Legislature(2009 - 2010)BARNES 124

03/26/2009 03:00 PM House ENERGY

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03:06:18 PM Start
03:07:26 PM HB182
05:02:57 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
HB 182-RAILBELT ENERGY & TRANSMISSION CORP.                                                                                   
CO-CHAIR EDGMON announced that the  first order of business would                                                               
be HOUSE BILL NO. 182,  "An Act establishing the Greater Railbelt                                                               
Energy  and   Transmission  Corporation   and  relating   to  the                                                               
corporation;   relating  to   transition,  financial   plan,  and                                                               
reporting  requirements   regarding  planning  for   the  initial                                                               
business   operations  of   the  Greater   Railbelt  Energy   and                                                               
Transmission  Corporation; relating  to a  report on  legislation                                                               
regarding  the Regulatory  Commission of  Alaska and  the Greater                                                               
Railbelt  Energy and  Transmission  Corporation; authorizing  the                                                               
Alaska Energy Authority to convey  the Bradley Lake Hydroelectric                                                               
Project and  the Alaska Intertie  to the Greater  Railbelt Energy                                                               
and  Transmission Corporation;  and  providing  for an  effective                                                               
3:07:26 PM                                                                                                                    
JOE  BALASH,  Special  Staff Assistant  for  Energy  and  Natural                                                               
Resource Issues,  Office of the Governor,  informed the committee                                                               
HB  182 is  a  product of  the joint  efforts  of the  governor's                                                               
office,  the  Alaska  Energy Authority  (AEA),  and  the  greater                                                               
Railbelt electric utilities.  This  product has been years in the                                                               
making and  draws on the  prior work of  previous administrations                                                               
and the  lessons of the  past.  Mr.  Balash pointed out  that 800                                                               
megawatts  of   power  are  generated  and   distributed  by  six                                                               
different   entities    along   the   Railbelt;    however,   the                                                               
circumstances  of  today  provide  an opportunity  to  unify  the                                                               
transmission  system and  begin joint  planning and  financing of                                                               
the next  wave of power generation  for the Railbelt system.   In                                                               
fact,  unifying the  system and  capitalizing on  efficiencies of                                                               
scale would  save rate  payers and the  general economy  "tens of                                                               
millions of  dollars on an annual  basis."  He recalled  in 2007,                                                               
the governor vetoed appropriations  to the various utilities from                                                               
the Railbelt Energy Fund and called  on the utilities to begin to                                                               
plan for  unification.   The Alaska  Energy Authority  (AEA), the                                                               
utilities, and  a cross section  of interested  parties conducted                                                               
the Alaska Railbelt  Electrical Grid Authority (REGA)  study.  In                                                               
2008,  four  of   the  six  utilities  signed   a  Memorandum  of                                                               
Understanding  (MOU)  to  support  and  pursue  a  unified  power                                                               
provider.   Mr. Balash opined  each utility agrees that  they are                                                               
better off working together; however,  there are disagreements on                                                               
the details of  this endeavor.   The REGA  study was finalized in                                                               
September, 2008  and in  October, the governor,  and the  AEA met                                                               
with  the  board  chairs  of  the  utilities  to  begin  work  on                                                               
legislation.   There was an  additional meeting in  November, and                                                               
in December the utilities provided  the administration with a set                                                               
of characteristics for a company  that would unify the system and                                                               
construct new  power assets on a  joint basis.    From January to                                                               
February  2009, it  became clear  that every  issue would  not be                                                               
resolved  immediately; therefore,  the bill  was introduced  with                                                               
the  commitment  to  the  utilities  that  their  concerns  would                                                               
continue to be addressed.   Thus amendments have been prepared on                                                               
an  ongoing basis  to increase  the utilities'  level of  comfort                                                               
with the proposed legislation.                                                                                                  
3:12:21 PM                                                                                                                    
KEVIN   HARPER,   Management  Director,   Enterprise   Management                                                               
Solutions, Black & Veatch, presented  a summary of the study that                                                               
looked at the  economic and noneconomic benefits  of creating the                                                               
Railbelt Electrical  Grid Authority (REGA).   The REGA  study was                                                               
completed under  the direction of  the AEA  and in response  to a                                                               
legislative  directive.   Mr.  Harper said  the  elements of  the                                                               
proposed   legislation   are   generally  consistent   with   the                                                               
recommendations  of  the  study  and are  supported  by  Black  &                                                               
Veatch.    One  of  the   critical  issues  facing  the  Railbelt                                                               
utilities  is the  uniqueness of  the  area.   For example,  even                                                               
after  all six  utilities are  combined, the  Railbelt region  is                                                               
relatively small, but  must serve urban and  rural customers over                                                               
an  expansive geographic  service  territory.   In addition,  the                                                               
transmission lines do not have  significant redundancies and have                                                               
limited interconnections.  The second  critical issue is the high                                                               
cost of electricity and the  significant cost differences between                                                               
the existing six utilities.  The  third critical area is that the                                                               
region has  historically been dependent on  natural gas; however,                                                               
the  source  of  natural  gas  is  declining  and  the  price  is                                                               
projected  to increase.   Furthermore,  there are  infrastructure                                                               
issues such  as the  age of the  generation facilities,  and that                                                               
the  region  uses  inefficient gas-fired  facilities.    Finally,                                                               
there is  the question of what  resources will be used  for power                                                               
generation in the  future.  Options for the  region include large                                                               
hydroelectric  facilities  or  coal.     Mr.  Harper  opined  the                                                               
combination  of these  issues results  in a  changing environment                                                               
for power  generation in the  region and he identified  the three                                                               
primary objectives of  the REGA study:  Identify  the options for                                                               
how the generation and transmission  system for the region can be                                                               
restructured;  analyze each  option; produce  a final  report for                                                               
the consideration of stakeholders and decision-makers.                                                                          
3:19:07 PM                                                                                                                    
MR. HARPER emphasized  that the REGA study was  not an integrated                                                               
resource plan that  would identify the best  resources for future                                                               
power  generation,  but   was  a  study  to   identify  the  best                                                               
organizational   structure  for   the  future.     A   review  of                                                               
definitions  relevant to  the study  began with  the "coordinated                                                               
operation of the  transmission grid."  This phrase  refers to the                                                               
movement  of  power by  a  stable  system.    The next  term  was                                                               
