Legislature(2015 - 2016)CAPITOL 17

03/03/2015 10:15 AM ENERGY

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10:31:19 AM Start
10:32:03 AM HB78
11:59:32 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
             HB  78-REGULATORY COMMISSION OF ALASKA                                                                         
CO-CHAIR VAZQUEZ announced that the  only order of business would                                                               
be HOUSE  BILL NO.  78, "An  Act bearing the  short title  of the                                                               
'Alaska  Competitive Energy  Act of  2015'; and  relating to  the                                                               
Regulatory Commission of Alaska."                                                                                               
10:32:03 AM                                                                                                                   
REPRESENTATIVE TAMMIE WILSON,  Alaska State Legislature, informed                                                               
the committee HB  78 is all about Alaska being  open for business                                                               
so  that private  industry  can invest  and  bring Alaskans  more                                                               
affordable  energy.    She  read from  the  state  energy  policy                                                               
[passed in the 26th Alaska State Legislature] as follows:                                                                       
     Encourage   economic  development   by  promoting   the                                                                    
     development   of  renewable   and  alternative   energy                                                                    
     resources    including    geothermal,   wind,    solar,                                                                    
     hydroelectric, hydrokinetic, tidal,  and biomass energy                                                                    
     for the use by all Alaskans.                                                                                               
REPRESENTATIVE  WILSON observed  that over  the last  three years                                                               
the state  has invested  over $212 million  of public  funds into                                                               
electrical generation in Alaska.   She explained that the bill is                                                               
very  confusing  because  many   changes  affect  the  Regulatory                                                               
Commission of Alaska (RCA).  She remarked:                                                                                      
     Everybody gets an electric bill  ... and the first part                                                                    
     of it is  ... called the base ... if  our kilowatt hour                                                                    
     is 20 cents a kilowatt hour,  and our base is 10 cents,                                                                    
     these  are your  buildings, the  people, everything  it                                                                    
     takes  to  generate  that electricity  whether  or  not                                                                    
     anybody uses  any of  that.  And  that is  regulated by                                                                    
     the RCA, so we're not  going to talk about that portion                                                                    
     of it.   We're going to  talk about the other  10 cents                                                                    
     that makes  that up.   And  that's what  you're hearing                                                                    
     about, the avoided cost, the  cost for generation, what                                                                    
     does it  take to be  able to make that  electricity and                                                                    
     also transmit it up the line  ....  So on that 10 cents                                                                    
     what we'd like to know, in  the bill, is exactly:  What                                                                    
     does it  take to  make up that  portion?   Because what                                                                    
     you  do right  now  is, we  get an  average.   So,  for                                                                    
     instance  ... in  Fairbanks ...  they generate  it from                                                                    
     coal, we  have diesel,  we also get  gas, we  use wind,                                                                    
     and others, so  we'll have a different  amount, what it                                                                    
     takes to produce that kilowatt  per hour from all those                                                                    
     different  areas.   ...  That's   the  area   that  our                                                                    
     independent power  producers look at to  see whether or                                                                    
     not  the   project  they  want  to   bring  forward  is                                                                    
     competitive  or  not.  ... The  bill  would  then  make                                                                    
     utilities break  that down  so you  could see  what the                                                                    
     high portion of  the energy is and the  low, that makes                                                                    
     up that  10 cents.  ... An independent  power producer,                                                                    
     and  they're going  to  build a  project,  and in  that                                                                    
     project,  to  generate  that one  kilowatt  hour,  it's                                                                    
     going to  be 4 cents  a kilowatt hour, much  lower than                                                                    
     that 10  cents ... therefore they're  competitive, well                                                                    
     ... now they  have to get it on the  lines and know how                                                                    
     much it's going to cost  to go per line, depending upon                                                                    
     whose  line that  they're crossing,  kind of  like when                                                                    
     you go on a toll road.  ... Another part that this bill                                                                    
     will do is it will  set those rates, so everybody knows                                                                    
     what the rates  are and it's equal  for everybody else.                                                                    
     So  let's say  that that's  2 cents,  now and  that's 6                                                                    
     cents versus the 10 cents  that I'm already paying. ...                                                                    
     I can save  4 cents a kilowatt hour if  I were to build                                                                    
     my plant. ...  Now it's time that I can  go to the bank                                                                    
     ...  I  can   go  look  for  investors,   I  can  start                                                                    
     conversations  with a  utility. ...  One of  the things                                                                    
