Legislature(2019 - 2020)BUTROVICH 205

01/24/2020 03:30 PM Senate RAILBELT ELECTRIC SYSTEM

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03:31:50 PM Start
03:32:30 PM SB123
04:50:54 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Organizational Meeting TELECONFERENCED
Heard & Held
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
                SENATE RAILBELT ELECTRIC SYSTEM                                                                               
                        January 24, 2020                                                                                        
                           3:31 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Senator John Coghill, Chair                                                                                                     
Senator Elvi Gray-Jackson                                                                                                       
Senator Peter Micciche                                                                                                          
Senator Mike Shower                                                                                                             
Senator Cathy Giessel                                                                                                           
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Grier Hopkins                                                                                                    
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 123                                                                                                             
"An Act relating to the regulation of electric utilities and                                                                    
electric reliability organizations; and providing for an                                                                        
effective date."                                                                                                                
     - HEARD & HELD                                                                                                             
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: SB 123                                                                                                                  
SHORT TITLE: ELECTRIC RELIABILITY ORGANIZATIONS                                                                                 
SPONSOR(s): RAILBELT ELECTRIC SYSTEM                                                                                            
05/14/19       (S)       READ THE FIRST TIME - REFERRALS                                                                        
05/14/19       (S)       RBE, FIN                                                                                               
01/24/20       (S)       RBE AT 3:30 PM BUTROVICH 205                                                                           
WITNESS REGISTER                                                                                                              
RENA MILLER, Staff                                                                                                              
Senator Cathy Giessel                                                                                                           
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT: Delivered the sectional analysis for SB 123.                                                              
ANTONY SCOTT, Commissioner                                                                                                      
Regulatory Commission of Alaska (RCA)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Delivered a  PowerPoint relating to  the role                                                            
of the RCA in the context of SB 123.                                                                                            
ACTION NARRATIVE                                                                                                              
3:31:50 PM                                                                                                                    
CHAIR  JOHN COGHILL  called the  Senate  Railbelt Electric  System                                                            
meeting to  order at 3:31 p.m. Present  at the call to  order were                                                              
Senators Giessel, Micciche, Gray-Jackson, and Chair Coghill.                                                                    
           SB 123-ELECTRIC RELIABILITY ORGANIZATIONS                                                                        
3:32:30 PM                                                                                                                    
CHAIR  COGHILL announced  the  consideration  of  SENATE BILL  NO.                                                              
123,  "An Act  relating to  the regulation  of electric  utilities                                                              
and  electric  reliability  organizations;  and providing  for  an                                                              
effective date."                                                                                                                
CHAIR  COGHILL  introduced  SB   123  speaking  to  the  following                                                              
sponsor statement:                                                                                                              
     In   2014,  the   Legislature   sought  the   Regulatory                                                                   
     Commission  of   Alaska's  recommendations   to  improve                                                                   
     effective  and efficient  electrical transmission  among                                                                   
     the  six   interconnected  utilities  in   the  Railbelt                                                                   
     region,  home  to  a majority  of  Alaska's  population.                                                                   
     Among  the  RCA's  recommendations was  formation  of  a                                                                   
     reliability   organization,   which  would   write   and                                                                   
     enforce   common  standards   for   safe  and   reliable                                                                   
     operation of the interconnected utilities.                                                                                 
     The Railbelt  electric utilities  have made  significant                                                                   
     progress  toward  collaboration  and  cooperation.  Most                                                                   
     recently,  all six  entered  into an  agreement to  work                                                                   
     together to establish a reliability organization.                                                                          
     The RCA, in  updating the Legislature on  the utilities'                                                                   
     progress, has  recommended statutory changes  that would                                                                   
     affirm  the RCA's  authority to  regulate a  reliability                                                                   
     organization;     define     the    basic     structure,                                                                   
     responsibilities   and  authorities  of   a  reliability                                                                   
     organization;  and  empower  the  RCA  to  require  pre-                                                                   
     approval of  large generation and transmission  projects                                                                   
     undertaken   by   utilities   that   are  part   of   an                                                                   
     interconnected network.  Senate Bill 123  reflects these                                                                   
     recommendations  and,  if  enacted,  would  support  the                                                                   
     utilities'  voluntary  work  to  develop  a  reliability                                                                   
     On behalf  of electric utility customers  from Fairbanks                                                                   
     to  the Matanuska  and Susitna  valleys, from  Anchorage                                                                   
     through  the Kenai Peninsula  to Homer  and Seward,  the                                                                   
     state    should    foster    cooperation    among    the                                                                   
     interconnected utilities  and ensure consumer  needs are                                                                   
     efficiently and reliably met.                                                                                              
3:36:12 PM                                                                                                                    
SENATOR  GIESSEL  advised that  Senator  Shower  was in  the  VPSO                                                              
Working Group meeting and would join the committee thereafter.                                                                  
CHAIR  COGHILL asked  Ms.  Miller to  walk  through the  sectional                                                              
3:36:46 PM                                                                                                                    
RENA  MILLER,  Staff,  Senator  Cathy  Giessel  and  the  Railbelt                                                              
Electric  System  Committee,  Alaska  State  Legislature,  Juneau,                                                              
Alaska stated  that SB 123  establishes the Regulatory  Commission                                                              
of Alaska's  (RCA) clear  authority over  an electric  reliability                                                              
organization  (ERO). It  defines  participation in  an ERO,  talks                                                              
