Legislature(2015 - 2016)CAPITOL 106

03/05/2015 10:15 AM ENERGY

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Location Change from Capitol 17 --
+= HB 58 ELIGIBILITY FOR AK ENERGY EFFIC LOANS TELECONFERENCED
Moved CSHB 58(ENE) Out of Committee
*+ HB 118 MUNI ENERGY IMPROVEMNT ASSESSMNTS/BONDS TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 78 REGULATORY COMMISSION OF ALASKA TELECONFERENCED
Heard & Held
             HB  78-REGULATORY COMMISSION OF ALASKA                                                                         
                                                                                                                                
10:21:58 AM                                                                                                                   
                                                                                                                                
CO-CHAIR  VAZQUEZ  announced that  the  first  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."                                                                                               
                                                                                                                                
10:22:31 AM                                                                                                                   
                                                                                                                                
MIKE  WRIGHT,  Vice   President  Transmission  and  Distribution,                                                               
Golden Valley Electric Association  (GVEA), said he would testify                                                               
and  also   forward  more  detailed   written  comments   to  the                                                               
committee.   Mr. Wright first  sought to clarify terms  that were                                                               
heard  during the  3/3/15 hearing  on HB  78.   Discussed at  the                                                               
previous hearing was  the term "spinning reserve  with respect to                                                               
integration cost,"  and he explained  that spinning reserve  is a                                                               
slice of generation that each  Railbelt utility is responsible to                                                               
maintain  online, in  case  of a  failure of  one  of the  larger                                                               
generators.    To maintain  this  reserve,  GVEA uses  a  battery                                                               
energy  storage system  (BESS),  or a  program  that sheds  load.                                                               
Spinning reserve is  separate from what a utility may  have to do                                                               
to provide regulation.   He further explained  that regulation is                                                               
the integration of  a variable generation source such  as wind or                                                               
solar.  Therefore,  a utility has to  have additional generation,                                                               
in addition to what is  required for spinning reserve, to provide                                                               
integration.  On  the other hand, "interconnect  costs" are costs                                                               
of providing  the infrastructure to interconnect  generation from                                                               
any  source.   Returning attention  to HB  78, Mr.  Wright stated                                                               
that GVEA  is opposed  to the  bill, which  has the  potential to                                                               
have negative  effects on ratepayers.   Generally,  GVEA believes                                                               
that  existing statute  authorizes the  Regulatory Commission  of                                                               
Alaska  (RCA) to  regulate  independent  power producers  (IPPs),                                                               
qualifying facilities (QFs), and  public utilities.  For example,                                                               
RCA  has  opened Docket  R-13-002,  which  proposes revisions  to                                                               
provisions   that   specifically   address  issues   related   to                                                               
cogeneration and small power producers.   Also, GVEA believes the                                                               
state  energy policy  is "for  economic development  and to  take                                                               
renewable  resources into  economic development."   Since  RCA is                                                               
not the right state agency  to deal with economic development, he                                                               
suggested  a  more  appropriate   agency  is  the  Alaska  Energy                                                               
Authority  (AEA)  through  the   Renewable  Energy  Fund  or  the                                                               
Emerging Technology Fund.  Mr.  Wright stressed that GVEA already                                                               
has open  access to  its transmission  and generation  system; in                                                               
fact,  interconnect specifications  are available  to any  entity                                                               
for electrical loads from 10  kilowatt to 80 megawatt generation.                                                               
Fort Wainwright,  Fort Greely, Ground Base  Missile Defense, Pump                                                               
Station 9, Pogo  Mine, Chena Power, and Delta Wind  Farm have all                                                               
made   modifications   to   interconnect   by   following   these                                                               
specifications.   He  pointed out  that the  facilities that  are                                                               
needed to  interconnect are the  responsibility of the  IPPs, and                                                               
power purchase agreements must be  negotiated, including the cost                                                               
of integration.   In addition,  integration costs are  higher for                                                               
solar  or  wind,   because  of  the  variable   nature  of  their                                                               
generation.   Mr.  Wright explained  that GVEA's  tariff wheeling                                                               
rates  or transmission  tariffs  are approved  by  RCA, and  Fort                                                               
Wainwright  currently uses  GVEA's transmission  system to  wheel                                                               
power  from Fairbanks  to  Fort Greely  and  Ground Base  Missile                                                               
Defense.   For small scale  renewables under two  megawatts, GVEA                                                               
has a  streamlined process with  no integration costs.   Entities                                                               
are given two options:  to  receive rate changes quarterly, or to                                                               
negotiate a long-term  agreement.  Mr. Wright  restated that GVEA                                                               
"does have open  access and it is available to  anybody who would                                                               
want to interconnect with our system."                                                                                          
                                                                                                                                
10:31:26 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  WOOL asked  whether the  same generation  unit is                                                               
used for both spinning reserve and integration.                                                                                 
                                                                                                                                
