SB 217-INTEGRATED TRANSMISSION SYSTEMS  3:43:22 PM CO-CHAIR GIESSEL reconvened the meeting and announced the consideration of SENATE BILL NO. 217 "An Act relating to the taxation of independent power producers; and increasing the efficiency of integrated transmission system charges and use for the benefit of ratepayers." 3:44:22 PM JULIE SANDE, Commissioner, Alaska Department of Commerce, Community, and Economic Development, Anchorage, Alaska, presented SB 217 on behalf of the administration. 3:44:51 PM MS. SANDE moved to slide 2 of the presentation and spoke to a map depicting the Railbelt Electrical Grid. She explained that Railbelt comprises an interconnected grid and is approximately 700 miles long. This system provides electricity to approximately 75 to 80 percent of Alaska's population of around 550,000 individuals. 3:45:43 PM MS. SANDE moved to slide 3 and spoke to the legend depicting the Railbelt Transmission Line and the corresponding service areas. She said while the Railbelt Transmission System is interconnected, it is not an integrated system. Ownership of the transmission lines is shared between AEA and the Railbelt utilities listed on the slide. Due to limited alternative pathways, much of the Railbelt lacks redundancy. Although the Copper Valley Electrical Association is connected by road, it is not connected by the transmission line. The Railbelt Transmission combines the Railbelt system and the transmission lines connecting Matanuska, Valley Glenn Allen, and North to Delta Junction. The current transmission system in Alaska as inefficient, owned by a utility cooperative that imposes a per mW/hr charge, also known as a "wheeling rate" or "pancaking." Several of those tariffs or wheeling rates are stacked onto one another and resemble an "extension cord." However, she argued that comparing Alaska's grid to that of the lower 48 states is inappropriate. She referenced an analogy likening it to a toll road rather than a public highway. Wheeling tariffs primarily serve as a revenue mechanism rather than facilitating true cost recovery, which poses challenges and barriers within the system. These costs are passed down to ratepayers and can hinder access to purchasing the cheapest power available, therefore limiting wholesale rates. She asserted that a grid the size of the Alaska Railbelt does not necessitate multiple wheeling rates. If SB 217 becomes law, the RCA would be required to establish a gradual transition process from the current transmission cost recovery system to a new mechanism. This transition would entail the elimination of wheeling rates, which limit access to wholesale power transactions and prevent independent power producers (IPPs) from engaging in power purchase agreements with utilities. 3:48:36 PM MS. SANDE moved to slide 4 and said SB 217 would amend AS 10.25.540(b), the statute related to taxation cooperations to extend tax relief provisions to independent power producers (IPPs) who sell their power to non-profit electric utilities. Currently, taxes represent a significant portion of overhead for IPPs, often delaying or halting the development of IPP projects. Extending tax treatment to IPPs that non-profit utilities already receive would benefit taxpayers by treating all sources of power generation equally. 3:49:26 PM MS. SANDE moved to slide 5 and explained the intent of SB 217: [Original punctuation provided.] What Does Senate Bill 217 Do? • Senate Bill 217 aims to: • Increase competition and efficiency within Alaska's transmission system • Reduce costs to the rate payer • Encourage the development of new power projects It aims to do this by:  • Requiring the Regulatory Commission of Alaska (RCA) to change the current mechanism of transmission cost recovery in the Railbelt • Eliminating transmission "wheeling" rates for inter-utility movement of electricity • Extending tax relief provisions enjoyed by Electric Co-ops to Independent Power Producers (IPPs) MS. SANDE said both measures reduce artificial barriers to the economic dispatch of the lowest-cost power and to new power generation projects that could otherwise deliver benefits to consumers in Alaska. 3:50:45 PM SENATOR WIELECHOWSKI asked for an explanation of wheeling rates. 3:50:59 PM MS. SANDE invited Curtis Thayer, Executive Director of AEA, to respond. 3:51:19 PM CURTIS THAYER, Executive Director, Alaska Energy Authority, Anchorage, Alaska, responded to questions on SB 217. He explained that wheeling rates vary depending on the origin and destination of the power, noting the importance of having discussions on the matter. He cited an example where power generated in Bradley is transported to Fairbanks, so it goes through multiple utility load servicing areas. He noted instances where power saved in Fairbanks originates from generation in Anchorage and shipped North through the system. He offered to follow up with the committee with analyses of hypothetical scenarios. 3:52:15 PM SENATOR DUNBAR noted that SB 257 was recently heard in the Labor and Commerce Committee and would also eliminate wheeling fees. He wondered whether provisions under SB 217 comprise functional or legal differences between how this objective is accomplished under the two bills. 3:53:07 PM MR. THAYER replied that in principle, there are no differences between the two bills. He indicated that both SB 217 and SB 257 aim to eliminate the wheeling rate and accomplish the same objective. He invited Andrew Jensen, Policy Advisor for the Office of the Governor, to provide further insight. 3:53:36 PM ANDREW JENSEN, Policy Advisor, Office of the Governor, Anchorage, Alaska, answered questions on SB 217. He stated that although the Governor's Office is still in the process of reviewing SB 257, there is a general consensus that a new method of rate recovery for transmission costs needs to be established, as wheeling rates impact decisions related to power purchases and the development and location of independent power projects. Both bills aim to achieve the same objective using RCA's mechanism. 