"economic dispatch" that  is a centralized dispatching  of all of                                                               
the  region's  generation facilities  to  produce  energy at  the                                                               
lowest cost.   "Regional integrated resource planning"  is a term                                                               
to describe  the process  of looking  at supply-side  and demand-                                                               
side options, and  selecting the optimal resources  to meet those                                                               
needs  in  the  future.   Finally,  "joint  project  development"                                                               
refers to  two or more  utilities developing projects on  a joint                                                               
MR.  HARPER presented  slide 4  that  illustrated five  different                                                               
organizational paths:   Path 1 - Maintain the status  quo; Path 2                                                               
- Create  an entity  to focus on  operations of  the transmission                                                               
grid; Path  3 - Create  an entity  that would be  responsible for                                                               
the  independent  operation of  the  grid  and regional  economic                                                               
dispatch; Path  4 -  Create an entity  that would  be responsible                                                               
for the independent operation of  the transmission grid, regional                                                               
economic dispatch, regional resource  planning, and joint project                                                               
development;   Path 5 - Create  an entity that would  decide what                                                               
to  build  in   the  future  and  form  a  power   pool  for  the                                                               
construction of assets.                                                                                                         
3:23:34 PM                                                                                                                    
MR.  HARPER  displayed slide  5  that  illustrated the  following                                                               
evaluation scenarios:  Scenario A  - The future resources will be                                                               
large  hydro/renewables/[demand   side  management  (DSM)]/energy                                                               
efficiency;  Scenario B  - The  future resource  will be  natural                                                               
gas; Scenario  C -  The  future resource will be coal; Scenario D                                                               
- The  future resources will be  mixed.  The REGA  study does not                                                               
indicate  which  of  the  scenarios  is best,  but  is  meant  to                                                               
identify  what  organizational structure  is  best  under any  of                                                               
these  scenarios.     Turning  to  the   subject  of  stakeholder                                                               
involvement,  Mr.  Harper  described   the  process  his  company                                                               
utilized  to  gather information  and  from  whom.   Furthermore,                                                               
prior  to the  preparation of  the final  study, public  comments                                                               
were solicited and  reflected in the draft report.   He concluded                                                               
that  the  stakeholder  involvement   process  was  an  important                                                               
element of  the report  and led to  more effective  final results                                                               
and  recommendations.    Mr.  Harper   then  displayed  slide  7,                                                               
"Results  -  Average  Net  Savings   ($'000)."    Describing  the                                                               
columns, he  said they  show the net  annual average  savings for                                                               
each organizational  path under each of  the different scenarios.                                                               
The  annual average  net savings  is a  function of  the cost  of                                                               
power and the cost of the  regional entity.  Thus, the net annual                                                               
savings reflects  the combination of  the power cost  savings and                                                               
the organizational  cost.  For  example, Path 4 under  Scenario A                                                               
saved  $42.7  million over  30  years.    This savings  was  also                                                               
presented  on  a  percentage  basis  and  on  a  typical  monthly                                                               
residential bill.   He  pointed out  Path 4 and  Path 5  have the                                                               
greatest  savings;   however,  the  savings  under   Path  5  are                                                               
overstated because the cost of  employees' salaries are included.                                                               
Also under Path  5, the utilities can decide on  the resources to                                                               
be  developed and  if  they choose  a  different resource,  there                                                               
could  be a  different result.   He  stated the  study considered                                                               
Path 5  as a transitional approach  and not feasible for  a long-                                                               
term solution;  therefore, Path 4  was recommended.  As  a matter                                                               
of fact,  the set of  functional responsibilities [under  Path 4]                                                               
is consistent with what is proposed in the legislation.                                                                         
3:32:30 PM                                                                                                                    
MR. HARPER said the most  significant challenge facing the region                                                               
is how to  finance the future.  It is  anticipated that the total                                                               
capital investment  required over the  next 30 years  ranges from                                                               
$2.5  billion to  $8  billion.   In  perspective,  using debt  to                                                               
finance the  future could put  the total long-term  obligation of                                                               
the region at up to seven  times that amount.  He advised dealing                                                               
with the issues in the  region is an expensive, capital intensive                                                               
process,  and  emphasized the  importance  of  having a  regional                                                               
entity because the individual utilities  will not qualify for the                                                               
necessary  financing.    In  order   to  create  the  recommended                                                               
organizational  structure,  Mr.  Harper suggested  the  following                                                               
steps for the  state and the utilities:    decide whether to form                                                               
a   regional    entity   and    to   finalize    its   functional                                                               
responsibilities;  decide the legal  form of the regional entity;                                                               
develop a  transition team to  oversee implementation;  adopt the                                                               
required  legislative   and  regulatory  actions;   complete  the                                                               
formation of  the new  entity; and  develop the  initial regional                                                               
integrated  resource plan  and the  transmission expansion  plan.                                                               
Mr.  Harper concluded  his presentation  by noting  that although                                                               
the  region   is  faced  with   many  challenges,  it   also  has                                                               
significant  resource  options.    Secondly,  the  concept  of  a                                                               
regional entity  is new to Alaska,  but is a well-tested  idea in                                                               
the Lower  48.   Thirdly, the economic  benefits of  the proposed                                                               
legislation  are  significant and  are  not  "a leap  of  faith."                                                               
Finally, he  cautioned against delay  because the  utilities will                                                               
continue to make decisions that  are not necessarily best for the                                                               
region, and because with delay, momentum disappears.                                                                            
3:39:19 PM                                                                                                                    
JIM  STRANDBERG, Project  Manager,  Greater  Railbelt Energy  and                                                               
Transmission Corporation (GRETC)  project, AEA, AIDEA, Department                                                               
of   Commerce,  Community,   &   Economic  Development   (DCCED),                                                               
presented  a  description   of  HB  182  and   the  approach  the                                                               
administration  is suggesting  for the  formation of  the Greater                                                               
Railbelt  Energy  and  Transmission  Corporation  (GRETC).    Mr.                                                               
Strandberg informed the committee HB 182  is a product of a joint                                                               
effort between the Office of  the Governor, the Railbelt electric                                                               
utilities, and the AEA.  This is  the first year step to create a                                                               