     we've heard  ... is this is  going to cost us  more ...                                                                    
     We  want private  investment dollars,  we want  private                                                                    
     companies to  come in, invest  in Alaskans, so  that we                                                                    
     can have  more affordable  energy, and  they've already                                                                    
     done that ... there are a  lot of projects out there, a                                                                    
     lot of money  invested and this is  private monies that                                                                    
     are  competing  ...  with the  $213  million  of  state                                                                    
     funding, for  other projects. ... We're  competing with                                                                    
     private  business,  using state  funds  as  well, in  a                                                                    
     marketplace, where,  the rules, nobody knows  what they                                                                    
     are ... and that's primarily what this bill does.                                                                          
10:37:57 AM                                                                                                                   
REPRESENTATIVE  WILSON  continued   to  the  sectional  analysis:                                                               
Section   3   calls   upon   RCA   to   apply   competitive   and                                                               
nondiscrimination   principles  with   respect   to  all   energy                                                               
producers  including  qualifying  facilities  (QFs),  independent                                                               
power  producers   (IPPs)  and  public  utilities.     Section  4                                                               
authorizes  and   requires  RCA  to  have   regulatory  decisions                                                               
consistent  with   the  state  energy   policy.     [Section  4],                                                               
subsection (f)  requires RCA to  ensure that  transmission assets                                                               
within  the state  are  open  and accessible  to  QFs, IPPs,  and                                                               
public utilities on a fair and nondiscriminatory basis.                                                                         
10:39:04 AM                                                                                                                   
CO-CHAIR  COLVER observed  that  other  legislation could  create                                                               
transmission  cooperatives  and  a  unified rate  for  access  to                                                               
transmission infrastructure.   In that  case, if the state  has a                                                               
framework for  a tariff for any  entity on the grid,  he surmised                                                               
subsection (f) would not be necessary.                                                                                          
REPRESENTATIVE WILSON  said absolutely correct; there  are issues                                                               
that can be taken out of the bill.                                                                                              
10:40:13 AM                                                                                                                   
The committee took an at ease from 10:40 a.m. to 10:47 a.m.                                                                     
10:47:13 AM                                                                                                                   
REPRESENTATIVE WILSON  continued to  section 5  which strengthens                                                               
the  language  so  that  RCA  has authority  and  duty  to  adopt                                                               
regulations in order to carry  out its responsibilities.  Section                                                               
6  streamlines  rulemaking  proceedings.     Section  7  provides                                                               
transparency  for   market  costs,  and   encourages  competitive                                                               
independent  power  production  to   meet  and  beat  established                                                               
generation  costs  to reduce  the  cost  of power  for  Alaskans.                                                               
Section 8  helps improve  compliance with  U.S. laws  relating to                                                               
QFs  and competitive  power, to  lower electrical  costs for  end                                                               
users.    Section  9  differentiates  end  user  from  wholesale,                                                               
industrial, or  bulk buyers of  electricity.  Section  10 expands                                                               
RCA  authority such  that upon  a disagreement  between a  public                                                               
utility  and another  requesting  party on  terms and  reasonable                                                               
compensation, RCA  may require  a public  utility to  comply with                                                               
terms and reasonable compensation for  temporary use.  Section 11                                                               
eliminates  barriers for  QFs  and IPPs  in  obtaining access  to                                                               
transmission facilities.   [Section  11] subsection  (d) requires                                                               
public  utilities and  other  transmission  service providers  to                                                               
proceed with  interconnection in a timely  manner; subsection (e)                                                               
specifies who  shall bear the  cost of an  interconnection study;                                                               
subsection (f)  requires public utilities to  provide open access                                                               
to  transmission assets  on a  fair and  nondiscriminatory basis;                                                               
subsection  (g)  confirms  the ability  of  utilities  and  other                                                               
transmission  service  providers  to impose  interconnection  and                                                               
integration charges; subsection (h)  requires any system benefits                                                               
from  interconnection  to  be  credited   to  the  party  seeking                                                               
connection  and used  to offset  any fees  charged by  the public                                                               
utility or  other transmission  service provider;  subsection (i)                                                               
provides  that  when   requested  by  RCA  or   a  party  seeking                                                               
connection,  the public  utility  or  other transmission  service                                                               
provider   must    disclose   the   basis   for    its   proposed                                                               
interconnection  and integration  charges,  and must  demonstrate                                                               
that  such charges  are fair,  reasonable, nondiscriminatory  and                                                               
