SB 32-ALLOWED COSTS IN ELECTRIC COOP RATES  3:31:57 PM CHAIR GIESSEL announced the consideration of SENATE BILL NO. 32 "An Act relating to costs incurred by certain electric utilities for renewable energy and battery energy storage." 3:32:06 PM SENATOR HUGHES joined the meeting. 3:32:07 PM CHAIR GIESSEL, speaking as sponsor of SB 32, paraphrased from the sponsor statement: [Original punctuation provided.] Senate Bill 32 (version N)  Sponsor Statement   "An Act relating to costs incurred by certain electric utilities for renewable energy and battery energy storage." This bill seeks to remove barriers to small renewable energy and battery storage projects in the Railbelt, which will benefit Alaskans. Alaska's electric cooperatives organized under AS 10.25 that participate in the Railbelt Reliability Council certified by the Regulatory Commission of Alaska (RCA) are rate-regulated. RRC Railbelt Reliability Council, integrated planning process RTO Railbelt Transmission Organization This legislation mirrors the approach used by many electric cooperatives in the U.S., focusing on renewable energy projects and battery energy storage projects. CHAIR GIESSEL explained that the legislature created the Railbelt Reliability Council (RRC) in 2024. RRC does integrated project planning for the railbelt grid. She contrasted this with the Railbelt Transmission Organization (RTO), which manages the railbelt backbone transmission system. 3:33:32 PM CHAIR GIESSEL continued to paraphrase the sponsor statement for SB 32: [Original punctuation provided.] This bill would allow small renewable energy projects and battery energy storage projects to advance at a faster rate and would eliminate the projects under five megawatts from rate-regulation by the Regulatory Commission of Alaska, thus freeing the RCA to work on larger, more pressing matters. Projects five megawatts and larger would still need to go through the RCA for approval, as is currently done. SB 32 streamlines the approval process for adding small renewable energy and battery energy storage projects along the Railbelt. This will help diversify generation resources and gradually reduce the reliance on fossil fuel power by electric utilities, leaving more locally sourced natural gas available for other uses. Under this bill, the Houston Solar project is 8.5 megawatts and [would require] rate approval by the RCA. Fire Island Wind is 17.6 megawatts and would still be required to seek rate approval from the RCA. 3:34:50 PM CHAIR GIESSEL commented that Regulatory Commission of Alaska (RCA) reviews take time. She added that the reviews are extensive and costly. She emphasized that the intention of SB 32 is to diversify Alaska's generation resources and utilize renewable energy sources when available. She explained that this legislation would exempt up to three of the 5-megawatt projects from RCA approval during a three-year timeframe. She said these changes would limit the effects of those projects on the transmission system. She noted that upcoming invited testimony would address this issue. 3:35:38 PM SENATOR WIELECHOWSKI joined the meeting. 3:35:54 PM INTIMAYO HARBISON, Staff, Senator Cathy Giessel, Alaska State Legislature, Juneau, Alaska, noted that there is a committee substitute (CS) for SB 32. 3:36:41 PM CHAIR GIESSEL solicited a motion. 3:36:52 PM SENATOR WIELECHOWSKI moved to adopt the committee substitute (CS) for SB 32 work order 34-LS0307\I, as the working document. 3:37:09 PM CHAIR GIESSEL objected for purposes of discussion. 3:37:14 PM MR. HARBISON provided a brief explanation of changes from version N to version I of SB 32. He directed attention to CSSB 32, page 1, lines 9-10. He explained that the CS would reduce the size from 15,000 kilowatts to 5,000 kilowatts. The CS would also limit the number of projects to no more than three projects in a three-year period. He directed attention to CSSB 32, page 1, line 13 and said the CS changes 15,000 kilowatts to 5,000 kilowatts. This is the extent of the changes between version N and version I. 3:38:00 PM SENATOR DUNBAR stated that he preferred the original version of SB 32. He said he would like to hear invited testimony regarding the decision to change 15,000 kilowatts to 5,000 kilowatts. He opined that it is unfortunate that the Houston Solar Project in the Matsu Valley was too large to meet the 5,000-kilowatt cap. He stated that he would have liked that project to move forward without requiring RCA approval. He further opined that reducing the amount from 15,000 kilowatts to 5,000 kilowatts is an over- adjustment. He suggested the possibility of a future amendment to raise the limit to 10,000 kilowatts. He emphasized that he supports the original version of SB 32, but said he would not object to adopting the CS. 3:39:05 PM CHAIR GIESSEL said there are electric transmission and economic reasons for the change from 15,000 to 5,000 kilowatts, as well as for limiting the number of projects during a three-year timeframe. She indicated that invited testimony would provide further details. 3:39:27 PM SENATOR CLAMAN shared his understanding that the three projects per three-year period limits the number of projects a particular utility or project manager can have during that timeframe; the limit does not apply to the total number of projects regionally or statewide. He asked whether this understanding is correct. 