Legislature(2009 - 2010)BARNES 124

03/30/2010 03:00 PM House ENERGY

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03:10:21 PM Start
03:10:46 PM HB182
05:13:15 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to 5:00 pm on 3/31/10 --
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
          HB 182-RAILBELT ENERGY & TRANSMISSION CORP.                                                                       
3:10:47 PM                                                                                                                    
CO-CHAIR MILLETT announced that the  only 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                                                               
date."  She stated the committee  substitute (CS) for HB 182, 26-                                                               
GH1041\S,  Chenoweth/Bailey, 3/24/10,  was  the working  document                                                               
before the committee.                                                                                                           
3:11:16 PM                                                                                                                    
BRIAN BJORKQUIST,  Senior Assistant  Attorney General,  Labor and                                                               
State Affairs Section, Department of  Law (DOL), referred to page                                                               
3, line 16,  of the proposed CS that authorized  the formation of                                                               
the corporation.   He explained that this section  allows four or                                                               
more municipal  or cooperative public  utilities, that  are first                                                               
authorized  by law,  to  form.   Section 13,  page  21, line  17,                                                               
provides the required authorization  to form the Greater Railbelt                                                               
Energy and Transmission Corporation (GRETC)  from four or more of                                                               
the  public  utilities  listed  in  the  bill.    Subsection  (b)                                                               
provides  a  contingency  that  the  corporation  must  agree  to                                                               
conduct a management  audit of the corporation  after three, six,                                                               
and ten years,  and provides criteria for the audit.   Section 14                                                               
provides a  conditional effective date  for the bill and  most of                                                               
the amendments;  under that  section if  the utilities  provide a                                                               
letter  of  intent  to  the  Alaska  Energy  Authority  (AEA)  by                                                               
7/30/10, the authorization to form  the corporation takes effect.                                                               
Also on page  3, lines 20-25, there are two  initial purposes for                                                               
the formation  of the  corporation: (1)  to acquire,  operate, or                                                               
maintain power  and transmission  projects from  the AEA;  (2) to                                                               
plan  for, recommend,  coordinate,  and  otherwise address  power                                                               
generation  and   transmission  (G&T)   needs  for   the  service                                                               
territory  of  the  corporation.    Mr.  Bjorkquist  stated  this                                                               
provision is critical  and is tied to replacing some  of the void                                                               
that will  be caused  by the termination  of the  Alaska Intertie                                                               
3:15:38 PM                                                                                                                    
CO-CHAIR  MILLETT  asked  Mr.  Bjorkquist  to  explain  how  this                                                               
structure is different from a joint action agency (JAA).                                                                        
3:15:58 PM                                                                                                                    
MR.  BJORKQUIST  explained  that  the  JAA  statute  pertains  to                                                               
projects acquired from the AEA, and  was enacted to assist in the                                                               
divestiture of  the Four  Dam Pool Power  Agency project.   House                                                               
Bill  182 adds  the purpose  of planning  for the  interconnected                                                               
service territory  of the corporation,  and has a  greater public                                                               
function.  For example, the  Four Dam Pool projects were isolated                                                               
projects, and the  JAA legislation focused on  the acquisition of                                                               
the projects.  Furthermore, a JAA  can be a joint venture between                                                               
two or more public utilities to deal with a project or projects.                                                                
3:18:39 PM                                                                                                                    
CO-CHAIR MILLETT referred  to AS 42.45.310, and  pointed out that                                                               
a  JAA  can request  revenue  bonds  from the  Alaska  Industrial                                                               
Development  &  Export  Agency  (AIDEA).     She  asked  for  the                                                               
difference between  the purposes of  a JAA and GRETC,  beyond the                                                               
fact  that  GRETC  is  authorized   to  own  fuel  storage,  fuel                                                               
resources, leases,  land, pipelines,  and to limit  the abilities                                                               
of  independent  power  producers  (IPPs).   She  asked  for  the                                                               
reasons to form under GRETC instead of a JAA.                                                                                   
3:19:51 PM                                                                                                                    
MR. BJORKQUIST  clarified that GRETC legislation  also deals with                                                               
issues  such   as  electrically  interconnected   utilities,  and                                                               
obligates  long-range regional  planning functions-including  the                                                               
integrated  resource  plan   (IRP)-and  long-range  fuel  supply,                                                               
capital  improvement,  and  financial management  plans.    These                                                               
regional planning  functions are  add-ons to  GRETC that  are not                                                               
part of the JAA legislation  or statutory scheme, because the JAA                                                               
legislation was established for  isolated projects without a need                                                               
for regional  planning.  Mr.  Bjorkquist stressed  the importance                                                               
of the regional planning component within GRETC.                                                                                
3:21:18 PM                                                                                                                    
CO-CHAIR  MILLETT asked  whether a  JAA could  adopt an  IRP, and                                                               
form under  a memorandum of  understanding (MOU) without  a [new]                                                               
3:21:37 PM                                                                                                                    
MR.  BJORKQUIST emphasized  that  the provisions  in  HB 182  are                                                               
mandated, thus  the utilities are  required to  complete regional                                                               
planning.  Without HB 182, all  the utilities can "elect" to plan                                                               
on  a regional  basis, but  historically, comprehensive  planning                                                               
has not happened.                                                                                                               
3:22:15 PM                                                                                                                    
REPRESENTATIVE JOHANSEN opined that  the legislature, AEA, or the                                                               
governor could  require an IRP.   He then asked whether  there is                                                               
another JAA in place in the state at this time.                                                                                 
3:22:58 PM                                                                                                                    
MR. BJORKQUIST  said he was  not aware of another  JAA operating;                                                               
however, there  has been  interest by  the Railbelt  utilities to                                                               
form one in  anticipation of the divestiture of  Bradley Lake and                                                               
the termination of the Alaska Intertie Agreement.                                                                               
3:23:27 PM                                                                                                                    
CO-CHAIR MILLETT  stated a  JAA was  formed 7/26/05  by Anchorage                                                               
Municipal  Light  &  Power  (ML&P)  and  Golden  Valley  Electric                                                               
Association (GVEA)  called the  Alaska Railbelt  Energy Authority                                                               
(AREA).   She expressed interest in  why this JAA failed  and how                                                               
GRETC will accomplish  what the utilities could not  do "on their                                                               
