HB 78-REGULATORY COMMISSION OF ALASKA  11:20:50 AM CO-CHAIR VAZQUEZ announced that the next order of business would be HOUSE BILL NO. 78, "An Act bearing the short title of the 'Alaska Competitive Energy Act of 2015'; and relating to the Regulatory Commission of Alaska." 11:21:47 AM JAMES BERTRAND, Law Partner, Stinson Leonard Street, informed the committee he is also the co-chair of the Energy Division at the law firm of Stinson Leonard Street, and his testimony was on behalf of Chugach Electric Association, Inc. (CEA), an electrical cooperative in Anchorage. He provided brief background information on his experience in electrical energy issues, including the restructuring of transmission systems and the impacts of universal system operators (USOs) and independent system operators (ISOs) on utilities and independent power producers (IPPs). Mr. Bertrand stated he is familiar with the proposed regulations under consideration by the Regulatory Commission of Alaska (RCA) to bring Alaska regulations into compliance with the federal structure, and offered to answer questions in this regard. 11:24:54 AM CAROLYN ELEFANT, Owner, Law Office of Carolyn Elefant, speaking on behalf of the Alaska Independent Power Association (AIPPA), informed the committee her firm focuses on energy regulatory issues. She provided a brief background of her experience working at the Federal Energy Regulatory Commission (FERC) in the field of the regulation of transmission and wholesale power sales for utilities that are connected to the interstate grid. Ms. Elefant stated that the Public Utility Regulatory Policies Act (PURPA) and the emergence of open access transmission have transformed the electric utility industry. In fact, in the Lower 48, a trend is to move to a further modernization of the utility industry which includes power supplied by IPPs and self- generation through net metering. She said she has been involved with regulatory proceedings before RCA related to its implementation of PURPA. Regarding the proposed legislation, Ms. Elefant said the changes she has observed in the electric industry in the Lower 48, resulting from PURPA and open access transmission policies, differ somewhat from Alaska where there is a harsh climate and rural and remote communities; however, Alaskan ratepayers pay some of the highest electricity rates, in spite of Alaska's sources of power such as wind, hydropower, marine hydrokinetic and solar. She opined that marketing the state's alternative power sources would reduce rates, diversify power supply, and foster competition. Furthermore, competitive energy markets would attract financing for new technologies, and competition depends on the availability of access, opportunities for IPPs and non-utility generators, and transparency. 11:29:38 AM MS. ELEFANT continued to explain that in the Lower 48, PURPA opened competition by requiring utilities to purchase power from smaller non-utility generators - which are known as qualifying facilities (QFs) - at the same price as power from another utility, or as self-generated power. This price is known as the avoided cost. The two goals of PURPA are: to stimulate competition and to be ratepayer neutral. For example, using avoided cost ensures that ratepayers are not paying any more for power than if the utility generated the power. In addition, PURPA addressed the question of open access to transmission by implementing regulations directing states to develop robust interconnection policies to ensure QFs have access to interconnection. Ms. Elefant stressed that PURPA also fosters private investment, thus projects must be economically feasible, and to this end, a utility is required to provide information on its avoided cost for the perusal of IPPs. In 35 years PURPA has had some opposition; however, after some changes were made in 2005, PURPA continues to apply in areas where there is no competitive market, such as Alaska. In addition, other laws apply in Alaska that provide open access to the grid for IPPs; FERC regulates the nation's transmission grid, and in 1996 issued Order No. 888 which required all utilities to provide open access to their transmission lines on a non-discriminatory basis. Federal Energy Regulatory Commission Order No. 888 was a landmark order and as a result robust power markets have evolved along with new technologies and economic development. MS. ELEFANT observed that the proposed legislation would have Alaska enjoy the benefits of competition and the characteristics of access, opportunity, and transparency that have benefitted other jurisdictions. The bill provides: opportunity by ensuring IPPs can sell power into the grid; non-discriminatory access to transmission; transparency on avoided, interconnection, and integration costs. She concluded that the proposed legislation would promote competition and diversity, and lower rates for consumers. 