HB 151-ELECTRIC RELIABILITY ORGANIZATIONS  2:09:19 PM CO-CHAIR LINCOLN announced the final order of business would be CS FOR HOUSE BILL NO. 151(ENE), "An Act relating to the creation and regulation of electric reliability organizations; relating to participation of electric utilities in electric reliability organizations; relating to duties of electric reliability organizations; providing for integrated resource planning; requiring project preapproval for certain interconnected large energy facilities; and providing for an effective date." [Before the committee was CSHB 151(ENE), Version G, reported out of the House Special Committee on Energy and referred to the House Resources Standing Committee on 2/26/20.] 2:09:27 PM REPRESENTATIVE HOPKINS, prime sponsor, introduced HB 151. He paraphrased the sponsor statement [included in the committee packet], which read as follows [original punctuation provided]: In the 2014 capital budget, the Legislature requested that the Regulatory Commission of Alaska examine how to best foster "effective and efficient electrical transmission" among the six interconnected electrical utilities of Alaska's Railbelt. The RCA's recommendations included the formation of an Electric Reliability Organization, an independent entity that would create and enforce reliability standards and an integrated resource plan for the interconnected utilities. The RCA crafted proposed legislative language which was put out for public comment. Utilities, power producers, municipal leaders, consumer advocates, and rate payers all provided input and feedback, helping to hone language to move Alaska's interconnected electric utilities towards greater cooperation and resource-sharing. Within the last six months, the Railbelt utilities have signed a Memorandum of Understanding establishing the reliability organization envisioned by this legislation demonstrating their willingness to work together on future planning, reliability, and transmission standards. The RCA, in updating the Legislature on the utilities' progress, has recommended statutory changes that would affirm the RCA's authority to regulate a reliability organization; define the basic structure, responsibilities, and authorities of a reliability organization; and empower the RCA to require pre- approval of large generation and transmission projects undertaken by utilities that are part of an interconnected network. House Bill 151 reflects these recommendations and, if enacted, would support the utilities' voluntary work to date. Fostering greater cooperation will help ensure ratepayers from Fairbanks to Homer will ultimately benefit from the efficient and effective operation of the Railbelt electric system. REPRESENTATIVE HOPKINS noted that HB 151, Version G, was referred from the House Special Committee on Energy and is identical to it's companion bill in the Senate, SB 123. He explained that the committee revised the bill to balance the interests of stakeholders, including the Regulatory Commission of Alaska (RCA). 2:13:53 PM JOE HARDENBROOK, Staff, Representative Grier Hopkins, Alaska State Legislature, on behalf of Representative Hopkins, prime sponsor of HB 151, provided a PowerPoint presentation entitled, "HB 151: Electric Reliability Organizations." Slide 2 provided context for the bill with a timeline of events that led to the creation of HB 151, SB 123 and the coinciding formation of an Electric Reliability Organization (ERO). The legislation's overall goal is to improve reliability, security and efficiencies, resulting in long-term savings to ratepayers. Slide 3 summarized the sectional analysis [provided in the committee packet], which read in its entirety as follows [original punctuation provided]: House Bill 151 authorizes the Regulatory Commission of Alaska (RCA) to require and manage electric reliability organizations (EROs) for interconnected power networks. The legislation defines participation in an ERO, as well as the requirements, responsibilities, and oversight of an organization. The ERO will be responsible for establishing reliability standards and conducting integrated resource planning for the interconnected network. Large new projects in an ERO network will require pre- approval by the RCA. Section 1: Adds a new article and sections to AS 42.05, Alaska Public Utilities Regulatory Act. New Section 42.05.760: Electric reliability  organizations  Defines participation in an ERO, including application to become an ERO; exemptions from the requirement to have an ERO; and RCA certification of EROs. New Section 42.05.762: Duties of an electric  reliability organization  Describes the duties of an ERO, which the RCA will consider when deciding whether to certificate an ERO. New Section 42.05.765: Reliability standards  Describes the process for establishing reliability standards, including the content of standards and