SB 257-ELECTRIC UTILITY REGULATION  2:05:44 PM CHAIR BJORKMAN reconvened the meeting and announced the consideration of SENATE BILL NO. 257, "An Act relating to the Regulatory Commission of Alaska; relating to public utilities; relating to electric reliability organizations; relating to the Alaska Energy Authority; relating to the Railbelt Transmission Organization; and providing for an effective date." 2:06:09 PM SENATOR CATHY GIESSEL, District E, Alaska State Legislature, Juneau, Alaska, presented SB 257 as Co-Chair of the Senate Resources Standing Committee. She paraphrased from the sponsor statement: [Original punctuation provided.] SENATE BILL 257 Railbelt Transmission Organization SPONSOR STATEMENT Critical to Alaska's future is the need for low-cost, reliable energy throughout the entire state. A reliable and efficient transmission system supports economic growth by ensuring a stable, affordable power supply for businesses and communities, and it encourages investment in new industries and infrastructure development. Senate bill 257 seeks to establish a strong, resilient, and open-access transmission network. It will provide sound long-term governance and planning to make it stronger and better over time. The network will enable and accelerate the energy transition in Alaska a revolution in how we generate, store, distribute, and consume electricity. The electric transmission system that provides electricity from Homer to Fairbanks serves more than 70 percent of our population along a 700-mile-long corridor. This system, however, is challenged with insufficient transfer capacity, outdated technology, and inefficient pricing, all of which threaten reliability and prevents new, diverse generation sources from serving ratepayers at the lowest possible cost. 2:08:33 PM SENATOR GIESSEL continued to paraphrase the sponsor statement: [Original punctuation provided.] As we enter into a new era of energy management and sustainability, it is imperative we take bold steps toward modernizing our Railbelt's electricity transmission system. Our current energy infrastructure is outdated and fragmented, resulting in inefficiencies, vulnerabilities, and obstacles to a more efficient adoption of alternatives and lower-cost electric generation sources. Larger transmission lines and more efficient modern equipment will enable the seamless integration into our new energy mix with clean and renewable energy sources such as advanced nuclear, hydro, solar, and wind power. Planning and building that new energy mix will drive innovation and create high-wage jobs. By truly integrating and upgrading our electric grid and pricing it fairly for all users, we can unlock a host of benefits, including increased reliability, enhanced flexibility, and greater resilience against disruptions and natural disasters. An upgraded Railbelt electric grid is an improvement for all Alaskans. The Power Cost Equalization program helps pay the cost of electricity in rural and remote parts of the state with an aim to equalize electricity rates by reducing the economic burden of high energy costs. The offset is based on the difference between the actual cost of electricity and the target rate which is the weighted average retail residential rate of electricity in Anchorage, Fairbanks, and Juneau. Lowering the cost of electricity in Anchorage through an upgraded grid provides a commensurate lower cost of electricity for residents in rural and remote Alaska. 2:11:03 PM GWEN HOLDMANN, Director, CEM INE Alaska Center of Energy Power, University of Alaska Fairbanks, Fairbanks, Alaska, gave the presentation, "The Railbelt Transmission Grid (now and future)." She said that there is urgency around the railbelt system. She added that at this point, the system can either advance or slip backward. 2:11:41 PM MS. HOLDMANN advanced to slide 2: [Original punctuation provided.] A Vision for our Railbelt    We want a system that:  • Allows cheapest cost power to get to end-users wherever it is produced, whatever the source is, and wherever that generation is located. • Facilitates clean energy projects at scale for energy security and diversification. 2:12:54 PM MS. HOLDMANN advanced to slide 3: [Original punctuation provided.] Realities of the Railbelt Today    • Railbelt politics are inherently local • Our energy sources are becoming more diverse • Projects are more economical when built at scale • The Railbelt transmission system needs to be upgraded. We have an opportunity for federal funding to help defray those costs. • Alaska has avoided transmission deregulation because we are not grid connected (thus not subject to FERC) • Finding analogous correlatives to Alaska can be challenging MS. HOLDMANN said that the markets in Iceland, Texas, and Hawaii are most similar to Alaska's market and SB 257 includes elements of best practices from these three jurisdictions. 2:16:04 PM MS. HOLDMANN advanced to slide 5: [Original punctuation provided.] Three Goals:  • Eliminate pancaking wheeling rates and establish a framework for how transmission costs will be recovered and allocated • Create an organization that can oversee, manage and develop backbone transmission assets and that is subject to appropriate regulation • Re-imagining a planning process that uses a whole-system approach (transmission, generation, and distribution) 2:17:31 PM SENATOR MERRICK asked whether Grid Resilience and Innovation Partnerships (GRIP) fund payouts would be better made in a lump sum or made over several years. 