HOUSE SPECIAL COMMITTEE ON UTILITY RESTRUCTURING February 10, 1999 COMMITTEE CALENDAR OVERVIEW: PHASE 1 AK RURAL ELECTRIC CO-OP(ARECA) BACKGROUND ON UTILITY NETWORK AURORA POWER MUNICIPAL LIGHT & POWER (ML&P) TAPE(S) The recording begins with Tape 99-2A, Side B, and continues on Tape 99-2A, Side A, and then concludes on Tape 99-2B, Side A. CALL TO ORDER CHAIRMAN BILL HUDSON called the House Special Committee on Utility Restructuring meeting to order at an unspecified time. PRESENT Members present at the call to order were Representatives Hudson, Cowdery, Green, and Porter. Representatives Davies, Rokeberg and Berkowitz arrived as the meeting was in progress. OTHERS PRESENT Eric Yould, Executive Director, Alaska Rural Electric Cooperative Association, Incorporated; Mary Ann Pease, Aurora Power Resources, Incorporated; Meera Kohler, General Manager, Municipal Light & Power; SUMMARY [The recording begins with Tape 99-2A , Side B, and continues on Tape 99-2A, Side A, and then concludes on Tape 99-2B, Side A.] ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association, Incorporated (ARECA), discussed ARECA, the trade association that represents the utility industry in Alaska. Mr. Yould stated, "I'm really not here to advocate a position for or against restructuring, in general." He noted that although ARECA strongly supports the study initiated by the interim committee with the APUC, ARECA questions the voracity, viability and timing of the pilot study. Mr. Yould also noted that most utilities are opposed to any restructuring in rural Alaska. The discussion then turned to the federal activity in the area of deregulation as well as state activity in order to provide a background of the utility industry in the state. There was also discussion regarding some of the standards that ARECA would like to see. Mr. Yould anticipated deregulation on a national scale as there are two bills, at minimum, that will be introduced this year. One bill, which is very encompassing, was introduced by the Clinton Administration. The other bill by Senator Murkowski, which has yet to be introduced, would basically have no state mandate and no date certain but rather would make it appropriate for states, if in their best interest, to adopt utility deregulation [in a manner appropriate for them]. He reviewed the status of what is happening in the Lower 48 and noted that the National Rural Electric Cooperative Association website keeps a summary of such information. The discussion of the energy market in the Lower 48 was related to the energy market in Alaska. The discussion then turned to Alaska's situation, specifically the difference between the Railbelt and the rural areas. Mr. Yould mentioned the following deregulation issues: market presence/ monopolization, "cherry picking", stranded costs, obligation to serve under deregulation, reliability and tax exempt status. In regards to pilot programs, Mr. Yould noted that the utility industry would be more favorable of such if the study first establishes the merits of restructuring. He then reviewed the conclusions provided by the General Managers [of the electric industry]. MARY ANN PEASE, Vice President, Aurora Power Resources, Incorporated, reviewed who Aurora Power is, the benefits of competition, the pilot program pending before APUC, the objectives and goals of the pilot program. She also reviewed some of the issues that Mr. Yould didn't cover as well as some of the issues which she had a slightly different view on such as the retail cost of electricity, the residential input, publicly-owned versus investor-owned [utilities], urban and rural issues, and stranded costs. In conclusion, she mentioned some legislative considerations. MEERA KOHLER, General Manager, Municipal Light & Power (ML&P), discussed how the restructuring impetus has occurred gradually in the Lower 48 as technological and economic factors have driven the costs of generating electricity. Ms. Kohler discussed the interstate power grid, which makes it feasible to move energy across the [Lower 48]. This is not the case in Alaska as areas are physically isolated from one another, specifically the rural areas are physically isolated from the Railbelt which is physically isolated from the Lower 48 grid. Furthermore, Alaska doesn't have sufficient funds to cure either problem and thus if there is to be competitive local generation sources, they have to be located in the end-user area. The discussion, then, turned to the bottle neck transmission facility and the marginal savings that could be achieved through power pooling and unbundling. The need to address consumer issues was noted as she predicted consumer confusion, which would potentially result in the abuse of consumer interests. She then discussed the electric restructuring efforts in the Lower 48, which have received mixed reviews. She specifically discussed the situations in California and Oregon. She expressed concern that the relatively fragile Alaskan infrastructure would make policy reversals a lot more risky than in other parts of the country. MS. KOHLER, then, reviewed the basic principles that [ML&P] believes should be followed in electrical restructuring. Those are competition, safety, reliability, availability. It was noted that change should not disadvantage any area nor should it create a windfall to a particular area. The need for an Alaskan solution was emphasized. The positive and negative aspects of the joint study commissioned by the APUC and the Joint Committee on HCR 34 were discussed. In conclusion, questions regarding the pilot project in the Railbelt and rebuttals to some of Ms. Pease's comments were addressed. A question and answer session followed. NOTE: The meeting was recorded and a copy of the tapes may be obtained by contacting the House Records Office at 130 Seward Street, Suite 211, Juneau, Alaska 99801-1182, (907) 465-2214, and after adjournment of the second session of the Twenty-first Alaska State Legislature, in the Legislative Reference Library, (907) 465-3808.