otherwise in  compliance with this  chapter.  Section  12 directs                                                               
RCA to take action to ensure  QFs and IPPs shall obtain access to                                                               
transmission facilities.   Section 13 requires  that fees charged                                                               
by  transmission  asset  owners  for  interconnection  constitute                                                               
reasonable compensation.   Section 14  limits the types  of costs                                                               
that public  utilities can pass  on to [rate]payers.   Section 15                                                               
authorizes and requires RCA to  review new or revised tariffs for                                                               
consistency with the  state energy policy.  Section  16 adds that                                                               
any agreement  under this paragraph  is not exempt from  the open                                                               
access  and anti-discriminatory  sections.   Section 17  requires                                                               
RCA  to  allow  utilities  to pass  on  to  [rate]payers  certain                                                               
validated  costs.     Section  18   expands  RCA   oversight  and                                                               
investigatory  authority.     Section  20  eliminates  conditions                                                               
related  to   power  being  generated  entirely   from  renewable                                                               
resources and  a plant  or facility not  having been  funded with                                                               
state grants or tax credits.   Section 22 exempts from regulation                                                               
under this  chapter all QFs  smaller than 80 megawatts.   Section                                                               
23  defines  public  utilities  and  section  24  is  a  list  of                                                               
10:51:50 AM                                                                                                                   
CO-CHAIR COLVER returned attention to  section 22 and asked for a                                                               
comparison on  how regulations  would be applied  to QFs  over 80                                                               
CO-CHAIR VAZQUEZ said  questions would be answered at  the end of                                                               
Representative Wilson's testimony.                                                                                              
REPRESENTATIVE WILSON  directed attention  to a  written response                                                               
to a  question from the  previous hearing and letters  of support                                                               
found in  the committee packet.   She concluded that the  bill is                                                               
really about using  private dollars to bring  lower energy costs.                                                               
She acknowledged  that the state  needed a monopoly at  one time,                                                               
but the  state has grown,  and now  needs to stop  competing with                                                               
private industry and give private industry access.                                                                              
10:55:03 AM                                                                                                                   
TERESA  CLEMMER, Attorney,  Bessenyey  & Van  Tuyn, informed  the                                                               
committee she  has been working with  independent power producers                                                               
in  the development  of  HB 78,  and has  also  been involved  in                                                               
rulemaking under consideration by RCA.   She offered to provide a                                                               
brief overview  on what the bill  does and how it  relates to the                                                               
rulemaking process.  Ms. Clemmer said  the first goal of HB 78 is                                                               
to  ensure that  fair  nondiscriminatory access  is available  to                                                               
Alaska's  transmission infrastructure.    The second  goal is  to                                                               
strengthen RCA's  oversight authority related to  utilities.  The                                                               
third goal  is to reduce regulatory  burdens on small IPPs.   The                                                               
fourth  goal is  to  implement Alaska's  energy  policy, and  the                                                               
fifth  goal  is  to  provide  guidance  to  RCA  related  to  its                                                               
oversight of  power purchase agreements (PPAs)  between utilities                                                               
and  small renewable  energy producers.   She  stressed that  the                                                               
fifth  goal  is  where  HB   78  most  directly  relates  to  the                                                               
regulatory process and  RCA; the first four goals  are related to                                                               
transmission.   Directing attention to  the first goal,  she said                                                               
that most transmission facilities in  Alaska were state funded or                                                               
subsidized,  and  future upgrades  will  be  state subsidized  as                                                               
well, thus they are public  infrastructure facilities, similar to                                                               
highways, to which  everyone should have access.   But small IPPs                                                               
must negotiate multiple transmission  agreements with a series of                                                               
utilities along  a transmission route,  leading to  excessive and                                                               
duplicative wheeling fees and other charges.                                                                                    
10:58:41 AM                                                                                                                   
CO-CHAIR VAZQUEZ asked for an explanation of wheeling fees.                                                                     
MS. CLEMMER  responded that wheeling  fees are similar to  a toll                                                               
on  a highway;  a  utility  imposes a  charge  for  an entity  to                                                               
transmit  its  power on  the  utility's  transmission line.    In                                                               
Alaska,  because the  system is  fragmented,  many utilities  are                                                               
imposing  "toll,  upon  toll,  upon  toll,"  which  is  known  as                                                               
pancaking.    In   fact,  HB  78  is  designed   to  ensure  that                                                               
transmission  facilities are  accessible  to everyone,  including                                                               
utilities and IPPs, in order  to support competition in the power                                                               