3:24:34 PM                                                                                                                    
MR.  BJORKQUIST returned  to page  3, line  30, and  said another                                                               
purpose  of the  corporation is  to be  the primary  recipient of                                                               
state financial assistance.  In  other words, this is a provision                                                               
that  the  utilities  must   coordinate  and  consolidate  before                                                               
Railbelt energy funds are made available.                                                                                       
3:25:22 PM                                                                                                                    
CO-CHAIR MILLETT  surmised that  the reason to  form GRETC  is to                                                               
have access to the Railbelt energy funds.                                                                                       
3:25:34 PM                                                                                                                    
MR.  BJORKQUIST said  yes, and  added that  there is  other state                                                               
financial assistance, as  well.  Page 4, line  3, subsection (c),                                                               
provides for  specific types of  planning regarding  the adequacy                                                               
of  fuel supply,  the adequacy  of G&T  assets, and  diversity in                                                               
generation  resources,  renewable  energy-based  generation,  and                                                               
renewable energy generation resources.                                                                                          
3:26:24 PM                                                                                                                    
CO-CHAIR  MILLETT   asked  for  the  meaning   of  "diversity  in                                                               
generation resources."                                                                                                          
3:26:31 PM                                                                                                                    
MR.  BJORKQUIST  responded  it  means  different  fuel  supplies,                                                               
rather than having all of the energy generation from oil or gas.                                                                
3:26:38 PM                                                                                                                    
MR.  BJORKQUIST,   in  further  response  to   Co-Chair  Millett,                                                               
clarified  that   this  section   is  for  planning   and  making                                                               
recommendations; in  fact, the diversity in  generation resources                                                               
would be  focused more  on the generating  assets that  would use                                                               
various types of fuels.                                                                                                         
3:27:43 PM                                                                                                                    
CO-CHAIR   MILLETT  asked   whether  Sec.   42.50.[090]  provides                                                               
authority  for the  corporation  to  own, manufacture,  purchase,                                                               
acquire, accumulate, transmit, meter, and dispatch energy.                                                                      
3:28:05 PM                                                                                                                    
MR. BJORKQUIST  indicated yes.   He called  attention to  page 4,                                                               
line 19, and  said this provision clarifies  that the corporation                                                               
will operate  on a not-for-profit  basis and will  offer services                                                               
at uniform  standard-not necessarily  postage stamp  rates-due to                                                               
the  differences in  the cost  of providing  services to  various                                                               
customers.  Page 4, lines  26-27, provide that the corporation is                                                               
for a public service.                                                                                                           
3:29:38 PM                                                                                                                    
CO-CHAIR   MILLETT  recalled   interest   in  the   corporation's                                                               
interconnection  policy  because  promoters of  renewable  energy                                                               
projects are unsure of whether  the standards GRETC may adopt may                                                               
exclude renewable projects from the grid.                                                                                       
3:30:23 PM                                                                                                                    
MR.  BJORKQUIST referred  to page  18, lines  7-9, and  said this                                                               
provision   ensures   that   others  can   participate   in   the                                                               
transmission  system by  giving the  RCA jurisdiction  over joint                                                               
use  and interconnection  of the  facilities.   Furthermore, this                                                               
provision  will apply  "forever" and  empowers the  RCA to  order                                                               
GRETC to  allow an IPP to  put power on the  transmission system.                                                               
He opined  the provision  demonstrates that  GRETC can  not close                                                               
off the  Railbelt system to  others.  It  is very clear  that the                                                               
corporation  is  subject  to  this  jurisdiction  even  after  it                                                               
otherwise ceases to be subject to RCA regulation in 2015.                                                                       
3:32:28 PM                                                                                                                    
CO-CHAIR MILLETT asked  for the purpose of  [subsection] (g) that                                                               
provides  for the  corporation adopting  its own  interconnection                                                               
3:32:51 PM                                                                                                                    
MR.  BJORKQUIST explained  that  subsection (g)  allows GRETC  to                                                               
establish a base  of standards that can be arbitrated  by the RCA                                                               
in the case of disputes.                                                                                                        
3:33:36 PM                                                                                                                    
MR.  BJORKQUIST, in  further response  to Co-Chair  Millett, said                                                               
currently  there  is  one  interconnection  standard  within  the                                                               
Alaska Intertie Agreement applicable  throughout the Railbelt and                                                               
followed by the utilities voluntarily, or by agreement.                                                                         
3:34:20 PM                                                                                                                    
CO-CHAIR MILLETT  questioned whether  the standards  are approved                                                               
by the RCA.                                                                                                                     
3:34:40 PM                                                                                                                    
MR.  BJORKQUIST said  he was  unsure.   The  proposed statute  on                                                               
interconnection requires that the  utilities first negotiate with                                                               
each other, and  then go to the  RCA in the case of  impasse.  He                                                               
continued to page 5, line 2,  and said it provides that the board                                                               
of  directors includes  two  directors from  each  of the  public                                                               
utility  members  of the  corporation,  and  one public  director                                                               
appointed by the governor from  nominees supplied by directors on                                                               
the board.   Also on page  5 are provisions for  the operation of                                                               
the board.   Proposed Sec. 42.50.040,  on page 7, line  6, is the                                                               
provision  that establishes  the hiring  of employees.   Page  7,                                                               
line  17,  is  the  provision that  addresses  membership.    Mr.                                                               
Bjorkquist  pointed  out the  public  utility  members will  have                                                               
directors on  the board, and  other members could  include public                                                               
utilities that choose not to  be public utility members, or those                                                               
that do  not qualify.  A  public utility member must  be a public                                                               
utility or a cooperative.                                                                                                       
3:36:59 PM                                                                                                                    
CO-CHAIR MILLETT asked whether the  chief executive officer (CEO)                                                               
