary on the timeline
issue. She asked him to briefly discuss the four regulation
dockets mentioned in the executive summary in members' packets
and to highlight what information the RCA is hoping to gather.
4:40:51 PM
MR. PATCH referred to page 6 of the executive summary to Dockets
R-10-2/R-11-1 titled, "In the Matter of the Consideration of
Adoption of Regulations regarding Discovery." He provided a
brief history, noting a prior legislative audit sunset
recommendation indicated the RCA should consider discovery
issues. He acknowledged, in retrospect, that the matter was
probably not dealt with as thoroughly or openly as it should
have been. Thus, the matter came up at a subsequent sunset
evaluation. He referred to page 7 to Docket R-12-1 titled, "In
the Matter of Consideration of Revisions to Regulations
Pertaining to Required Filings in Support of Revenue Requirement
Filings and the Consideration of Requiring Utilities
Contemplating Revenue Requirement, Rate Design or Complex
Filings to Participate in Pre-filing Conferences." He offered
his belief that the discovery matter will go hand in hand with
the docket. He noted the docket has not been opened by the
issuance of an order; however, but the matter has been discussed
at more than one public meeting. He stated that discovery in a
rate case is typically sought by the attorney general and
intervenors. The discovery information most often sought after
pertains to cost, such as the work papers from experts on rate
of return calculations. He pointed out that utilities can
choose when to file a rate case, the identification of the
information needed, and the timing of the filing. Further, the
[RCA and utilities] must consider any delay that may result from
the file review until the Alaska Department of Law, Regulatory
Affairs & Public Advocacy (RAPA) or an intervenor seek to
discover materials in support of the filing. He characterized
this process as a time-consuming one. It may involve matters of
confidentiality or certain critical energy infrastructure, but
for purposes of a shortened timeline, the RCA will need to
collapse the discovery.
4:44:10 PM
MR. PATCH said that hand in hand between the two dockets, R-11-1
and R-12-1 is an effort to bring about a change. He referred to
Rule 26 of the Alaska Rules of Civil Procedure. He related that
the courts adopted a protocol. He explained that once a lawsuit
is filed, pleadings and proofs must also be filed. He offered
that the coalescence between the discovery regulation and the
pre-filing regulation - revisiting what the RCA needs - will
shorten the timeline. He anticipated once these proceedings
occur, the RCA will find the utility should file all of the
supporting costs without the necessity for RAPA to make
discovery demands. He predicted, at that point, immediately
RAPA and any legitimate intervenors will have access to and
begin the process to evaluate the case. He stated that in
fairness to the utility, any intervenor must also be equally
forthcoming. He concluded that the legislature has essentially
asked the RCA to develop a full record so an earlier just and
reasonable rate determination can be made. He said, "If you
want it sooner, we have to get into the sand box together."
4:46:20 PM
MR. PATCH again turned to page 7, to Docket R-12-1. He informed
members that the Federal Energy Project Office of the FERC has a
pre-filing requirement. He suggested that if a party wants to
build a hydroelectric, kinetic energy facility at [Susitna-
Watana], the Alaska Energy Authority (AEA) and Alaska Industrial
Development and Export Authority (AIDEA) should come to the RCA
to hold discussions. He said, "Let's talk."
4:47:03 PM
MR. PATCH recommended that if someone wanted to file a routine
filing, the party should take advantage of the RCA's new
electronic filing requirements; however, if someone wanted to
file an unprecedented filing with the RCA, never before
considered, for multiple millions of dollars, the party should
not expect an expedited and final decision within a week.
4:47:51 PM
REPRESENTATIVE JOHNSON asked whether FERC gives parties an
option.
MR. PATCH answered that according to the Federal Energy Projects
Office in some cases the process is mandatory. He related he
recently met with the FERC.
REPRESENTATIVE JOHNSON recalled the FERC processes in which one
process is an open one and the other process is closed, noting
the support was given up-front. He further recalled FERC
prefers that process; however, the other process is a last-
minute request, which is optional. He reiterated that the FERC
preferred parties come in [advance]. He was not so sure the
review was mandatory, but offered to check.
MR. PATCH also offered to verify the FERC options. He
acknowledged he was not speaking as an expert on this.
REPRESENTATIVE JOHNSON also agreed he is not an expert, but has
spent some time before FERC.
MR. PATCH explained he made his comments in an effort to clarify
for Representative Holmes his belief that the overlap between
discovery and participatory conversation in advance of a filing
will shorten timelines. He apologized if he has misspoken.
REPRESENTATIVE JOHNSON said he simply could not understand why a
party would not want to come to the RCA for up-front assistance.
He related his understanding that is also FERC's position, as
well. He also related that FERC would not exclude [the filing]
if a party does not seek cooperation for reasons such as
proprietary reasons. He acknowledged that some parties are very
secretive and may not want the RCA involved too soon. He said
he just wanted to be sure it's not exclusive to avoid keeping
someone from [filing] due to an RCA regulation.
MR. PATCH said, "Thank you for your public comment in our as yet
unopened docket. It is duly noted."
4:49:37 PM
REPRESENTATIVE SADDLER asked whether the practice of
individually tailored timelines for rate cases was common
practice or if it is common in other state regulatory
commissions to grant the full statutory timeline as the RCA's
practice has been to date.