industry; this  can be seen in  section 4, subsection (f)  and in                                                               
section  11, subsection  (f).    She pointed  out  that fair  and                                                               
nondiscriminatory  access does  not mean  that utilities  will be                                                               
burdened  with  extra  cost; HB  78  provides  that  transmission                                                               
owners are  entitled to "reasonable compensation"  for the shared                                                               
use   of   transmission    facilities.      Further,   reasonable                                                               
compensation  is defined  as including  the cost  of maintenance,                                                               
and a return  of private equity of the owning  public utility, or                                                               
joint  action  agency,  as  further   clarified  in  section  13,                                                               
subsection (c)  and in section  24, [paragraph] 20.   Section 10,                                                               
subsection  (a) also  confirms that  the  parties seeking  access                                                               
will bear  the cost  of modifications  or additions  necessary to                                                               
accommodate the  joint use of  the transmission facilities.   Ms.                                                               
Clemmer  noted that  HB  78 anticipates  the  integration of  the                                                               
transmission system  by providing that joint  action agencies are                                                               
to be  treated in the  same manner as other  regulated utilities;                                                               
joint  action  agencies have  previously  been  exempt from  many                                                               
regulations, and  this change will require  joint action agencies                                                               
to be  regulated, as  indicated in  section 2(a),  section 20(l),                                                               
section 23(6),  section 24(18), section  25, and section  26, and                                                               
section 11(d)  requires entities to proceed  with interconnection                                                               
in a timely  manner.  She returned to HB  78's second goal, which                                                               
is to  strengthen RCA's oversight  ability by authorizing  RCA to                                                               
intervene when utilities and small  power generators cannot reach                                                               
agreement on  terms for  access to  transmission.   Section 10(a)                                                               
and section  13(d) provide short-term  action, and  section 12(a)                                                               
and section 13(e)  provide long-term action.  The  third goal, to                                                               
reduce   regulatory   burdens   on   small   IPPs,   relates   to                                                               
Representative Colver's earlier question.   One facet of the bill                                                               
allows  an  exemption  from attaining  a  Certificate  of  Public                                                               
Convenience  and   Necessity,  to  not  being   subject  to  rate                                                               
regulations, or a tariff; she  advised the foregoing requirements                                                               
are  not appropriate  to wholesale  power providers.   The  first                                                               
category  of exemption  is for  all QFs  which are  defined under                                                               
federal law as renewable power  producers under 80 megawatts, and                                                               
which are  exempted under section  22(u).  Another aspect  of the                                                               
bill exempts  IPPs that do not  qualify as QFs under  federal law                                                               
but that meet criteria in the  bill in section 21(r).  The fourth                                                               
goal, implementing Alaska's state  energy policy, gives RCA tools                                                               
to ensure that  Alaska makes progress to the goals  of its energy                                                               
policy;  for  example,  HB  78, section  4(e)  and  section  5(a)                                                               
require RCA regulations to be  consistent with the energy policy,                                                               
and  in   section  15(d),  requires  utilities'   tariffs  to  be                                                               
consistent  with  the  state  energy policy.    The  fifth  goal,                                                               
providing guidance  to RCA related  to oversight of  PPAs between                                                               
utilities and  IPPs, is  in the beginning  process.   On 2/25/15,                                                               
RCA opened  a public comment  period on a "draft  rule;" however,                                                               
public notice has  not be issued, thus it is  appropriate for the                                                               
legislature  to   encourage  RCA  to  move   forward  during  its                                                               
decision-making process; in  fact, there are provisions  in HB 78                                                               
that provide guidance on the draft  rule, one is on avoided cost.                                                               
Avoided cost  is a term that  is used throughout the  country and                                                               
is  well understood:    avoided  cost operates  as  a ceiling  to                                                               
ensure that  PPAs are cost  neutral to utilities  and ratepayers.                                                               
In practice,  there is usually  a cost savings for  utilities and                                                               
ratepayers  under PPAs.   She  opined that  cost neutral  or cost                                                               
savings  are  good for  Alaska.    Section  16  (c)(3) of  HB  78                                                               
clarifies that  RCA has  the authority  to approve  a PPA  at, or                                                               
below,  a  utilities' avoided  cost.    In addition,  section  24                                                               
[paragraph] 15 defines the term  avoided cost to mean incremental                                                               
avoided  cost, which  brings  Alaska in  line  with its  standard                                                               
meaning in  the U.S.  Also  related to rulemaking, HB  78 ensures                                                               
fair and nondiscriminatory charges are  the only aspects of a PPA                                                               
imposed by a utility.                                                                                                           
11:08:40 AM                                                                                                                   