2:17:49 PM MS. HOLDMANN replied that while she is not prepared to speak to this issue, it is important to signal to the federal government that Alaska is serious about matching these types of federal funds. She stated that she would like to see Alaska benefit as much as possible from these types of federal opportunities and not having a clear path and process to match these funds makes the state less competitive in this area. She expressed concern about this and added that GRIP funding is not the only funding source. She listed several types of energy sources and stated that Alaska must show that it is serious about developing these types of projects in partnership with the federal government. 2:19:07 PM SENATOR MERRICK commented that she and Senator Bishop would likely dig deeper into this when SB 257 is heard in the Senate Finance Committee. 2:19:18 PM MS. HOLDMANN advanced to slide 6: [Original punctuation provided.] Goal # 1: Remove pancaking wheeling rates  • Decisions about investment in projects or economic dispatch should not be inhibited by the cost of transmission, or the need to move power across transmission lines with different ownership 2:20:58 PM MS. HOLDMANN advanced to slide 7: [Original punctuation provided.] Goal 1: Remove pancaking wheeling rates and establish  a framework for how costs will be recovered and  allocated  • "Pool backbone transmission system costs and allocate those costs based on a coincident peak or load share ratio basis" (Adapted from Texas Substantive Rule 25.192) • Coincident peak demand - period when electricity usage (demand) is at its highest across the entire system • Load share ratio - considers users' overall energy consumption over a specific period • Transmission lines (like highways) are typically built for peak demand, not how much energy (traffic) flows through the system. • Texas operates as an electrical "island" and because power generated in Texas is not sent outside of the state, Texas is exempt from federal FERC regulation (like Alaska and Hawaii) 2:22:51 PM SENATOR DUNBAR commented that Texas has become notorious for failures of the energy grid system that led to freezing deaths. He asked for reassurance that SB 257 would not cause the kinds of problems that Texas has experienced. 2:23:40 PM MS. HOLDMANN agreed that there are many challenges associated with Texas's grid; however, the issuing being referenced was not an issue with the grid but with the energy generation sources, which were not able to operate in the cold temperatures and weather conditions that Texas experienced. She stated that this is a separate issue and pointed out that Texas is an open market, and this is one example of why Alaska is not completely analogous to any other jurisdiction. She explained that Texas is two orders of magnitude larger than Alaska's railbelt grid in terms of the number of kilowatt hours sold on an annual basis. Therefore, the open grid system does not easily translate to use in Alaska. She said that the Railbelt Reliability Council (RRC) - Alaska's electric reliability organization (ERO) - is an important piece of the bigger picture in Alaska, where the need is not only cheap power but also ensuring that the power is reliable. She said that SB 257 allows RCA to consider actions that will have a positive long-term impact on Alaska's energy supply. 2:25:44 PM SENATOR DUNBAR asked if RRC has a specific role in the Railbelt Transmission Organization (RTO). 2:25:51 PM MS. HOLDMANN replied yes. She said that SB 257 attempts to clarify the roles and responsibilities of the two organizations in relation to one-another. She explained that in most jurisdictions, a reliability organization is not responsible for planning - it focuses on reliability and enforcement of reliability standards. She said they do not want planning to occur in two different places. SB 257 moves planning function to the RTO, though RRC would still play an important role in the planning process. 2:26:48 PM CHAIR BJORKMAN asked what work products and outcomes can be expected from RRC. He questioned the purpose of having an ERO given that RTO would be responsible for planning. 2:27:22 PM MS. HOLDMANN replied that reliability is an important component of a functioning system. She explained that the failure in Texas was not related to cheap power - which they had. Instead, the failure was a result of inadequate reliability standards to ensure that the cheap power was available to consumers. She reiterated that reliability is an important function and therefore an ERO would be established as part of this process. 2:28:21 PM MS. HOLDMANN advanced to slide 8: [Original punctuation provided.] Goal 2: Create an organization that can oversee,  manage and develop backbone transmission assets and  that is subject to appropriate regulation • Iceland provides an interesting analog to Alaska's Railbelt due to similar transmission length, population served, and high prevalence of public power. • Iceland has a competitive energy market, with Landsnet as the national transmission system operator, overseeing the country's transmission infrastructure. Examining Iceland's governance and asset management strategies, particularly their evolution over the past three decades, presents an invaluable learning opportunity for Alaska. • Iceland's electricity sector. Most distribution utilities also operate generation assets, similar to the Railbelt utilities. 2:30:39 PM MS. HOLDMANN advanced to slide 9: [Original punctuation provided.] Goal 2: Create an organization that can oversee,  manage and develop backbone transmission assets and  that is subject to appropriate regulation • Borrow from a simple governance structure that has passed the test of time (in Alaska) • The transmission tariff that establishes the rate that consumers pay should be subject to regulation (the Bradley Project is exempt) • The Bradley Lake Project Management Committee governance structure can be used as a starting point to design a Railbelt Transmission Organization 2:32:36 PM SENATOR DUNBAR asked if existing transmission assets held by other railbelt utilities would be transferred to RTO and, if so, how the utilities would be compensated. 