conflict resolution. New Section 42.05.767: Rules  Requires the ERO to file its internal rules of operation and governance with the RCA and gives the RCA oversight of an ERO's rules. New Section 42.05.770: Regulations  Directs the RCA to write regulations addressing EROs and reliability standards. Mandates regulations to require an ERO tariff include standards for nondiscriminatory open access transmission and interconnection, and for a method of recovering transmission system costs. Regulations must also articulate a process for resolving conflicts between standards and other obligations and allow an ERO to recover its operational costs through the rates of each load-serving entity. New Section 42.05.772: Duties of load-serving entities  Subjects all load-serving entities in a network, including those that are not subject to RCA regulation, to an ERO's tariff. New Section 42.05.775: Penalties  Enables the ERO and the RCA to enforce compliance with reliability standards among everyone connected to a network with an ERO. Proscribes a process for imposing and appealing penalties. Requires that penalties be commensurate with the seriousness of a violation. New Section 42.05.780: Integrated resource planning  Tasks an ERO with integrated resource planning, articulates required contents of a plan, provides a process for RCA approval of a plan, addresses recovery of costs associated with a plan, and requires the RCA to write regulations related to a plan. New Section 42.05.785: Project preapproval for large  energy facilities  Requires and sets standards for RCA pre-approval for large new projects proposed by a utility in a network with an ERO. Offers a presumption of necessity for projects that were included in an integrated resource plan and supplies a backstop for the RCA to overcome that presumption if necessary. Exempts certain projects from the need for pre-approval, directs the RCA to write regulations related to pre-approval, and defines the type of projects that are subject to preapproval. New Section 42.05.790: Definitions  Defines seven terms within the new article for electric reliability organizations: cybersecurity incident, electric reliability organization, electric utility, interconnected bulk-electric system, interconnected electric energy transmission network, load serving entity, and reliable operation. Section 2: Adds a new section to uncodified law requiring the RCA to adopt regulations implementing the bill. The regulations will take effect on the effective date of the bill (July 1, 2021, per Section 4) Section 3: Sets an immediate effective date for Section 2, enabling the RCA to proceed with writing regulations implementing the bill. Section 4: Sets an effective date of July 1, 2021, for all other sections MR. HARDENBROOK directed attention to slide 5, which addressed ERO participation. Slide 5 read as follows: ? Interconnected networks must have an ERO (some exceptions) ? Public utilities in the network must participate in the ERO ? All users, owners, operators in the network must comply with reliability standards set by the ERO ? Railbelt primary need; legislation has general applicability ? 'Release valves' to accommodate future MR. HARDENBROOK, referencing the last bullet point, noted that several 'release valves' were included in the legislation to accommodate future expansion or development in Alaska; for example, "if all load serving entities petition the RCA, the RCA may grant a waver for forming an ERO in the future; and also, the inverse, if you have a network but not quite a system and you want an ERO, utilities can petition the RCA to form one." 2:18:09 PM MR. HARDENBROOK turned attention to slide 5, which highlighted the process for forming an ERO: interested players form an organization; the organization applies to the RCA; RCA evaluates and certifies the organization as an ERO; one ERO per network; if no one applies, the RCA shall form an ERO. Slide 6 illustrated the ERO framework required under HB 151: governed by an independent, balanced board, or a combination thereof; open, inclusive processes; balance interests of utilities and stakeholders; develop standards and integrated resource plans for the Railbelt. He noted that an ERO is required to file rules and changes with the RCA, as specified on page 5 of the bill. Slides 7 and 8 listed ERO responsibilities, as follows: ? RCA delegates certain work to the ERO ? RCA maintains oversight, authority, assigns tasks to ERO ? Bottom-up approach from the network players who know best ? ERO sets and enforces reliability standards ? ERO develops integrated resource plan ? Reliability standards for the network ? Subject to RCA approval ? ERO to enforce standards, RCA back-up ? ERO or RCA can penalize violations ? Conflict resolution ? Integrated resource planning for the network ? How to meet needs at greatest value, consistent