CO-CHAIR  COLVER  pointed out  that  the  section 22,  subsection                                                               
[(u)] exemption for IPPs was  for renewable energy only, and does                                                               
not apply to coal, gas, or co-generation.                                                                                       
MS.  CLEMMER  explained that  in  section  22, subsection  u,  QF                                                               
refers  to  renewable  energy projects;  section  21  creates  an                                                               
exemption for other small IPPs that do not qualify as a QF.                                                                     
CO-CHAIR COLVER asked  for further comment on  where the proposed                                                               
law would apply.                                                                                                                
MS. CLEMMER said in section 21  (r) of the bill, the criteria for                                                               
getting  an  exemption for  an  IPP  other  than a  QF,  requires                                                               
beginning  operation  between 2010  and  2025,  that the  IPP  is                                                               
smaller than  80 megawatts,  and that  the IPP  sells all  of its                                                               
power  to a  regulated public  utility  or, if  the purchaser  is                                                               
located in  an area  outside the  public utility's  service area,                                                               
there  is  no need  for  regulatory  protection for  the  public.                                                               
Also, there  is an exemption for  a plant or facility  that sells                                                               
more than half of its power to purchasers outside of Alaska.                                                                    
REPRESENTATIVE  WOOL  recalled  testimony  from  various  sources                                                               
supports  a system  dispatched by  an independent  entity with  a                                                               
single  rate  to move  electricity.    He  asked if  Ms.  Clemmer                                                               
MS. CLEMMER agreed that is generally  true.  She added that HB 78                                                               
would   not  prevent   or  establish   a  [transmission   company                                                               
(TRANSCO)]; in the  case of multiple utilities or  a TRANSCO, the                                                               
bill  directs that  access  has  to be  provided  on  a fair  and                                                               
nondiscriminatory  basis, and  charges must  be reasonable.   The                                                               
provision  lays  the  groundwork  for   a  TRANSCO  and,  in  the                                                               
meantime,  would provide  protection to  small entities  that are                                                               
trying to access the grid.                                                                                                      
11:14:51 AM                                                                                                                   
REPRESENTATIVE  WOOL surmised  cost  neutral would  apply to  all                                                               
MS. CLEMMER said yes.  The  avoided cost term means that the cost                                                               
to the  utility is the same,  in the worst case,  and most likely                                                               
would be less.   In further response to  Representative Wool, she                                                               
said avoided cost includes the price  for the power, the fees for                                                               
interconnection   and  integration,   and   system  benefits   as                                                               
determined by a formula.                                                                                                        
REPRESENTATIVE  CLAMAN  asked  whether   there  is  a  difference                                                               
between  the  rulemaking in  HB  78  and the  rulemaking  process                                                               
underway by RCA; further, whether  RCA has the authority to adopt                                                               
everything in the bill through its rulemaking process.                                                                          
MS.  CLEMMER responded  that the  bill has  a broader  scope than                                                               
RCA's process; in  the realm of PPAs between  utilities and IPPs,                                                               
there  is  overlap,  but  HB  78 does  more,  such  as  requiring                                                               
nondiscriminatory access to transmission.                                                                                       
REPRESENTATIVE  CLAMAN  surmised  that RCA  rulemaking  does  not                                                               
address the pancaking of transmission rates.                                                                                    
MS. CLEMMER said right; the  rulemaking establishes specifics for                                                               
PPAs  between utilities  and wholesale  providers, but  is not  a                                                               
transmission-oriented  negotiation.     In  further  response  to                                                               
Representative Claman,  she said  HB 78  is the  first step  to a                                                               
single  transmission  entity   by  creating  a  nondiscrimination                                                               
requirement  and  a requirement  for  reasonable  fees for  IPPs;                                                               
however, in order to create  a TRANSCO separate legislation would                                                               
be required.                                                                                                                    
11:19:31 AM                                                                                                                   
REPRESENTATIVE CLAMAN  concluded that IPPs  are willing to  pay a                                                               
set postage stamp rate.                                                                                                         
MS.  CLEMMER cautioned  that the  bill does  not specify  whether                                                               
there could be  a series of charges, but just  that the charge or                                                               
charges are fair and nondiscriminatory.                                                                                         
CO-CHAIR  VAZQUEZ asked  how  HB 78  addresses  the treatment  of                                                               
avoided costs.                                                                                                                  
MS. CLEMMER explained that the  bill inserts the word incremental                                                               
into  the  definition   of  avoided  cost,  which   makes  a  big                                                               
difference in  the way utilities  and IPPs negotiate.   Utilities                                                               
