SB 355 - COMPETITIVE RETAIL SALES ELEC. POWER CHAIRMAN LEMAN brought SB 355, which was introduced by the Labor and Commerce Committee, before the committee. He noted that in the interest of accommodating other legislators who had expressed some concerns about other regions of the state, it has been crafted to apply only to Anchorage. DON EDWARDS, representing Chugach Electric Association in Anchorage, said Chugach has been pushing hard this last year for developing the customer's right and implementing the customer's right, which they believe they have under law, to choose electric service providers. SB 355 allows customers to get access immediately over utility systems which meet the density requirement. This would apply to Municipal Light and Power (ML&P) and Chugach Electric Association (CEA) service territories. MR. EDWARDS said SB 355 is very narrowly drafted to simply trigger off competition. It allows and requires that when a request is made for access over a dense system, that the access be given on a very expedited basis. A poll conducted by Chugach Electric shows that well over 90 percent of its customers understand and believe that they'll benefit and believe that they should have the right to choose electric service providers. MR. EDWARDS said this is not a complicated process. He explained that in CEAs situation, they have a couple of customers in ML&P service territory. When those customers want to buy power from Chugach, Chugach pays ML&P a price established by the commission for access across its system. For the larger customers, equipment is installed, which allows CEAs' generators to automatically follow their load and generate for their load. For the smaller customers, CEA has plenty of load research data to be able to estimate what their load looks like at any given point in the day, and the generators are scheduled to meet that load. Last June, ML&P requested an expansion of its service territory, and Chugach asked the APUC if it would pronounce whether or not service territories are exclusive. CEA simply asked the commission to affirm that an expansion of the ML&P territory was not a step against competition and would still allow customers to choose, but the commission declined to answer that question. Over the summer Chugach went out and sought customers who were interested in purchasing from Chugach and then presented those customers to ML&P and asked for access. ML&P has refused access and brought an action in front of the commission asking that CEA be prevented from competing, but there is still no decision on that action. MR. EDWARDS said federal law says that competition is the rule, and the only way you can get past that rule is that if the state establishes a policy against competition. The courts have been very strict about that and have said you are only successful in establishing a policy against competition if it is very, very clearly articulated and affirmatively expressed, so that is why Chugach believes that very little change is needed in legislation, and why they believe that customers have a current, enforceable right to choose today. MR. EDWARDS referenced a Brookings Institute study and five points that study reaches. (1) All customers benefited in those industries which had gone from monopoly to greater competition, and the benefits increase over time. (2) Under competition services and reliability improve. (3) The more choice allowed, the more savings result. (4) The best way for all customers to benefit from competition is to make sure that all customers have the right to choose. (5) It's impossible to predict either the likely resulting market structure, after competition begins, or even what the optimum market structure should be, but competition should just be allowed to work under some basic rules and to let it develop its own structure. MR. EDWARDS stated it is CEA's view that the APUC already has all the authority it needs to oversee and decide on access charges and any other issues that might arise. He stressed the important thing is to get started and to develop a kind of track record so that if additional legislation or regulatory changes might be required, it is being done on the basis of actual experience rather than on the basis of conjecture or fears. Number 312 CHAIRMAN LEMAN noted that in a Senate Finance subcommittee meeting, APUC Chairman Sam Cotton confirmed his belief that the APUC currently has the authority, but he also expressed reticence to move too quickly into it because of a number of issues the APUC is wrestling with. CHAIRMAN LEMAN then asked Mr. Edwards that if competition is good, should it be restricted to those utilities that are certificated now, or should it be available to those power marketers, retailers and aggregators as well as electric utilities. MR. EDWARDS responded that the legislation has been written to address certificated utilities because, presumably, those utilities have already been through whatever screening or consumer protection assurances needed to protect the public, so they felt that the path of least resistance was to allow certificated utilities, who have already been through that process, to be authorized to compete. Chugach is in favor of competition, and knows that there is at least one power marketer active in Anchorage right now. He emphasized that Chugach is not trying to avoid having those competitors, but just trying to avoid further delays with going through a process to decide how to resolve some of those issues that are raised when they are brought into the mix. Number 363 SENATOR KELLY asked who owns Chugach Electric, as well as who owns ML&P. MR. EDWARDS related that Chugach is a private corporation owned by its members, which are also its consumers and past consumers. ML&P is owned by the Municipality of Anchorage. Number 380 MEERA KOHLER, General Manager of Municipal Light & Power for the Municipality of Anchorage, stated SB 355 is another example of Chugach Electric Association's determination to bypass the legislative