is appointed from the board or outside of the board.                                                                            
3:37:20 PM                                                                                                                    
MR.  BJORKQUIST answered  that the  CEO  is from  outside of  the                                                               
board.  In further response  to Co-Chair Millett, he guessed that                                                               
there  are  no  specific  requirements of  the  CEO  because  the                                                               
selection  will be  made by  the sophisticated  directors of  the                                                               
3:39:01 PM                                                                                                                    
REPRESENTATIVE TUCK asked  whether the CEO can be  an employee of                                                               
a non-voting member utility.                                                                                                    
3:39:43 PM                                                                                                                    
MR. BJORKQUIST said correct.  He added  that the CEO can not be a                                                               
director,  but could  be an  employee of  one of  the public,  or                                                               
member, utilities.                                                                                                              
3:39:47 PM                                                                                                                    
CO-CHAIR EDGMON  asked whether the  [CS] has been  scrutinized by                                                               
tax experts as to its not-for-profit status.                                                                                    
3:40:16 PM                                                                                                                    
MR. BJORKQUIST acknowledged that this  topic has not been vetted,                                                               
but it  is understood  by the  utilities that  there will  be tax                                                               
issues.   He then noted  that one  change from the  original bill                                                               
regarding  membership  is  that  members can  be  added,  or  can                                                               
withdraw, after the initial formation of the corporation.                                                                       
3:42:05 PM                                                                                                                    
REPRESENTATIVE DAHLSTROM asked  what would happen if  half of the                                                               
members want to withdraw.                                                                                                       
3:42:29 PM                                                                                                                    
MR.  BJORKQUIST  advised  that  if the  criteria  were  met,  the                                                               
members  could   withdraw,  and  the  consequence   is  that  the                                                               
corporation  would  have  fewer   than  the  designed  number  of                                                               
members.   In  further response  to Representative  Dahlstrom, he                                                               
reminded the  committee that the purpose  of the bill is  to give                                                               
an opportunity for  the Railbelt utilities to  work together even                                                               
if the utilities  withdraw, and the goals of  the corporation are                                                               
not met.                                                                                                                        
3:43:48 PM                                                                                                                    
REPRESENTATIVE DAHLSTROM assumed that  if a utility withdraws and                                                               
it has received a benefit it would be liable.                                                                                   
3:44:23 PM                                                                                                                    
MR. BJORKQUIST referred  to page 8, line 3, and  pointed out that                                                               
in  order for  a member  to  withdraw, it  must pay  liabilities.                                                               
Also, a public  utility member can withdraw, but  remain a member                                                               
so  it would  not  have to  pay  liabilities in  a  lump sum,  or                                                               
provide for payment.   He continued to page 8,  line 21, that was                                                               
the  provision for  articles of  incorporation,  and stated  that                                                               
articles of  incorporation are necessary  to prove  the existence                                                               
of the  corporation to the  U.S. Department of Commerce,  and for                                                               
business purposes.   Page  9, line 12,  provides for  bylaws, and                                                               
page 9,  line 22,  provides for  the indemnification  of officers                                                               
and employees.  Page 9, line  25, provides for the general powers                                                               
of  the corporation.   He  described  some of  the conditions  by                                                               
which  the  corporation  may  sell  energy  power  at  retail  to                                                               
industrial customers.                                                                                                           
3:47:29 PM                                                                                                                    
CO-CHAIR MILLETT  observed that  the corporation will  sell power                                                               
to the utilities  for distribution.  She asked  whether GRETC can                                                               
sell directly to an industrial anchor.                                                                                          
MR.  BJORKQUIST  clarified  that  GRETC  can  sell  power  to  an                                                               
industrial  customer  with the  consent  of  the utility  in  the                                                               
affected  service area,  and to  industrial customers  outside of                                                               
service areas.                                                                                                                  
3:48:28 PM                                                                                                                    
CO-CHAIR  EDGMON   asked,  "And  do  this   as  a  not-for-profit                                                               
3:48:37 PM                                                                                                                    
MR. BJORKQUIST said  yes.  He continued to page  11, line 8, that                                                               
allows the  corporation the power  of eminent domain as  a public                                                               
utility, except to take a G&T asset from another public utility.                                                                
3:49:17 PM                                                                                                                    
CO-CHAIR  MILLETT  questioned  whether eminent  domain  could  be                                                               
exercised  over a  private company  that owns  a pipeline,  a gas                                                               
storage facility, or a lease.                                                                                                   
3:49:55 PM                                                                                                                    
MR.  BJORKQUIST  said  he  was  unsure  and  would  research  the                                                               
3:50:33 PM                                                                                                                    
CO-CHAIR MILLETT provided an example  of GRETC exercising eminent                                                               
domain for  the public good  over a  facility in which  a private                                                               
entity has invested millions of dollars.                                                                                        
3:51:25 PM                                                                                                                    
MR.  BJORKQUIST  said  this  was  "theoretically  possible"  but,                                                               
exercising  eminent  domain  requires   full  payment  of  value-                                                               
including the  profitability of the  asset-which is  difficult to                                                               
3:52:07 PM                                                                                                                    
CO-CHAIR  MILLETT  further  asked  about eminent  domain  over  a                                                               
depreciated pipeline  with access to  a gas lease in  which GRETC                                                               
is interested.                                                                                                                  
3:52:22 PM                                                                                                                    
MR. BJORKQUIST clarified that the  issue in eminent domain is the                                                               
fair market value, whether or not an asset has been depreciated.                                                                
3:52:32 PM                                                                                                                    
CO-CHAIR MILLETT pointed out that  interest in the exploration of                                                               
Cook Inlet by  private industry may be ruined by  the presence of                                                               
a state-funded oil and gas company.                                                                                             