MR. WRIGHT responded  that the source of  generation depends upon                                                               
the particular circumstances;  for example, GVEA may  have all of                                                               
its  spinning reserve  handled  by  BESS, and  not  have to  have                                                               
another  generator online,  so the  generator that  is online  is                                                               
providing room for  Eva Creek Wind Farm  and, elsewhere, customer                                                               
load can  be shed (SILO).   If  an expensive generator  must come                                                               
online, GVEA would  SILO because the chance of an  outage is low.                                                               
Although  circumstances  could  arise  when BESS  is  offline  or                                                               
cannot meet  spinning reserve, so  dispatch would  determine what                                                               
response   is  most   economical.     In   further  response   to                                                               
Representative  Wool,  he  confirmed  that  spinning  reserve  is                                                               
sometimes met entirely by BESS alone.                                                                                           
                                                                                                                                
REPRESENTATIVE  TALERICO asked  for the  web site  which provides                                                               
interconnection information for IPPs.                                                                                           
                                                                                                                                
MR. WRIGHT said that would be included in his written testimony.                                                                
                                                                                                                                
REPRESENTATIVE  WOOL inquired  as to  whether the  military bases                                                               
are selling or buying power at this time.                                                                                       
                                                                                                                                
MR. WRIGHT  stated that  all of  the bases  buy almost  no power;                                                               
Eielson  Air Force  Base buys  very little,  and Fort  Wainwright                                                               
provides all  of its own  power.  University of  Alaska Fairbanks                                                               
(UAF) is also  interconnected and supplies almost all  of its own                                                               
power.   He expressed his  understanding that military  bases are                                                               
not  allowed  to sell  power  because  they  are not  allowed  to                                                               
compete with private or public business sectors.                                                                                
                                                                                                                                
REPRESENTATIVE CLAMAN  also requested the  site for the  web site                                                               
with interconnection information.                                                                                               
                                                                                                                                
MR.    WRIGHT    provided    the    web    site    as    follows:                                                               
www.gvea.com/images/epf/NON_Utility_Producer_Interconnect2013.PD                                                                
F.                                                                                                                              
                                                                                                                                
10:39:54 AM                                                                                                                   
                                                                                                                                
ROBERT KAHN, Executive Director,  Northwest & Intermountain Power                                                               
Producers Coalition  (NIPPC), informed  the committee NIPPC  is a                                                               
group  of IPPs  and  marketing entities  that  develop, own,  and                                                               
operate  power  plants,  and  sell  electricity  under  PPAs,  or                                                               
wholesale, throughout the  West.  Members of  NIPPC have invested                                                               
billions of  dollars building power plants  in Idaho, Washington,                                                               
and Oregon,  including wind farms, biomass  facilities, gas-fired                                                               
power plants and coal generation  that collectively exceeds 4,000                                                               
megawatt.     Mr.   Kahn  said   although  Alaska   faces  unique                                                               
circumstances and  opportunities, it  is useful to  hear insights                                                               
from its  neighbors in the  Lower 48.  He  said Alaska is  at the                                                               
point to update  its energy policy infrastructure,  and the focus                                                               
of the  proposed legislation is  to allow for  competition, which                                                               
is  how  Americans get  the  best  product  for the  least  cost.                                                               
Regulated monopolies  are uncomfortable with the  bill because it                                                               
affects the range  of services they solely offer,  and means they                                                               
must  accommodate  competition  and  IPPs.    While  a  regulated                                                               
monopoly  has an  overall responsibility  for maintaining  system                                                               
reliability, since 1978 in the  Lower 48, utility monopolies have                                                               
not had  sole responsibility or  monopoly control  of generation.                                                               
Mr.  Kahn  opined  competition will  enable  Alaskans  to  employ                                                               
ingenuity and attract  new capital, as has happened  in the Lower                                                               
48.   For example, in  Idaho Power's service territory,  about 20                                                               
percent of resource space is  provided by QFs generating power by                                                               
many  sources including  low-head hydroelectric  (hydro), biomass                                                               
and  cogeneration  at  lumber mills,  solar  projects,  and  wind                                                               
projects.   Another example in  the Northwest is of  an investor-                                                               
owned utility  that announced about  six years ago that  it would                                                               
build a  wind farm, and estimated  that the cost of  energy would                                                               
exceed $100  per megawatt hour.   Instead, the utility put  out a                                                               
request for  proposal to any  wind power developer who  could bid                                                               
at $65 per megawatt hour or  less.  A developer was found through                                                               
the competitive  bid process, and  the utility is  satisfied with                                                               
the  resulting project.    Mr. Kahn  urged  that the  legislature                                                               
enable competition  in order to  provide Alaskans with  the least                                                               
cost energy and to bring its policy infrastructure up to date.                                                                  
                                                                                                                                
REPRESENTATIVE WOOL  asked how many megawatts  are transmitted by                                                               
the Railbelt system.                                                                                                            
                                                                                                                                
MR. KAHN did not know.                                                                                                          
                                                                                                                                