and regulatory processes in order to fast track retail electric competition in Anchorage. She said the question must be asked why it is so imperative to immediately implement competition in Anchorage. MS. KOHLER pointed out that Chugach is the operator of most of the transmission systems that interconnect the six utilities serving Railbelt Alaska. Over 55 percent of CEA's energy sales are full sales or economy energy. Chugach already has what is called market power in the market that they would essentially like to compete in. The prerequisite for retail competition, wholesale competition, does not yet exist in Alaska. She further noted that the Chugach and ML&P retail rates are almost identical. In other words, the competitive forces are already at work to keep their rates on par. MS. KOHLER said Chugach lacks the benevolence to write the rules and to set the monetary parameters that govern a competitive electric market. The issue is of significant importance to every resident of the state of Alaska. It has taken years for the huge interconnected markets of the Lower 48 to tentatively experiment with competition, and not a single state has yet proven that it can work. MS. KOHLER urged the committee to allow the Legislature to fully examine the issues of retail electric competition, and to come forth with a decision on whether and how to implement this. She said Anchorage is not a suitable pilot project for such an undertaking, not when half of the state's population and 60 percent of its generation resources are the guinea pigs. Number 420 SENATOR KELLY asked Ms. Kohler what she would be saying if ML&P did want to be competitive. MS. KOHLER responded ML&P is saying that the Legislature and the APUC are at an arms length and need to examine the issues that would be involved with deregulation and competition, and that they can set the rules and tell ML&P how it ought to compete. SENATOR MACKIE said his understanding is that the legislation simply asks the commission to make an expedited decision. MS. KOHLER responded that the bill provides that if one utility requests the opportunity to serve in another utility's territory, then the APUC has 10 days to return its decision on whether that competition is to be allowed, which, she said, is ridiculous. The APUC already has the power to rule on whether or not competition in a particular service area is in the best interest of the public, but the legislation is expediting that to a very small time frame. SENATOR MACKIE asked Ms. Kohler if there was a particular time frame that she thought would be more reasonable. MS. KOHLER replied that once the APUC and the Legislature have determined whether or not competition is a desirable thing in certificated public utilities' territories, that beyond that phase it ought to be committed within a fairly short period of time, but not to bypass the initial process. Number 455 MARY ANN PEASE, Vice President of Aurora Power in Anchorage, stated Aurora is the largest independent natural gas marketer in the state, supplying close to 80 percent of the large commercial markets in Anchorage. She stated the intent of SB 355 is a definite step in the right direction in as much as it provides for the opening up of the distribution and transmission systems in the Anchorage area. However, where the bill falls very short is in the restrictive language that limits competition to the existing generating providers in the Anchorage area, ML&P and Chugach Electric. MS. PEASE said the entire spirit and core of competition is to enable various entities the right to compete to provide service at lower rates than currently available, and there are several entities that could participate in bringing reduced electric rates to consumers in Anchorage. The pilot program that Aurora Power will be proposing before APUC enables a study approach to competition on a limited basis, and the pilot program could not be approved unless power providers have access to the distribution and transmission systems in the Anchorage area. The opportunity to provide reduced cost electricity is timely and needs to happen now rather than two or three years from now. MS. PEASE suggested passage of SB 355 with some minor changes that would allow resellers, aggregators, and power marketers to have access to that power as well as the two existing generating utilities. Number 495 CHAIRMAN LEMAN asked Ms. Pease what her company has to prove to the APUC to allow them to compete in the Alaska marketplace. MS. PEASE explained that Aurora Power has a tariff it has filed in conjunction with Enstar that enables it to provide natural gas to any of the large commercial users in Anchorage, and she envisioned a similar approach for electricity. She added that Aurora would not exclude APUC from this process at all, and realize that APUC's authority over it is critical to the success of restructuring. CHAIRMAN LEMAN asked Ms. Pease her comments on a proposed amendment which makes two changes to the legislation. It picks up the power marketers, resellers, and aggregators, and it changes the 10 days to 30 days. MS. PEASE said she thinks the 30-day period is much more reasonable and makes it a workable situation. She also supports the pilot program language in the amendment. CHAIRMAN LEMAN asked Ms. Pease if the commission or a proposer were to identify a portion of the service areas within Anchorage where there is overlap of ML&P and Chugach Electric, but perhaps it doesn't include the entire municipality, and use that as the pilot area, is that a concept Aurora Power could support and be interested in participating in. MS. PEASE acknowledged they would support that. JIM POSEY, Commissioner, Alaska Public Utilities Commission, testifying from Anchorage, said the commission currently has two dockets open to deal with competition in Alaska. He agreed the commission has the power to do what's necessary within a limited vein of looking at competition as one would consider it in the state. He pointed out that in California, after