Legislature(2009 - 2010)BARNES 124

03/18/2010 03:00 PM House ENERGY

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03:11:08 PM Start
03:11:20 PM HB182
05:19:10 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.                                                                       
3:11:21 PM                                                                                                                    
CO-CHAIR MILLETT announced  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                                                               
3:12:26 PM                                                                                                                    
CO-CHAIR MILLETT  moved to adopt  CSHB 182,  26-GH1041\E, Bailey,                                                               
3/18/10, as the working document.                                                                                               
3:12:34 PM                                                                                                                    
REPRESENTATIVE RAMRAS objected for the purpose of discussion.                                                                   
3:12:43 PM                                                                                                                    
JIM STRANDBERG,  Project Manager, Alaska Energy  Authority (AEA),                                                               
Department  of   Commerce,  Community,  &   Economic  Development                                                               
(DCCED), began an  overview of the Committee  Substitute (CS) for                                                               
HB 182.   He said he would  present slides and with  them a short                                                               
discussion  on   what  the  new   Greater  Railbelt   Energy  and                                                               
Transmission  Corporation  (GRETC)  is about;  for  example,  its                                                               
business   purpose,  its   powers,  external   controls  on   its                                                               
operation, and its tasks.                                                                                                       
3:15:02 PM                                                                                                                    
CO-CHAIR   MILLETT  advised   teleconference  participants   that                                                               
opinions from the legal service are on-line.                                                                                    
3:15:27 PM                                                                                                                    
MR. STRANDBERG  presented slide  2 which was  a schematic  of the                                                               
process that led  to GRETC.  He recalled that  the bill presented                                                               
last  year  was  very  different  than  the  CS  now  before  the                                                               
committee.  The  original bill was held in committee  to give all                                                               
six of the Railbelt utilities time  to form a taskforce to review                                                               
the bill.  AEA, the governor's  office, and the Department of Law                                                               
(DOL), worked  with the  taskforce as  it developed  the proposed                                                               
CS.   Mr.  Strandberg referred  to the  Railbelt Electrical  Grid                                                               
Authority (REGA) study that was  completed by AEA in March, 2009.                                                               
The study was to understand  the economics of regional generation                                                               
and transmission (G&T); in fact,  the study found that by forming                                                               
a unifying  organization such as  GRETC, ratepayers could  save a                                                               
significant amount  of money.   Also, AEA recently  completed the                                                               
Regional  Integrated Resource  Plan  (RIRP),  to identify  future                                                               
power generation  and transmission  projects.  He  explained that                                                               
the RIRP  defined projects of  a critical need for  the Railbelt,                                                               
such  as  fuel  supply  and   near-term  transmission  lines,  in                                                               
addition  to the  need for  a  unifying entity.   Mr.  Strandberg                                                               
opined there  is relevant information  available in the  REGA and                                                               
RIRP  documents; whereas  the REGA  study  looked at  a range  of                                                               
business models  from loose,  voluntary organizations  to tightly                                                               
integrated organizations,  the RIRP  report identified a  list of                                                               
economic  projects,  all  of  which  are  beyond  the  utilities'                                                               
ability to fund.   Slide 3 illustrated the  shortfall between the                                                               
utilities' ability to  raise money and the  capital cost required                                                               
for the  projects recommended in the  RIRP.  He pointed  out that                                                               
GRETC  would  have the  ability  to  save money  through  unified                                                               
operations, and as a strong  financial vehicle, could address the                                                               
capital  shortfall.   The  potential  gap is  up  to $5  billion,                                                               
depending  on  the projects  that  are  ultimately built  in  the                                                               
Railbelt,  and  he  stressed that  GRETC,  with  state  financial                                                               
backing, is the best approach to address the capital shortfall.                                                                 
3:21:11 PM                                                                                                                    
CO-CHAIR MILLETT noted  GRETC and a joint  action authority (JAA)                                                               
are basically the  same mechanism.  She asked whether  there is a                                                               
need  for GRETC,  when the  utilities are  already authorized  in                                                               
statute to form this type of union.                                                                                             
3:22:08 PM                                                                                                                    