2:33:32 PM MS. HOLDMANN replied that existing assets do not need to be sold. She surmised that assets owned by the state of Alaska would be rolled into RTO. She said that assets owned by utility companies could be sold or leased - this would be decided by the utility. She noted that this is similar to what was done in Iceland. She pointed out that oftentimes, these assets are rolled up in long-term debt held by the utility and separating these assets would create challenges. She reiterated that each utility would decide how to interact with RTO in terms of ownership and management of the assets that they currently hold. 2:34:38 PM CHAIR BJORKMAN asked who determines the difference between "transmission" and "delivery" - and what process would be used. 2:35:20 PM MS. HOLDMANN replied that there are specific rules that are accepted by the industry to differentiate "backbone transmission assets" (which is what SB 257 addresses) from "radial assets" - and to distinguish these from "distribution assets." She said that SB 257 leaves it to the RCA to define what constitutes the railbelt backbone grid. 2:35:56 PM SENATOR BISHOP surmised that there would be a kilowatt number to define "transmission" and a kilowatt number to define "distribution." 2:36:30 PM MS. HOLDMANN replied that this is true; however, she explained that this question deals more with the radial transmission line serving a specific utility - or a portion of their service territory. She clarified that this is not part of the backbone transmission addressed by SB 257. She emphasized the importance of distinguishing between the "highway" and what constitutes a "side road" - even if it is at the same transmission size. 2:37:06 PM CHAIR BJORKMAN commented that in Alaska, one "road" from Homer to Healy would be the goal - and there is not a big grid there, just one wire. He asked if this interpretation is correct. 2:37:28 PM MS. HOLDMANN replied yes and clarified that it may be one or two transmission lines. 2:37:34 PM MS. HOLDMANN advanced to slide 10: [Original punctuation provided.] Goal 3: Design a planning process that uses a whole- system approach    Integrated Grid Planning (IGP) is a successor concept to Integrated Resource Planning. IGP emphasizes whole system planning across generation, transmission, and distribution resources. Hawaii was an early adopter of IGP and may have coined the term. According to the Hawaii Public Utilities Commission, in 2018, the Hawaii Public Utilities Commission opened the Integrated Grid Planning (IGP) Docket (2018-0165) to replace earlier grid planning efforts, namely Hawaiian Electric's Integrated Resource Planning (19902014) and Power Supply Improvement Planning (20142017) • Hawaii differs from Alaska in that power is not transmitted over long distances, and it is primarily served by a single investor-owned utility, HECO, which also owns the transmission assets (with the exception of Kauai). 2:38:38 PM MS. HOLDMANN advanced to slide 11: [Original punctuation provided.] Three Goals: SB 257  • Eliminate pancaking wheeling rates and establish a framework for how transmission costs will be recovered and allocated • Create an organization that can oversee, manage and develop backbone transmission assets and that is subject to appropriate regulation • Re-imagining a planning process that uses a whole-system approach (transmission, generation, and distribution) 2:40:11 PM TONY IZZO, CEO, Matanuska Electric Association, Palmer, Alaska, testified by invitation on SB 257. He said that he also speaks as a co-chair of the Governor's Energy Security Taskforce, co- chair of the railbelt subcommittee. He said he has been in the utility business for 43 years. He stated that there are immediate and secondary energy issues that need to be addressed. He opined that the immediate issues are being addressed, including the diversification of the fuel supply, renewable energy, clean energy, etc. 2:43:32 PM MR. IZZO said that SB 257 addresses a critical, parallel process. He shared his belief that while triage is being done on the immediate situation, work needs to be done to shift the paradigm in order to avoid returning to the same problematic cycle in ten years. He said that he has seen these cycles play out numerous times over the years. He stated that the energy taskforce looked at its work - based on the Governor's instructions - to seek out a rate of 10 cents per kilowatt-hour. He added that his utility is roughly 20 cents per kilowatt-hour. He explained that the largest component of power is the fuel cost - and the taskforce determined that 10 cents per kilowatt- hour is not feasible at this time. Therefore, the taskforce shifted its focus to determining ways to get to a future in which it is possible. MR. IZZO explained the three taskforce goals, which included unifying and upgrading transmission assets; diversifying generation; and increasing demand. He shared how visiting Iceland allowed the taskforce to see how these goals could successfully play out 30 years down the road. He stated that the taskforce's intent for the transmission goal was to provide a strong transmission system which would enable new generation projects to integrate into the grid. He said that investing in transmission and infrastructure - and unifying assets - would enable the long-term goal of diversifying railbelt generation. 2:47:17 PM MR. IZZO briefly discussed the differences between investor- owned utilities and cooperatives and the system that resulted from this structure. He explained how the GRIP funding would solve some of the problems by creating an electron highway. 