durable not-for-profit  corporation to assume  the responsibility                                                               
for  Railbelt  power generators  and  transmission  lines of  the                                                               
future.   Efforts by  the utilities to  restructure in  the past,                                                               
and the REGA study, have  sought new and innovative approaches to                                                               
determine  the   best  organization  for  the   future  of  power                                                               
generation in the Railbelt.  House  Bill 182 is the first step in                                                               
a  phased, two-year  legislative process  to form  the GRETC;  in                                                               
fact,  this enabling  legislation defines  the business  type and                                                               
statute, the board of directors,  voting rights, and basic powers                                                               
and duties.  Between year one  and year two, the new company must                                                               
create  transition  plans,  develop financing  capabilities,  and                                                               
develop  the responsibilities  of  the  Regulatory Commission  of                                                               
Alaska  (RCA).    The  AEA  will  assist  in  the  financial  and                                                               
regulatory  work  and will  assist,  through  grants and  support                                                               
labor,  the  formation of  the  GRETC  board  and by-laws.    Mr.                                                               
Strandberg referred to  the fiscal note for a  description of the                                                               
funding  sources of  this  support.   Year  two legislation  will                                                               
propose  financing capabilities,  define the  transition process,                                                               
and complete  the formation of the  company.  He pointed  out the                                                               
need  to  begin  projects  in  the  Railbelt  area  such  as  the                                                               
completion  of the  integrated resource  plan.   In fact,  AEA is                                                               
working on  the plan as  part of the Susitna  hydroelectric power                                                               
project  funding.   The  plan  is  necessary to  determine  when,                                                               
where, and what  kind of generation and  transmission plants need                                                               
to be built.   The plan is expected to  be completed in November,                                                               
2009.   Mr.  Strandberg  advised the  committee  of projects  and                                                               
upgrading needed to the existing  infrastructure in the Railbelt,                                                               
including the development of near-term  fuel supplies.  He opined                                                               
these tasks require a company  that is a full-service utility and                                                               
that has  planning, design, and management  talent, combined with                                                               
a solid  financial base.   The  company must  also work  with the                                                               
state in  financial matters to  maintain low rates to  ensure the                                                               
public benefit to the Railbelt.                                                                                                 
3:45:55 PM                                                                                                                    
MR. STRANDBERG  continued to  explain that one  aspect of  HB 182                                                               
will  place  two  major  assets  owned by  the  AEA  into  GRETC.                                                               
Simply, during  the period  ending July  31, 2010,  each Railbelt                                                               
utility can choose to sign a  letter of intent to accept a phased                                                               
approach  to  commit human  resources  and  physical assets  into                                                               
GRETC.    Included  with  the  letter of  intent  will  be  state                                                               
commitments  to begin  the  process of  committing  to the  GRETC                                                               
concept.  He recalled the high price  of oil and the need to have                                                               
a   diversified  system   throughout   the   Railbelt  by   2020,                                                               
contributed to the formation of  this company.  Further, the next                                                               
ten  years will  be a  transition period  during which  new major                                                               
projects   will  be   developed  to   restructure  the   Railbelt                                                               
physically and contractually.  The  vision behind the legislation                                                               
is that  by year  10 of  the transition period,  there will  be a                                                               
diversified  power supply  portfolio  and  a robust  transmission                                                               
system.   In addition,  during the  transition period,  the state                                                               
must act to  maintain power supplies at reasonable  prices to the                                                               
consumer.   For the  large scale  projects, financing,  debt, and                                                               
equity  management will  drive  how the  utilities  will need  to                                                               
commit to  power sales agreements  and bond sales.   He concluded                                                               
that the  proposed legislation seeks  to create  a not-for-profit                                                               
and robust  private corporation, with specific  public duties and                                                               
responsibilities  to provide  a single  system rate  of wholesale                                                               
power to all Railbelt utilities on a nondiscriminatory basis.                                                                   
3:49:53 PM                                                                                                                    
REPRESENTATIVE  RAMRAS recalled  this  idea  surfaced during  the                                                               
previous administration  and asked how  HB 182 differs  from what                                                               
was proposed  then.  He then  asked how the concerns  of the GVEA                                                               
are addressed by the proposed legislation.                                                                                      
3:50:36 PM                                                                                                                    
MR.  STRANDBERG acknowledged  that the  legislation enabling  the                                                               
REGA study  was passed during  the previous administration.   The                                                               
process  began then;  in fact,  many of  the basic  concepts were                                                               
laid in  that legislation.  Responding  to Representative Ramras'                                                               
second question, he  said the process is  a collaborative process                                                               
and GVEA has been included.   His agency has largely followed the                                                               
recommendations   of  the   REGA   study,   however,  there   are                                                               
differences.   The  GVEA board  of  directors, the  AEA, and  the                                                               
governor's  office  met  recently;  moreover, GVEA  was  "at  the                                                               
table" for the entire process.   As a matter of fact, the general                                                               
manager of GVEA  was a member of the advisory  work group and has                                                               
participated from  the beginning.   He  declined to  state GVEA's                                                               
3:53:26 PM                                                                                                                    
REPRESENTATIVE RAMRAS remarked:                                                                                                 
     Given that  they have some  profound concerns,  what is                                                                    
     the  plan over  the  interim to  try  and work  through                                                                    
     those concerns ... to try  and mitigate their concerns,                                                                    
     and some  of the concerns  of the other  utilities that                                                                    
     are allowing  Golden Valley to  ... articulate  some of                                                                    
     the objectionable points to the GRETC program?                                                                             
3:53:59 PM                                                                                                                    
MR.  STRANDBERG restated  that the  process involved  all of  the                                                               
utilities,  of  which  GVEA  is  one.     The  AEA  served  as  a                                                               
facilitator   and  sought   to  develop   approaches  that   were                                                               
satisfactory to all.  He confirmed  that the AEA will continue to                                                               
meet and facilitate discussions  between the utilities to attempt                                                               
to come to a consensus   solution;  however, he agreed that there                                                               
is work to be done.                                                                                                             