with public interest ? Subject to RCA approval ? Items in an approved plan are 'necessary' MR. HARDENBROOK noted that there is a caveat that allows Doyon Utilities to follow U.S. Department of Defense reliability standards when serving military installations if they conflict with state regulations put forwards by the RCA. 2:22:07 PM REPRESENTATIVE TUCK asked for the current number of networks and EROs in Alaska. MR. HARDENBROOK said the RCA anticipates the Railbelt to be the only interconnected network system that would benefit from an ERO. He noted that there are specific "carveouts" for some interconnected utilities in Southeast Alaska; for example, the Southeast Alaska Power [Agency] (SEAPA) is established by statute and exempted from RCA oversight. REPRESENTATIVE TUCK questioned whether an ERO can exist within an ERO. MR. HARDENBROOK said according to the legislation, each interconnected network would be served by one ERO. REPRESENTATIVE TUCK asked whether Doyon Utilities provides its own power generation. MR. HARDENBROOK offered his understanding that Doyon Utilities manages the coal-fired power plants at Eielson Air force Base and Fort Wainwright. He explained that Doyon Utilities produces its own power and is interconnected to the grid; however, the exemption allows them to comply with USDOD standards. He further noted that the University of Alaska (UA) also maintains independent power generation and is interconnected to the grid, but UA is required to comply with the legislature's reliability standards. REPRESENTATIVE HANNAN asked whether all Railbelt utilities are members of the working group. MR. HARDENBROOK answered yes, all six interconnected electrical utilities are members of the organizational development team and helped craft the legislation. REPRESENTATIVE HANNAN sought clarification as to whether there are independent utilities that are within the same geographic area but are not interconnected. MR. HARDENBROOK said that Doyon Utilities, for example, is interconnected and is not considered a public utility or subject to RCA regulation. REPRESENTATIVE HANNAN returned attention to slide 8 and surmised that large, new projects already require [RCA] approval. MR. HARDENBROOK offered his understanding that, currently, if a utility proposes a large-scale project that is approved by its board, it can move forward. REPRESENTATIVE HOPKINS added that $1.5 billion in new generation infrastructure has been built on Alaska's Railbelt in the last 10 years. MR. HARDENBROOK resumed his presentation on Slide 9, which addressed project pre-approval. Slide 9 read as follows: ? For large new generation and transmission ? Protects utilities and ratepayers ? Certifies necessity and cost-effectiveness ? Presumption for projects in an integrated resource plan ? Some exemptions MR. HARDENBROOK informed the committee that the House Special Committee on Energy forwarded the bill with a letter of intent [included in the committee packet]. He explained that the letter navigates some of the challenging terrain related to the Bradley Lake project and associated transmission infrastructure, which has been under litigation for several years. He conveyed that the intent language covers the continuing differences and interpretations of the Bradley Lake contracts. The letter states that the legislature will not interfere; additionally, that HB 151 the standards, integrated resource plan, and project pre-approval shall apply to the Bradley Lake project and its transmission lines. Further, that the legislature will honor the exemption from RCA review until debt from the project has been paid. 2:28:51 PM MR. HARDENBROOK directed attention to slide 11, which was an organizational chart of relationships under HB 151. He explained that the RCA would continue in its primary role at the top of the chart, followed by the ERO, or "Railbelt Reliability Counsel." He indicated that the Railbelt Electric Network was underneath the ERO. REPRESENTATIVE TUCK questioned whether project pre-approval for large energy facilities includes decommissioning the project. MR. HARDENBROOK deferred to Antony Scott. REPRESENTATIVE HANNAN asked if independent power producers (IPPs) require approval from the ERO board to join the ERO. MR. HARDENBROOK said the legislation allows for additional power producers to enter the system. He added that the ERO would be charged with developing the regulations that govern how the power producers fit into the network. He stated that the ERO board would be responsible for drafting the rules with RCA oversight that would allow those projects to gain access to the grid. 2:31:40 PM ANTONY SCOTT, PhD, Commissioner, Regulatory Commission of Alaska (RCA), provided a PowerPoint presentation, entitled "HB 151." He informed the committee that he would address three things in today's presentation: the RCA's