3:53:14 PM                                                                                                                    
MR. BJORKQUIST suggested that this  topic may be addressed by the                                                               
last set of amendments that  remove the power of exploration from                                                               
the corporation.   Nevertheless,  the acquisition of  fuel supply                                                               
is necessary for any utility that generates power.                                                                              
3:53:55 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN noted  on  page 12,  line  9, GRETC  may                                                               
create  subsidiary corporations.    He  asked whether  subsidiary                                                               
corporations are  subject to  the same  conditions and  powers as                                                               
the parent corporation.                                                                                                         
3:54:51 PM                                                                                                                    
MR. BJORKQUIST opined  GRETC is limited to perform  the 25 powers                                                               
of the  corporation and other  duties authorized by HB  182, thus                                                               
it  could   not  expand   into  other   areas  by   a  subsidiary                                                               
corporation.   The purpose of  creating a  subsidiary corporation                                                               
is to  assist in the financing  of a project.   He then continued                                                               
to page  12, line  15, that addressed  public utility  powers and                                                               
regulation,  and  noted that  GRETC  is  subject to  RCA  general                                                               
regulation  for  the   first  five  years.     In  addition,  the                                                               
corporation may  not have retail  sales of electric  power except                                                               
to an industrial customer with  certain conditions, and it is not                                                               
required  to  obtain a  certificate  under  AS 42.05.221.    This                                                               
section will be amended by provisions  found in Sec. 7 and Sec. 8                                                               
of the [CS], that provide  exemptions from regulation, regulatory                                                               
cost charge, and  rate regulation in 2015.  Further,  Sec. 8 adds                                                               
a  new subsection  that  makes clear  that  the corporation  will                                                               
comply  with principles  and requirements  of the  RCA as  if the                                                               
corporation  were a  regulated public  utility.   Mr.  Bjorkquist                                                               
explained  that  these  provisions deal  with  recordkeeping  and                                                               
documenting information regarding rates.                                                                                        
3:57:44 PM                                                                                                                    
CO-CHAIR MILLETT asked for the location of the five-year sunset.                                                                
3:57:57 PM                                                                                                                    
MR.  BJORKQUIST  stated on  page  23,  lines 7-8  identify  which                                                               
sections take  effect 8/16/2015.   Therefore, the  exemption from                                                               
rate regulation "sunrises" in 2015.   He returned to page 12, and                                                               
the  sections dealing  with regional  planning.   In combination,                                                               
the  provisions relate  to advantages  to  ratepayers and  future                                                               
rates by regional planning for  projects.  Regional planning will                                                               
provide information  to the corporation and  members, ratepayers,                                                               
and the  legislature.  Furthermore, the  legislature will provide                                                               
oversight  so  it  will  need  information  to  evaluate  funding                                                               
requests.   In  fact, on  page  14, lines  11-14, subsection  (b)                                                               
addresses  the ways  in which  the corporation  can obtain  state                                                               
financing;  however, the  bill  does not  obligate  the state  to                                                               
provide a specific  type of financial assistance, or  any type of                                                               
financial assistance, and there is  no limit to the "strings" the                                                               
state  can  impose  on  financing   in  the  form  of  terms  and                                                               
conditions.   Although  there is  an expectation  that the  state                                                               
will  provide  financing, there  will  be  negotiations over  the                                                               
terms and conditions thereof.                                                                                                   
4:02:08 PM                                                                                                                    
CO-CHAIR EDGMON asked:                                                                                                          
      By definition, the corporation, obviously, would tie                                                                      
       in the subsidiary corporation ... is that sort of                                                                        
4:02:19 PM                                                                                                                    
MR.  BJORKQUIST opined  a subsidiary  corporation would  not have                                                               
the  powers of  GRETC, for  example, the  ratemaking powers.   He                                                               
concluded,  "So there's  a limitation  on what  it can  do and  a                                                               
limitation in  the other statutory  scheme as to what  powers the                                                               
subsidiary could have."                                                                                                         
4:03:36 PM                                                                                                                    
CO-CHAIR  MILLETT  observed  that   GRETC  legislation  does  not                                                               
mention  whether AIDEA  revenue bonds  could be  requested.   She                                                               
asked why AIDEA is not a bonding source.                                                                                        
4:04:01 PM                                                                                                                    
MR. BJORKQUIST  recalled the expectation that  AIDEA will finance                                                               
the sale of the Four Dam Pool  Power Agency.  He advised that the                                                               
use of  AIDEA or AEA  financing is not  precluded by the  lack of                                                               
language in HB 182.                                                                                                             
4:05:04 PM                                                                                                                    
MR. BJORKQUIST  returned to page  12, and said lines  25-30 refer                                                               
to  an  IRP and  require  the  corporation  to provide  a  report                                                               
explaining  any  deviation from  an  existing  state plan.    The                                                               
provision  will provide  a degree  of transparency  and political                                                               
accountability  in that  it provides  pertinent information,  and                                                               
also that  if GRETC deviates from  the state energy plan  it must                                                               
explain why,  in writing.   On page 14,  line 15, changes  to the                                                               
previous workdraft removed provisions  dealing with producing oil                                                               
or gas.                                                                                                                         
4:06:51 PM                                                                                                                    
CO-CHAIR   MILLETT    asked   whether   "direct    ownership   of                                                               
transportation and storage facilities" remained in the bill.                                                                    
4:07:04 PM                                                                                                                    
MR. BJORKQUIST advised  page 14, lines 17-18,  still include that                                                               
language.  In  further response to Co-Chair Millett,  he said the                                                               
definition  of  a transportation  facility  is  something like  a                                                               
pipeline that  could move a  fuel source, and a  storage facility                                                               
could  be   a  variety   of  means  to   store  a   fuel  source;                                                               
additionally, there is  nothing in the language  that would limit                                                               
the type  of fuel storage.   Returning to the CS,  tax provisions                                                               