3:54:49 PM                                                                                                                    
REPRESENTATIVE  TUCK  asked whether  the  AEA  is presenting  the                                                               
3:55:09 PM                                                                                                                    
MR. STRANDBERG said HB 182 is  the governor's bill and the AEA is                                                               
the agency supporting the governor's office in this matter.                                                                     
3:55:33 PM                                                                                                                    
REPRESENTATIVE  TUCK  asked  whether the  corporation  will  have                                                               
bonding capabilities.                                                                                                           
3:55:55 PM                                                                                                                    
MR.  STRANDBERG  said  yes,  and  explained  that  the  financing                                                               
capabilities  of the  GRETC are  not dealt  with in  the enabling                                                               
legislation;  however, the intent  is to develop the capabilities                                                               
over the  next year, so  that the company can  shoulder long-term                                                               
3:56:24 PM                                                                                                                    
REPRESENTATIVE  TUCK surmised  that one  of the  other identified                                                               
tasks is to develop transition plans  specific to each of the six                                                               
utilities.   He  asked for  clarification of  the task  to become                                                               
properly structured under  the RCA, and whether the  RCA is going                                                               
to be the ultimate authority for the corporation.                                                                               
3:56:59 PM                                                                                                                    
MR. STRANDBERG  pointed out the  corporation will be  a regulated                                                               
public utility,  except that  it does not  have a  requirement to                                                               
secure a Certificate  of Public Convenience and  Necessity.  This                                                               
is  because  the legislature  is  creating  this corporation  and                                                               
requiring a  certificate would  be a  duplication.   In addition,                                                               
there  are statutory  responsibilities built-in  that direct  the                                                               
company's purpose.   Referring to  the regulatory tasks,  he said                                                               
that one task  is to develop the  responsibilities for regulation                                                               
by the RCA.   This will be a large company  with large assets and                                                               
RCA's jurisdiction may need to be a "custom approach."                                                                          
3:58:36 PM                                                                                                                    
CO-CHAIR EDGMON  observed "this  bill doesn't seem  to be  on the                                                               
slow track."                                                                                                                    
3:59:06 PM                                                                                                                    
MR. STRANDBERG  advised that the  schedule responds to  the needs                                                               
of the Railbelt;   in fact, the  dates were set at  the urging of                                                               
the utilities.                                                                                                                  
3:59:34 PM                                                                                                                    
CO-CHAIR EDGMON  expressed his  understanding from  the utilities                                                               
that  they are  interested in  the proposed  legislation but  not                                                               
overly supportive.   He asked how the directives  of the proposed                                                               
legislation will be  advanced according to the  schedule when the                                                               
utilities may  need more time; in  fact, there is no  mandate for                                                               
them to join in the effort.                                                                                                     
4:00:28 PM                                                                                                                    
MR.  STRANDBERG opined  the bill  takes a  collaborative approach                                                               
underlined by  a phased  commitment process.   This  process will                                                               
give  the utilities  time, and  will  develop enough  information                                                               
about  financing   and  regulations,   so  they  can   decide  to                                                               
participate.     In  essence,   the  proposed   corporation  will                                                               
capitalize  large scale  projects and  negotiate long-term  power                                                               
sale contracts  with each  of the utilities  at a  single system-                                                               
wide rate.  This does not  require the utilities to invest money,                                                               
but only  to commit politically, and  be ready to sign  the power                                                               
contracts after the  cost of the power is known.   Mr. Strandberg                                                               
said,  "The structure  of this  is that  ... we  would get  smart                                                               
together over  the next year ....  so it could go  into operation                                                               
approximately eighteen months from now."                                                                                        
4:02:57 PM                                                                                                                    
CO-CHAIR  EDGMON recalled  that  the energy  challenges in  rural                                                               
areas  of the  state  are  troubling, at  the  least.   He  asked                                                               
whether this effort is concurrent  with the statewide energy plan                                                               
presented by Mr.  Haagensen, Director, AEA, or whether  it was on                                                               
a faster track.                                                                                                                 
4:04:19 PM                                                                                                                    
MR. STRANDBERG deferred  the question to Mr. Haagenson.   He then                                                               
noted that the  AEA is working to integrate the  REGA effort with                                                               
other  statewide regional  plans; however,  the basic  concept is                                                               
that  each region  is different  and  each region  needs its  own                                                               
process such as a REGA study or  a plan similar to the GRETC.  To                                                               
deal equally with  all regions of the state,  the processes would                                                               
have to be linked together.                                                                                                     
4:05:05 PM                                                                                                                    
CO-CHAIR  EDGMON  surmised  this  effort  is  separate  from  the                                                               
[Alaska Energy A first step  toward energy independence] document                                                               
provided to the committee by the AEA in January, 2009.                                                                          
MR. STRANDBERG said, "It's separate, but it's related."                                                                         
4:05:23 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN referred  to  page 7,  line  31, of  the                                                               
bill,  and surmised  the integrated  resource plan  would give  a                                                               
picture of "what's  out there," and the next  step for investment                                                               
in the  future.  He asked  how the board of  directors will agree                                                               
to take on the debt of the corporation.                                                                                         
4:06:21 PM                                                                                                                    
MR.  STRANDBERG explained  the 13  member board  of directors  is                                                               
currently envisioned  to operate  under a  simple majority.   The                                                               
underlying  principle   is  that  the  board   is  configured  to                                                               
represent all  of rate payers  of the Railbelt;  therefore, board                                                               
members "[have] a  different hat that is put on  by each of these                                                               
board people  when they come  into the  boardroom."  He  opined a                                                               
simple majority,  or some variation  of that, is  the appropriate                                                               
approach,  given the  mandate that  each board  member represents                                                               
all of the people of the Railbelt.                                                                                              