about  the   requirements  of   the  organization  regarding   the                                                              
business it  is to conduct,  and outlines  some of the  powers and                                                              
oversight   between  the   RCA   and  the   electric   reliability                                                              
3:37:36 PM                                                                                                                    
MS.  MILLER delivered  the  following  sectional  analysis for  SB
     Section  1.  Adds  new  sections  to  AS  42.05,  Alaska                                                                 
     Public Utilities Regulatory Act.                                                                                           
     Sec. 42.05.292: Electric reliability organizations                                                                       
     Requires  interconnected utilities  in a network  served                                                                   
     by   a   certificated   reliability    organization   to                                                                   
     participate  in the  reliability organization.  Provides                                                                   
     standard   for    RCA   approval   of    a   reliability                                                                   
     organization.    Directs     reliability    organization                                                                   
     governance.  If  no  entity  applies  as  a  reliability                                                                   
     organization by October 2020, the RCA must form one.                                                                       
     Subsection (b)  talks about how  a person can  apply for                                                                   
     certification  as an  ERO.  The commission  may  certify                                                                   
     one ERO  for each interconnected  network. The  RCA must                                                                   
     ensure some things  are in place in order  to certify an                                                                   
     ERO.  These   are  listed  on  page  2.  The   ERO  must                                                                   
     demonstrate it  has the ability to take on  the two core                                                                   
     functions   of  an  ERO.   First,  develop   reliability                                                                   
     standards  and second,  develop  an integrated  resource                                                                   
     plan. Those will be discussed later in the bill.                                                                           
     The  ERO must  show  the RCA  it has  established  rules                                                                   
     regarding how  it will conduct  business as an  ERO. The                                                                   
     ERO must  act independently  from the directors  who are                                                                   
     contemplated  to be  members of entities  that would  be                                                                   
     subject  to the  standards of  the ERO.  The board  must                                                                   
     show it  will fairly allocate  costs involved.  It needs                                                                   
     to have  established fair  procedures for enforcing  the                                                                   
     standards  it puts  out. It  also needs  to show it  can                                                                   
     provide  reasonable  notice and  involve  the public  in                                                                   
     its process.                                                                                                               
     The  legislation requires  the board  to look a  certain                                                                   
     way, although  it still  leaves a  lot to be  determined                                                                   
     by  the  applicant  that  wants   to  be  the  ERO.  The                                                                   
     governing board  must include two nonvoting  members: an                                                                   
     RCA commissioner  and the attorney general  or designee,                                                                   
     likely the  assistant attorney  general assigned  to the                                                                   
     regulatory  affairs  and  advocacy  section  that  works                                                                   
     with the RCA.                                                                                                              
3:40:17 PM                                                                                                                    
CHAIR COGHILL recognized that Representative Grier Hopkins had                                                                  
joined the meeting and noted that he chairs the House committee                                                                 
that is hearing similar legislation.                                                                                            
MS. MILLER continued the sectional. She explained that the board                                                                
needs to be an independent board or a balanced stakeholder board                                                                
or a combination.                                                                                                               
3:40:45 PM                                                                                                                    
     Subsection  (c) establishes  that if  nobody applies  to                                                                   
     be an  ERO within a certain  time, the RCA  shall create                                                                   
     Subsection  (d) talks  about the business  the ERO  will                                                                   
     undertake  upon certification.  The  ERO  must file  its                                                                   
     reliability  standards  with   the  RCA  as  part  of  a                                                                   
     tariff.  The  RCA  would use  the  existing  process  in                                                                   
     public  utility regulatory  statutes  that  is used  for                                                                   
     tariffs to  process these standards. There  are existing                                                                   
     provisions for  public noticing and review. The  RCA has                                                                   
     the  ability  to  enforce the  standards  the  ERO  puts                                                                   
     The bill  discusses what  reliability standards  the ERO                                                                   
     needs to  provide for. These  are standards  that ensure                                                                   
     that   the  interconnected   system   and  facility   is                                                                   
     operating  reliably.  They can  address  things such  as                                                                   
     cybersecurity and  facility security, but  the standards                                                                   
     may  not  require  enlargement or  new  construction  of                                                                   
     transmission  and generation.  She  noted  that this  is                                                                   
     outlined on page 3, lines 13-14.                                                                                           
     Subsections   (e)-(f)  establishes   how  the  RCA   can                                                                   
     address the  standards the ERO  files with the  RCA. The                                                                   
     commission   can   approve,   amend,   or   reject   the                                                                   
     standards.  The RCA  can  require certain  standards  it                                                                   
     believes are necessary.                                                                                                    
     Subsection   (g)    discusses   how   the    reliability                                                                   
     organization  can  enforce  the standards  the  RCA  has                                                                   
     accepted. The ERO can assess penalties, if necessary.                                                                      
     Subsection  (h) provides that  the RCA may also  enforce                                                                   
     standards, if necessary.                                                                                                   
     Subsection   (i)  lays   out  an   appeals  process   if                                                                   
     penalties   are   assessed    for   noncompliance.   The                                                                   
     commission must expedite any appeals related to fines.                                                                     
     Subsection  (j) establishes that  any penalties  must be                                                                   
     reasonable  in  relation  to   the  seriousness  of  the                                                                   
     Subsection  (k)  states  that  the RCA  may  direct  the                                                                   