10:48:12 AM                                                                                                                   
                                                                                                                                
BOB   PICKETT,  Commissioner/Chair,   Regulatory  Commission   of                                                               
Alaska,  said he  has  served on  RCA since  2008.   Mr.  Pickett                                                               
cautioned  that his  remarks may  be  limited because  RCA has  a                                                               
number  of  dockets  open that  are  embedded  with  transmission                                                               
elements.  However, there are other  aspects to the bill, and the                                                               
sponsor of the bill requested  RCA "offer its input." On 2/25/15,                                                               
RCA held  a public meeting and  discussed the bill; at  this time                                                               
RCA does not  oppose or support HB 78, but  has raised questions.                                                               
As a commissioner,  Mr. Pickett's perspective is  a concern about                                                               
intertwining AS  42.05 [Alaska  Public Utilities  Regulatory Act]                                                               
with the state energy policy [House  Bill 306, passed in the 26th                                                               
Alaska State  Legislature].  This  concern has been  expressed in                                                               
many  ways,  including in  RCA's  approval  of a  power  purchase                                                               
agreement between  Chugach Electric  Association and  Fire Island                                                               
Wind.  He  explained the basis for his concern  is that the state                                                               
energy  policy is  an aspirational  goal; however,  HB 78  raises                                                               
questions from  an administrative and practical  standpoint.  For                                                               
example, the  bill may  contain possible  unintended consequences                                                               
for  non-electric utilities  and very  small electric  utilities.                                                               
Of the 129  electric utilities in the state,  32 are economically                                                               
regulated  by RCA.   Further,  RCA  does not  want to  negatively                                                               
impact  administration  of  the  Power  Cost  Equalization  (PCE)                                                               
program.    In  that  regard,  RCA will  continue  to  work  with                                                               
Representative Wilson  and the  Department of  Law.   He recalled                                                               
that RCA has  been directed by the legislature to  issue a report                                                               
to the  legislature, no later  than 6/30/15, on  the desirability                                                               
of  creating  an  integrated system  operator  (ISO)  or  unified                                                               
system operator  (USO) in the  Railbelt; RCA has been  working on                                                               
this report  and has requested responses  from interested parties                                                               
on the statutory and regulatory  authority currently held by RCA,                                                               
and what  additional action is needed  to develop an ISO  or USO,                                                               
if so desired.                                                                                                                  
                                                                                                                                
10:52:44 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  CLAMAN  referred  to the  two-year  timeline  RCA                                                               
typically  requires to  act, and  noted the  proposed legislation                                                               
requires  a one-year  response.   He  asked  for more  background                                                               
information on the timeline RCA requires for different issues.                                                                  
                                                                                                                                
MR.  PICKETT   responded  that  there  are   different  statutory                                                               
deadlines; the  two-year period referred  to in the  bill applies                                                               
to the  maximum timeframe allowed  for rulemaking dockets.    The                                                               
statutory  deadline  applies  to  all  industry  groups,  and  he                                                               
pointed out that completing the  rulemaking process earlier would                                                               
be  possible if  RCA's workload  allowed.   Although  all of  the                                                               
deadlines have been previously considered  by the legislature, he                                                               
acknowledged  the timelines  may  be frustrating  to a  project's                                                               
sponsor.    Mr. Pickett  described  a  docket  in the  past  that                                                               
required an extension;  however, when completed, it  solved a 20-                                                               
year-old problem.  The  commission receives approximately 700-900                                                               
filings per year,  of which approximately 150  are suspended, and                                                               
hearings  are  a  time-consuming   and  intensive  process.    He                                                               
questioned whose due process rights  are truncated when timelines                                                               
are reduced.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CLAMAN restated  his question  that the  proposed                                                               
legislation suggests  that RCA would  make a decision  within one                                                               
year.                                                                                                                           
                                                                                                                                
MR. PICKETT said  the time required depends on the  nature of the                                                               
filing; in  fact, RCA opened  a recent rulemaking  docket related                                                               
to PCE, and  he anticipated that it will be  accomplished in less                                                               
than a two-year period.                                                                                                         
                                                                                                                                
REPRESENTATIVE  WOOL referred  to Mr.  Pickett's characterization                                                               
of the state's  [energy] goal as aspirational,  and asked whether                                                               
he  meant  "aspirational,  meaning  not  realistic  in  the  near                                                               
future."                                                                                                                        
                                                                                                                                
MR.  PICKETT   explained  that  an  aspirational   goal  is  very                                                               
different than a binding renewable  portfolio standard (RPS) goal                                                               
that many states  have.  He opined that filings  that come to RCA                                                               
for a  binding RPS  are different, and  an aspirational  goal may                                                               
have  a "tipping  effect" on  decisions such  as the  Fire Island                                                               
Wind PPA.   He expressed frustration with  the "disjointed" state                                                               
energy  policy,   and  questioned  how  viable   the  50  percent                                                               
renewable goal can be without  [the proposed Watana-Susitna Hydro                                                               
project].                                                                                                                       
                                                                                                                                