MR. PATCH said, "The default position in commissions outside
Alaska - in the majority of regulatory bodies - seems to be to
take as much time as you can, be as careful as you can, [and]
consider as much as you need - good luck." He related that this
position brings comfort to parties due to the immediate
discernible date. He stated once the filing is complete, the
dates can be calculated, which will remain in place, and if the
process is completed sooner, that's better, too. Additionally,
parties also gain comfort because they can make better decisions
with respect to expenditures of their resources. He offered his
belief that the emerging trend is to tailor the complexity of
the rate case to the time involved, which is also the option the
RCA has chosen. He advised that the RCA will attempt to
compress the discovery component and has been working to
compress what has previously been reserved by the commission as
its analytic and decision-making time element. He reported that
the RCA knowingly takes that action.
4:51:36 PM
REPRESENTATIVE SADDLER recalled from the executive summary that
the RCA has performed some research and has consulted with other
commissions. He asked him to describe the downside to a
tailored timeline process.
MR. PATCH identified the downside as stress on staff due to the
workload component which may lead to mistakes. He suggested
that staff might have some discomfiture, although mistakes can
be corrected by the courts or through the RCA's reconsideration
process. However, he emphasized the risk of burnout on RCA's
staff, and cautioned that the RCA's staff might gravitate to
industry, which would adversely affect the RCA, and the public
would lose a dedicated public servant.
4:52:43 PM
REPRESENTATIVE SADDLER recalled Mr. Patch stated the [shortened
timeline] is an emerging trend. He asked which other
jurisdictions have been using this process for the longest
period of time.
MR. PATCH answered that California is on the cutting edge. He
said that New York's Regulatory Commission has a staff of 1,000
people so it can respond more quickly. He ventured that the
process has been in effect in some jurisdictions in the Lower 48
for over 15 years.
4:53:18 PM
REPRESENTATIVE HOLMES turned to a new topic. She stated that
some of her constituents asked for general comments, without
regard to a specific case. She read, "Recent RCA decisions on
rate making have been characterized as pro utility." She
interjected that her constituents may be operating under the
assumption of pro utility, pro-business. She said, "But higher
monopoly rates harm businesses, as well as residential
customers." She reiterated this question came from her
constituents, who are also small business owners. She added
that the business owners have related that they count on the RCA
to watch out for them, but they have not felt that has been the
case.
MR. PATCH answered that he would be happy to engage in
conversations with any of her constituents who identify
themselves by name. He stated they should feel no umbrage,
pressure, or disdain to contact him. He offered to hold an open
and wide-ranging conversation with them. He offered to address
a number of components raised by her question. He highlighted
that the very nature of a utility is a monopoly. He agreed that
when someone mentions a monopoly the conclusion is that
monopolies are bad; however, the American way tends to prefer
competitive enterprise. He suggested that when someone is
engaged in capital intensive business, it may not be in
everyone's best interest to have two such capital intensive
businesses each trying to recover their revenue requirement in
an overlapping service area. Thus, what has evolved - long
before Alaska became a state - has been the regulatory paradigm.
He acknowledged that the RCA might give a monopoly right to
deliver this type of public convenience service in a geographic
area; however, in exchange for the monopoly, the RCA will
regulate the price and require that services are delivered
without discrimination. He characterized this as the utility
paradigm.
4:56:34 PM
MR. PATCH related that the legislature said to the RCA - or its
predecessors - to allow a utility to recover costs with a
reasonable rate of return. He identified that process as the
process RCA uses to determine what a utility can charge. He
pointed out the legislature holds the RCA to the standard that
the rate determination must be just and reasonable in light of
the facts of the developed record. He added this record must be
infused with opinion, financial analysis, and adhere to the due
process of law. He characterized this as the RCA's task. He
identified RAPA as another opposing party with the same task,
and he encouraged Representative Holmes's constituents to
consult them since they are also public's advocate. He offered
that the DOL's RAPA performs well, even though the office is
undermanned. He described the RAPA's workload as a massive
load. He reiterated that the office performs well. He thanked
Representative Holmes's constituents for using the comment
process, for seeking guidance of their legislator, and for
posing a difficult question. He suggested the other parties
could go to his office or the RAPA office. He said he would be
happy to sit down in any setting. He offered to put her
constituents on the service list if they came to him on a rate
case that affected their area. He said the constituents would
have access to every pleading in the case. He further offered
to make their comments part of the public record. He
characterized involved citizens as the better citizens.
REPRESENTATIVE HOLMES thanked Mr. Patch.
4:59:11 PM
REPRESENTATIVE SADDLER asked at the end of the two-year trial
period what criteria he would use to judge the success or
failure of the RCA's proposal.
MR. PATCH answered the standard would be made by determining
whether cases were decided close to the timeline set for each
case. He would also consider whether the RCA made its decisions
prior to the 450 day timeline. Further, he would consider
whether the parties involved in the timeline kept to the
timeline the RCA imposed, and if the RCA developed factors the
commission could transfer to the legislature to outline specific
timeframes on cases. He offered his belief that if he could do
so, he would judge the RCA's proposal as an unqualified success.
5:00:20 PM
SENATOR EGAN made a motion, under Uniform Rule 22, to go into
executive session for the purpose of discussing confidential
matters pertaining to the RCA. He requested that his staff,
Dana Owen, and Chair Olson's staff, Konrad Jackson remain in the
room. There being no objection, the joint House and Senate
Labor and Commerce Committees went into executive session.
5:50:38 PM
CHAIR OLSON reconvened the meeting and gaveled out [not on
record].
5:50:45 PM
ADJOURNMENT
There being no further business before the committee, the joint
meeting between the House Labor and Commerce Standing Committee
and the Senate Labor and Commerce Standing Committee meeting was
adjourned at 5:50 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| RCA Timelines Proposal - Exec Sum and Concl 1-17-2011.pdf |
HL&C 1/23/2012 4:00:00 PM |