     electric   reliability   organization  to   assess   the                                                                   
     reliability of the bulk-power system.                                                                                      
     Subsection (l)  provides that if a reliability  standard                                                                   
     is  adopted  that  conflicts  with  a  tariff  provision                                                                   
       already in place, the utility must comply with the                                                                       
     tariff until the RCA resolves the conflict.                                                                                
      Subsection (m) requires an ERO to file with the RCA,                                                                      
      their rules and any changes to their rules regarding                                                                      
     fairness, process and public notice.                                                                                       
3:44:41 PM                                                                                                                    
CHAIR COGHILL asked  if the RCA is able to request  changes to the                                                              
rules the  ERO has put  forward or if  it simply ratifies  what is                                                              
put forward.  [A committee  member pointed  out the language  that                                                              
allows the RCA to propose changes.]                                                                                             
SENATOR MICCICHE  asked if the RCA  is able to establish  rules if                                                              
the ERO hasn't put them forward by October 2020.                                                                                
MS.  MILLER directed  attention  to the  October 1,  2020 date  in                                                              
subsection  (c)  on  page  2. She  explained  that  the  bill  was                                                              
drafted in May 2019  so all the dates in the bill  will need to be                                                              
changed. The  intention is  to give  the RCA a  year to  write the                                                              
regulations before  it takes applications  from somebody to  be an                                                              
ERO. If nobody has  applied for certification to be  an ERO during                                                              
the   application  period,   the   RCA  must   form  an   electric                                                              
reliability organization.                                                                                                       
CHAIR COGHILL related  that he made the decision  to introduce the                                                              
bill knowing that  the dates would need to be changed.  He said he                                                              
wanted to get  the structure laid out before  the discussion about                                                              
SENATOR  MICCICHE  referenced  subsection  (e) in  Section  1  and                                                              
asked  if there  is an  appeal  process for  the  RCA's action  on                                                              
amending the proposed reliability standard.                                                                                     
MS.  MILLER said  she  believes the  existing  appeals process  on                                                              
tariffs  would  apply but  she  would  defer to  RCA  Commissioner                                                              
Scott to provide the details.                                                                                                   
CHAIR COGHILL  reiterated that  he wanted  the structure  laid out                                                              
before any details are addressed.                                                                                               
3:47:28 PM                                                                                                                    
SENATOR GRAY-JACKSON asked when the application period ends.                                                                    
CHAIR COGHILL  replied the  law is  not in  effect at  this point,                                                              
just  a  memorandum  of  understanding  (MOU)  that  the  Railbelt                                                              
utilities have signed.                                                                                                          
SENATOR GRAY-JACKSON  responded that when  she read the  bill, she                                                              
was pleased to see that the application process started.                                                                        
CHAIR  COGHILL reiterated  that,  at  this point,  the  bill is  a                                                              
template for codifying the process.                                                                                             
3:48:39 PM                                                                                                                    
MS.  MILLER advised  that the  utilities  are taking  applications                                                              
from   interested   parties   to   work  together   to   form   an                                                              
organization.  Once  the  RCA begins  taking  applications,  those                                                              
groups could apply to be an ERO.                                                                                                
MS. MILLER continued to review the sections of SB 123.                                                                          
     Subsection  (n) on  page  5 requires  the  RCA to  adopt                                                                   
     regulations      governing     electric      reliability                                                                   
     organizations,      reliability      standards,      and                                                                   
     modifications to  standards. The regulations  require an                                                                   
     ERO  applicant   to  obtain  a  certificate   of  public                                                                   
     convenience and  necessity; may provide for  open access                                                                   
     transmission tariffs  to an ERO; must provide  a process                                                                   
     to resolve conflicts;  and must allow an ERO  to recover                                                                   
     its costs associated with the organization.                                                                                
CHAIR  COGHILL clarified  that this  provides a  template for  the                                                              
existing Railbelt  utilities to work together under  a reliability                                                              
standard they agree on to benefit ratepayers.                                                                                   
MS. MILLER continued to review Section 1 of SB 123.                                                                             
     Sec. 42.05.293. Integrated resource planning.                                                                            
     Subsection  (a) requires  an ERO to  file an  integrated                                                                   
     resource  plan for  a given  network.  It discusses  the                                                                   
     structure   of   integrated    resource   planning   and                                                                   
     establishes  that the network  must meet the  customers'                                                                   
     needs  at the lowest  cost, consistent  with the  public                                                                   
     interest. Because  the lowest cost is not  always in the                                                                   
     public interest, the equation must be balanced.                                                                            
     Subsection  (b) provides  the  commission the  authority                                                                   
     to  approve, reject,  or modify  an integrated  resource                                                                   
     plan submitted by an ERO.                                                                                                  
     Sec. 42.05.294. Project preapproval.                                                                                     
     Subsection (a)  clarifies that a public utility  that is                                                                   
     interconnected  with a  bulk-power  system must  receive                                                                   
     RCA  approval  that the  facility  is necessary  to  the                                                                   
     entire  system. The  RCA will ensure  that the  facility                                                                   
     complies  with all reliability  standards and meets  the                                                                   
     needs  of a  load-serving entity  that is  substantially                                                                   
     served  by  the  facility  in  the  most  cost-effective                                                                   
     Subsection   (b)  provides   a  connection  between   an                                                                   
