SB 10-APUC JURISDICTION: UNDERGROUND UTILITIES CHAIRMAN MACKIE announced SB 10 to be up for consideration. SENATOR DONLEY, sponsor, said that SB 10 requires that the utilities in a community over 100,000 people have an ongoing program for placing overhead utility lines underground. Currently, it would only apply to the Municipality of Anchorage. Through technological advances over the past number of years, underground utilities are much easier to maintain and less costly. They are aesthetically more pleasing. Having a minimum amount that utilities can contribute to a long range plan of putting existing overhead lines underground levels the economic playing field so there isn't the disincentive of competition where if one utility does it and another utility doesn't do it, they can charge lower rates. Unless there are mandates to protect the public interest and to encourage undergrounding, all incentive will be lost to do it. Many cities require "undergrounding" for new developments. The problem in Anchorage is that all new developments are "undergrounded," but the neighborhoods that were built before the law went into place have overhead utilities. Some areas of Anchorage that have two power deliverers have overhead power lines running down both sides of streets and it's a mess. The City tried to address this issue with an ordinance requiring utilities to have a 10-year plan for an ongoing program of "undergrounding" overhead lines. It requires utilities to spend up to four percent of their gross revenues per year towards "undergrounding." However, because of the words "up to" there's no minimum amount, so they spend nothing towards it. In the amendment he is asking for just one percent; he would be happy with even a half percent. Just so there is some established minimum towards an ongoing program of "undergrounding." SENATOR DONLEY said in the past objections from the utilities has been that the APUC would make them go through all kinds of reporting hoops and may not allow them to spend the money or charge for it in a rate base. When asked, the APUC commissioners have said they wouldn't do that. They think that underground is a great idea. That is why he exempts APUC totally from the process. SENATOR DONLEY said he thought it was important to make a public policy "call" in this direction. SENATOR LEMAN said he knows that cost of service studies for utilities are very expensive, even $1 million. He thought it was wrong for the APUC to require such an expensive exercise. He didn't know if one percent was a good amount, but it didn't sound like a lot. He asked if Senator Donley wanted to add the one percent as a surcharge. SENATOR DONLEY answered that they would just roll it into the rate base which is what they do with their current "undergrounding" programs. Number 405 MR. DON EDWARDS, General Counsel, Chugach Electric Association, said they are not opposed to "undergrounding" per se. It's a matter of cost and reliability. Reliable systems are built both overhead and underground. There are more underground distribution lines than overhead lines. It boils down primarily to the cost. MR. EDWARDS explained that roughly, as a rule-of-thumb, on the Chugach system, you can assume it would cost from $700,000 - $1,000,000 per distribution line mile to do underground distribution. There are 334 line miles in their entire distribution system. Chugach Electric's gross is around $140 million. Transmission is considerably more expensive to "underground" because of the high voltage use and having to use fluid-filled cables. Capital expenditures is the more important consideration. There are some savings one might expect to get on operation and maintenance, but they are dwarfed by the capital expenditures. They are very sensitive to their customers' concern for cost since they are a member-owned association. He recommended making very sure customers want to buy this kind of "undergrounding." Also, the legislation might require "undergrounding" of perfectly good overhead lines which have not yet been depreciated. This could degrade equity levels and damage the organization financially. MR. EDWARDS advised the committee to have their lawyers look at the constitutionality of the "cap" on the amount of recovery that is allowed to the extent that expenditures of money are required to implement this legislation. SENATOR DONLEY responded that the cap only applies to the regulatory powers of the APUC. MR. EDWARDS replied that to him the cap means the annual recovery of revenue for "undergrounding" may not exceed 10 percent of a utility's annual gross income. SENATOR DONELY said it doesn't say that; it says the exception to the Commission's regulation only applies to the first 10 percent and after that it would be subject to regulation by the Commission. He said he would ask the drafters to make that clear. MR. EDWARDS said he thought discussions should take place among the utilities about what might be doable, but as it stands, Chugach would not support this legislation. Number 471 CHAIRMAN MACKIE asked if it was true that a majority of their lines are underground now and asked if that included high voltage distribution lines. MR. EDWARDS replied no and explained that they make a distinction between lower voltage distribution lines and higher voltage transmission lines. More than half of their distribution lines are underground now and all new distribution lines are underground. Burying transmission cable is much more expensive, because it is fluid-filled cable which are higher maintenance and are much more expensive to install. CHAIRMAN MACKIE asked if any transmission lines were underground now. MR. EDWARDS answered a few of them are and the main one is the submarine cable that cut across from the west side of Cook Inlet to a point close to the Anchorage airport. There is probably 8 - 12 miles on the entire system of "undergrounded" transmission lines. CHAIRMAN MACKIE asked if they are putting transmission lines underground now in new developments. MR. EDWARDS answered no, because transmission lines are expensive to put underground and there is a serious earthquake hazard. SENATOR KELLY asked what fluid-filled cable was like. MR. EDWARDS explained that a hollow cable has fluid in it that seeps through the conductor that is in segments. The fluid impregnates paper that is wrapped in many layers of thin sheets and has to be under light pressure at all times to make sure the paper stays impregnated and impervious to elements. Outside of that there are all kinds of armoring to try to keep the cable safe, particularly during