3:39:53 PM CHAIR GIESSEL affirmed this understanding. 3:40:04 PM CHAIR GIESSEL removed her objection. She found no further objection and CSSB 32, work order 34-LS0307\I, was before the committee. 3:40:57 PM GWEN HOLDMANN, Chief Scientist, Alaska Center for Energy and Power, University of Alaska Fairbanks, Fairbanks, Alaska, introduced herself and said she would provide technical context for CSSB 32, work order 34-LS0307\I. 3:41:29 PM MS. HOLDMANN advanced to slide 1 and provided a brief overview of CSSB 32. She pointed out the change in the project size threshold and the project count limit. 3:41:50 PM MS. HOLDMANN advanced to slide 2: [Original punctuation provided.] What this bill does and does not do:  • Does not prohibit the construction of a project <15 MW. This has already been exempted (42.05.785 section preapproval for large energy facilities). This does not impact this aspect of "pre-approval." • This bill addresses rate basing and pass-through of costs from IPPs. It allows the utility to put the entire costs of the project (or PPA) into the rate base, without being subject to RCA review (only the coop board of the "constructing" utility is the decision maker). • CS limits both the size and the number of projects that can qualify. 3:42:52 PM MS. HOLDMANN advanced to slide 3: [Original punctuation provided.] Why change the threshold from 15MW-> 5MW?  The 5 MW threshold reflects real system constraints. Projects larger than 5 MW are more likely to connect to the transmission system rather than a local distribution network, making them far more likely to impact other users and require regional coordination. There's a practical inflection pointtypically somewhere between 5 and 10 MWwhere a project begins injecting more power than the local distribution system can safely or efficiently carry MS. HOLDMANN explained that the Houston Solar Farm, a roughly 6- megawatt project that was connected to the distribution grid for Matanuska Electric Association, is one example of a project that lies within that 510-megawatt inflection point. 3:44:12 PM MS. HOLDMANN said that upcoming slides would help to illustrate this issue. She invited Steve Colt to present those slides. 3:44:36 PM STEVE COLT, Research Professor, Alaska Center for Energy and Power, University of Alaska Fairbanks, Fairbanks, Alaska, advanced to slide 4, containing an image of an elephant: [Original punctuation provided.] Thought experiment  Very expensive project (14 MW)  Current Scenario: • Not prohibited under AS 42.05.785 • Increased rates could probably be passed through under SRF for a while • But, the RCA might not approve rate-basing of the project at some point (e.g., general rate case). • Another utility or other parties within their own service territory could challenge the rates. Original Language SB 32: • Project is still not prohibited under AS 42.05.785 • The additional project costs would be automatically added to the rate base or passed through (for purchased power) • They could not be challenged by others at the RCA. • Limits other parties' ability to challenge the rate (especially another utility that is not represented in the original decision). MR. COLT explained that currently, a project larger than 15 megawatts would be subject to RCA preapproval under AS 42.05.785. A project that is 15 megawatts or larger without RCA approval is prohibited. He briefly described how cost recovery would impact rate payers and offered examples. 3:50:51 PM SENATOR CLAMAN shared his understanding that lowering the threshold from 15 to 5 [megawatts] is essentially providing consumer protection, insofar as the increased costs would be passed through via rate increases. He asked for confirmation of this understanding. 3:51:31 PM MR. COLT concurred. He said the next slide would provide further clarification. 3:51:56 PM MR. COLT advanced to slide 5, containing an image of a small elephant: [Original punctuation provided.] Thought experiment continued    Very expensive project (4 MW) Current Scenario:  • Not prohibited under AS 42.05.785 • Increased rates could probably be passed through under SRF for a while • But, the RCA might not approve rate-basing of the project at some point (e.g., general rate case). • Another utility or other parties within their own service territory could challenge the rates. CS for SB 32:  • Project is still not prohibited under AS 42.05.785 • The additional project costs would be automatically added to the rate base or passed through (for purchased power) • They could not be challenged by others at the RCA. • Limits other parties' ability to challenge the rate (especially another utility that is not represented in the original decision). MR. COLT explained that, in essence, the co-op board would determine whether the project is prudent for the purposes of going into the rate base. The Regulatory Commission of Alaska (RCA) would not be able to (directly) weigh in on the project's cost-effectiveness and whether the project should be allowed to influence the rate base (whether in whole or in part). He stated that projects smaller than 5 megawatts depend on the co-op board to make cost-effective