purpose; inefficiencies within the Railbelt electric system; and how HB 151 remedies those defects. He directed attention to slide 2, which highlighted the RCA's purpose. He explained that by regulating the terms of service that utilities use to interact with their customers, the RCA engages in economic regulation. He explained that economic regulation occurs because the electric utilities like all public utilities - are natural monopolies and therefore, lack the possibility of effective competition. Without effective competition, the utilities in this sector operate within their franchise and strive to provide safe, reliable and affordable power. The RCA's statutes, he said, are designed to ensure that the utilities' terms of service offer realized outcomes that reasonably emulate competitive market results. He noted that in 2018, consumers within the interconnected Railbelt spent $880 million on electric utility service, over half of which was for fixed system costs. Regarding the regulation of interconnected public utilities on the grid, he explained that each one has a separate certificate and "we regulate each separate set terms of service for those entities," which creates the opportunity for less than efficient results. 2:36:10 PM DR. SCOTT surmised that in 2014, the legislature recognized those inefficiencies when they asked the RCA to investigate ways of innovating and calculating better efficiencies between the utilities and the work that they do. He turned attention to slide 4, which highlighted the RCA's 2015 findings. Slide 4 read as follows [original punctuation provided]: ? Balkanized Railbelt ownership across six utilities creates inefficiencies O Insufficient coordination across utilities results in inconsistent, inadequate and unenforceable electric reliability standards O Insufficient integration between utilities curtails ability to ensure that planning and construction of new generation and transmission assets within one service territory is optimal for the system as a whole O Interconnected transmission infrastructure benefits everyone, but there isn't a good business model to ensure cost recovery O Insufficient coordination and integration across utilities hinders ability to maximize efficient operation of existing generators to meet load DR. SCOTT explained that HB 151 addresses the first three inefficiencies by providing structure for consistent, adequate, and enforceable reliability standards; ensuring new infrastructure is built efficiently; and providing an avenue for ensuring that people contribute towards and equitably pay for transmission infrastructure. Dr. Scott noted that one of the RCA's 2015 recommendations to the legislature was to allow for a period for voluntary efforts by the stakeholders and utilities to solve problems on their own time, to which there has been significant progress in the intervening five years. Slide 6 illustrated the progress to date and read as follows [original punctuation provided]: ? Voluntary efforts have laid the groundwork for institutional reform O Greater understanding among all the parties of issues, barriers, and potential solutions to the suite of issues the RCA described O Railbelt utilities reached consensus in 2018 to form an electric reliability organization that includes non-utility stakeholder members ? Voluntary efforts have not resulted in institutional reform O Although the two sets of Railbelt reliability standards were reconciled, enforcement mechanisms are lacking, and areas of concern remain. O Efforts to form an independent transmission company have failed O Progress on an Anchorage-based "tight pool", let alone Railbelt-wide security constrained merit order dispatch, have stalled 2:40:28 PM DR. SCOTT continued to slide 7 and explained that HB 151 cements existing progress and ensures results in rural institutions that deliver efficiencies and savings to consumers through enhancement of the commission's current jurisdiction. The bill also addresses enforceable reliability standards which, in addition to cyber security, are about ensuring adequate generation and transmission capacities to instantaneously match the supply and demand of electricity. For cost effectiveness, the bill requires integrated resource planning to ensure efficiencies between and across utilities are captured. Lastly, this legislation provides a method for solving transmission infrastructure business model problems to ensure that utilities and consumers can pay for new transmission as its needed. Dr. Scott turned attention to slide 9 and noted that the bill ensures that the ERO will perform the coordinating function between both the utilities and a broader range of stakeholders and users of the interconnected system. He said because the RCA is a backstop to any potential failings in the ERO process, the bill creates powerful incentive for the ERO to get the work done correctly so the commission can approve it. He directed attention to slide 10 and noted that HB 151 builds on and meshes with current statutory framework wherein ERO actions are approved by the RCA and subject to public notice, and the unresolved problems are suspended into dockets for commission investigation and subsequent adjudication. 