3:54:29 PM SENATOR KAWASAKI asked whether independent power producers are privately or publicly owned and whether they fall under regulation by the RCA. 3:55:01 PM MR. JENSEN invited Robert Doyle, Chair of RCA, to respond. 3:55:20 PM ROBERT DOYLE, Chair, Regulatory Commission of Alaska (RCA), Anchorage, Alaska, answered questions on SB 217. He said IPPs are regulated under RCA and are generally private companies. As an example, he mentioned Alaska Renewables, a private company that initiated a project subject to RCA approval. 3:56:05 PM SENATOR KAWASAKI asked whether the RCA would mandate IPPs to transfer any savings from a lower tax rate to consumers through the Electric Cooperative if the IPPs themselves pay a reduced tax rate. 3:56:26 PM MR. DOYLE responded that normally, the power purchase agreements undergo review, and RCA would consider various factors. He noted that the Department of Revenue would be responsible for examining tax credit matters. Akin to income taxes, RCA would incorporate this information into its assessment when establishing rates based on revenue requirements. 3:56:57 PM SENATOR KAUFMAN sought clarification on term definitions. 3:57:29 PM MR. DOYLE clarified that similar to a toll system, a wheeling tariff is imposed to allow electrons to pass through a system owned by another entity. In states where this is practiced and power predominantly originates from another state, power purchase agreements are established. Therefore, the concept of a toll serves as the most apt analogy, illustrating the notion of a fee for crossing between systems. 3:58:06 PM SENATOR KAUFMAN asked for the definition of "pancake rates." 3:58:10 PM MR. JENSEN clarified that pancake rates occur when rates accumulate and are added up over time, similar to paying multiple tolls while driving from Homer to Fairbanks. 3:58:33 PM SENATOR CLAMAN presented a hypothetical scenario regarding toll rates and inquired whether the utility rate would decrease if the wheeling rate were collected from other systems that cross over the Chugach grid. 3:59:26 PM MR. JENSEN replied that to the extent that wheeling rate could be used as a revenue mechanism, the cost for a Chugach ratepayer might be lower if it were then incorporated into the revenue requirement from a transaction that traverses the system. 3:59:44 PM SENATOR CLAMAN inquired whether, under the current structure, Chugach consumers would experience any benefits from the collection of wheeling rates imposed on other utilities transmitting electricity across the Chugach grid. 4:00:14 PM MR. JENSEN responded that all grids necessitate a revenue requirement. If the revenue requirement is decreased by collecting revenue from an alternative source, such as wheeling rates from another utility, there is a potential for Chugach ratepayers to benefit slightly because the total system requirement is offset by ratepayers in another area. 4:00:39 PM SENATOR CLAMAN asked if that is actually happening today. 4:00:54 PM MR. JENSEN deferred to RCA for a detailed response to the question. He said the current rate case involving Chugach anticipates a significant increase in the tariff for power transmitted north to Golden Valley Electric, with a cost estimate of approximately $700,000. 4:01:32 PM MR. DOYLE replied that any revenue generated, whether from economic energy sales or power production at lower costs, contributes to the comprehensive rate, benefiting Chugach ratepayers. He explained that all revenues are factored into their tariff, which could have both positive and negative implications for ratepayers. Transmission costs, among other expenses, are always considered. He expressed his belief that SB 217 aims to establish a single flat rate for the backbone. Under this system, debt covenants would be paid for, resulting in no winners or losers. There would be one uniform rate from Fairbanks to Homer. 4:02:58 PM SENATOR CLAMAN asked whether, if the legislation successfully implements a flat rate, this could potentially lead to higher rates in certain areas because utilities would no longer be able to collect higher fees for transmission passing through their systems. 4:03:53 PM MR. DOYLE replied yes and noted a slight potential for higher rates in certain areas. However, he emphasized the Regulatory Commission of Alaska's commitment to maintaining rates at reasonable and equitable levels. He reiterated that there would still be transmission costs, but the objective is to establish a single flat rate and adjust the mechanism accordingly. Mr. Doyle suggested exploring the coincidence peak under SB 257 and ratio sharing under SB 217 as potential avenues. The goal is to establish a fair rate and promote equity across the board. He encouraged the committee to assess whether utilities are charging more than the rates for wheeling transmission or if the costs remain consistent, factoring in the expenses associated with constructing and maintaining transmission infrastructure. 