begin on  page 14, line 22,  and the intent of  the tax provision                                                               
is that  the corporation maintains  a tax-neutral  stance towards                                                               
local  government.   Public utilities  are exempt  from municipal                                                               
taxes because  they are  governmental entities,  and cooperatives                                                               
are  exempt from  local property  taxes  by statute,  and pay  an                                                               
electric  cooperative tax  instead.   The  corporation is  exempt                                                               
from taxes unless  it sells electricity at  retail; therefore, in                                                               
the  case  of   the  sale  of  electricity  at   wholesale  to  a                                                               
cooperative,  the cooperative  pays a  tax  to the  state on  its                                                               
sales that is  reimbursed to the local  government, thus becoming                                                               
a payment in lieu of taxes.                                                                                                     
4:09:42 PM                                                                                                                    
CO-CHAIR  EDGMON asked  whether severance  and royalty  taxes are                                                               
factored into that provision.                                                                                                   
4:10:05 PM                                                                                                                    
MR.  BJORKQUIST stated  that the  provision currently  applies to                                                               
electric cooperatives in  Alaska and he was  unsure how severance                                                               
and royalty taxes apply.                                                                                                        
4:10:27 PM                                                                                                                    
CO-CHAIR  EDGMON surmised  this issue  must be  addressed in  the                                                               
4:10:34 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN  referred  to  page 13,  line  23,  that                                                               
establishes a  schedule for review  of the long-range  plan every                                                               
five years.   He  asked whether  the intent is  to wait  for five                                                               
years because  "they have five  years to  get all of  these plans                                                               
out to the public and to the legislature."                                                                                      
4:11:45 PM                                                                                                                    
MR. BJORKQUIST  opined that  is not  the intent  of the  bill; in                                                               
fact, the reference is to  establish a schedule for reviewing the                                                               
long-range fuel  supply plan,  and for an  up-date at  least once                                                               
every five  years.  He  called attention to subsection  (a), that                                                               
directs  the corporation  to adopt  a plan,  and subsection  (b),                                                               
that schedules  the review  and update,  without a  timeframe for                                                               
when the initial plans are to be provided.                                                                                      
4:13:02 PM                                                                                                                    
CO-CHAIR MILLETT  assumed the review  will be done by  the public                                                               
and the legislature.                                                                                                            
4:13:26 PM                                                                                                                    
MR.  BJORKQUIST observed  that the  review is  by the  board, and                                                               
after the  board updates the  plan, it  is made available  to the                                                               
governor,  the legislature,  ratepayers,  and  members, at  least                                                               
every five years.                                                                                                               
4:14:37 PM                                                                                                                    
CO-CHAIR MILLETT  inquired about  other state entities  that come                                                               
up for long-range financial management plan reviews.                                                                            
4:14:56 PM                                                                                                                    
MR.  BJORKQUIST pointed  out GRETC  is  a private,  not a  state,                                                               
corporation and  the reason for  the reports  is that one  of the                                                               
primary purposes of GRETC is to  be the vehicle for the utilities                                                               
to come to the state for financial assistance.                                                                                  
4:15:40 PM                                                                                                                    
CO-CHAIR  MILLETT  questioned  whether the  legislature  and  the                                                               
state should fund an organization without annual reviews.                                                                       
4:17:07 PM                                                                                                                    
MR. BJORKQUIST  pointed out the  provisions on page 15,  line 28,                                                               
that call  for an annual  audit to  be submitted to  the governor                                                               
and the  legislature.   In addition, page  14, line  27, provides                                                               
for the  board to publish an  annual report on the  Internet that                                                               
includes any other information requested by the legislature.                                                                    
4:18:28 PM                                                                                                                    
REPRESENTATIVE JOHANSEN  asked what  type of  legislative request                                                               
for information is required.                                                                                                    
4:19:02 PM                                                                                                                    
MR. BJORKQUIST opined  the request from the  legislature would be                                                               
a resolution.                                                                                                                   
4:19:30 PM                                                                                                                    
CO-CHAIR  EDGMON  asked for  the  intent  behind the  "long-range                                                               
capital improvement plan."                                                                                                      
4:19:54 PM                                                                                                                    
MR. BJORKQUIST explained that  the long-range capital improvement                                                               
plan looks at  the activities of the corporation 10  years in the                                                               
future.   This ties in  with the long-range  financial management                                                               
plan after decisions are made about what facilities to build.                                                                   
4:20:55 PM                                                                                                                    
CO-CHAIR  EDGMON   observed  this   is  influenced  by   the  six                                                               
4:21:16 PM                                                                                                                    
MR. BJORKQUIST agreed,  adding that this language is  part of the                                                               
legislation developed  from the  taskforce process.   He returned                                                               
to page  18, line 20,  that determines rates for  electric power,                                                               
energy,  and services.   He  said  this section  takes effect  in                                                               
2015, and described  the process to establish  rates and charges,                                                               
arbitration, and litigation.                                                                                                    
4:22:56 PM                                                                                                                    
CO-CHAIR  MILLETT asked  for  the  reason the  RCA  would not  be                                                               
involved  in the  ratemaking instead  of "mediated  internally in                                                               
the GRETC corporation straight to litigation."                                                                                  
4:23:18 PM                                                                                                                    
MR.  BJORKQUIST   assured  the  committee  the   details  of  the                                                               
corporation's  internal  dispute  resolution  mechanism  will  be                                                               
provided  in  its by-laws,  because  internal  disputes can  take                                                               
place at  any time.  Setting  of the rates, however,  takes place                                                               