decisions; therefore, those projects could potentially have fewer consumer protections. He commented that this aligns with Senator Claman's interpretation that the change to the megawatt threshold would result in added consumer protections. He asked whether this sufficiently answers that question. SENATOR CLAMAN replied yes. 3:54:09 PM MR. COLT advanced to slide 6, containing an image of a small, caged elephant: [Original punctuation provided.] Thought experiment continued    Very expensive project (4 MW) Current Scenario:  • Not prohibited under AS 42.05.785 • Increased rates could probably be passed through under SRF for a while • But the RCA might not approve rate-basing of the project at some point (e.g. general rate case). • Another utility or other parties within their own service territory could challenge the rates. CS for SB32:  • Project is still not prohibited under AS 42.05.785 • The additional project costs would be automatically added to the rate base or passed through (for purchased power) • They could not be challenged by others at the RCA. • Limits other parties' ability to challenge the rate (especially another utility that is not represented in the original decision). 3:54:11 PM CHAIR GIESSEL asked for clarification of the differences between slide 5 and slide 6. She noted that the elephant on slide 6 is caged, while the elephant on slide 5 is not. 3:54:44 PM MR. COLT said that the cage on slide 6 is meant to illustrate that dropping the limit down to 5 megawatts not only reduces the threshold but also limits the project pool to those projects which fit within the distribution system. 3:55:32 PM MS. HOLDMANN added that from a technical standpoint, this limits the project to the local distribution network. From the standpoint of the decision-maker, the co-op board is the entity making decisions for those projects that are 5 megawatts or lower. Therefore, if project costs escalate - or if the board decides the project is worthwhile despite escalating costs - this is a local decision with local impacts. She stated that the Alaska Center for Energy and Power does not want to interfere with a board's ability to move forward with a project of this kind. 3:56:32 PM SENATOR MYERS noted that the current scenarios specified in the presentation included the risk that RCA may not approve the rate-basing of a new project. He asked what it means, both for the utility and the consumer, if the RCA does not approve the rate-basing. 3:57:01 PM MS. HOLDMANN said RCA has the duty to ensure that projects are in the best interest of consumers. She noted cases where projects were constructed that may or may not have been in the best interest of consumers from a rate standpoint. The RCA's decision regarding any project is unknown, which results in increased risk for the utility (if a project is built that the utility cannot recover rates from in the future). She opined that that is part of what SB 32 is addressing. 3:58:11 PM SENATOR DUNBAR asked for clarification about whether the 6- megawatt Houston Solar Farm did or did not alter the transmission system. 3:58:34 PM MS. HOLDMANN explained that there are many technical factors to consider, including the robustness of the distribution system. She stated that the Houston Solar Farm was connected to the distribution system - and was at the system's upper limit. She stated that the 5-megawatt threshold is somewhat arbitrary. An alternative would be to consider any project connected to the transmission versus the distribution system. She reiterated that the Houston Solar Farm was able to connect to the distribution grid. 3:59:18 PM SENATOR DUNBAR said that arbitrary lines are often drawn because of their simplicity (and sometimes out of necessity). He surmised that it may be better to consider the transmission versus distribution system; however, he acknowledged that this could introduce a great deal of complexity. He opined that the testimony related to the Houston Solar Farm, along with the upcoming slides related to economies of scale, suggest that the limit should fall somewhere above 5 megawatts. He suggested that increasing the limit would allow for larger projects that could meet the economies of scale outlined in the presentation. He wondered if increasing the single-project limit to 7 or 7.5 megawatts, with a 3-year limit of 15 megawatts (regardless of the total number of projects), would be a good alternative. 4:00:51 PM MS. HOLDMANN agreed that some limits, including the 5-megawatt limit, are arbitrary. She said that anything over 7.5 megawatts would almost certainly be connected to the transmission system; however, it depends on the project's placement within the overall system. She said she is not prepared to speak definitively on this issue. She mentioned that CSSB 32 covers both energy generation and battery storage systems and suggested that considering a different threshold for battery storage systems could be appropriate, since those systems interact with the grid in a different way. 4:01:42 PM SENATOR HUGHES asked whether the local distribution systems vary in capacity and could therefore handle different thresholds. She opined that setting the limit around whether a project moves beyond the local distribution system makes more sense. 