CO-CHAIR VAZQUEZ inquired as to  whether Mr. Pickett seeks a more                                                               
focused and realistic state policy.                                                                                             
                                                                                                                                
MR. PICKETT stated that he is  a regulator, not a legislator.  He                                                               
advised  that the  state needs  to  speak clearly  and provide  a                                                               
mechanism.                                                                                                                      
                                                                                                                                
10:59:31 AM                                                                                                                   
                                                                                                                                
STUART GOERING,  Assistant Attorney General, Commercial  and Fair                                                               
Business Section, Civil Division  (Anchorage), Department of Law,                                                               
in response to  Co-Chair Vazquez, said DOL has no  position on HB
78 at this time, and he is  scheduled to meet with the sponsor of                                                               
the bill to discuss issues and clarify the bill's intent.                                                                       
                                                                                                                                
CO-CHAIR  VAZQUEZ  expressed  her   interest  in  the  unintended                                                               
consequences of the bill.                                                                                                       
                                                                                                                                
MR. GOERING  said her  question could  be better  addressed after                                                               
his meeting with the sponsor of the bill.                                                                                       
                                                                                                                                
11:01:43 AM                                                                                                                   
                                                                                                                                
ETHAN  SCHUUT,   Senior  Vice  President   of  Land   and  Energy                                                               
Development,  Cook  Inlet  Region,  Inc. (CIRI),  noted  that  he                                                               
submitted  written testimony  to the  committee on  3/4/15.   Mr.                                                               
Schuut  relayed  that  CIRI  is   very  knowledgeable  about  the                                                               
electric utility  system in the  Railbelt, and thus  is concerned                                                               
that the system is broken and  lawless, and that reform is needed                                                               
to protect  the state's  economy and the  ratepayers.   He stated                                                               
that  HB  78  would  introduce  competition  and  invite  private                                                               
investment,  both  of  which are  cornerstones  of  the  national                                                               
economy.                                                                                                                        
                                                                                                                                
11:03:16 AM                                                                                                                   
                                                                                                                                
The committee took an at ease from 11:03 a.m. to 11:04 a.m.                                                                     
                                                                                                                                
11:04:03 AM                                                                                                                   
                                                                                                                                
MR.  SHUTT continued  to explain  that the  system is  broken and                                                               
lawless  as  relates to  the  interaction  between IPPs  and  the                                                               
regulated electric utilities.  He  said CIRI believes HB 78 would                                                               
bring  protection for  private investment  into the  system.   He                                                               
acknowledged  the  Railbelt  electrical  system  is  governed  by                                                               
technical   rules,  but   there  are   no  meaningful   rules  or                                                               
requirements governing  the commercial negotiations  between IPPs                                                               
and  the regulated  utilities; in  fact,  he said,  "Many of  the                                                               
things   that  we've   seen  and   directly   witnessed  in   our                                                               
negotiations   and  interactions   with  the   Railbelt  electric                                                               
utilities would result in  [Federal Energy Regulatory Commission]                                                               
enforcement  investigations if  we were  an interconnected  state                                                               
with any other state in the  Union."  Mr. Schuut expressed CIRI's                                                               
concern  with   impacts  to  ratepayers,   and  said  HB   78  is                                                               
legislation that is long overdue.                                                                                               
                                                                                                                                
11:05:52 AM                                                                                                                   
                                                                                                                                
DAVID  PEASE, In-House  Counsel, Matanuska  Electric Association,                                                               
disclosed that  he works for MEA  and does not advise  them.  Mr.                                                               
Pease  returned attention  to the  subject  of incremental  cost,                                                               
noting  that  IPPs want  to  pay  for  power at  the  incremental                                                               
avoided cost  to the  utility, which could  be $.30  per kilowatt                                                               
hour  if generated  by diesel;  however,  that power  may not  be                                                               
available when needed,  and instead, the power  could be produced                                                               
from wind  or hydro.   But IPPs  want a long-term  contract based                                                               
upon incremental  avoided cost,  and then  each utility  would be                                                               
required to buy power from an IPP  or QF at what could be well in                                                               
excess  of the  average avoided  cost to  the utility,  and which                                                               
would not benefit ratepayers.   He referred to previous testimony                                                               
related  to Fire  Island  Wind,  and said  MEA  determined it  is                                                               
expensive  to  "follow   the  wind,"  and  to   account  for  its                                                               
unreliability  and provide  "spin"  when wind  is  offline.   Mr.                                                               
Pease cautioned that [proposed section  14] of the bill precludes                                                               
a  public  utility  from  passing  on the  costs  of  a  judicial                                                               
proceeding.  He  advised that MEA has received  proposals by IPPs                                                               
and  QFs  regarding projects  without  real  substance; one  such                                                               
dispute "went  all the way  up to  FERC and involved  hundreds of                                                               
thousands  of dollars  of  litigation costs."    He advised  that                                                               
under  this provision,  utilities would  not be  able to  recover                                                               
from  rates  the  costs of  legitimate  challenges  to  projects.                                                               
Presently, MEA is engaged in a dispute  that is on its way to the                                                               
Alaska Supreme  Court and which  cost the state over  $100,000 to                                                               
appeal.   He  described  MEA's successful  experience with  other                                                               
small IPP hydro projects.  The  bill also seeks to allow IPPs and                                                               
QFs  exception from  an exemption  that is  before RCA  and other                                                               
courts in a  prolonged dispute.  The exemption is  essential to a                                                               
Bradley  Lake [Hydroelectric  Project] construction  project, and                                                               
"tinkering with that  exemption throws a wrench  into" aspects of                                                               
power from the  Bradley Lake facility.  Mr.  Pease concluded that                                                               
IPPs and  QFs want to sell  what they believe is  firm power, but                                                               
wind  is not  a firm  power, and  IPPs and  QFs do  not have  the                                                               
capacity and backup required to  make firm power, therefore, they                                                               
want a firm power price for non-firm power.                                                                                     
                                                                                                                                