generally have a  portfolio of different power  sources.  Current                                                               
regulations say that  IPPs must compete with the  average cost of                                                               
all  of a  utility's power  sources,  even if  the projects  were                                                               
built years ago  with state subsidies, and even if  the source is                                                               
not  the first  power  that  would be  displaced.   For  example,                                                               
[Golden Valley Electric Association  (GVEA)] usually burns diesel                                                               
during  peak periods  in winter  at a  high cost,  and if  an IPP                                                               
offered power  at a lower  cost, GVEA  would be obligated  to buy                                                               
power from  the IPP.  Currently,  however, the IPP would  have to                                                               
compete  with the  average rate  and not  the cost  of the  power                                                               
source  it would  have displaced.   She  provided the  additional                                                               
example of Fire Island Wind Phase 2.                                                                                            
REPRESENTATIVE  WOOL advised  that  GVEA does  not  want to  burn                                                               
diesel  at a  high price,  or pay  the same  price as  diesel for                                                               
wind.   Furthermore, GVEA cannot  rely on wind during  periods of                                                               
high demand  so spinning reserves  must be maintained.   He asked                                                               
whether  the cost  of spinning  reserves is  included in  avoided                                                               
incremental cost.                                                                                                               
11:24:46 AM                                                                                                                   
MS. CLEMMER observed  that diesel can cost up to  $1 per kilowatt                                                               
hour compared  to wind power  that can cost  as low as  $0.12 per                                                               
kilowatt hour.   In further response,  she assured Representative                                                               
Wool that  the IPP would not  negotiate for the diesel  price but                                                               
would offer  a flat rate  of about $0.12; however,  GVEA compares                                                               
the offered  rate to its  average rate which incorporates  all of                                                               
its cheapest  sources of power,  and is  not the actual  cost for                                                               
displacement of diesel.  She  opined that IPPs have been offering                                                               
reasonable  rates  that  would  save  consumers  money,  but  the                                                               
utilities  "are  very reluctant  to  agree  ...."   In  addition,                                                               
spinning reserve  in many  instances is a  modest cost;  in fact,                                                               
utilities provide  spinning reserve  for their own  power sources                                                               
and  for each  other.    She said,  "There's  a  lot of  spinning                                                               
reserve already built into the system ...."                                                                                     
CO-CHAIR  VAZQUEZ  asked  how  HB   78  affects  integration  and                                                               
integration fees.                                                                                                               
MS. CLEMMER  said spinning  reserve is  the primary  component of                                                               
integration  costs  for  renewable  sources such  as  wind.    In                                                               
further response, she  said HB 78 defines the  terms and requires                                                               
IPPs to be  responsible to pay for integration costs  that can be                                                               
attributed to  the IPP facility.   Section 24, [paragraph]  21 of                                                               
the bill  defines reasonable integration charges  and establishes                                                               
CO-CHAIR VAZQUEZ asked for  clarification between integration and                                                               
MS. CLEMMER  stated that integration refers  to spinning reserve;                                                               
interconnection  refers to  the  hardware needed  to  get an  IPP                                                               
connected to  the power  system, such  as transmission  lines and                                                               
transformers.   Interconnection  costs are  tangible and  without                                                               
disagreement.  In further response  to Co-Chair Vazquez, she said                                                               
interconnection is not addressed in HB 78.                                                                                      
11:31:45 AM                                                                                                                   
DAVID  GILLESPIE,   Chief  Executive  Officer,   Alaska  Railbelt                                                               
Cooperative  Transmission &  Electric Company  (ARCTEC), returned                                                               
attention to the subject of  avoided cost.  Mr. Gillespie pointed                                                               
out that  avoided cost, incremental or  otherwise, varies minute-                                                               
to-minute,  day-to-day,  and  year-to-year; a  utility's  avoided                                                               
cost  on the  coldest  day  differs from  that  of another  time.                                                               
Therefore, a unit  of last resort could set the  avoided cost for                                                               
a certain  time, but  during other  times it is  less.   Also, he                                                               
urged that the  committee recognize that avoided cost  for an IPP                                                               
typically is  estimated for  20 years because  that often  is the                                                               
term of a  contract.  Utilities are required to  make an estimate                                                               
into the future, therefore,  utility customers assume significant                                                               
risk when signing a contract based  on current avoided cost.  Mr.                                                               
Gillespie informed  the committee that  ARCTEC was formed  by the                                                               
following four  Railbelt utilities to address  industry issues of                                                               
mutual  concern:    GVEA,  Chugach  Electric  Association  (CEA),                                                               