4:07:48 PM                                                                                                                    
REPRESENTATIVE JOHANSEN  opined the  big questions will  be asked                                                               
when money is spent on projects.   He restated his question as to                                                               
whether a simple majority of the board will incur debt.                                                                         
4:08:20 PM                                                                                                                    
MR. STRANDBERG  indicated yes.   He  reminded the  committee that                                                               
one   of   the   mandates   of  the   company   is   to   provide                                                               
nondiscriminatory,  equal  reliability  and  power  at  a  single                                                               
system-wide rate;  thus the company   must function to  build the                                                               
network   and   to   avoid  regional   voting   without   further                                                               
intervention from the legislature.                                                                                              
4:09:30 PM.                                                                                                                   
REPRESENTATIVE  JOHANSEN requested  clarification.   "The statute                                                               
simply  says   you  can  borrow  money   and  otherwise  contract                                                               
indebtedness, so this will be in the by-law process?" he asked.                                                                 
4:09:54 PM                                                                                                                    
MR. STRANDBERG  said the  business processes will  be in  the by-                                                               
laws; however, the  ability to secure financing  will be built-in                                                               
next  year  after  the  financial   powers  are  specified.    He                                                               
clarified that there  was nothing in the  enabling legislation to                                                               
allow the corporation to "go borrow money."                                                                                     
4:10:37 PM                                                                                                                    
REPRESENTATIVE  TUCK  asked  whether the  corporation  will  have                                                               
bonding authority.                                                                                                              
MR. STRANDBERG answered that it  could.  However, that aspect has                                                               
not been dealt with yet.                                                                                                        
4:11:15 PM                                                                                                                    
LORALI CARTER, Manager,  Government and Corporate Communications,                                                               
Matanuska  Electric Association  (MEA),  Inc.,  read a  statement                                                               
from  a  1962  report  commissioned   by  the  [Municipality]  of                                                               
Anchorage, CEA,  the cities  of Fairbanks  and Seward,  MEA, HEA,                                                               
Copper Valley Electric Association, and  GVEA.  The report listed                                                               
the advantages and feasibility of  a cooperative power generation                                                               
and  transmission system  for the  Railbelt.   Ms. Carter  stated                                                               
that  MEA   appreciates  the  attention  the   governor  and  the                                                               
legislature have  paid to this issue,  and agrees that this  is a                                                               
critical time in  the Railbelt.  She noted  that MEA participated                                                               
in the REGA  study; however, she opined  the proposed legislation                                                               
is not a product of REGA and  HB 182 does not follow a particular                                                               
path recommended by  the REGA study.  Aspects of  HB 182 that are                                                               
supported by  MEA are the  public participation and  the "postage                                                               
stamp rate."   Ms.  Carter related  MEA's reservations  about the                                                               
framework  of  voluntary  participation;  in fact,  there  is  no                                                               
precedence for  voluntary cooperation  between the  six utilities                                                               
and  the  transition plan is not likely to  happen.  Furthermore,                                                               
MEA  believes  RCA  oversight  is  critical as  the  RCA  is  the                                                               
appropriate consumer  protection agency.  If  the new corporation                                                               
is not  required to  be certificated by  the RCA  "it essentially                                                               
guts their  enforcement authority."   She  then pointed  out that                                                               
the Healy  Coal plant is  not part of the  legislation discussing                                                               
the  transfer of  state assets,  thus MEA  is concerned  that the                                                               
plant was  negotiated as a "side  deal."  Ms. Carter  assured the                                                               
committee MEA wants a generation  and transmission system that is                                                               
successful  and unified,  but this  legislation simply  creates a                                                               
framework for  voluntary participation.  Regarding  the timing of                                                               
the process,  she indicated  that the  utilities are  waiting for                                                               
the outcome  of the bill  and are  moving forward with  their own                                                               
plans for their members.                                                                                                        
4:16:59 PM                                                                                                                    
CO-CHAIR  MILLETT  asked  about  MEA's  plans  for  future  power                                                               
4:17:15 PM                                                                                                                    
MS.  CARTER said  MEA  is  planning on  building  a 180  megawatt                                                               
natural  gas  plant at  Eklutna.    Presently,  MEA has  an  all-                                                               
requirements contract with CEA that expires in 2014.                                                                            
4:17:56 PM                                                                                                                    
CO-CHAIR MILLETT further asked about MEA's negotiations for gas.                                                                
4:18:12 PM                                                                                                                    
MS. CARTER  said [gas contracts]  are preliminary at  this stage.                                                               
She  added that  the  producers do  not  negotiate gas  contracts                                                               
beyond "three years out."                                                                                                       
4:18:38 PM                                                                                                                    
REPRESENTATIVE TUCK asked  what MEA wants to see  in the proposed                                                               
4:19:10 PM                                                                                                                    
MS. CARTER  explained participation in the  corporation should be                                                               
mandatory, and  MEA would like  to see the policy  makers require                                                               
the   Railbelt   utilities   to  unify   power   generation   and                                                               
4:19:49 PM                                                                                                                    
REPRESENTATIVE  TUCK assumed  the board  of directors  would have                                                               
two members  from each of  the six  utilities.  He  asked whether                                                               
there are utilities  that would not participate  in the voluntary                                                               
4:20:23 PM                                                                                                                    
MS. CARTER declined  to speak for the other  utilities.  However,                                                               
MEA's point of view on majority  vote is that there should not be                                                               
veto power in the boardroom.                                                                                                    
4:20:57 PM                                                                                                                    
REPRESENTATIVE   JOHANSEN  expressed   his   surprise  that   the                                                               
utilities  would  not  want  to participate  after  40  years  of                                                               
discussion  about unification.    He asked  how unification  will                                                               
come about if the utilities continue "in their own direction."                                                                  
4:23:13 PM                                                                                                                    
MS. CARTER encouraged  the committee to remember  the Railbelt is                                                               
a region  that includes areas  such as Fairbanks and  Homer, that                                                               
have  very   unique  circumstances.    Although   MEA  and  other                                                               