REPRESENTATIVE WOOL asked whether hydropower is firm power.                                                                     
                                                                                                                                
MR. PEASE  answered no; however,  it can be firm  power depending                                                               
upon  its  generating  capacity  and  whether  generation  occurs                                                               
regardless of the reservoir level.                                                                                              
                                                                                                                                
11:13:25 AM                                                                                                                   
                                                                                                                                
JULIE  ESTEY, Director  of Public  Relations, Matanuska  Electric                                                               
Association,  read   from  written  comments  submitted   by  Joe                                                               
Griffith, General Manager, MEA, as follows:                                                                                     
                                                                                                                                
          Due to limited time for public testimony and                                                                          
      proceedings at the RCA I have been unable to testify                                                                      
     in response to House Bill  78.  However, the subject is                                                                    
     important to our members, and  the entire Railbelt, and                                                                    
     I hope  your committee  will weigh my  written comments                                                                    
     in considering how to proceed.   MEA remains interested                                                                    
     in  exploring  cost  effective ways  to  diversify  the                                                                    
     Railbelt  energy  portfolio.   We  currently  have  two                                                                    
     independent power  producers on our system,  along with                                                                    
     our shares of Eklutna  and Bradley Lake hydro projects,                                                                    
     and find immense value in  the economic power that they                                                                    
     provide.     There  is  a   rule  for   cost  effective                                                                    
     independent  power producers  to  play  in our  service                                                                    
     area,   and  the   entire  Railbelt.     However   well                                                                    
     intentioned,  we do  not believe  House Bill  78 is  an                                                                    
     effective  platform to  achieve the  results that  will                                                                    
     ultimately  benefit  the independent  power  producers,                                                                    
     utilities,  our ratepayers  or  members  in the  entire                                                                    
     Railbelt system.  House Bill  78 presents a significant                                                                    
     concern to  MEA for  two primary  reasons:   First, the                                                                    
     proposed legislation will  benefit corporate for profit                                                                    
     entities  at   the  expense  of   ratepayers,  imposing                                                                    
     significant  financial and  operational constraints  on                                                                    
     utilities,  the   majority  of  which   are  nonprofit,                                                                    
     member-owned power producers.   I view this legislation                                                                    
     as  a   mechanism  to  shift  the   burden  of  project                                                                    
     economics to  the utilities and their  members, forcing                                                                    
     a  nonprofit  entity  to provide  subsidies  to  a  for                                                                    
     profit  organization to  improve  their profit  margin.                                                                    
     With  these  subsidies,   virtually  any  proposed  IPP                                                                    
     project  can become  economic but  the  burden will  be                                                                    
     borne by  the ratepayers or  members.  I  don't believe                                                                    
     that  that  is  good  fiscal  policy  or  the  role  of                                                                    
     government.   Second,  this legislation  is unnecessary                                                                    
     to ensure  IPPs have  access they  seek to  the market.                                                                    
     The Regulatory Commission  of Alaska has both  an R and                                                                    
     I  docket  currently  open  to   address  many  of  the                                                                    
     elements  of  this  legislation.   The  RCA  staff  has                                                                    
     presented recent changes  to bring Alaska's regulations                                                                    
     implementing  the  federal  Public  Utility  Regulatory                                                                    
     Policy Act or  PURPA, to reflect changes  made by FERC.                                                                    
     These suggested  regulation changes are the  product of                                                                    
     an  18-month process  with input  from IPPs,  utilities                                                                    
     and other experts.   This process also  has the benefit                                                                    
     of  the  time  and  subject  matter  expertise  of  the                                                                    
     commissioners and commission staff  to work through the                                                                    
     various  complexities,  details,  and  consequences  to                                                                    
     find  solutions that  benefit Alaskan  ratepayers.   In                                                                    
     addition, the  commission recently  opened an  I docket                                                                    
     to consider  the creation of an  independent or unified                                                                    
     system  operator  for  the Railbelt  which  would  also                                                                    
     alleviate  some  of  the   concerns  expressed  by  the                                                                    
     independent power  producers who have  influenced House                                                                    
     Bill  78.    To  avoid  a  duplication  of  effort  and                                                                    
     potentially  conflicting  regulations  with  unintended                                                                    
     consequences, I would urge this  committee to put House                                                                    
     Bill 78  aside, and let the  regulatory process proceed                                                                    
     through the agency charged  with utility oversight, the                                                                    
     RCA.   Specific considerations regarding House  Bill 78                                                                    
     include: incremental avoided cost  is flawed because it                                                                    