Matanuska  Electric Association  (MEA), and  the City  of Seward.                                                               
Each   member  exists   to   provide   low-cost,  reliable,   and                                                               
sustainable  electric service  to  customers and  residents.   He                                                               
provided  a brief  background of  his personal  experience.   Mr.                                                               
Gillespie  spoke  in opposition  to  HB  78, even  though  ARCTEC                                                               
supports  the   principles  of   competition  and   open  access.                                                               
However, in the best interest  to create a regulatory environment                                                               
that is  fair, HB 78  is not  the appropriate vehicle  to achieve                                                               
the goals of low-cost, reliable,  sustainable energy and economic                                                               
development  opportunities.   He said  there are  four topics  to                                                               
consider.   First, detailed implementation  outlined in  the bill                                                               
should  be  left  to  RCA.    Because  electrical  regulation  is                                                               
complex, legislation should focus on  a purpose and leave details                                                               
to  regulators, as  is currently  underway in  RCA open  dockets.                                                               
Second, the  bill contains  ambiguities and  potential unintended                                                               
consequences;  for   example,  section  9  proposes   to  replace                                                               
"customer"  with "end  user" and  to exclude  industrial use  and                                                               
bulk buyers of electricity.   This would create a new distinction                                                               
between  industrial  customers and  other  classes.   Section  14                                                               
proposes  changes  that may  prevent  a  utility from  recovering                                                               
costs due  to a  dispute between  utilities and a  QF or  an IPP,                                                               
regardless  of   circumstances.    Third,  most   of  the  bill's                                                               
provisions  are  already  covered  by federal  law  or  in  RCA's                                                               
recently proposed rules.  At best,  the bill is redundant, and at                                                               
worst, it  is in conflict  with existing statute  or regulations.                                                               
Although it has been said HB  78 intends to "harmonize" state law                                                               
with  the  Public  Utilities  Regulatory  Policies  Act  of  1978                                                               
(PURPA), PURPA applies  in Alaska as elsewhere in  the U.S., thus                                                               
Alaska  should live  by existing  law.   Furthermore,  HB 78  may                                                               
ultimately  conflict with  the guidance  that will  be issued  by                                                               
RCA.   Finally, ARCTEC's stance  is that  HB 78 does  not address                                                               
the  real  problem  in  the   Railbelt,  which  is  the  lack  of                                                               
infrastructure and a regulatory  framework for economic dispatch.                                                               
Mr.  Gillespie urged  the legislature  to focus  on enabling  law                                                               
that sends  a clear direction  to RCA to implement  a stakeholder                                                               
governed, independent  or unified  system operator model  that is                                                               
based  on  guiding  principles.   The  aforementioned  USO  would                                                               
provide  regulatory stability  needed to  create opportunity  for                                                               
IPPs,  allow  the  state  to  attract  capital,  enable  economic                                                               
activity,  and   allow  the  utilities   to  provide   energy  to                                                               
residents, members, and [rate] payers.                                                                                          
11:39:14 AM                                                                                                                   
CO-CHAIR COLVER  asked why  ARCTEC has an  interest in  IPPs that                                                               
may be  off-grid or in closed  grids, if ARCTEC is  supportive of                                                               
free and open competition on the distribution system.                                                                           
MR. GILLESPIE  affirmed that  ARCTEC's focus  is on  the Railbelt                                                               
11:41:44 AM                                                                                                                   
The committee took an at ease from 11:41 a.m. to 11:44 a.m.                                                                     
11:44:20 AM                                                                                                                   
JAMES  BERTRAND,  Partner,  Stinson   Leonard  Street  Law  Firm,                                                               
disclosed  his  testimony  is  on   behalf  of  Chugach  Electric                                                               
Association (CEA).   Mr. Bertrand  referred to his  letter, found                                                               
in the committee  packet, in response to questions  raised at the                                                               
previous  hearing  on 2/26/15.    The  first question  asked  how                                                               
Alaska  is different  from other  states when  considering PURPA.                                                               
He said his  comments are limited to the  Railbelt utilities, and                                                               
pointed out that  they are all public power utilities.   In other                                                               
states with similar  systems that are dominated  by public power,                                                               
they  also  have a  low  percentage  of  IPP generation  both  in                                                               
capacity and in  megawatt hours produced.  Using  the criteria of                                                               
percentages  of IPP  generation, Alaska  was  45 of  50 in  2012.                                                               
This  ranking shows  that states  have  a low  percentage of  IPP                                                               
capacity because  of their high  public power dominance  of their                                                               
electric system,  such as the  Tennessee Valley  Power Authority.                                                               
In a similar  manner, the percentage of IPP  megawatt hours ranks                                                               