2:46:25 PM REPRESENTATIVE HANNAN inquired as to the cost per kilowatt hour (kWh) for utilities participating in the ERO. DR. SCOTT said it depends. He explained that generally, the cost for residential consumers ranges between 17-22 cents per kWh hour. He noted that rates have increased with the wave of new infrastructure and the spike in cost of natural gas in the Cook Inlet. 2:47:43 PM REPRESENTATIVE HANNAN asked whether an ERO could lower consumers' utility costs. DR. SCOTT said there would be no decrease in electric utility rates in the short term; however, there would over the long term because the bill will ensure that new additions to the system are efficient to the system. REPRESENTATIVE HANNAN addressed the issue of regulating charging locations for electric vehicles. She asked how an ERO could benefit that infrastructure over the next 50 years as transportation becomes primarily electric and bridges different utilities. DR. SCOTT he opined that reforming the rate structures within the Railbelt for fast charging stations is a problem that can be readily solved. He reported that a technical workshop with interested stakeholders will be scheduled for scoping and promulgating regulations around rate reform for fast charging stations. REPRESENTATIVE TALERICO asked Dr. Scott to review the process for starting an ERO. 2:52:13 PM DR. SCOTT said the bill permits a range of possible and acceptable governance structures to avoid being overly prescriptive. If HB 151 were to pass, the RCA would promulgate regulations to outline minimum requirements for ERO organization. He said that would be an open rulemaking process with input from the public and interested stakeholders. Once the regulations are promulgated, the RCA would expect to receive applications from utilities. 2:54:21 PM CO-CHAIR TARR asked how this legislation would have affected recent Anchorage infrastructure. 2:55:03 PM DR. SCOTT remarked: So, I want to be a little bit careful because we still have a preceding ... potentially returning to us around the prudence of plant 2A, which was built by ML&P, and whose prudence in terms of whether ... it was necessary was challenged by one of its customers. That is something which ended up in court and then remanded back to the commission. What the commission initially found was that plant 2A was prudent, that ML&P was meeting the needs of its own individual service territory in a reasonable way. The superior court ... advised us to go look at that further. The kinds of things that she felt that needed to be looked at globally are exactly the sorts of consideration of alternatives that an integrated planning process would require. ... if this legislation had been the law ten years ago, we would have had an open and transparent planning process, in which ... significant numbers of millions of ... capital expenditure could have been avoided. MR. HARDENBROOK added that in 2018, $880 million in electric utility bills was paid by consumers on the Railbelt, half of which went towards capital expenditures. He added that from 2010 to 2015, there was $1.5 billion worth of new transmission infrastructure built on the Railbelt costs that went on to credit cards, which consumers of the Railbelt are responsible for. REPRESENTATIVE SPOHNHOLZ noted that HB 151 does not reference economic dispatch or the increased use of renewable energy, each of which could reduce costs to consumers and potentially decrease greenhouse gas production. She asked how an ERO could address those issues. DR. SCOTT said an ERO will not have operational authority or direct economic dispatch under this legislation. Nonetheless, he said the RCA believes that this legislation would create a structure that ensures all utilities, and a broader range of stakeholders are regularly meeting and discussing issues. He opined that such cooperation would help ensure progress towards economic dispatch. He added that whether economic dispatch ultimately makes sense will depend on adequate transmission infrastructure. Regarding renewables, he opined that the bill clearly defines a pathway for enabling IPPs to interconnect with the system and to make sales of renewable energy across the system because under HB 151, the ERO is directed to develop standards for cost recovery of new transmission, as well as critical interconnection standards and nondiscrimination access standards. He offered his belief that this legislation would help bring new intermittent resources to the system. [HB 151 was held over.]