     does not  represent the true  avoided cost  of electric                                                                    
     utilities  because the  calculation  is  based on  peak                                                                    
     loads,  this shifts  the playing  field so  inefficient                                                                    
     reserve machines are the avoided  cost definer, not the                                                                    
     more efficient  newer machines which are  actually more                                                                    
     likely to  be avoided, and  operate at a lower  cost to                                                                    
     utilities.   This means in  most cases members  will be                                                                    
     paying more for  each kilowatt than they  should.  This                                                                    
     may  be a  fair  standard  in the  Lower  48 where  the                                                                    
     robust grid results in less  disparity, but it does not                                                                    
     take  Alaska's   unique  circumstances   into  account.                                                                    
     There  is also  a  need to  account  for a  distinction                                                                    
     between  firm  and  non-firm  power.    Non-firm  power                                                                    
     fluctuates and cannot  be counted on by  the utility at                                                                    
     a specific time.  This  results in considerable expense                                                                    
     for utilities  to regulate because  it is  necessary to                                                                    
     run  back  up  generation   to  cover  potential  power                                                                    
     shortfalls  in  transmission  space  on  our  congested                                                                    
     system.  That must also be  reserved.  It may also have                                                                    
     impacts on take  or pay gas contracts  all resulting in                                                                    
     significant costs to ratepayers.   Third, the bill does                                                                    
     not    address    the     cost,    complexities,    and                                                                    
     responsibilities  of participating  in  an open  access                                                                    
     system.   MEA  has completed  considerable studies  and                                                                    
     corresponding system  upgrades to  connect our  new EGF                                                                    
     power   plant  to   the  Railbelt.     We   have  spent                                                                    
     significant time  and expense working closely  with our                                                                    
     Railbelt   colleagues  to   ensure  the   capacity  and                                                                    
     necessary  protections  are  in place  to  protect  the                                                                    
     larger  system.    We  did  that  because  it  was  our                                                                    
     responsibility as a user of  that larger system.  For a                                                                    
     true  level  playing field  to  exist,  this should  be                                                                    
     consistent for all  users who request open  access.  It                                                                    
     also contains no  means to protect the  utility from an                                                                    
     IPP  or QF  that  underprice their  estimated price  of                                                                    
     power  just to  beat  the utility  avoided  costs.   To                                                                    
     date,  Alaska's small  market  has attracted  primarily                                                                    
     local  businesses  and  entrepreneurs,  but  your  body                                                                    
     needs to  have a  vision for  the future,  when outside                                                                    
     entities with  less than scrupulous intentions  may use                                                                    
     this  well-meaning  legislation  to  the  detriment  of                                                                    
     Alaska.   The legislation  does not address  the impact                                                                    
     to  utilities  resulting  from  the  uncertainty  of  a                                                                    
     proposed  IPP project.   Under  this  bill, IPPs  don't                                                                    
     have to  guarantee they will  ever build a  project; if                                                                    
     the  utility  was counting  on  50  megawatts in  three                                                                    
     years from an IPP that  never materialized, it could be                                                                    
     a significant  issue to cover  that kind  of shortfall,                                                                    
     at  great expense.   In  addition, the  staff cost  and                                                                    
     studies  associated   with  such  a  project   for  the                                                                    
     utility,  would be  borne by  our members.  ... If  the                                                                    
     goal is  to bring  more independent power  producers or                                                                    
     qualified  facilities  into  the electrical  system  in                                                                    
     Alaska, we need to  be careful of enacting requirements                                                                    
     that  make buying  power from  them more  expensive and                                                                    
     costly  to our  members.   MEA spent  considerable time                                                                    
     and  expense  in  late  2014 to  try  and  justify  the                                                                    
     purchase of  CIRI Fire Island  Wind Phase 2 power.   In                                                                    
     the end, even their  initially attractive price did not                                                                    
     pencil  out when  we added  the cost  to transport  and                                                                    
     regulate  the  non-firm power.    I  hope we  have  the                                                                    
     opportunity  to  give  this another  look  if  the  tax                                                                    
     credits are extended.   However, this legislation would                                                                    
     make that  opportunity, and others  like it,  much more                                                                    
     difficult to  justify to our membership  in the future.                                                                    
     We urge  you to allow the  RCA process with both  the R                                                                    
     docket and the independent  system operator I docket to                                                                    
     find conclusions before you  pass legislation that will                                                                    
     result  potentially  in   unintended  consequences  and                                                                    
     additional costs for Alaskans.   And that is the end of                                                                    
     my testimony.                                                                                                              
                                                                                                                                