Alaska 44  out of 50.   Another  difference relates to  the RCA's                                                               
recently opened  docket in response to  the legislative directive                                                               
found  in Chapter  18  SLA  14, section  31(b)  directing RCA  to                                                               
evaluate whether  creating an independent system  operator in the                                                               
Railbelt  is the  best  option for  electric  transmission.   The                                                               
commission is  seeking input from Railbelt  utilities, the Alaska                                                               
Attorney  General,  the  Alaska  Power  Association,  the  Alaska                                                               
Energy Authority,  Department of  Commerce, Community  & Economic                                                               
Development,  IPPs, and  other parties.    On 2/26/15,  testimony                                                               
before  the committee  was that  independent system  operators in                                                               
the Lower 48 garner a high  percentage of IPP involvement, and he                                                               
opined the RCA  docket is likely to support a  system of a single                                                               
system operator, which is also supported by CEA.                                                                                
11:50:29 AM                                                                                                                   
MR.  BERTRAND said  the next  question was  how PURPA  applies in                                                               
Alaska.   He restated that PURPA  does apply in Alaska  and there                                                               
are efforts  by RCA to  harmonize some of Alaska's  regulation to                                                               
reflect  updates; significantly,  the changes  would require  the                                                               
same  level  of transparency  and  reporting  obligations as  the                                                               
Federal Energy  Regulatory Commission (FERC) for  about 20 Alaska                                                               
utilities  on the  issue of  avoided  cost.   Changes would  also                                                               
address   interconnection  cost   and  integration   fees  in   a                                                               
reasonable, nondiscriminatory  way, and update the  definition of                                                               
avoided  cost to  include incremental  cost  as FERC  does.   Mr.                                                               
Bertrand pointed out  it is clear that federal  law would preempt                                                               
any statute or  policy "going beyond" PURPA.   The third question                                                               
was whether HB 78 would increase  the potential for lawsuits.  He                                                               
responded that  lawsuits are available  under PURPA and  there is                                                               
no need  to create additional opportunities;  in fact, complaints                                                               
can be filed  with FERC or RCA.  Mr.  Bertrand directed attention                                                               
to  several  attachments  to  his   letter,  also  found  in  the                                                               
committee  packet.    The  final   question  was  whether  HB  78                                                               
addresses  transparency for  avoided cost,  interconnection fees,                                                               
and integration costs, and he  noted that regulations proposed by                                                               
RCA  staff considered  these matters.    A copy  of the  proposed                                                               
regulations are included the committee packet.                                                                                  
11:53:52 AM                                                                                                                   
REPRESENTATIVE CLAMAN asked what  electric rates are to consumers                                                               
in Tennessee, which has the lowest percentage of IPP generation.                                                                
MR. BERTRAND expressed his understanding  that rates in Tennessee                                                               
are fairly low because of  the infrastructure and cost advantages                                                               
associated with public power; public  power generally has a lower                                                               
cost  of borrowing,  and has  access to  other government-related                                                               
costs which  may not be  passed to  ratepayers.  Public  power is                                                               
cheaper  than  investor-owned power,  thus  IPPs  have a  "better                                                               
chance" in communities served by investor-owned utilities.                                                                      
REPRESENTATIVE  WOOL summarized  previous testimony  that RCA  is                                                               
working  on many  of the  aforementioned issues,  and there  were                                                               
recommendations  that  the  legislature  should  instead  act  to                                                               
create a USO.  He asked whether Mr. Bertrand agreed.                                                                            
MR.  BERTRAND  agreed with  the  first  statement.   However,  he                                                               
questioned whether  the legislature  needs to  do more;  in fact,                                                               
the  RCA  docket will  allow  interested  parties to  comment  on                                                               
whether there  is sufficient current  legislative framework.   In                                                               
some  states,  the  creation  of   a  USO  has  occurred  through                                                               
cooperation among  utilities, thus there is  the possibility that                                                               
special  legislation   is  unnecessary,   as  long  as   RCA  has                                                               
regulatory  authority over  the  USO, and  all  of the  utilities                                                               
11:57:51 AM                                                                                                                   
REPRESENTATIVE  WOOL concluded  that all  of the  utilities would                                                               
have to agree, not four or five out of six.                                                                                     
MR. BERTRAND said that would be the typical scenario.                                                                           
CO-CHAIR  VAZQUEZ  advised  RCA  opened  the  related  docket  on                                                               
2/27/15.  Public testimony on HB 78 remained open.                                                                              
11:59:15 AM                                                                                                                   
HB 78 was held over.