     integrated  resource plan and  the project  preapproval.                                                                   
     If  a new  project  is part  of an  approved  integrated                                                                   
     resource  plan,  that  facility  is  presumed  approved,                                                                   
     unless the RCA  finds otherwise by clear  and convincing                                                                   
CHAIR COGHILL suggested that the committee may want to ask the                                                                  
RCA how that standard is applied.                                                                                               
3:54:25 PM                                                                                                                    
MS. MILLER continued to describe the sections of SB 123.                                                                        
     Section  2 adds  new definitions  to  AS 42.05.990,  the                                                                   
     Alaska  Public  Utilities  Regulatory  Act.  It  defines                                                                   
     bulk  power  system;  cybersecurity  incident;  electric                                                                   
     reliability     organization;      electric     utility;                                                                   
     interconnected  electric  energy  transmission  network;                                                                   
     load-serving entity; and reliable operation.                                                                               
     Section 3  adds to uncodified  law requiring the  RCA to                                                                   
     adopt regulations  and be ready for an  application from                                                                   
     a perspective electric reliability organization.                                                                           
     Section  4  provides  direction  to  the  RCA  to  write                                                                   
     regulations to implement the bill immediately.                                                                             
     Section  5. Establishes  an  effective date  of July  1,                                                                   
     2020,  for all  other  sections. As  discussed  earlier,                                                                   
     the  effective dates  must be adjusted.  The intent  was                                                                   
     that   the  RCA  would   have  a   year  to  write   the                                                                   
     regulations  and  then  begin to  take  applications  to                                                                   
     become an electric reliability organization.                                                                               
CHAIR COGHILL asked if the definition of "interconnected                                                                        
electric energy transmission network" in paragraph (18) has been                                                                
described in law previously.                                                                                                    
MS. MILLER replied she didn't know.                                                                                             
CHAIR  COGHILL  said  he'd  ask   the  RCA  to  find  out  if  the                                                              
definition is new or Railbelt utility specific.                                                                                 
MS. MILLER  said that  reminded  her of an  important point  about                                                              
the definition  for "bulk-power system."  The language on  lines 4                                                              
and  five   says  that   at  least   one  of   the  two   or  more                                                              
interconnected  utilities  is  subject  to the  provisions  of  AS                                                              
42.05.291.  That language  is intended  to ensure  the ERO  formed                                                              
under  the   bill  only   applies  to   Railbelt  utilities,   not                                                              
interconnected utilities in other areas of the state.                                                                           
CHAIR COGHILL invited Commissioner Antony Scott to testify.                                                                     
3:58:15 PM                                                                                                                    
ANTONY  SCOTT,  Commissioner,  Regulatory   Commission  of  Alaska                                                              
(RCA), Anchorage,  Alaska, delivered a PowerPoint  relating to the                                                              
role of  the RCA in  the context  of SB 123.  He said  people have                                                              
been talking about  reform in Railbelt utilities for  more than 30                                                              
years  and he  was  pleased  that while  SB  123 won't  create  an                                                              
ideally  efficient  Railbelt  system,  it is  an  important  first                                                              
step.  He opined  that  most of  the parties  agree  on the  broad                                                              
framework  of  what is  proposed,  which  will help  build  trust,                                                              
understanding, and cooperation moving forward.                                                                                  
He said  his goal  is to discuss  what the  RCA does,  the process                                                              
leading to the bill, and what the bill does and does not do.                                                                    
4:00:16 PM                                                                                                                    
MR. SCOTT  began the PowerPoint  presentation with  an explanation                                                              
of the RCA's  purpose. He explained that public  utilities tend to                                                              
be  natural monopolies  and  are  not necessarily  competitive  if                                                              
there is  just one within  a given service  area. Left to  its own                                                              
devices, a  natural monopoly would  raise prices or  allow service                                                              
quality   to  degrade.   Because  of   this,  the   quasi-judicial                                                              
Regulatory  Commission of  Alaska  is charged  with setting  rules                                                              
through  tariffs and  regulations to  ensure that  the services  a                                                              
public  utility offers  reflect efficient  market outcomes.  Their                                                              
prices are to reflect  a competitive market that is  in the public                                                              
He said  because  a great deal  of value  is at  stake, the  RCA's                                                              
work is  important. For  example, Railbelt  consumers spent  about                                                              
$880 million on  electrical service in 2018.  Also, increasing the                                                              
efficiency   of    operations   through   tighter    inter-utility                                                              
coordination  is similar to  a tax  cut because  it puts  money in                                                              
consumer's  pockets. Even  a two  percent  increase in  efficiency                                                              
would translate to  savings of more than $17 million  per year. He                                                              
also pointed  out that reliable  service can  be a matter  of life                                                              
and  death.  Lack  of  reliability  can,  at  a  minimum,  involve                                                              
substantial economic losses.                                                                                                    
MR.  SCOTT   agreed  with   Senator  Coghill   that  focusing   on                                                              
reliability  in no way  suggests that  the Railbelt utilities  are                                                              
providing  inadequate  service.   He  said  having  efficient  and                                                              
enforceable  standards  is  comparable   to  having  an  insurance                                                              
policy  and SB  123  is about  providing  insurance for  consumers                                                              
moving  forward.  He said  the  need for  enforceable  reliability                                                              
standards is  heightened when trying  to ensure that  the physical                                                              
infrastructure  meets  the  needs  of  consumers  in  all  service                                                              
4:04:04 PM                                                                                                                    
CHAIR COGHILL  pointed out  that technologies  such as  wind power                                                              
have also changed the dynamics.                                                                                                 
MR.  SCOTT  agreed  and added  that  institutional  innovation  is                                                              