11:37:25 AM CO-CHAIR COLVER asked for the differences between Alaska's transmission systems and those of the Lower 48 MS. ELEFANT answered that in the Lower 48, transmission is regulated on the federal level because there is interstate interconnection; however, distribution systems are regulated by the states. In Alaska, the state has full control from transmission to the user. In parts of the Lower 48, there are problems with power congestion, which must be managed in an equitable manner. REPRESENTATIVE CLAMAN asked for a description of the differences between HB 78 and PURPA. MS. ELEFANT explained that HB 78, along with regulatory changes, would bring Alaska in alignment with PURPA. The bill does not replace PURPA, but ensures compliance with components of PURPA; for example, HB 78 requires utilities to make their avoided cost available to IPPs and their investors for competitive purposes. Regarding interconnection, PURPA recognizes the importance of non-discriminatory interconnection and integration costs, as does HB 78, although HB 78 goes further regarding integration costs. In addition, HB 78 gives QFs access to transmission, which differs slightly from PURPA. 11:42:53 AM REPRESENTATIVE CLAMAN recalled hearing that Alaska may be sued for noncompliance, but PURPA has been in effect for 35 years and there has been no lawsuit against Alaska. Alaska does not have an interstate commerce issue, and is quite a distance from the Lower 48. MS. ELEFANT clarified that PURPA does apply to states and territories that are not interconnected to the grid such as Alaska, Hawaii, Texas, Puerto Rico, and the Virgin Islands. Alaska is exempt from some of the federal requirements like open access because the source of Order No. 888 is found in the Federal Power Act and it applies to interstate transactions. She remarked: The fact that Alaska is not regulated under the Federal Power Act, I don't think would enable it to make a case ... for not being subject to PURPA. But that said, certainly a lawsuit or an enforcement action is, is a very extreme step. ... Parties will go to FERC and they will say to FERC, 'Hey, this state isn't complying with PURPA ...' and FERC will issue a ruling ... and then FERC has the option of actually bringing the suit in federal court. MS. ELEFANT advised that FERC has brought action once under unusual circumstances, and lawsuits happen infrequently. 11:46:28 AM REPRESENTATIVE CLAMAN surmised the risk of a lawsuit is unlikely. MS. ELEFANT said yes. CO-CHAIR VAZQUEZ asked for an explanation of avoided cost. MS. ELEFANT said a utility supplies power by self-generation or by buying power from another utility. Under PURPA, if a utility buys power from an IPP QF, the utility is "avoiding" the cost of paying the other utility or of producing power. The purpose is to ensure ratepayer neutrality whether power comes from a QF or is self-generated. In further response to Co-Chair Vazquez, she said transparency means the information on what a utility pays to self-generate power is made public. With this information, a QF can evaluate whether a project is economically feasible. CO-CHAIR VAZQUEZ asked about integration cost. MS. ELEFANT said integration costs are the costs incurred when introducing power into the system; for example, an intermittent power source, such as wind, may require payment to keep a back- up generator on standby service. CO-CHAIR VAZQUEZ asked how HB 78 adds transparency to integration costs. 11:53:50 AM REPRESENTATIVE TAMMIE WILSON, Alaska State Legislature, sponsor of HB 78, informed the committee a local attorney was available to answer questions on Alaska issues. REPRESENTATIVE WOOL surmised that PURPA is a set of federal regulations and FERC is the agency that enforces the regulations. MS. ELEFANT stated that PURPA is a federal law that encourages federal and state cooperation. The Federal Energy Regulatory Commission put in place regulations that set federal parameters for PURPA; for example, FERC has a regulation that reinforces that utilities have to pay avoided cost, but each state is responsible for implementing its own PURPA programs. In fact, if there is a contract between a utility and a QF, the state, but not FERC, would look at the contract. A state can adopt regulations to implement PURPA as long as the regulations are consistent with the parameters set by FERC. REPRESENTATIVE WOOL expressed his understanding that FERC is a federal regulatory agency, but because Alaska is not connected to the Lower 48, its regulations don't apply. MS. ELEFANT said there are two main categories that FERC administers. The first is the Federal Power Act, which gives FERC authority over power transactions on the interstate grid, and which does not apply to Alaska and Hawaii. The second category, those regulated by PURPA, do apply to Alaska and Hawaii by direction from Congress. 11:58:32 AM REPRESENTATIVE WOOL then asked whether FERC determines whether there is congestion, and no further power is needed for a certain area. MS. ELEFANT said FERC would not manage the aforementioned issue in Alaska. In the Lower 48, some areas are governed by a regional transmission organization (RTO); on the other hand, in Idaho, or parts of the country without RTOs, the utilities make these decisions. 12:01:09 PM CO-CHAIR VAZQUEZ said public testimony on HB 78 remained open. HB 78 was held over.