in 2015, after the  RCA is no longer involved.   Page 21, line 3,                                                               
begins  Sec. 11  that authorizes  AEA to  contract with  GRETC to                                                               
operate and maintain  a power project in order to  allow GRETC to                                                               
participate  in the  Bradley Lake  Hydroelectric Project  and the                                                               
Alaska Intertie.   He advised that  the balance of the  CS is the                                                               
effective date provisions and concluded his sectional analysis.                                                                 
4:25:30 PM                                                                                                                    
REPRESENTATIVE   TUCK   referred   to  the   long-range   capital                                                               
improvement plan and the long-range  financial management plan on                                                               
page 13,  and asked what  projects will  happen in the  next five                                                               
years that would need rate regulation by the RCA.                                                                               
4:25:57 PM                                                                                                                    
MR. BJORKQUIST  explained that the  planning function  is looking                                                               
at  the  next 10  years  and  must  begin immediately  after  the                                                               
formation of  the corporation.   However, there may  be immediate                                                               
needs for projects that the utilities can develop more quickly.                                                                 
4:27:20 PM                                                                                                                    
REPRESENTATIVE  PETERSEN stated  that at  least four  members are                                                               
needed  to  create  the  corporation.     He  asked  whether  the                                                               
corporation would continue  forward with less than  four after it                                                               
was established.                                                                                                                
4:27:56 PM                                                                                                                    
MR. BJORKQUIST  said yes.   The  organization of  the corporation                                                               
requires four members but, once  the corporation is organized, it                                                               
does not lose the ability to exist.                                                                                             
CO-CHAIR MILLETT opened the hearing to public testimony.                                                                        
4:28:23 PM                                                                                                                    
JANET REISER,  Board Member,  Chugach Electric  Association, Inc.                                                               
(Chugach Electric),  informed the  committee Chugach  Electric is                                                               
the  largest electric  generating  entity in  the  state and  she                                                               
expressed  the  board's  unqualified  support of  HB  182.    She                                                               
emphasized   the   amazing   process  that   resulted   in   this                                                               
legislation; in  fact, the utilities  have come together  as they                                                               
are  interested  in  the ratepayer  situation,  gas  supply,  and                                                               
electricity  generation   issues,  and   to  take   advantage  of                                                               
economies  of  scale  and  to  reduce  regulatory  risk.    GRETC                                                               
legislation is in  line with the REGA study and  the IRP, and Ms.                                                               
Reiser  urged  support  of  the bill,  and  recognized  the  long                                                               
process and work of the utilities and the taskforce.                                                                            
4:32:44 PM                                                                                                                    
REPRESENTATIVE  TUCK  asked  what   projects  the  utilities  may                                                               
undertake within the next five years.                                                                                           
4:33:02 PM                                                                                                                    
MS. REISER  said there  are opportunities  to develop   renewable                                                               
energy  projects,   gas  storage   projects,  and   combined  gas                                                               
generation  projects.    She also  mentioned  Southcentral  Power                                                               
Projects (SPP) and  pointed out that big ticket  projects can not                                                               
be  handled by  individual  utilities.   In  further response  to                                                               
Representative  Tuck,  she  said  she was  unsure  of  the  GRETC                                                               
4:34:20 PM                                                                                                                    
CO-CHAIR EDGMON  asked whether the  state can pursue  an in-state                                                               
gas pipeline and GRETC concurrently.                                                                                            
4:35:02 PM                                                                                                                    
MS. REISER opined  GRETC will provide the  opportunity for common                                                               
planning-including  for transmission-with  all of  the utilities,                                                               
and  that GRETC  and  a  gas pipeline  project  are not  mutually                                                               
4:35:55 PM                                                                                                                    
CO-CHAIR  MILLETT   asked  for   Chugach  Electric's   policy  on                                                               
continuing RCA  oversight of GRETC  if the five-year  sunset were                                                               
4:36:28 PM                                                                                                                    
MS. REISER said,  "My general feeling is ... that  is not a stop-                                                               
issue for Chugach."                                                                                                             
4:36:55 PM                                                                                                                    
MS. REISER, in  further response to Co-Chair  Millett, said there                                                               
has been no discussion at  the board level about Chugach Electric                                                               
getting into the oil and gas business.                                                                                          
4:37:17 PM                                                                                                                    
JOE  GRIFFITH, General  Manager, Matanuska  Electric Association,                                                               
Inc., (MEA), informed the committee HB  182 is a crucial bill for                                                               
the  Railbelt in  order to  avoid  very difficult  times for  the                                                               
electrical industry.  He advised  this legislation was needed ten                                                               
years ago, and  the way to a new gas  supply and G&T improvements                                                               
is  by  collective  effort.   Mr.  Griffith  requested  that  the                                                               
committee  pass  the  bill  in   the  version  submitted  by  the                                                               
4:40:26 PM                                                                                                                    
CO-CHAIR MILLETT  asked whether continuing RCA  oversight for the                                                               
life of the GRETC organization was a "game-killer."                                                                             
4:40:36 PM                                                                                                                    
MR.  GRIFFITH said  MEA sees  no  reason for  multiple layers  of                                                               
regulation  in addition  to what  already exists;  in fact,  more                                                               
regulation  adds  unnecessary  cost  and delay.    The  five-year                                                               
agreement  with  the  sunset  clause  is  acceptable  and  "makes                                                               
4:41:36 PM                                                                                                                    
CO-CHAIR MILLETT assumed the RCA  has no purpose prior to GRETC's                                                               
sixth year.                                                                                                                     
4:41:56 PM                                                                                                                    
MR.  GRIFFITH  disagreed,  and  stated  there  may  be  immediate                                                               
projects, such as  for transmission needs and  power plants, that                                                               
may begin soon  and that are "in the regulated  environment."  He                                                               
cautioned   against   development   by  the   utilities   without                                                               
coordination  through GRETC.   In  further  response to  Co-Chair                                                               