important as new technologies develop.                                                                                          
4:04:40 PM                                                                                                                    
MR. SCOTT  discussed the process  to get to  SB 123. In  2014, the                                                              
legislature directed  the RCA to investigate "whether  creating an                                                              
independent system  operator or  similar structure for  electrical                                                              
utilities in  the Railbelt area  is the best option  for effective                                                              
and  efficient  electrical  transmission."  The  RCA  held  public                                                              
hearings  to assess  whether there  was room  for improvement  and                                                              
what the  path forward might  be. In 2015,  the RCA  presented its                                                              
findings  and recommendations  to  the  legislature.  He said  the                                                              
record  was voluminous.  Last week  Chairman  Pickett updated  the                                                              
legislature on  its progress toward the original  recommendations.                                                              
He  noted that  the  Commission  unanimously endorsed  the  letter                                                              
that supports  SB 123 as the  preferred vehicle  for institutional                                                              
reform. He  described the  bill as an  outgrowth of  the learnings                                                              
and progress to date.                                                                                                           
4:06:33 PM                                                                                                                    
MR.  SCOTT said  the  RCA's 2015  findings  diagnosed the  problem                                                              
which  was  that  the ownership  and  operation  of  the  Railbelt                                                              
utilities  was  fragmented.  Six  utilities  served  a  number  of                                                              
customers that  would be served by  a single utility in  the Lower                                                              
48,    which   creates    inefficiencies.    For   example,    the                                                              
interconnected   transmission  infrastructure   is   not  a   good                                                              
business model  to ensure  cost recovery  outside a service  area;                                                              
the lack  of integration  across utilities  makes it difficult  to                                                              
ensure  that  construction  of  new  generation  and  transmission                                                              
assets in one  service area is optimal  to the system  as a whole;                                                              
lack  of coordination  and  integration across  utilities  hinders                                                              
efficient  operation  of existing  generators  to  meet load;  and                                                              
lack  of coordination  has  resulted in  inconsistent,  inadequate                                                              
and unenforceable electric reliability standards.                                                                               
He noted that  under existing statute the Commission  could remedy                                                              
the lack  of reliability standards.  AS 42.05.291 charges  the RCA                                                              
with  ensuring  adequate quality  of  service  so it  could  order                                                              
utilities  to do certain  things. The  RCA has  not done  this but                                                              
Chair Picket  has started a  process for promulgating  regulations                                                              
if there  is no  institutional reform.  However,  this is  not the                                                              
best approach  because it  takes a  long time  to establish  a new                                                              
standard by  regulation and the  Commission is not the  best party                                                              
to know  how and  what is  needed for  the system overall.  Deeper                                                              
expertise  for the  best operation  of  the system  is within  the                                                              
utilities.  SB  123 seeks  to  outsource  those  responsibilities,                                                              
with public  participation,  and the RCA  provides oversight.  The                                                              
intent  is that  the RCA  will not  exercise  its authority  under                                                              
.291. Things  that come  to the RCA  will be subject  to a  45 day                                                              
public notice period like all other tariff filings.                                                                             
4:13:00 PM                                                                                                                    
SENATOR MICCICHE asked  if there is an appeals  process under Sec.                                                              
42.05.292(e) once  the RCA amends  an agreement. He added  that he                                                              
assumes  that the  public process  just mentioned  isn't a  formal                                                              
appeal process.                                                                                                                 
MR. SCOTT  replied the concept  in SB 123  is to have  reliability                                                              
standards  filed  in a  tariff.  Tariffs  are subject  to  several                                                              
existing   provisions    in   statute    for   such    things   as                                                              
nondiscrimination,  public  notice,  and timelines.  He  recounted                                                              
that  when  a tariff  comes  in,  it  is public  noticed  and  the                                                              
Commission has 45  days to accept the tariff,  reject it according                                                              
to form,  or suspend it into  a docket of investigation.  He noted                                                              
that  the  majority  of  cases are  accepted.  A  tariff  that  is                                                              
rejected  according  to  form  is   deficient  in  some  technical                                                              
respect.  A   tariff  suspended   according  to  form   elicits  a                                                              
proceeding in  which there  are parties and  a record  is created.                                                              
When the RCA  makes a ruling on  a tariff that has  been suspended                                                              
into a docket for  investigation, the first point of  appeal is to                                                              
request  reconsideration.  Once  reconsideration  is past  or  the                                                              
Commission  doesn't take  it up,  the  ruling may  be appealed  to                                                              
superior court.                                                                                                                 
4:15:38 PM                                                                                                                    
SENATOR MICCICHE  commented that  subsection (e) isn't  clear that                                                              
the process would  be the same as the tariff  process. Noting that                                                              
the bill  allows the Commission  to amend,  he said it  seems that                                                              
it  could potentially  become  a  legal  process if  an  amendment                                                              
isn't acceptable.                                                                                                               
MR. SCOTT agreed.  He explained that under existing  statutes, the                                                              
RCA can only modify  a tariff after there is a  public process and                                                              
a  decision is  made  based on  a sound  record.  If the  affected                                                              
parties believe  the commission got  it wrong, the matter  goes to                                                              
superior court.                                                                                                                 
SENATOR MICCICHE  pointed out that  a proposed modification  [to a                                                              
reliability  standard]  that takes  effect  upon  approval by  the                                                              
Commission is a little different than a tariff adjustment.                                                                      
MR.  SCOTT  said  RCA  staff  suggested  that  the  sentence  that                                                              
Senator  Micciche identified  on  page 3,  lines  20-21, could  be                                                              