organizations   have  made   recommendations  over   many  years,                                                               
unification  has not  taken place,  thus MEA's  concern with  the                                                               
voluntary framework of the legislation.                                                                                         
4:24:14 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN asked  whether  MEA is  willing to  give                                                               
something up for unification to take place.                                                                                     
4:24:29 PM                                                                                                                    
MS. CARTER referred  to the transfer of state assets,  as well as                                                               
assets  owned  by the  utilities,  in  the proposed  legislation.                                                               
There is opportunity  afforded in HB 182 to  unify the generation                                                               
and  transmission  system where  all  of  the  assets go  to  the                                                               
corporation,   and  the   utilities   continue  as   distribution                                                               
companies only.                                                                                                                 
4:25:22 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN  asked  whether   MEA  was  the  largest                                                               
utility of the six in the Railbelt area.                                                                                        
4:25:33 PM                                                                                                                    
MS.  CARTER  said  MEA  is  the  second  largest  cooperative  by                                                               
membership,  the third  largest by  "load," and  has the  largest                                                               
service  area.   She emphasized  that  neither the  MEA board  of                                                               
directors nor its general manager  has taken a formal position on                                                               
this version of the bill.   She restated her point that voluntary                                                               
participation in  the unification process has  been unsuccessful.                                                               
In  further response  to Representative  Johansen,  she said  MEA                                                               
continues to "sit at the table"  and discuss its unique needs and                                                               
point of view.                                                                                                                  
4:26:32 PM                                                                                                                    
CO-CHAIR  EDGMON  asked  what  would have  to  occur  within  the                                                               
corporate structure of MEA to participate.                                                                                      
4:27:09 PM                                                                                                                    
MS. CARTER  agreed that changes would  need to be made.   Part of                                                               
MEA's  reservation with  the legislation  is the  transition plan                                                               
and its timeline.                                                                                                               
4:27:44 PM                                                                                                                    
CO-CHAIR  MILLETT  listed the  various  capabilities  of the  six                                                               
utilities.    She then  asked  for  the implication  of  "postage                                                               
stamp" rates.                                                                                                                   
4:28:27 PM                                                                                                                    
MS. CARTER  explained postage  stamp rate  means that  the retail                                                               
customers will pay the same  amount regardless of their location.                                                               
Anchorage Municipal Light  and Power (ML&P) has  the lowest rates                                                               
at  this  time  because  they  have ownership  in  a  gas  field.                                                               
Looking at an overall policy,  postage stamp rates will mean that                                                               
rates for some customers will go up and some will go down.                                                                      
4:29:31 PM                                                                                                                    
CO-CHAIR MILLETT  pointed out  ML&P members  will not  want their                                                               
rates to go  up.  She said,  "I would imagine it would  be a hard                                                               
sell to those that are enjoying low rates."                                                                                     
4:30:01 PM                                                                                                                    
MS. CARTER   restated, "We  support a postage stamp  rate because                                                               
we want  to see  fairness along  the Railbelt  end rate  and that                                                               
would  be  one  ...  benefit to  a  generation  and  transmission                                                               
4:30:31 PM                                                                                                                    
REPRESENTATIVE TUCK  stated his  understanding that by  2010, the                                                               
corporation would  have contracts with the  individual utilities;                                                               
therefore, the postage stamp rates  would be the wholesale prices                                                               
to each  of the  six utilities,  not postage  stamp rates  to the                                                               
retailers.  If the latter is  true, "It's going to be troublesome                                                               
for  some utilities,  because they're  not  going to  be able  to                                                               
offer  the  same rates  because  they  have different  overheads,                                                               
different       infrastructure,      operation,       maintenance                                                               
responsibilities  ...  so, are  we  talking  about postage  stamp                                                               
rates for wholesale or for retail?" he asked.                                                                                   
4:31:44 PM                                                                                                                    
MS. CARTER deferred to Mr. Strandberg.                                                                                          
4:32:13 PM                                                                                                                    
REPRESENTATIVE TUCK  further asked whether MEA  is concerned that                                                               
the Healy Coal plant should be  part of the assets distributed by                                                               
the utilities.                                                                                                                  
4:32:35 PM                                                                                                                    
MS. CARTER  said, "That it should  be a part of  this legislation                                                               
for the transfer of state assets."                                                                                              
4:32:38 PM                                                                                                                    
BRAD  JANORSCHKE,  General  Manager, Homer  Electric  Association                                                               
(HEA), read [original punctuation provided]:                                                                                    
     As you are aware, Homer  Electric Association is one of                                                                    
     the  6  Railbelt  electric utilities  included  in  the                                                                    
     proposed legislation.   Over  the last 6  months, HEA's                                                                    
     members  have  experienced  rates that  have  increased                                                                    
     from  about 14.5  cents to  21.5 cents  per kWh,  a 48%                                                                    
     increase  driven primarily  by  escalating fuel  costs.                                                                    
     Fuel  costs are  not  our only  challenge,  nor are  we                                                                    
     alone.  In addition to  the need to address future fuel                                                                    
     needs,  the Railbelt  utilities are  facing many  other                                                                    
     challenges  that  will require  cooperation,  planning,                                                                    
     and  capital  if we  are  to  ensure three  fourths  of                                                                    
     Alaska's   population  is   to   continue  to   receive                                                                    
     reliable, cost effective power.                                                                                            
     HB 182  does create  the opportunity for  the utilities                                                                    
     to  participate   in  an  organization  that   will  be                                                                    
     responsible for  addressing and creating  the synergies                                                                    
     needed  to solve  the previously  mentioned challenges.                                                                    
     Many  details  need   to  be  worked  out   and  it  is                                                                    