Millett, he said  MEA would not pull out of  the agreement if the                                                               
sunset clause on regulation by the RCA were removed.                                                                            
4:43:02 PM                                                                                                                    
CO-CHAIR  MILLETT  asked  whether  MEA  is  interested  in  GRETC                                                               
becoming an oil and gas company.                                                                                                
4:43:37 PM                                                                                                                    
MR. GRIFFITH opined  the intent was never for GRETC  to become an                                                               
oil and gas  company, but to have the authority  to get the fuels                                                               
it needs  by importation, fostering  drilling, owning gas  in the                                                               
ground, or leasing tracts.                                                                                                      
4:44:16 PM                                                                                                                    
REPRESENTATIVE JOHANSEN asked whether  Mr. Griffith has testified                                                               
before the committee in another capacity.                                                                                       
4:45:11 PM                                                                                                                    
MR.  GRIFFITH  said he  was  unsure.    He became  MEA's  general                                                               
manager in July, 2009.                                                                                                          
4:45:17 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN asked  for  more  information about  the                                                               
aforementioned regulations referred to by Mr. Griffith.                                                                         
[CO-CHAIR MILLETT handed the gavel to Co-Chair Edgmon.]                                                                         
4:45:24 PM                                                                                                                    
MR.  GRIFFITH identified  existing  regulation  as the  Sarbanes-                                                               
Oxley Act of 2002.                                                                                                              
4:45:56 PM                                                                                                                    
REPRESENTATIVE JOHANSEN  surmised federal regulation would  be by                                                               
the  U.S.  Securities  and  Exchange  Commission  (SEC)  and  the                                                               
Sarbanes-Oxley Act, in lieu of regulation by the RCA.                                                                           
4:47:03 PM                                                                                                                    
MR. GRIFFITH  clarified that irrespective of  state regulation, a                                                               
corporation with public debt is  under the regulation of the SEC,                                                               
and is  subject to the  Sarbanes-Oxley Act.  In  further response                                                               
to  Representative  Johansen,  he  said  when  these  regulations                                                               
apply,  he would  recommend to  the  board of  directors that  it                                                               
explain to the ratepayers the  implications of SEC regulations by                                                               
issuing  applicable reports  and  following generally  acceptable                                                               
accounting principles.   Mr. Griffith observed that  "there are a                                                               
huge number of rules that we have to live by, no matter what."                                                                  
4:49:24 PM                                                                                                                    
REPRESENTATIVE  JOHANSEN then  asked  how  the needed  short-term                                                               
projects  fit  within  the  process  of  the  long-range  capital                                                               
improvement plan in GRETC.  He remarked:                                                                                        
     Would you have  to go through this process  and get the                                                                    
     GRETC corporation  on board,  in order to  quickly move                                                                    
     to those projects,  or are they projects  that are more                                                                    
     dear to MEA?  I'm just not sure of the timing ...                                                                          
4:50:27 PM                                                                                                                    
MR. GRIFFITH  said his recommendation  to the board  of directors                                                               
would be  to conduct  the planning processes  required:   a long-                                                               
range financial  plan; a long-range  capital improvement  plan; a                                                               
budget.    Additional  crucial  steps  involve  public  debt  and                                                               
require rating agencies and business  plans.  The construction of                                                               
these plans is one of the first steps.                                                                                          
REPRESENTATIVE  JOHANSEN asked  whether GRETC  will help  the six                                                               
entities cooperate.                                                                                                             
MR. GRIFFITH expressed  his belief that GRETC is  the only course                                                               
of action  to undertake.   He  said, "I  can't imagine  how we're                                                               
going   to   deal  with   future   requirements   that  we   face                                                               
[CO-CHAIR EDGMON returned the gavel to Co-Chair Millett.]                                                                       
4:50:53 PM                                                                                                                    
KATIE HURLEY, Board Member,  Matanuska Electric Association, Inc.                                                               
(MEA), stated that this is  the first time the Railbelt utilities                                                               
are  in agreement  since  the construction  of  the Bradley  Lake                                                               
Hydroelectric Project in 1986.   She described the current crises                                                               
faced by  the utilities  such as  new generation,  interties, and                                                               
fuel supplies, and opined that  GRETC is needed to coordinate the                                                               
utilities, the  state, and fuel  supplies.  MEA supports  HB 182,                                                               
and she urged the committee to consider its passage.                                                                            
4:52:45 PM                                                                                                                    
KIT  JONES, Board  Member, Matanuska  Electric Association,  Inc.                                                               
(MEA),  informed  the  committee  that  the  Railbelt  must  work                                                               
together,  and a  majority of  the  ratepayers want  to see  this                                                               
done.  She pointed out that  MEA also changed management, and she                                                               
urged the  general manager to comment  on the IRP as  this report                                                               
will give the utilities direction.                                                                                              
4:54:09 PM                                                                                                                    
LARRY  DEvILBISS, Board  Member, Matanuska  Electric Association,                                                               
Inc. (MEA),  said that he  is a  seven-year member of  the board.                                                               
He stressed  that the MEA  board is united  on this issue,  as is                                                               
the Railbelt,  which represents three-quarters of  the population                                                               
of  the  state.    He  opined the  uncertainty  of  gas  and  the                                                               
depreciation  of infrastructure  is a  "perfect storm"  that will                                                               
lead to  gas shortages before  2015.  Mr. DeVilbiss  recalled the                                                               
months of work by the taskforce.                                                                                                
4:57:16 PM                                                                                                                    
CO-CHAIR  MILLETT  stated  her   appreciation  of  the  taskforce                                                               
4:58:43 PM                                                                                                                    
BOB  PICKETT, Chairman,  Regulatory Commission  of Alaska  (RCA),                                                               
acknowledged the work  of the taskforce and  its cooperation with                                                               
AEA.     He  disclosed  that   his  testimony  is   his  personal                                                               
observation  alone,  and  not  the  position  of  the  RCA.    He                                                               
announced  that  an upcoming  RCA  public  meeting on  the  GRETC                                                               