two years of planning and delays of several months, people are still confused as to what it really means and what it really means to them. He said consumer education is a big part in order to prevent confusing the customers. MR. POSEY said the commission feels that as it looks at competition, which is a different format for Alaska, especially Anchorage given the makeup of the potential competitors, that the APUC may need some legislative help to sort out some of the answers. The commission would like to work as a partnership with the Legislature if it runs into problems dealing with the issue, given the current dockets that it has. He added that the APUC would like to think that they would not need the help of the Legislature, but given the tremendous investment that the two parties in Anchorage have in generating and transmission, to not move too quickly on this issue is probably the prudent way to operate. Number 555 ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association, testifying from Anchorage, stated the electric utility industry in Alaska, with the exception of Chugach Electric, is opposed to SB 355. That is not to say that ultimately the utility industry does not see the benefits of restructuring and realize it is an issue that is being considered nationwide as well as in the state of Alaska. However, it has been considered nationwide for a number of years, and, still, Congress has not passed a piece of legislation because it is a very complex issue. TAPE 98-23, SIDE B Number 005 Speaking to deregulation, MR. YOULD noted 10 states have passed some comprehensive deregulation, 23 states have taken the position of substantive investigations through their own committee processes, nine states have requested that their utility commissions address the issue and come up with recommendations for their legislatures, and the remaining states have essentially taken no action whatsoever. He said it is a very difficult situation and one which is going to take some deliberate consideration by the Legislature. MR. YOULD agreed the APUC has a certain authority to allow retail wheeling. However, because of the potential impacts, nobody has really looked at the bounds that should be put on it or the criteria that should be established. He said if Chugach and ML&P were allowed to compete with unconstrained retail wheeling, one might think that it only affects those two utilities. However, those two utilities also provide wholesale power to other utilities in the Railbelt area, so it is not just an issue that affects the two utilities that are being considered. MR. YOULD related that virtually all of the utilities in his trade association attended a policy meeting sponsored by ARECA last November. They considered 11 different options to recommend pursuing that would help facilitate the question of deregulation for the state of Alaska. The option adopted was the formation of a committee composed of legislative and electric utility representatives to look at the issue and report back its findings to the Legislature by January 1999. HCR 34, which establishes such a committee, is currently before the Legislature for its consideration. Number 527 ROBERT WILKINSON, General Manager, Copper Valley Electric Association (CVEA), testifying from the Glennallen LIO in opposition to passage of SB 355 , stated CVEA is not opposed to competition, and, in fact, it is the basis of its strategic plan instituted a couple of years ago. CVEA is actively planning for competition; competition enters into the decision-making process in everything CVEA does, but CVEA feels very strongly that in contemplating passing new legislation that the legislation needs to be viewed very carefully, and it must be done right. He voiced support for the formation of a committee to carefully study and evaluate concerns, not only on behalf of members and rate payers, but also the utility representatives. Number 496 NORMAN STORY, Manager, Homer Electric Association, testifying from the Homer LIO, stated to put into place any act to allow competition without first considering its long-term effect, not only in Anchorage, but also on outlying utilities that are interconnected, would likely jeopardize the serving utilities large consumer revenues by allowing the large loads to be lost to the utility. That leaves increased cost for the remaining consumers. He voiced his opposition to SB 355, but supports the formation of a committee as provided for in HCR 34. There being no further witnesses, CHAIRMAN LEMAN closed the public hearing on SB 355, and directed attention to the proposed amendment before the committee. MR. EDWARDS of Chugach Electric Association stated he believes the amendment is heading in the right direction, but he suggested deleting the words "before full retail competition." Under CEA's view of the law, the Legislature has never acted to prohibit competition, and those words could arguably be construed as doing that. SENATOR MACKIE moved the adoption of the following amendment to include the deletion of the words "before full retail competition." Amendment No. 1 Page 1, lines 4-11: Delete all material and insert: "(g) To facilitate the establishment of pilot programs, electric utilities, power marketers, resellers and aggregators may request the commission to issue orders necessary to enable the providing entity the use of the transmission and distribution facilities of a certificated electric utility for the provision of retail electric service if the electric utility has more than 30 customers for each mile of distribution line. The commission shall issue the orders requested within 30 days after receiving the request. A request under this subsection may include a request for interim refundable tariffs for distribution access services. Hearing no objection to the adoption of Amendment No. 1, CHAIRMAN LEMAN stated the motion carried. SENATOR MACKIE moved CSSB 355(L&C) be passed out of committee with individual recommendations. Hearing no objection, it was so ordered.