HOUSE BILL NO. 453 An Act exempting from regulation under the Alaska Public Utilities Regulatory Act wholesale agreements for the sale of power by joint action agencies and contracts related to those agreements, and joint action agencies composed of public utilities of political subdivisions and utilities organized under the Electric and Telephone Cooperative Act. Co-Chair Williams noted that testimony on HB 453 had been taken previously and that it was his intention to hear and hold the bill today. Co-Chair Williams asked Mr. Eckert if he had been asked to be part of the joint action agencies (JAA) program. RICK ECKERT, HOMER ELECTRIC ASSOCIATION, replied that he believed a JAA is being negotiated between Chugach Golden Valley Electric Association (CGVEA) and Anchorage Municipal Light & Power, and the group did not extend a formal invitation to Homer Electric Association (HEA) to become a member. Co-Chair Williams asked Mr. Eckert to present his views on the bill. Mr. Eckert stated that the HEA is opposed to HB 453. Its primary concern is the governance of the cost of wholesale power for its members. The HEA currently purchases its power from the CGVEA through its generation and transmission subsidiary, Alaska Electric & Energy Cooperative. The contract with Chugach will expire in 2013. Mr. Eckert explained that in a recent case before the Regulatory Commission of Alaska, CGVEA asked for a ratemaking method that had not been used by electric cooperatives involved in the proceeding. The CGVEA also requested a substantial increase in the profit margin that HEA would pay to CGVEA, above the cost of operations and maintenance of the facilities. The request applied to NEA in Seward as well. The HEA, Mat-Su Electric Association (MEA) and Seward opposed this request and the Commission ruled in their favor following the precedent established in late 1980s. Mr. Eckert stated that CGVEA informed its members that the rest of its members now subsidize HEA, NEA and Seward, and HEA became concerned over the use of the undefined possibilities in HB 453. The Railbelt energy needs are best provided by a joint effort. The Railbelt is a relatively small market. New projects providing power are easily identified and limited in number. Mr. Eckert expressed concern that if the bill passed, the largest utilities would have the ability to control the best projects without Regulatory Commission of Alaska oversight. The HEA does not have to join a JAA if the participation is not satisfactory, and it would look for power from that JAA at a negotiated price. If a JAA is not regulated, a JAA member that HEA purchases power from will charge based on what the JAA charges it. The Regulatory Commission of Alaska will have ability to review the wholesale agreement between the JAA member and the HEA, but would have no ability to review or regulate the agreement between the JAA and its member. Mr. Eckert noted that the HEA could create its own sources of power and it is driven by the incentive to produce the lowest cost for its members rather than profits for stockholders. The HEA believes that exemption from regulation should be requested for a specific project and its economic participants. Exemption should only happen when a unified system operation by the utilities is demonstrated. Representative Stoltze asked if the crux of the bill is removal of Regulatory Commission of Alaska oversight on consumer protection due to its decisions in favor of the consumer. He pointed out that the HEA is a consumer. Mr. Eckert said that HB 453 is a significant result of Chugach Electric Association's concern over the Regulatory Commission of Alaska ruling in the rate case he referred to earlier. He explained that the HEA, Mat-Su Electric Association, and the City of Seward represent 50,000 to 60,000 consumers of power through wholesale power agreements. Their rate is cost-plus and there is limited ability to affect that cost, so the Regulatory Commission of Alaska has become its only advocate. Representative Stoltze asked if the bill would remove an important element of current consumer protection. Mr. Eckert affirmed that it is the Homer Electric Association's concern. Representative Croft asked for clarification of whether the Regulatory Commission of Alaska would retain jurisdiction to determine the merits of an initial wholesale power contract within the JAA at a later date. Mr. Eckert said that if the bill passed, the Regulatory Commission of Alaska could not modify the internal agreements of the JAA. Representative Croft asked if the Regulatory Commission of Alaska could take another number as the allowable rate base rather than the agreed contract within the JAA. Mr. Eckert answered that the Regulatory Commission of Alaska could do that, and he discussed its review. Representative Croft asked if the Regulatory Commission of Alaska would have legal authority but practical difficulties later on. Mr. Eckert agreed that there would be practical difficulties. Vice-Chair Meyer began chairing the meeting and noted that Co-Chair Williams requested to hold HB 453. He stated that testimony would be postponed until this afternoon's hearing. Representative Heinze pointed out that she had worked with Mr. Eckert and she amended the bill at his request. She had involved several electrical associations in the effort to craft a good bill. Representative Hawker noted a letter in the HB 453 packet in opposition to the bill that contains his typewritten name but not his signature. He stressed that he did not endorse the letter, saying that he had requested the carrier remove his name prior to being entered into the record. He asked that the letter be expunged from the record until his name was removed. Representative Hawker pointed out that he is on record having made no commitment on the bill. Mr. Eckert commented that the Homer Electric Association still opposes the bill after the drafting change Representative Heinze made reference to. HB 453 was heard and HELD in Committee for further consideration.