read  as potentially  in  conflict  with the  Commission's  normal                                                              
procedure and he  and Ms. Miller discussed changing  that language                                                              
when the  bill is  amended. He recommended  removing the  sentence                                                              
entirely  so it  is clear  that  it doesn't  create conflict  with                                                              
existing statute.                                                                                                               
4:18:27 PM                                                                                                                    
MR.  SCOTT   turned  to  slide   6  that  lists   the  substantive                                                              
recommendations for reform  that the RCA made in 2015.  He said SB
123  addresses some,  but  not all,  of  the recommendations.  The                                                              
first was  the need for consistent  and enforceable  operating and                                                              
reliability standards,  which is  a primary focus  of SB  123. The                                                              
RCA also  identified a  need for new  institutions to  provide for                                                              
security-constrained  economic dispatch. He  said that  means that                                                              
the most efficient  generators, regardless of ownership,  are used                                                              
to  meet  load.  SB 123  does  not  address  that  recommendation.                                                              
Third,   the  RCA   identified   the  need   for  an   independent                                                              
transmission  company  to  own,   finance  and  operate  a  single                                                              
transmission  tariff. Currently  there  is no  business model  for                                                              
this. There  has been considerable  effort in the last  five years                                                              
to create  consensus with  an interested  company from  Wisconsin.                                                              
That company  initially made  an application  with the  Commission                                                              
to certify  what is  called a TRANSCO,  but subsequently  withdrew                                                              
the filing.  He said he would  provide more explanation  later but                                                              
there is a  small provision in SB  123 to achieve the  same result                                                              
without creating  an independent transmission company.  The fourth                                                              
substantive  recommendation  was for  the  legislature to  clarify                                                              
the RCA's  authority to require  integrated resource  planning and                                                              
large project  preapproval to ensure  major new infrastructure  is                                                              
most  efficient for  the benefit  of  all. He  reported that  more                                                              
than 33  states in  the nation have  integrated resource  planning                                                              
processes  within   utilities.  The   RCA  does  not   have  clear                                                              
authority to  regulate coordination  across utilities, but  SB 123                                                              
provides that process.                                                                                                          
4:22:27 PM                                                                                                                    
MR.  SCOTT   reviewed  the   list  of   the  RCA's  2015   process                                                              
recommendations.  First  is  to  allow time  for  these  voluntary                                                              
efforts  to work  among the  parties  but have  a stopping  point.                                                              
Second, return to  the legislature if the voluntary  efforts fail.                                                              
He said  it's been  more than five  years now so  it's time  to do                                                              
something.  The  third  suggestion   is  for  the  legislature  to                                                              
recognize that the  RCA has an increased need  to fund specialized                                                              
talent to manage  its share of these activities.  Last session the                                                              
legislature addressed  this need when it passed  SB 83 authorizing                                                              
the Commission to hire up to five utility master analysts.                                                                      
4:23:31 PM                                                                                                                    
He said the Railbelt  utilities have reached consensus  to form an                                                              
electric reliability  organization that would  include non-utility                                                              
stakeholders and  the parties have  educated one another  so there                                                              
is  greater understanding  of  the issues,  barriers,  and how  to                                                              
proceed.  These voluntary  efforts  have laid  the groundwork  for                                                              
institutional  reform but  have not  resulted in  such. There  has                                                              
been  progress in  some  areas and  disappointment  in others,  he                                                              
4:24:24 PM                                                                                                                    
MR.  SCOTT stated  that the  legislation  is modeled  on the  2006                                                              
amendment to  the Federal Power  Act. That bill created  a similar                                                              
relationship  between  the Federal  Energy  Regulatory  Commission                                                              
(FERC)  and the  North American  Electric Reliability  Corporation                                                              
(NERC),  the  designated  ERO.  He explained  that  SB  123  would                                                              
enhance the RCA's  jurisdiction, consistent with  the Commission's                                                              
2015   and   2020   recommendations   to   the   legislature.   It                                                              
substantively  addresses: consistent  and enforceable  reliability                                                              
standards; integrated  resource planning  to identify  optimal new                                                              
infrastructure needs;  the requirement  for the RCA  to preapprove                                                              
large infrastructure  projects; and  creation of a  potential path                                                              
to  allow zonal  transmission rates  and  cost responsibility  for                                                              
new  transmission  identified  as  necessary  that  would  enhance                                                              
prospects for security constrained economic dispatch.                                                                           
He  described SB  123 as  a vehicle  to  create certainty  towards                                                              
institutional   reform.  It   defines   an  electric   reliability                                                              
organization   as  a   public  utility   subject   to  the   RCA's                                                              
jurisdiction.   Statutory  change   is  needed   because  an   ERO                                                              
currently  does not provide  electric utility  service. The  RCA's                                                              
jurisdiction over  EROs would be similar to  FERC's jurisdictional                                                              
authority over the  NERC. The bill creates a  definitive timetable                                                              
and deadline for  the RCA to designate an applicant  to be an ERO.                                                              
He highlighted  the backstop  which is that  the RCA  shall create                                                              
an ERO and find  somebody to run it if nobody  has come forward in                                                              
the relevant  timeframe.  He emphasized that  the Commission  does                                                              
not want to be the entity to form an ERO.                                                                                       
4:27:28 PM                                                                                                                    
SENATOR  MICCICHE observed  that  under AS  42.05.291(c), the  RCA                                                              
has had  similar authority  since 1970.  He asked  if there  was a                                                              
reason it's taken 40-some years to move forward.                                                                                
MR. SCOTT  responded that  he didn't  recall the exact  provisions                                                              
in subsection (c)  but .291 does give the Commission  authority to                                                              