4:05:18 PM MR. JENSEN presented the sectional analysis for SB 217: [Original punctuation provided.] SECTIONAL ANALYSIS   SB 217: Integrated Transmission Systems Version A Section 1 - Updates the uncodified law of the State of Alaska by setting forth the purpose of the legislation: to eliminate pancaked rates and increase efficiency of integrated transmission systems of the state. Section 2 - The bill amends AS 10.25.540related to the taxation of electric cooperativesto include independent power producers. Under the bill, independent power producers would pay a "sales" tax on the kilowatt hours of electricity in lieu of any state or local ad valorem, income, or excise tax. The bill defines an independent power producer as a utility that only sells wholesale power to cooperative or municipal utilities. Section 3 - The bill creates a new article in AS 42.05 relating to integrated transmission system cost recovery (AS 42.05.900 - 42.05.915). Proposed AS 42.05.900 states the legislative findings for increasing the efficiency of providing electricity service to consumers. Proposed AS 42.05.905 requires the Regulatory Commission of Alaska ("RCA") to establish a transmission cost recovery mechanism and to provide a process where the electric utilities will transition from recovering transmission costs in utility rates to a transmission cost recovery mechanism. More specifically, this section requires the RCA to develop a cost recovery mechanism that achieves the legislative findings and allocates transmission costs in a way that recognizes a load-serving entity's local consumption compared with the total consumption on the system as a whole. The section further requires the RCA to establish a process whereby the transmission owning utilities will gradually transition from the current cost recovery mechanism, in which transmission costs are recovered in base rates and wheeling charges, to the new transmission cost recovery mechanism. Proposed AS 42.05.910 provides that the RCA will require all transmission-owning utilities to form an association whose only purpose is to have a tariff setting out how the transmission cost recovery mechanism is collected and disbursed, and to collect and disburse the transmission costs through the new recovery mechanism. The association will be regulated as a public utility. Proposed AS 42.05.915 provides definitions for the new article. The section clarifies what sort of electric utility assets are deemed to be "transmission assets," subject to the cost-recovery mechanism of the new article. These include AEA's contractual charges for transmission to the Railbelt utilities, but would exclude radial transmission lines that are built to connect independent power producers who sell their power to utilities under wholesale contracts. The cost of such radial lines will instead continue to be recovered in the cost of power provided, as is customary. This ensures that a load-serving entity that is not buying power from the independent power producer is not forced to shoulder the cost of connecting that power to the grid. The section also provides definitions for the terms "electric reliability organization" and "load-serving entity." 4:08:47 PM SENATOR CLAMAN asked him for his perspective on the implications of Senate Bill 123, regarding the electric reliability organization, that was passed a few years ago, in relation to SB 217. He stated that he had anticipated a faster moving outcome in establishing a new transmission entity. 4:09:19 PM MR. THAYER replied that the Railbelt Reliability Council is still organizing the electric reliability entity and is working to establish a president or CEO, with interviews scheduled this week. He mentioned that the Railbelt Reliability Council has held meetings, has adopted regulations, and is working towards establishing an organization with a president or CEO, with interviews scheduled for this week. He noted that utilities collectively support the concept of having a mechanism to assist in eliminating tariffs and pancaking rates for consumers. While he agrees with Senator Claman that it is taking longer than expected, the delays are not intentional and are simply the result of unexpected complications, especially in finding and hiring candidates for the positions. He said AEA owns a 40-mile transmission line along with the Alaska Intertie, both of which do not charge wheeling rates. The state's ownership of the transmission line between Willow and Healey saves the Fairbanks economy approximately $37 million, as they can purchase power more affordably from the Railbelt and ship it North. That is not due to the power being shipped but the power is cheaper, and one advantage of state ownership over that line is the absence of a wheeling rate or tariff. 4:11:39 PM SENATOR CLAMAN asked if the committee could view SB 257 and SB 217 as measures to accelerate the process of establishing a unified rate for transmission on the Railbelt. 4:12:11 PM MR. DOYLE replied yes. 4:12:17 PM MR. JENSEN added that the statutory responsibilities of the Electric Reliability Organization (ERO) do not involve setting a transmission rate or addressing the wheeling issue. Its responsibilities include electric reliability standards, integrated resource planning, and open access provisions. These provisions were not included under SB 123 and are complementary rather than altering or detracting from the ERO's duties. 4:13:25 PM SENATOR KAUFMAN referred to the term "pancake" mentioned on page 2 of SB 217 and questioned whether such informal terms should be further defined. 4:13:56 PM MR. JENSEN responded that the bill is currently in the hands of the committee, so it falls under its purview to make that decision. 4:14:12 PM SENATOR DUNBAR referenced page 2 of SB 217 and noted potential contrasts with SB 257, which envisions transitioning planning responsibilities from the Electric Reliability Organization (ERO) to the transmission systems operator. He wondered whether inconsistencies exist between the two bills. 4:14:55 PM SENATOR GIESSEL advised that members could not compare other bills that are absent from the committee agenda. 4:15:15 PM SENATOR DUNBAR said some people have envisioned the Alaska Energy Authority (AEA) owning multiple assets. He questioned whether this differs from the provisions outlined in Section 42.05.910 regarding integrated transmission association. 4:15:39 PM MR. DOYLE replied that ownership is not specifically defined in SB 217. He mentioned that AEA currently owns approximately one third of the transmission lines, totaling around 210 miles. While AEA owns a significant portion of the transmission infrastructure on the Railbelt, SB 217 does not detail ownership. He mentioned that RCA is not classified as a public utility. 4:16:34 PM CO-CHAIR GIESSEL held SB 217 in committee.