MR.  STRANDBERG responded  that the  JAA is  a project-by-project                                                               
organization;  however, GRETC  has significant  additional powers                                                               
and  is  configured  as  a  conduit where  state  funds  for  the                                                               
Railbelt would flow  into the corporation.  The JAA  is a totally                                                               
voluntary organization; for example,  two utilities could join to                                                               
build   a   project,   with  the   assumption   that   they   are                                                               
interconnected  on  a  temporary  basis.     GRETC  is  a  better                                                               
framework to unify the Railbelt.                                                                                                
3:23:20 PM                                                                                                                    
REPRESENTATIVE JOHANSEN  asked for the statutory  reference for a                                                               
3:23:39 PM                                                                                                                    
MR. STRANDBERG said  AS 42.45.300, 42.45.310, and  42.45.320.  He                                                               
displayed  slide   4  which  listed  topics   for  discussion  to                                                               
understand how the  new legislation is different  from last year:                                                               
governance;  powers of  the  corporation;  external controls  for                                                               
corporate activities;  initial tasks  for GRETC.   The governance                                                               
of the corporation  is for a private, not for  profit entity that                                                               
is  not a  state corporation.   Also,  each of  the six  Railbelt                                                               
utilities would have  two board members and two  votes, to enable                                                               
the smaller utilities to have  a strong voting capability.  GRETC                                                               
has up  to six public  utility members and twelve  board members,                                                               
with one public member appointed  by the governor from candidates                                                               
nominated  by  the  public  utility  members.    Although  public                                                               
utility members do  not have terms of service,  the public member                                                               
has  a four-year  term.   He  clarified that  the public  utility                                                               
members are  Railbelt utilities  with distribution  service areas                                                               
and retail  customers.  Other  entities that do not  have service                                                               
areas  under jurisdiction  by  the  Alaska Regulatory  Commission                                                               
(RCA) would not be allowed to vote.                                                                                             
3:27:17 PM                                                                                                                    
CO-CHAIR  MILLETT  asked whether  a  for-profit  utility such  as                                                               
Doyon Utilities, Llc., would be allowed to be a part of GRETC.                                                                  
3:27:47 PM                                                                                                                    
MR. STRANDBERG responded that it can be a member.                                                                               
3:27:53 PM                                                                                                                    
REPRESENTATIVE TUCK asked whether it would be a voting member.                                                                  
3:27:59 PM                                                                                                                    
MR.  STRANDBERG said  no.   He  presented slide  7  and said  the                                                               
primary purpose of  GRETC is to provide  wholesale electric power                                                               
to Railbelt customers.   To do this the  corporation must procure                                                               
fuel supplies, develop operating  standards for its service area,                                                               
and develop generation and transmission projects.                                                                               
3:29:23 PM                                                                                                                    
CO-CHAIR MILLETT recessed the meeting to a call of the chair.                                                                   
4:34:04 PM                                                                                                                    
CO-CHAIR MILLETT  called the meeting  back to order at  4:34 p.m.                                                               
Present at the  call back to order  were Representatives Millett,                                                               
Edgmon, Dahlstrom,  and Tuck.  Representatives  Petersen, Ramras,                                                               
and Johansen arrived as the meeting was in progress.                                                                            
4:34:38 PM                                                                                                                    
MR.  STRANDBERG continued  to explain  that the  primary business                                                               
purpose of GRETC is to provide  wholesale power.  To do this, the                                                               
corporation may  do many things  such as procuring  fuel supplies                                                               
and developing  operating standards for the  service territory of                                                               
the corporation.   The service  territory is an aggregate  of the                                                               
service areas of the public  utility members that have joined the                                                               
corporation.   He stressed that  this is an important  power, and                                                               
distinguishes GRETC from a JAA.   Furthermore, a major difference                                                               
between the  previous bill and  the proposed CS is  the "elective                                                               
power;"  for  example, the  use  of  the  word "may"  instead  of                                                               