impose corrective  measures after a hearing. That  being said, the                                                              
RCA  interprets   its  statutory   authority  to  apply   to  each                                                              
certificate holder  individually, not necessarily  to coordination                                                              
among  several  certificate  holders.  He  added  that  while  the                                                              
Commission  has authority  under .291 to  oversee reliability,  it                                                              
has not traditionally  had the staff and expertise  to step in and                                                              
manage those sorts of activities.                                                                                               
4:29:20 PM                                                                                                                    
SENATOR MICCICHE  said he  thinks the  voluntary approach  is more                                                              
effective and  likely to be less  confrontational than if  the RCA                                                              
imposed  standards. He  reiterated  that he  finds it  interesting                                                              
that it's taken 49 years to get to this point.                                                                                  
CHAIR COGHILL  pointed out  that the  desire for renewable  energy                                                              
and  independent  operators has  driven  many of  the  discussions                                                              
whereas before it was a survival mode.                                                                                          
4:30:16 PM                                                                                                                    
MR. SCOTT  turned to  slide 11 relating  to the bill's  incentives                                                              
for collaborative  efforts. He reiterated  that the RCA  will only                                                              
step in  to create an  ERO if nobody  steps forward.  Further, the                                                              
Commission would  not delegate its  authority for  reliability and                                                              
planning to  the ERO  because the ERO  itself is not  accountable.                                                              
Under  AS 42.05.291,  the  Commission  is accountable  for  things                                                              
like service  quality. As  with the federal  model, the  RCA would                                                              
assign  most of  this work  to the  ERO and  generally follow  the                                                              
ERO's lead.  It would be a  rare circumstance, but  the Commission                                                              
has  the authority  to impose  remedy  in the  event of  inaction,                                                              
insufficient  progress,  disputes,  or insufficient  attention  to                                                              
the public interest.  This is similar to the  federal legislation;                                                              
FERC  maintains  its  jurisdiction  for  reliability  but  assigns                                                              
certain responsibilities  to the  NERC to carry  out. He  said the                                                              
RCA also maintains  its authority regarding  reliability standards                                                              
and the Integrated Resources Planning (IRP) process.                                                                            
4:32:31 PM                                                                                                                    
MR. SCOTT advised  that the standards would be  filed for approval                                                              
as tariffs, which  would trigger existing statutory  construct for                                                              
things  like timelines  for  approval  and public  notice.  Tariff                                                              
filings are  subject to  a 45 day  notice as  opposed to  the more                                                              
cumbersome  and  lengthy process  for  a regulation  project.  The                                                              
Commission will  participate as  an ex officio  member so  it will                                                              
be  aware of  the proceedings  and  can raise  concerns timely  if                                                              
required.  He reiterated  that,  most frequently,  tariff  filings                                                              
are approved in 45 days and not suspended into a docket.                                                                        
He offered to answer questions.                                                                                                 
CHAIR COGHILL  summarized that the  experts that are part  of this                                                              
new working group  will be looking for solutions  before they come                                                              
to the RCA.                                                                                                                     
MR. SCOTT  replied that is  the intent and  it is also  the intent                                                              
to have  technical expertise  and broader  public involvement.  He                                                              
explained   why  by   talking  about   the  relationship   between                                                              
reliability standards,  integrated resource planning,  and project                                                              
He explained  that electrical supply  and demand have to  match at                                                              
all   times  or   there   will  be   outages.   This  means   that                                                              
infrastructure needs  to be sufficient  to ensure that  supply and                                                              
demand   match  for   reliable  service.   The  planning   process                                                              
considers   capital   intensive    additions   which   are   large                                                              
investments.  For  example,  ML&P's plant  2A  (their  replacement                                                              
generation  stock)  is  a  $330 million  plant.  For  these  large                                                              
investments  it   is  appropriate  to   have  a  broad   array  of                                                              
stakeholders  to weigh in  on what  is sufficient reliability  and                                                              
what  is too  much cost  for that  reliability. These  discussions                                                              
and decisions  aren't just technically  driven. They  also involve                                                              
values   and   questions   about   renewable   power,   how   much                                                              
conservation  is appropriate  to meet  load, where  load is  going                                                              
and  if it  is  growing or  shrinking.  He said  submitting  these                                                              
sorts of questions  for robust interest-group discussion  tends to                                                              
produce better answers  than just leaving it to a  narrow group of                                                              
experts.  So an  Integrated  Resource  Planning (IRP)  process  is                                                              
tied to the reliability process.                                                                                                
He  described the  project preapproval  process as  a backstop  to                                                              
the planning  process. It  creates incentives  for people  to take                                                              
the  planning process  seriously.  If  the project  is  consistent                                                              
with a plan,  then the project is  presumed to be needed  and that                                                              
presumption will be very difficult to overcome.                                                                                 
4:38:06 PM                                                                                                                    
CHAIR  COGHILL  asked  if  the broad  makeup  of  the  ERO  that's                                                              
envisioned  by  the bill  should  be  narrowed or  broadened  even                                                              
further. He said  one consideration when the bill  was drafted was                                                              
that with an organization a lot of input would be submitted.                                                                    
MR. SCOTT  responded that the  RCA thought  it was wise  to borrow                                                              
from the federal  model that has those three  governance measures.                                                              
Right  now, the  efforts to  form a  Railbelt Reliability  Council                                                              
(RRC)  (that  will  be  an  applicant for  the  role  of  ERO)  is                                                              
consistent with one  of the structures permissible  under the Act.                                                              