     anticipated these  details will  be addressed in  a yet                                                                    
     to  be developed  transition plan.   HEA  will work  in                                                                    
     good faith to assist in the development of such plan.                                                                      
     Although  we have  a  concern  about board  composition                                                                    
     outlined in the  current bill, we are  working with the                                                                    
     administration to  resolve that concern.   As a result,                                                                    
     HEA does support  the concept of HB 182  and we support                                                                  
     the movement of this bill to the next stop.                                                                                
4:34:40 PM                                                                                                                    
CO-CHAIR MILLETT asked how HEA generates power.                                                                                 
4:34:50 PM                                                                                                                    
MR. JANORSCHKE  explained HEA purchases power  from CEA; operates                                                               
and  maintains Bradley  Lake  [Hydroelectric  Project]; and  also                                                               
operates a  40 megawatt "co-gen"  unit at the  Agrium [fertilizer                                                               
plant] site.                                                                                                                    
REPRESENTATIVE TUCK asked whether Bradley Lake Hydroelectric                                                                    
Project (Bradley Lake) is state-owned.                                                                                          
4:35:36 PM                                                                                                                    
MR. JANORSCHKE responded that Bradley Lake is a state-owned                                                                     
asset, operated and maintained by HEA on behalf of all of the                                                                   
Railbelt utilities that  participate in the project.   In further                                                               
response to Representative Tuck, he  said HEA buys power from the                                                               
Bradley  Lake   facility,  and  has  a   separate  operation  and                                                               
maintenance contract.                                                                                                           
4:35:58 PM                                                                                                                    
CO-CHAIR EDGMON asked  whether HEA has sufficient  spare power to                                                               
power Pebble [Mine].                                                                                                            
4:36:11 PM                                                                                                                    
MR. JANORSCHKE said no.                                                                                                         
4:36:15 PM                                                                                                                    
DAVE  GARDNER, Vice  President,  Marketing  and Member  Services,                                                               
Golden   Valley  Electric   Association   (GVEA),  informed   the                                                               
committee the GVEA board is still  reviewing HB 182.  The board's                                                               
concerns   are  based   on  the   unanswered  questions   in  the                                                               
legislation, such  as how  an entity  created by  the legislation                                                               
would  provide  the  same  level   of  reliability  that  members                                                               
currently receive  from GVEA.   He emphasized that GVEA  does not                                                               
refute  the   concept  of  a  Railbelt   generation  transmission                                                               
organization;    however, GVEA  wants  to  first see  a  Railbelt                                                               
integrated resource  plan that clearly  states the purposes  of a                                                               
unified  Railbelt utility.   Mr.  Gardner listed  other questions                                                               
about the  unification process.   He then explained GVEA  needs a                                                               
low fuel cost supply of power  and that issue is not addressed by                                                               
the  bill.    Furthermore,  unlike some  of  the  other  Railbelt                                                               
utilities,  GVEA  will  not need  new  generation  facilities  or                                                               
transmission lines  for more than  20 years.  Mr.  Gardner opined                                                               
the proposed  legislation does not  address the diverse  needs of                                                               
the utilities,  but seeks  to form an  organization to  force the                                                               
utilities  under one  umbrella "and  hopes that  everyone's needs                                                               
will converge  and that  savings will  follow."   His association                                                               
has  promoted the  concept of  a Railbelt  organization for  more                                                               
than 30  years; in fact, it  joined with other utilities  and the                                                               
state to construct the Bradley  Lake Hydroelectric Project.  More                                                               
recently, CEA,  ML&P, and  GVEA formed a  joint action  agency to                                                               
promote  combined  generation  and transmission  activities,  and                                                               
joined with HEA to settle  the issues surrounding the Healy Clean                                                               
Coal Project.  He concluded that  GVEA will continue to work with                                                               
the administration on this legislation.                                                                                         
4:41:21 PM                                                                                                                    
REPRESENTATIVE TUCK asked whether  GVEA would accept mandatory or                                                               
voluntary participation in the corporation.                                                                                     
4:41:36 PM                                                                                                                    
MR.  GARDNER stated  GVEA's number  one  concern is  that "It  be                                                               
fairly applied to  all utilities and that  the reliability issues                                                               
be safeguarded."                                                                                                                
4:42:03 PM                                                                                                                    
REPRESENTATIVE  TUCK asked  at what  voltage is  GVEA's point  of                                                               
demarcation between transmission and distribution.                                                                              
4:42:28 PM                                                                                                                    
MR.  GARDNER  explained its  primary  voltage  is 138,000  volts;                                                               
however, GVEA  owns all of  its generation north of  "the range."                                                               
Golden Valley  Electric Association purchases power  from CEA and                                                               
from the  Bradley Lake  facility, thus  owns the  generation, the                                                               
transmission, and the distribution.                                                                                             
4:43:06 PM                                                                                                                    
REPRESENTATIVE TUCK  further asked about distribution  at a lower                                                               
4:43:25 PM                                                                                                                    
MR.  GARDNER  noted  there  are  substations  located  throughout                                                               
GVEA's system.   In further  response to Representative  Tuck, he                                                               
said  he  was unsure  about  the  point  of distribution  in  all                                                               
instances.  He added that  GVEA has the second lowest residential                                                               
rates, following ML&P.                                                                                                          
4:44:46 PM                                                                                                                    
CO-CHAIR EDGMON  asked about the  reality of the timeline  set in                                                               
the proposed legislation.                                                                                                       
4:45:14 PM                                                                                                                    
MR.  GARDNER   restated  GVEA's  commitment  to   work  with  the                                                               
committee,  the administration,  the RCA,  and other  agencies as                                                               
4:45:34 PM                                                                                                                    
WILLARD  DUNHAM,  Vice  Mayor,   City  of  Seward,  informed  the                                                               
committee the City  of Seward Electric System (SES)  is a utility                                                               
system under  home rule ownership  similar to  ML&P.  As  a small                                                               
utility it  uses about  nine to  ten megawatts  of power  that is                                                               