"shall"  throughout the  proposed statute.   Operating  standards                                                               
are in statute  presently in relation to  intertie agreements and                                                               
the "basic  rules of the  road" for the interconnection  of power                                                               
4:36:55 PM                                                                                                                    
CO-CHAIR MILLETT asked for the  purpose of a corporation, that is                                                               
not an  oil and gas  company, to bid on  state lands for  oil and                                                               
gas leases.                                                                                                                     
MR. STRANDBERG advised that the  governor supports all aspects of                                                               
the  bill with  the  exception  of that  clause.   He  questioned                                                               
whether this issue is appropriate for GRETC.                                                                                    
4:38:09 PM                                                                                                                    
CO-CHAIR MILLETT then asked whether GRETC  would be a oil and gas                                                               
MR. STRANDBERG  said the intent is  for GRETC to be  a generation                                                               
and transmission  company that seeks  to develop  reliable, long-                                                               
run fuel supplies.                                                                                                              
CO-CHAIR  MILLETT  assumed  the  governor is  not  supportive  of                                                               
proposed Sec. 42.50.170 (a) and (b).                                                                                            
4:39:14 PM                                                                                                                    
MR. STRANDBERG  said correct.   He then  displayed slide  8 which                                                               
listed   the  major   differences  between   the  2009   proposed                                                               
legislation and the  CS.  GRETC is now  a voluntary organization,                                                               
and has the  flexibility to emerge economically as  the major G&T                                                               
provider  in the  Railbelt; however,  subgroups of  utilities can                                                               
develop  G&T projects  outside of  GRETC  and retain  membership.                                                               
GRETC remains the  primary recipient of state  financial aid into                                                               
the Railbelt.  After further  changes to the original bill, GRETC                                                               
is no longer  directed to become an  all-requirements provider of                                                               
wholesale  power for  the Railbelt  thus has  the flexibility  to                                                               
allow  utilities to  act independently.   Mr.  Strandberg advised                                                               
that similar re-structuring elsewhere  in the country has evolved                                                               
in "a multi-step fashion."                                                                                                      
4:43:18 PM                                                                                                                    
CO-CHAIR MILLETT pointed out that  sec. 7, the section related to                                                               
consumer protection  by the Regulatory Affairs  & Public Advocacy                                                               
(RAPA)  office of  the  DOL,  was repealed.    She asked  whether                                                               
consumer   protection  was   replaced  by   RCA  regulation   and                                                               
MR.  STRANDBERG  said  yes.   In  further  response  to  Co-Chair                                                               
Millett, he  explained that RAPA represents  the public interest,                                                               
and once the  corporation is placed under  RCA jurisdiction, RAPA                                                               
may still participate in any RCA process.                                                                                       
CO-CHAIR MILLETT  observed RAPA and  the RCA serve  two different                                                               
purposes.    She  noted the  governor's  concern  about  consumer                                                               
protection  and  repeated her  question  as  to  why sec.  7  was                                                               
4:46:00 PM                                                                                                                    
MR. STRANDBERG  expressed his understanding that  neither the CS,                                                               
nor the original bill, included a provision concerning RAPA.                                                                    
CO-CHAIR MILLETT  clarified that  sec. 7, proposed  AS 42.05.431,                                                               
referred to the RAPA office, and sec. 7 was repealed in the CS.                                                                 
MR. STRANDBERG said  the CS has a one-step process  toward a full                                                               
economic  regulatory approach.   He  acknowledged there  may have                                                               
been interim versions of the bill.                                                                                              
4:48:56 PM                                                                                                                    
REPRESENTATIVE  TUCK asked  whether there  was the  potential for                                                               
GRETC and a public utility to be in competition for a project.                                                                  
MR.  STRANDBERG  stated the  chance  is  possible, but  unlikely,                                                               
given the structure of the corporation.                                                                                         
REPRESENTATIVE TUCK  gave the example  of Doyon  Utilities, which                                                               
has a huge  consumer group on military bases, but  would not be a                                                               
voting member, and may have to compete for fuel supplies.                                                                       
4:50:21 PM                                                                                                                    
MR. STRANDBERG observed there is  a relatively complex regulatory                                                               