2:49:41 PM CHAIR BJORKMAN asked what type of savings utilities like Matanuska Electric Association would experience by eliminating part of the spending reserve. 2:50:00 PM MR. IZZO answered that he does not have a calculation. He said this would be a low-cost operation, managed by the utilities. Each utility brings its labor in kind. He expressed concern about the ERO projected costs. He said that SB 257 needs to separate the transmission in a utility from the backbone - e.g. what is the transmission for MEA, with over 4800 miles of line - 104 miles is transmission serving the purpose of moving power north and south. He said that if these assets were combined with the state - and combined with large scale renewable energy sources - the material benefit would come from lower-cost power in the future. 2:51:58 PM CHAIR BJORKMAN asked if there is broad agreement on the 104 mile number. 2:52:07 PM MR. IZZO replied that this is the number for Matanuska Electric and he does not know what the other utilities' components will be. He asserted that no utilities should be financially harmed in this process and emphasized that the taskforce was very specific that it was not taking from utilities, that no debt covenants would be violated, and that revenue requirements must be met. However, utilities would need to split out their "backbone" from the rest of transmission. He shared his belief that a third-party engineering firm would be best suited to define what this is. He added that MEA would recover its revenue requirement on the 104 miles through the backbone and the rest would be made up through membership. 2:53:19 PM JOHN BURNS, President and CEO, Golden Valley Electric Association, Fairbanks, Alaska, testified by invitation on SB 257. He said that he is in support of this legislation and that its comprehensive nature aligns with the recommendations of the Alaska Energy Security Taskforce. Specifically, it relates to priority A of the Railbelt Transmission, Generation, and Storage subcommittee. He shared some of the benefits noted by the subcommittee, including reducing transmission constraints on the railbelt grid while allowing for faster integration of clean energy generation; system redundancy resilience; benefitting utilities and ratepayers by sharing power throughout the region; and reducing cost and promoting job creation, among other benefits. He said that the goal of SB 257 is to ensure that the lowest cost electron - from whatever source - can be transmitted across the railbelt to wherever it is needed, unconstrained, and at a single flat rate. He asserted that this is the only way to lower costs across the railbelt. He noted that this legislation is modeled after Iceland and pointed out that Iceland went from economically challenged and importing much of its power to a thriving country where younger generations choose to stay. He summed up by saying that SB 257 provides not only the structure, but also the funding and planning mechanisms - along with the powers and duties - of the railbelt organization. 2:57:06 PM CURTIS THAYER, Executive Director, Alaska Energy Authority (AEA), Anchorage, Alaska, testified by invitation on SB 257. He said that many of the transmission lines were constructed 40-60 years ago. Since their construction, the demands on the power grid have increased significantly - and total energy sales for the railbelt have nearly tripled over the past 20 years. He also pointed to concerns about the availability of Cook Inlet natural gas. He surmised that growth in total energy sales will continue - and renewable energy sources will be needed. He stated that a robust, resilient, and reliable electrical transmission grid is essential for the future of Alaska. He added that a well- functioning transmission system depends on several basic characteristics: reliability and resilience (to reduce and avoid outages); ability to meet growing energy demands; flexibility to adapt to changing loads; and cost-effectiveness. 2:58:35 PM CHAIR BJORKMAN said that it is imperative that customers get the lowest cost power possible, in order to move the economy forward. He added that it is also imperative that all of the utilities work together to make the utility system better. This would also empower the gains made from a GRIP match into a system like the one in SB 257. He surmised that if the utilities are asking Alaskans to allocate $100s of millions over the next ten years for a project that creates redundancy and security from Homer to Healy, it is fair for the Alaskan people to ask for accountability, modernization, and for all the utilities to work together. He expressed his understanding that natural gas is preferred by many; however, he expressed doubt about this possibility, particularly in the short or medium-term. He stated that something needs to be done and he would like to see all utilities working together on this project and added that if no action is taken, homes will be cold and have no lights because there is not enough fuel. He stated that the current system is not capable of moving the energy that is needed. He opined that the time to act is now and emphasized that doing nothing is not an option. He noted that there are principles in place that must be kept in mind and costs should be fairly distributed. He said that open access means open access for cheap generation and these benefits should be available to everyone. He asserted that these conversations need to happen and encouraged everyone to participate. He stressed the need for accountability during this process. 3:02:32 PM [CHAIR BJORKMAN held SB 257 in committee.]