11:21:48 AM                                                                                                                   
                                                                                                                                
TIM MCLEOD,  President, Alaska Electric Light  and Power (AEL&P),                                                               
said AEL&P  is the electric  utility serving Juneau.   Mr. McLeod                                                               
informed  the committee  he  is not  opposed  to the  independent                                                               
development  of  projects,  as  long as  there  are  no  negative                                                               
impacts  to AEL&P  customers.   [Indisc.]   He acknowledged  that                                                               
there  are communities  in Alaska  with  very high  rates due  to                                                               
their location, although in  Juneau, Barrow, Ketchikan, Wrangell,                                                               
and  Petersburg electric  rates are  below the  national average,                                                               
and rates  are slightly above  the national average in  Sitka and                                                               
Anchorage;  in fact,  utilities  have  done a  good  job in  high                                                               
population  areas -  which are  generally the  areas targeted  by                                                               
IPPs.    Alaska  is  subject  to,  and  must  comply  with  PURPA                                                               
regulations,  and has  regulations  that require  open access  to                                                               
certain transmission  systems.  Mr. McLeod  returned attention to                                                               
the differences  in transmission  systems between Alaska  and the                                                               
Lower 48, and advised that  in Juneau the transmission lines were                                                               
constructed to deliver  power from a hydro project  to a specific                                                               
load; however,  in the Lower  48, transmission lines  are similar                                                               
to an  intertie.  When  an IPP  asks to use  AEL&P's transmission                                                               
lines, permission  is given as long  as it will not  use capacity                                                               
that AEL&P  customers eventually need,  and there are  many other                                                               
similar  isolated transmission  systems throughout  Alaska.   Mr.                                                               
McLeod  said  PURPA  regulations  provide  opportunities  for  QF                                                               
projects  to come  online while  protecting  ratepayers, but  the                                                               
language of  the proposed legislation  "goes well  beyond PURPA."                                                               
He opined  that currently  IPPs and  QFs have  more than  a level                                                               
playing field because  if they can provide energy  at the avoided                                                               
cost,  the  utility  must  buy   their  energy  and  that  is  an                                                               
advantage.   He expressed concern  about mixing the  state energy                                                               
policy and  HB 78,  and said  RCA should  not make  any decisions                                                               
that are  inconsistent with state  legislation, but in  regard to                                                               
bringing on IPPs, decisions need to  be made based on the avoided                                                               
cost, and  it shouldn't do harm  to customers to bring  an IPP or                                                               
QF online.   If the state energy policy is  in conflict with that                                                               
decision, it should not supersede the avoided cost formula.                                                                     
                                                                                                                                
11:28:44 AM                                                                                                                   
                                                                                                                                
MR.  MCLEOD further  explained that  HB 78  places an  additional                                                               
burden  on the  utilities  to provide  information; for  example,                                                               
producing  and  posting the  avoided  cost  for  each unit  in  a                                                               
system.   In  Juneau, AEL&P  has 10  individual hydro  generators                                                               
units  and   nearly  20  backup  diesel   generators,  which  are                                                               
mandated.     In  response   to  Representative   Wool's  earlier                                                               
question, he  said hydro  is a firm  energy source,  although the                                                               
amount of  fuel can  be limited  at times.   The hydro  units are                                                               
managed as  an entire system,  so the  avoided cost of  each unit                                                               
fluctuates  and  thus  cannot  be  posted  independently  due  to                                                               
maintenance and changes, and he  provided examples.  Furthermore,                                                               
the cost  of a  hydro project  is up-front,  and the  output cost                                                               
depends  on the  flow of  energy  from the  project.   Therefore,                                                               
loads and  costs are higher depending  upon precipitation levels;                                                               
in  fact, 20  percent of  AEL&P's load  is interruptible,  so the                                                               
company has tried to "match all  of our hydro projects in unison,                                                               
so that with  the variation of inflows and so  forth, we can sell                                                               
every kilowatt hour  that we can get out of  these hydro projects                                                               
because that  produces the lowest  cost overall for  our system."                                                               
Mr. McLeod concluded the true avoided  cost should be the cost to                                                               
the utility,  if not for the  IPP's facility.  Also,  the economy                                                               
of  scale  makes  it  difficult for  small  projects  to  compete                                                               
against large projects.                                                                                                         
                                                                                                                                
11:34:46 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  WOOL  asked  whether  AEL&P  keeps  any  spinning                                                               
reserve.                                                                                                                        
                                                                                                                                