However,  it's   important  that   it  isn't  the   only  possible                                                              
structure because  one of the  backstops in  the bill is  that the                                                              
RCA can propose one if nobody comes forward.                                                                                    
CHAIR COGHILL said  this committee and the House  Energy Committee                                                              
will  meet  jointly on  the  27th  to hear  from  eight  different                                                              
groups.  The committees  will  hear  about the  requirements  from                                                              
both the regulatory and organizational perspectives.                                                                            
MR. SCOTT  observed that the  current proposal for  the governance                                                              
of the Railbelt  Reliability Council (RRC) is  consistent with the                                                              
bill in  broad terms.  However, it does  raise some  concern about                                                              
independence  when each  of  the Railbelt  utilities  felt it  was                                                              
important  to have a  seat on  the RRC  board. He emphasized  that                                                              
when  someone is  working for  the ERO,  their fealty  to the  ERO                                                              
should come  first. He  advised that  there will  be rules  in the                                                              
code  of conduct  standards  that  will try  to  bolster that.  He                                                              
cited  the Electric  Reliability  Council of  Texas (ERCOT)  Board                                                              
that is focused  on ensuring that the wholesale  power market runs                                                              
independently and properly.                                                                                                     
4:42:44 PM                                                                                                                    
SENATOR SHOWER joined the committee.                                                                                            
CHAIR COGHILL  welcomed Senator  Shower and  noted that  he wasn't                                                              
able  to  arrive  earlier  because  of  a  conflict  with  another                                                              
MR.  SCOTT   continued  to  explain   that  ERCOT  has   just  one                                                              
representative  for the each  of the  following: all the  investor                                                              
owned  utilities,   all  the  co-ops,  all  municipals,   all  the                                                              
independent  powers,  all residential  consumers,  all  commercial                                                              
consumers, and all  the industrial consumers. That  board also has                                                              
five at-large members  so it is a more representative  body of all                                                              
interest groups. He  said the current proposal from  the RRC is to                                                              
be applauded because  the parties have agreed to  something, which                                                              
is progress.                                                                                                                    
CHAIR COGHILL  said the  reason for having  each of  the utilities                                                              
represented  on  the  RRC  is  that   regulation  will  be  across                                                              
utilities whereas  ERCOT is operating  within a utility.  He asked                                                              
if that was incorrect.                                                                                                          
4:47:00 PM                                                                                                                    
MR.  SCOTT  replied  ERCOT  governs the  market  of  Texas  across                                                              
utilities,  but  it's  such  a   large  state  that  it  would  be                                                              
unworkable  for  each company  to  have  a representative  on  the                                                              
governing board. The  idea is to have the various  interest groups                                                              
represented   within   the   governing  body.   He   offered   his                                                              
perspective   that,  in   some  ways,   the  individual   Railbelt                                                              
utilities  see  themselves  as  their  own  interest  groups.  For                                                              
example, Golden  Valley Electric Association's (GVEA)  view of its                                                              
needs is  very different  than any  other Railbelt utility's  view                                                              
of their particular  needs, which is why they've  come together in                                                              
the particular approach.                                                                                                        
CHAIR  COGHILL  agreed  that  Texas  is  not  a  single  grid;  it                                                              
operates within the  U.S. grid. In Alaska, the  Railbelt utilities                                                              
have  huge  geographic  and economic  differences.  He  noted  the                                                              
unique challenges  in the  Interior associated  with having  power                                                              
plants  on  several  military bases,  in  downtown  Fairbanks,  in                                                              
Healy,  in North  Pole, and  at the  university, as  well as  wind                                                              
power  coming  in from  both  directions.  He said  these  various                                                              
plants  serve  just  100,000  people  and  it  would  be  nice  to                                                              
streamline things. However, that will take time, he said.                                                                       
MR. SCOTT  expressed gratitude  for being  invited to  the meeting                                                              
and  excitement  about  the  opportunity  to be  part  of  nudging                                                              
reform to a next step.                                                                                                          
CHAIR COGHILL opined  that the legislature has  the opportunity to                                                              
codify "a  solution that has percolated  up over a huge  amount of                                                              
discussion  between the  utilities and  those of  us in the  state                                                              
that  want to  watch  out for  the consumers  but  still grow  our                                                              
4:49:09 PM                                                                                                                    
SENATOR GRAY-JACKSON expressed excitement about this effort and                                                                 
reported that she participated in an earlier effort when she                                                                    
worked for Municipal Light and Power.                                                                                           
[SB 123 was held in committee.]                                                                                                 
4:50:54 PM                                                                                                                    
There being no further business to come before the committee,                                                                   
Chair Coghill adjourned the Senate Special Committee on Railbelt                                                                
Electric System meeting at 4:50 p.m.                                                                                            

Document Name Date/Time Subjects
SB 123-Sponsor Statement.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB123-Capital Appropriation to RCA in SB 119 2014 Session.pdf SFIN 3/3/2020 9:00:00 AM
SRBE 1/24/2020 3:30:00 PM
SB 119
SB 123
SB123-Railbelt Reliability Council Letter of Filing to RCA of MOU Dec 20 2019.pdf SFIN 3/3/2020 9:00:00 AM
SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123-Version M.PDF SRBE 1/24/2020 3:30:00 PM
SB 123
SB123-Railbelt Reliability Council MOU Dec 6 2019.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123-Sectional Version M.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB123-RCA Recommedations to Legislature June 30 2015.pdf SFIN 3/3/2020 9:00:00 AM
SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123-Fiscal Note Version M.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123 - RCA Power Point January 24, 2020.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123 - RCA Letter to Leg 1-17-2020.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123 - RCA Letter to Leg 1-17-2020 Background-RCA report appendix A 1.22.2020.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123 - RCA Letter to Leg 1-17-2020 Background-RCA report appendix B 1.22.2020.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123 - RCA Letter to Leg 1-17-2020 Background-RCA report appendix C 1.22.2020.pdf SRBE 1/24/2020 3:30:00 PM
SB 123
SB 123 - RCA Letter to Leg 1-17-2020 Background-RCA report appendix D 1.22.2020.pdf SRBE 1/24/2020 3:30:00 PM
SB 123