legislation was scheduled  for 3/31/10.  Mr.  Pickett stated that                                                               
the  RCA  supports   the  broad  goals  of   the  original  GRETC                                                               
legislation such as cooperation, joint  planning, and the lack of                                                               
duplication;  however,  protection  of the  public  interest  and                                                               
protection   of  the   ratepayers   must  be   integral  to   any                                                               
legislation.  Regarding  the CS for HB  182, version 26-GH1041\S,                                                               
Chenoweth/Bailey, 3/24/10,  he observed that Sec.  3 is purported                                                               
to be an interim form  of traditional regulation proposed for the                                                               
RCA,  but   he  cautioned  that   the  language  of  Sec.   3  is                                                               
dramatically  different from  traditional  rate  regulation.   In                                                               
fact,  the  language more  closely  resembles  an exemption  than                                                               
regulation.     In  traditional  ratemaking,   operating  expense                                                               
recovery  is based  on historic  cost with  known and  measurable                                                               
adjustments.   For example, the  rate of return  and depreciation                                                               
are set to  provide funds for system  expansion, capital repairs,                                                               
and overhaul  and replacement.  Furthermore,  the resulting rates                                                               
must be just  and reasonable.  However, the deviations  in Sec. 3                                                               
are generally these:  the  operating expense recovery is based on                                                               
management representations  about future operations;  the capital                                                               
is accumulated "as  an end in itself, with  the amounts collected                                                               
in   any  particular   period   determined   by  an   unspecified                                                               
relationship to future needs;" some  individual cost elements are                                                               
presumed to  be just  and reasonable without  guidance as  to how                                                               
the resulting rates will be  evaluated.  Mr. Pickett said written                                                               
comments  will  be  provided  to  the  committee  after  the  RCA                                                               
meeting, but he  advised that if Sec. 3 remains  in the bill, the                                                               
RCA will  require strong  legislative clarification  because this                                                               
language  "has  nothing to  do  with  the traditional  ratemaking                                                               
process."   Furthermore,  there  are other  policy and  technical                                                               
questions that arose  during Mr. Pickett's review of HB  182.  He                                                               
questioned the  underlying policy assumption throughout  the bill                                                               
that auditing or corporate governance  equals regulation, or that                                                               
federal regulation supplants the  normal ratemaking process.  Mr.                                                               
Pickett  said, "Again,  keep  in mind  I'm  speaking for  myself,                                                               
[and]  I think  nothing could  be further  from the  truth."   He                                                               
called  attention to  the present  financial crisis,  and pointed                                                               
out  that  there   was  a  plethora  of   external  auditors  and                                                               
regulation regarding those  affected financial institutions, "and                                                               
we all saw where this led."                                                                                                     
5:06:13 PM                                                                                                                    
MR.  PICKETT referred  to page  13,  lines 28-31,  and noted  the                                                               
corporation plans  include the issuance  of equity and debt.   He                                                               
questioned how GRETC will issue  equity as it is a not-for-profit                                                               
corporation.   Regarding Bradley  Lake, he acknowledged  that the                                                               
project  was a  huge success  and a  benefit to  Railbelt utility                                                               
ratepayers, but the  success of Bradley Lake is not  a model for,                                                               
or  an  endorsement  of,  all  of the  provisions  of  the  GRETC                                                               
legislation.   Furthermore,  he noted  other state  projects with                                                               
significantly  lower levels  of success.   Mr.  Pickett concluded                                                               
that  G&T  is  the  biggest   cost  for  ratepayers  and  capital                                                               
investment is needed for the  Railbelt electrical system.  If one                                                               
of the  goals of  GRETC is to  deregulate the  electrical utility                                                               
system, the ratepayers should be  well aware of the situation and                                                               
be given the opportunity to speak.                                                                                              
5:08:52 PM                                                                                                                    
CAITLIN   HIGGINS,   Executive  Director,   Alaska   Conservation                                                               
Alliance (Alliance),  informed the committee the  Alliance has 40                                                               
member  organizations   representing 38,000  Alaskans.   She said                                                               
the  Alliance  appreciates  the  administration's  work  to  find                                                               
consensus, and  the positive  first steps  taken by  the Railbelt                                                               
utilities.   Furthermore,  the Alliance  and  the Homer  Electric                                                               
Association, Inc. (HEA) Members  Forum encourage the legislators'                                                               
consideration  of the  following testimony  so the  organizations                                                               
may  ultimately support  the proposed  legislation.   Ms. Higgins                                                               
agreed  that a  central utility  that plans  and promotes  energy                                                               
efficiency could  provide the Railbelt with  significant economic                                                               
gains, job growth, and needed  generation projects.  Furthermore,                                                               
the Alliance supports including  statutory language that requires                                                               
the  unified  utility  to  evaluate  conservation  and  renewable                                                               
energy in  the development  of its resource  plan.   In addition,                                                               
the Alliance supports ongoing  regulatory and financial oversight                                                               
of  the  proposed  unified  utility by  the  RCA;  however,  this                                                               
oversight should  not sunset  after five  years of  operation and                                                               
Ms. Higgins  related several benefits of  ongoing RCA regulation.                                                               
She turned  to the  subject of governance  and public  input, and                                                               
urged that  the board  of directors of  the new  utility increase                                                               
citizen  participation  on  the   board,  or  create  a  separate                                                               
citizens' utility  board.   She said  the Alliance  also supports                                                               
statutory language  that maintains open meeting  provisions.  Ms.                                                               
Higgins concluded that  in order for the Alliance  to support the                                                               
legislation,  its members  encourage  the  committee to  consider                                                               
adding language  to HB 182  in order to better  address financial                                                               
and  regulatory  oversight,  governance  and  public  input,  and                                                               
energy efficiency.                                                                                                              
[HB 182 was held.]                                                                                                              
5:13:15 PM                                                                                                                    

Document Name Date/Time Subjects
HB0182A.pdf HENE 3/23/2010 3:00:00 PM
HENE 3/30/2010 3:00:00 PM
HB 182
CS HB 182 3-24-10.PDF HENE 3/25/2010 3:00:00 PM
HENE 3/30/2010 3:00:00 PM
HB 182
CS HB 182 version S Sectional.PDF HENE 3/30/2010 3:00:00 PM
HB 182
CS HB 182 version S Leg. Legal Memo.PDF HENE 3/30/2010 3:00:00 PM
HB 182
Black & Vetch Financial Analysis RIRP.PDF HENE 3/30/2010 3:00:00 PM
HB 182 AK Chamber of Commerce.PDF HENE 3/30/2010 3:00:00 PM
HB 182
10_03 ACA comments HB182.pdf HENE 3/30/2010 3:00:00 PM
HB 182