installation. The fluid pressure has to be monitored constantly. SENATOR KELLY asked how much of their system is transmission line versus distribution line. MR. EDWARDS said he didn't even have a ballpark figure on that. Number 531 SENATOR LEMAN said he thought Senator Donley was referring to the distribution lines and asked if Mr. Edwards had identified his costs, breaking them down into generation, transmission, and distribution and what the distribution costs are in Anchorage. MR. EDWARDS answered yes, they have distribution and transmission cost data, but they have not really broken it down to residents within Anchorage, although he didn't think it would be difficult to do. Number 565 MR. SAM COTTEN, Executive Director, Alaska Public Utilities Commission, said the Commission decided to take a neutral position on this policy call. However, they have a couple of technical concerns. They suggested using the term "revenue" instead of the term "annual gross income" so there is no question about what money they are talking about. MR. COTTEN explained that the full actual cost might involve the potential for cost shifting. Typically, a utility has to justify cost and there is a prudency standard that has to be met, but in this case it wouldn't be. His staff recommended going with a surcharge rather than increasing rates, because it would be simpler to manage administratively. For instance, there are a couple of utilities that operate within the Municipality of Anchorage and it's only a small part of their business. Matanuska Electric and Matanuska Telephone provide service to Eagle River, which is part of the Municipality, so the rates for those people in Eagle River would be affected, whereas if they lived in Palmer or Wasilla, they wouldn't be affected (under this bill). Rather than doing a rate redesign, a simpler method would be to add a surcharge to the affected members. MR. COTTEN reported one commissioner was interested in knowing who would be responsible for setting the standards they deal with in cost cause or cost repair. This bill leaves it unclear who is responsible. TAPE 99-7, SIDE B Number 590 MR. COTTEN said the fiscal note the Commission endorsed is $91.8 thousand for a half-time engineering analyst. Not all the members agreed that there was a high risk of litigation, but they allotted $54,000 per year for three years for it. SENATOR DONLEY responded that the bill says the APUC would have no role in the one percent, so he didn't understand what the fiscal notes are for. MR. COTTEN asked how the actual cost would be placed on the rates. SENATOR DONELY answered that the utilities would make that assessment themselves and if it's under the cap that's in the bill, the APUC would just accept those numbers. MR. COTTEN replied that he understands that, but the Commission approved the proposition that they would have to be involved in establishing rates regardless of the wording. He asked if Senator Donley meant for the surcharge to be added on to what the Commission approves as a rate. SENATOR DONLEY replied that is what he intends. Number 561 SENATOR DONELY moved to delete "income" on page 1, line 9 and page 2, line 1 to "revenue". There were no objections and it was so ordered. MR. COTTEN commented additionally that the FY2000 budget for the Commission proposed by the Governor includes some new positions and they feel if that budget is approved, "they could get by with the resources contained in that budget." This was an effort by the staff and Commission to identify the cost a account for it. If the budget were approved, the Commission could agree to a zero fiscal note. CHAIRMAN MACKIE asked if the Commission would have to review the rate increases if they occur. MR. COTTEN replied that he wasn't clear how that would work. The Commission is still responsible for approving rates and he would review the issue again knowing what Senator Donley's intent is. CHAIRMAN MACKIE asked if he would have problems with the bill if there was clarification of the intent in the bill. MR. COTTEN replied that if it's as simple as Senator Donley thinks it is, he couldn't imagine any expense for the Commission other than the potential for litigation which he didn't think existed. He said he would work with Senator Donley on clarifying the rate issue. SENATOR DONLEY proposed further clarifying language on page 1, line 14. He moved to replace the last sentence of the bill with, "This Section only applies to undergrounding programs that do not exceed five percent of the utilities' annual gross revenue." This makes it really clear there is no cap on what they do for "undergrounding" and limiting the APUC jurisdiction up to five percent. There were no objections and it was so ordered. SENATOR LEMAN wanted to see the distinction between distribution versus generation and transmission revenues. This legislation would make more sense to know what revenues come from distribution. He thought they wanted to address situations like the ones on Northern Lights Blvd. and Muldoon Rd. SENATOR LEMAN suggested on line 9 after "utilities annual gross revenue from" insert "distribution to". He said they are only talking about electric lines now, but there are probably some telephone cable that are not distribution lines. He wanted to limit the revenues to only those that are associated with the distribution instead of the generation and transmission. SENATOR DONLEY agreed with that change saying that it clarifies his intent. SENATOR LEMAN moved that as a conceptual amendment. SENATOR KELLY shared Senator Leman's concern, but hesitated because he thought they had to differentiate between high voltage transmission lines and all other distribution lines which are basically low voltage and could include telephone, electric, and cable. However, he thought the committee should figure out if they really want high cost transmission lines buried. They don't know how many transmission lines there are or how they are defined. SENATOR LEMAN explained that there is a break point of kilovolts and then it drops down and go to distribution. SENATOR DONLEY said it's clear with Chugach's numbers, it would take over 100 years to get to the point where they have to deal with transmission lines even if they were covered by the bill. The other issue is that there may be some perfectly good overhead lines and they would want to wait for them to depreciate before doing this. There is probably 150 years of flexibility here. CHAIRMAN MACKIE asked for a committee substitute to be prepared for further discussion with that language in it and adjourned the meeting at 3:40 p.m.