provided  by CEA.   The  SES includes  approximately 40  miles of                                                               
transmission line,  with services provided  by both the  city and                                                               
CEA.   In addition,  SES provides  back-up diesel  generation and                                                               
has provided  emergency power  to the  communities of  Moose Pass                                                               
and Cooper  Landing.  Mr. Dunham  stated that the City  of Seward                                                               
feels the  GRETC proposal is  worth exploring, but asks  that the                                                               
small utilities are protected and given an even voice in voting.                                                                
4:48:51 PM                                                                                                                    
REBECCA  LOGAN, Chairman,  Board of  Directors, Chugach  Electric                                                               
Association (CEA), Inc., expressed  her organization's support of                                                               
HB 182.   She noted that the  bill is the result of  two years of                                                               
work and the  study authorized by AEA.   Following the conclusion                                                               
of   the  study,   representatives  of   the  Railbelt   electric                                                               
utilities, the  AEA, and the  administration, worked  together to                                                               
develop the proposed legislation.   Further, amendments have been                                                               
introduced  to address  concerns about  the original  bill.   Ms.                                                               
Logan  stated CEA  believes a  single  organization charged  with                                                               
providing   generation   and   transmission   services   for   an                                                               
interconnected Railbelt  will be  able to  provide savings.   She                                                               
reviewed  the organization  of the  GRETC corporation  and opined                                                               
the corporation  is needed to  provide joint planning,  a unified                                                               
transmission system, the construction of  a major hydro plant and                                                               
transmission system,  and to provide  a unified voice  for energy                                                               
matters that  require state involvement.   However,  each utility                                                               
will need a transition plan to  ensure that the customers of each                                                               
utility are treated  fairly.  This transition period  will take a                                                               
number of  years.  Ms. Logan  concluded that HB 182  would create                                                               
an organization  that can  effectively plan,  finance, construct,                                                               
and operate  generation and transmission facilities  to serve the                                                               
4:53:55 PM                                                                                                                    
REPRESENTATIVE   RAMRAS  expressed   his  appreciation   of  this                                                               
opportunity to move Alaska's electrical  generation into the 21st                                                               
4:54:29 PM                                                                                                                    
CO-CHAIR EDGMON asked for clarification  of the timeline outlined                                                               
in the proposed bill.                                                                                                           
4:54:44 PM                                                                                                                    
BRADLEY  EVANS, CEO,  Chugach Electric  Association (CEA),  Inc.,                                                               
opined most of  the large scale transition plan  matters could be                                                               
identified  during  the  timeline contemplated  in  the  proposed                                                               
legislation; in  fact, CEA has  been studying  restructuring with                                                               
ML&P over the past two years  and has been looking at issues such                                                               
as  financing, asset  transfers,  and  the utilities'  covenants.                                                               
Although the amount of transition  work may be different for each                                                               
utility, CEA  anticipates its transition  can be  accomplished in                                                               
the time period allowed.                                                                                                        
4:56:14 PM                                                                                                                    
MS.  LOGAN  added  that  CEA   and  ML&P  have  been  working  in                                                               
anticipation of  a merger, and  have spent hundreds  of thousands                                                               
of dollars laying the groundwork for the corporation.                                                                           
4:56:50 PM                                                                                                                    
REPRESENTATIVE  TUCK  asked  whether  the  state  shared  in  the                                                               
4:57:03 PM                                                                                                                    
MS. LOGAN said yes.                                                                                                             
4:57:09 PM                                                                                                                    
CO-CHAIR EDGMON  asked whether CEA agrees  with the establishment                                                               
of postage stamp rates.                                                                                                         
4:57:26 PM                                                                                                                    
MS. LOGAN  said, "...  eventually ... this  will lead  to postage                                                               
stamp rates."                                                                                                                   
4:57:52 PM                                                                                                                    
NORMAN  ROKEBERG,   Chairman,  Advisory  Working   Group,  Alaska                                                               
Railbelt  Electrical  Grid  Authority (REGA)  Study,  provided  a                                                               
short  background on  the  REGA  Study.   He  explained that  the                                                               
rationale for the  study was the history of  conflict between the                                                               
Railbelt  utilities and  their inability  to  solve this  complex                                                               
issue.   Mr. Rokeberg expressed  his concern about  the ownership                                                               
of the  Railbelt grid  that is spread  between the  six utilities                                                               
and the  state.  He  opined the state  needs a "smart  grid" that                                                               
can  accept  alternate  energy  sources and  meet  the  needs  of                                                               
reliability  and  affordability.    Last  year,  the  legislature                                                               
appropriated  funds  for  the  regional  resource  plan  that  is                                                               
underway now.   He said  he also  has concerns about  the complex                                                               
and  difficult issue  of  financing.   The  authority, even  with                                                               
bonding authority, may  not have the ability to  enter the market                                                               
under  current  federal  Internal Revenue  Service  statutes  and                                                               
regulations.  That  area, and the regulatory issues,  will take a                                                               
significant  amount of  time to  resolve.   He cautioned  against                                                               
"lose(ing)  the momentum  we have  with the  REGA study  together                                                               
with  the  [integrated resource  plan],  and  the work  that  the                                                               
utilities have put into this  at this juncture...."  Mr. Rokeberg                                                               
strongly recommended  that the  committee review  the legislation                                                               
and move it forward.  He  stressed that it is imperative that the                                                               
legislature  provide leadership  regarding  the participation  of                                                               
the utilities, and to work with  the administration.  The grid is                                                               
necessary  to deliver  power from  a  variety of  sources to  the                                                               
Railbelt   population  which   represents  75   percent  of   the                                                               
population of the state.                                                                                                        
5:02:36 PM                                                                                                                    
[HB 182 was held over for further public testimony.]                                                                            

Document Name Date/Time Subjects
Hb182 Bradley Lake.pdf HENE 3/26/2009 3:00:00 PM
HB 182
GRETC REGA Study Results Recommendations 3-26-09.pdf HENE 3/26/2009 3:00:00 PM
HB 182
HB182 Commerce Fiscal Note.pdf HENE 3/26/2009 3:00:00 PM
HB 182
HB182 Transmittal Letter.pdf HENE 3/26/2009 3:00:00 PM
HB 182
Hb182 Intertie Document.pdf HENE 3/26/2009 3:00:00 PM
HB 182
HB182 Sectional Analysis.pdf HENE 3/26/2009 3:00:00 PM
HB 182