environment  applicable in  this case.    The RCA  does not  have                                                               
jurisdiction over federal establishments  such as military bases,                                                               
and there is  a current contract between Doyon  Utilities and the                                                               
federal government.   Under  the current  regulatory environment,                                                               
there  can  be  flows  of power  from  regulated  utilities  onto                                                               
military bases;  in fact,  competitive situations  could develop.                                                               
He said, "I believe they would be relatively unlikely."                                                                         
CO-CHAIR   MILLETT  asked   whether  industry,   commercial,  and                                                               
residential users would pay the same rate for electrical power.                                                                 
4:52:31 PM                                                                                                                    
MR.  STRANDBERG  referred to  page  10,  line 14,  under  general                                                               
powers of the corporation.  He read:                                                                                            
     [GRETC may]  generate, manufacture,  purchase, acquire,                                                                    
     accumulate,  transmit,   meter,  and   dispatch  retail                                                                    
     electric power and ancillary  services to an industrial                                                                    
     customer, and  sell at retail,  supply, and  dispose of                                                                    
     electric power to an industrial customer.                                                                                  
MR.  STRANDBERG advised  that  this  issue attracted  significant                                                               
attention from the taskforce.   In general, GRETC has the ability                                                               
to serve a  large load, but must consult with  the public utility                                                               
whose service area is nearby.   This public utility has the first                                                               
right of  refusal to serve  that load  at its own  retail tariff.                                                               
He  pointed  out that  any  regulated  utility  has a  number  of                                                               
tariffs; in  fact, a public  utility could negotiate  a wholesale                                                               
power rate  at a  different rate  for residential  and industrial                                                               
MR. STRANDBERG  continued to  slide 9  which listed  the external                                                               
controls  as  follows:    areas of  oversight  such  as  consumer                                                               
protection,  financial oversight,  and the  effectiveness of  the                                                               
corporation;   protections such  as RCA economic regulation for a                                                               
five-year period and "top-to-bottom"  management audits at three-                                                               
year intervals for ten years.   He cautioned that further actions                                                               
may need to be taken after ten years.                                                                                           
4:58:52 PM                                                                                                                    
REPRESENTATIVE TUCK  surmised that  after ten years,  GRETC would                                                               
be an unregulated corporation.                                                                                                  
MR.  STRANDBERG  spoke  to  corporation  protections  beyond  RCA                                                               
jurisdiction such as the requirement  that processes be public, a                                                               
dispute  resolution   process,  a   rate  appeals   process,  and                                                               
consumers'  protest  hearings.     These  oversights  and  public                                                               
processes   are  built-in   to   the  basic   structure  of   the                                                               
5:00:11 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN assumed  there would  be an  infusion of                                                               
capital funds  from the state  and decisions to build  would come                                                               
from the RIRP.                                                                                                                  
MR. STRANDBERG  agreed that the  RIRP would be provided  to GRETC                                                               
for consideration  and use; however,  which projects  get funded,                                                               
and  the loan  and grant  conditions  thereof, would  need to  be                                                               
developed in order to protect the public interest.                                                                              
REPRESENTATIVE   JOHANSEN  stressed   that  he   would  need   to                                                               
understand the  process before approving funding  that then moves                                                               
"out of my hands."   He then referred to page  10, line 26, under                                                               
powers of the  corporation, and asked for the  meaning of "owning                                                               
and operating facilities to find and extract fuel deposits."                                                                    
MR. STRANDBERG deferred this question to the administration.                                                                    
5:04:01 PM                                                                                                                    
REPRESENTATIVE   JOHANSEN   further  asked   whether   associated                                                               
concepts are in question by the governor.                                                                                       
MR. STRANDBERG said correct.                                                                                                    
REPRESENTATIVE JOHANSEN then referred to  page 12, lines 5-6, and                                                               
surmised that if the proposed  legislation passed, GRETC could go                                                               
outside the state and look for oil and gas.                                                                                     