4:02:48 PM MS. HOLDMANN replied that local distribution systems do vary in capacity; however, this is related to infrastructure as well as the physical electrical lines. Each utility likely has its own unique vulnerabilities and areas with stronger distribution nodes. She stated that she is unable to speak to any individual utility. She reiterated that the 5-megawatt threshold was arbitrary; however, this number is also related to potential economic impacts. She referenced the remaining three slides in her presentation (slides 7-9) and explained that economies of scale are limited when the threshold is raised above 5 megawatts. 4:04:02 PM CHAIR GIESSEL briefly discussed the role of the Railbelt Reliability Council (RRC) in the integrated planning process. She asked Ms. Holdmann to review this. 4:04:26 PM MS. HOLDMANN said the RRC has two roles: setting reliability and interconnection standards and resource planning. She explained that, in this case, any projects greater than 15 megawatts would be subject to the integrated resource plan developed by the RRC. She invited Mr. Colt to elaborate on this. 4:05:00 PM MR. COLT added that, according to Alaska Statute, a project greater than 15 megawatts must be approved in advance by the RCA. He emphasized that projects that have not received prior approval are prohibited. He opined that this is a "blunt instrument" for projects greater than 15 megawatts. 4:06:20 PM MS. HOLDMANN added that it may be worth considering the point at which a project of a particular size may impact neighboring utility jurisdictions or the transmission system. She indicated that it is important to ensure that the arbiter is clear in the event of disagreements between different utilities. She stated that gaps are undesirable and offered examples to illustrate this point. 4:07:22 PM CHAIR GIESSEL said that there is the potential to bypass RRC and RCA by breaking a large project into multiple small pieces. She acknowledged that the regulatory review process (done by RCA) is expensive and lengthy; however, this process provides greater consumer protection. She added that RRC is responsible for generation planning. She asked for comment on this issue. 4:08:23 PM MR. COLT briefly discussed gaps in the supervisory structure. He offered a hypothetical situation involving a very costly project that fell just below the 15-megawatt threshold. He stated that, while RCA would have limited authority in that case, the utilities involved could take legal action. He offered the Bradley Lake Hydroelectric Project as an example of one such case. The result was more costly to the utilities than RCA involvement would have been. 4:10:21 PM SENATOR MYERS stated that SB 32 applies specifically to renewable energy projects and is an attempt to make building those projects more accessible. He offered several examples and asked why, if the intention is to increase experimentation and get projects on the grid more quickly, this is not extended to all energy projects. 4:11:28 PM MS. HOLDMANN deferred the question and stated that she does not see a technical reason why SB 32 could not be expanded. 4:11:48 PM CHAIR GIESSEL stated that her intention is to expand the ability for renewable projects (particularly solar and wind). The independent power producers and the utilities are considering more renewable energy sources. She opined that nuclear energy is a great idea but acknowledged that this is not technically considered a renewable energy source. She further opined that non-renewable energy sources such as coal and natural gas require regulation. She stated that she would not object to an amendment adding nuclear energy to SB 32. 4:13:27 PM CHAIR GIESSEL opened public testimony on SB 32. 4:13:55 PM KEN HUCKEBA, representing self, Wasilla, Alaska, testified in opposition to SB 32. He said he is both a rate payer and has a history in the energy industry. He opined that SB 32 is a justification for small infractions to become larger infractions. He offered several examples to illustrate this. He said Alaska cannot afford to have unreliable energy sources. He offered to supply the information to the committee. He emphasized that regulatory oversight is needed, regardless of project size. He indicated that renewable energy sources are not reliable or affordable and SB 32 would result in ratepayers paying for transmission and backup infrastructure for "greenwashing profiteers." He expressed resentment at this proposal and stated that he is opposed to SB 32. 4:16:29 PM CASSIE ANDREWS, representing self, Anchorage, Alaska, testified in opposition to SB 32. She asserted that the changes proposed by this legislation are reckless and dangerous. She emphasized the importance of RCA oversight. She asserted that, without RCA oversight, Alaskans will be at the unchecked will of environmental activists pushing unreliable energy projects. She reiterated that more oversight is needed, and RCA must retain the authority to vet projects before they are thrust onto ratepayers. She asserted that utility co-op boards are being infiltrated by radical green agenda activists. She stated that SB 32 has no place in Alaska's energy future. 4:17:32 PM CHAIR GIESSEL closed public testimony on SB 32. 4:17:46 PM CHAIR GIESSEL held SB 32 in committee.