MR. MCLEOD  said no.  An  example of spinning reserve  in a hydro                                                               
system  would be  in  Kodiak,  where the  utility  had hydro  and                                                               
diesel, and then  added wind generators which  were controlled by                                                               
the  hydro and  diesel.   But to  eliminate the  diesel, a  third                                                               
hydro unit was added at the  Terror Lake hydro facility.  This is                                                               
an  example of  integration cost:   the  additional unit  was not                                                               
needed for energy,  but to control the wind  generation with more                                                               
spinning reserve.                                                                                                               
                                                                                                                                
REPRESENTATIVE  CLAMAN surmised  that  an advantage  of hydro  is                                                               
that  there is  no costly  storage  required, and  there is  more                                                               
flexibility in delivering power.                                                                                                
                                                                                                                                
MR. MCLEOD said correct.                                                                                                        
                                                                                                                                
REPRESENTATIVE  TALERICO  stated  that in  the  Interior,  Golden                                                               
Valley Electric Association feeds  about 43,000 meters, more than                                                               
some of the  aforementioned communities.  That  cost has averaged                                                               
between 22.5  cents and 27 cents  per kilowatt hour.   He pointed                                                               
out that  that cost is for  the hub community, and  costs inflate                                                               
as they  reach businesses in  villages, which do not  qualify for                                                               
the Power Cost Equalization program.                                                                                            
                                                                                                                                
11:39:13 AM                                                                                                                   
                                                                                                                                
HB 78 was held over with public testimony open.                                                                                 
                                                                                                                                
11:39:39 AM                                                                                                                   
                                                                                                                                
The committee took an at ease from 11:39 a.m. to 11:44 p.m.                                                                     
                                                                                                                                
11:44:29 AM                                                                                                                   
                                                                                                                                
REPRESENTATIVE  TAMMIE  WILSON,  Alaska State  Legislature,  said                                                               
monopolies  do not  want  change; however,  she  continues to  be                                                               
contacted by  independent power producers  who have  put millions                                                               
of dollars  into projects that  monopolies have obstructed.   She                                                               
stressed that  today's testimony shows  one group up  against the                                                               
other, without compromise, but HB  78 would create a fair playing                                                               
field.    Representative  Wilson  noted that  the  sponsors  have                                                               
provided  everything the  committee  has requested  of them,  and                                                               
reviewed the  vetting process  that will take  place in  the next                                                               
committees  of referral,  the House  Labor and  Commerce Standing                                                               
Committee and the House Finance Committee.                                                                                      
                                                                                                                                
CO-CHAIR  VAZQUEZ observed  that the  bill presents  an array  of                                                               
issues that  have existed for  decades; therefore,  the committee                                                               
seeks to  be diligent and give  the time, energy, and  focus that                                                               
the bill deserves.                                                                                                              
                                                                                                                                
REPRESENTATIVE   CLAMAN  referred   to   the  one-year   timeline                                                               
provision  in  the bill  for  RCA  decisions, and  suggested  the                                                               
committee may support an amendment  to extend the timeline to two                                                               
years.                                                                                                                          
                                                                                                                                
CO-CHAIR  VAZQUEZ said  testimony  remains open  on  the bill  in                                                               
order to hear further expert witnesses.                                                                                         
                                                                                                                                
REPRESENTATIVE WILSON offered to provide all that is needed.                                                                    
                                                                                                                                

Document Name Date/Time Subjects
HB 78 Opposing Documents - Letter Koplin - 3-3-2015.pdf HENE 3/5/2015 10:15:00 AM
HB 78
HB 78 Supporting Documents - Letter CIRI 3-3-2015.pdf HENE 3/5/2015 10:15:00 AM
HB 78
HB 58 Proposed CS ver G.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Flyer FNRP.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Letter Joel Neimeyer 2-9-2015.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Letter Roger Schmidt.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Sample of Alaska 501(c)(3) Organizations.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Sample of Alaska 501(c)(4) Organizations.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Sample of Alaska 501(c)(6) Organizations.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Sample of Alaska 501(c)(12) Organizations.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 58 Supporting Documents - Sample of Alaska 501(c)(19) Organizations.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 118 Fiscal Note - HB0118-1-2-021815-CED-N.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 Sectional Analysis.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 Governor's Transmittal Letter.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 Supporting Documents - Hearing Request AEA 2-19-2015.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 Supporting Documents - Letter DEC.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 Supporting Documents - Letter Doyon Limited.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 Supporting Documents - Letter FNSB.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118A.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 AEA Presentation 3-5-2015 - PACE House Energy.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB 118 Supporting Documents - Letter REAP 2-26-2015.pdf HENE 3/5/2015 10:15:00 AM
HB 118
HB58 Sponsor Statement - Revised 3-4-2015.pdf HENE 3/5/2015 10:15:00 AM
HB 58
HB 118 Supporting Documents - Letter IGU 3-4-15.pdf HENE 3/5/2015 10:15:00 AM
HB 118