5:05:40 PM                                                                                                                    
MR.  STRANDBERG  expressed  his  belief  that  the  service  area                                                               
defined for  the operations  of the  corporation are  the service                                                               
areas of the public utilities.   The language applies to the need                                                               
to  do  business inside  and  outside  of  the state  to  acquire                                                               
equipment, for example.                                                                                                         
REPRESENTATIVE  JOHANSEN  questioned  the language.    His  final                                                               
concern  was  that the  governor  does  not  support all  of  the                                                               
sections of the bill, although the governor is the sponsor.                                                                     
5:08:26 PM                                                                                                                    
CO-CHAIR MILLETT  referred to  sec. 6 of  the original  bill, and                                                               
asked  why the  open  and transparent  public  process to  review                                                               
GRETC's books and records was left out of the CS.                                                                               
5:09:56 PM                                                                                                                    
MR. STRANDBERG called attention to page  18, line 10, for the new                                                               
location of Sec.  42.50.210, right to examine  books and records.                                                               
He recalled  a provision  to allow  members, companies  that take                                                               
services from GRETC, or ratepayers, access to books and records.                                                                
CO-CHAIR MILLETT concluded there was  no provision in the current                                                               
CS for the  general public to examine the  corporation, and asked                                                               
MR.  STRANDBERG   explained  that   the  utilities   wanted  this                                                               
approach.   Although, there are significant  audit processes that                                                               
are public  and delivered to  the legislature, an  examination of                                                               
the innards of the corporation  is only accessible to members and                                                               
CO-CHAIR MILLETT asked  whether there has been  an examination by                                                               
DOR to look at the financial  health of each of the six utilities                                                               
involved  before  the state  extends  general  funds, a  line  of                                                               
credit, and bonding capacity to the corporation.                                                                                
5:12:04 PM                                                                                                                    
MR. STRANDBERG said that AEA,  with Seattle Northwest Securities,                                                               
looked at  the public records  of the  six utilities in  order to                                                               
determine their borrowing  power.  However, there  were no audits                                                               
conducted by the administration.                                                                                                
CO-CHAIR MILLETT  questioned whether the legislature  can ask for                                                               
an  audit  of  the  utilities  before the  state  invests.    She                                                               
expressed her concern about the  state having to "save" utilities                                                               
that are not financially healthy.                                                                                               
5:14:11 PM                                                                                                                    
MR. STRANDBERG  offered to provide  the work papers  from Seattle                                                               
Northwest Securities.   He added  that the new  corporation would                                                               
have a board of directors of 13  people.  This board would have a                                                               
goal of  "least-cost power," and  he opined it unlikely  that the                                                               
process would be possible with a properly functioning board.                                                                    
CO-CHAIR  MILLETT   confirmed  her   desire  for  DOL,   DOR,  or                                                               
legislative audit to  look at the financial health of  all of the                                                               
utilities prior  to a decision  on the  bill, for the  benefit of                                                               
consumers.  She suggested taking  a financial health inventory of                                                               
the corporations.                                                                                                               
5:17:13 PM                                                                                                                    
REPRESENTATIVE JOHANSEN also expressed  concern about state funds                                                               
passing  to  groups  with  unknown   financial  situations.    He                                                               
acknowledged  that   most  in  the  utility   industry  are  very                                                               
experienced and knowledgeable.                                                                                                  
CO-CHAIR MILLETT  announced the  committee's intent to  return to                                                               
the bill next meeting.                                                                                                          
HB 182 was held.                                                                                                                

Document Name Date/Time Subjects
(H) ENE Agenda 03182010.pdf HENE 3/18/2010 3:00:00 PM
GRETC- House Energy slides 3-18-10 JBJSS.pdf HENE 3/18/2010 3:00:00 PM
CS HB 182.pdf HENE 3/18/2010 3:00:00 PM
HENE 3/23/2010 3:00:00 PM
HB 182
LAA Legal Memo on CS HB 182.pdf HENE 3/18/2010 3:00:00 PM
HENE 3/23/2010 3:00:00 PM
HB 182
GRETC Letter to Governor Parnell 02112010.PDF HENE 3/18/2010 3:00:00 PM
Fiscal Note CS HB 182.PDF HENE 3/18/2010 3:00:00 PM
HENE 3/23/2010 3:00:00 PM
HB 182
Gallagher email (HB 182).PDF HENE 3/18/2010 3:00:00 PM
HENE 3/23/2010 3:00:00 PM
HB 182