Legislature(2019 - 2020)CAPITOL 17

05/09/2019 08:30 AM ENERGY

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01:04:24 PM Start
01:05:07 PM HB151
02:01:33 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
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Heard & Held
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**Streamed live on AKL.tv**
           HB 151-ELECTRIC RELIABILITY ORGANIZATIONS                                                                        
1:05:07 PM                                                                                                                    
CHAIR HOPKINS announced  that the only order of  business would be                                                              
HOUSE  BILL  NO.  151,  "An Act  relating  to  the  regulation  of                                                              
electric  utilities and  electric  reliability organizations;  and                                                              
providing for an effective date."                                                                                               
CHAIR HOPKINS passed the gavel to Vice Chair Spohnholz.                                                                         
1:05:41 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
1:06:38 PM                                                                                                                    
CHAIR HOPKINS  paraphrased  from a written  statement, which  read                                                              
as follows [original punctuation provided]:                                                                                     
     Madame  Chair     thank  you   for  the  opportunity  to                                                                   
     present  HB 151 to  the committee today.   In 2014,  the                                                                   
     Alaska  Legislature provided  the Regulatory  Commission                                                                   
     of Alaska  a grant  of $250,000 and  a request  that the                                                                   
     commission  determine "whether  creating an  independent                                                                   
     system  operator  or  similar   structure  for  electric                                                                   
     utilities in  the railbelt area  is the best  option for                                                                   
     effective   and  efficient   electrical   transmission."                                                                   
     This   legislative   appropriation   and   request   has                                                                   
     resulted in  almost five years  of consistent  effort by                                                                   
     the  Regulatory  Commission  and Railbelt  utilities  to                                                                   
     examine  this technically  complex issue.   Inherent  to                                                                   
     these discussions  on cooperation, sharing  of resources                                                                   
     and  economies  of  scale are  political,  regional  and                                                                   
     parochial  interests and  considerations.   A review  of                                                                   
     the   comments   submitted   to  the   RCA   [Regulatory                                                                   
     Commission  of Alaska]  abundantly  illustrate the  wide                                                                   
     cooperation    and  concerns -  of utilities,  ratepayer                                                                   
     groups,  non-profits and local  governments during  this                                                                   
     The  efforts  of the  RCA  have resulted  in  voluminous                                                                   
     records  of hearings,  public comment  and shared  data.                                                                   
     The  process  undertaken  by  the RCA  has  resulted  in                                                                   
     increased  cooperation  amongst  the  utilities  of  the                                                                   
     Railbelt,  better information  sharing  between the  RCA                                                                   
     and  the utilities,  and an understanding  that the  RCA                                                                   
     may lack adequate  authority under existing  statutes to                                                                   
     create  and/or regulate an  independent system  operator                                                                   
     for the railbelt.                                                                                                          
     To  this  end, the  RCA  drafted  suggested  legislative                                                                   
     language  in  March  of this  year  and  requested  that                                                                   
     interested   parties  submit   comments  and   suggested                                                                   
     revisions.   The  legislation  that  we are  considering                                                                   
     today   is  the  legislative   manifestation  of   those                                                                   
     efforts.     As  chair  of   this  committee,   I  asked                                                                   
     Legislative  Legal Services  to craft legislation  based                                                                   
     upon the suggested  legislative language upon  which the                                                                   
     RCA  has been  receiving public  comments.   It was  our                                                                   
     goal that  this bill mirror  as closely as  possible the                                                                   
     intent of the  legislative language drafted  by the RCA,                                                                   
     and use  the bill as a  vehicle to examine,  explore and                                                                   
     gain  a greater  understanding  of this  complex  issue.                                                                   
     If  events  in  the near  future  demonstrate  that  the                                                                   
     RCA's  proposed  legislative  language  is  a  necessary                                                                   
     tool to  bring about  increased efficiency,  cooperation                                                                   
     and  cost-savings   for  the   railbelt  utilities   and                                                                   
     consumers,  this legislation can  be a vehicle  to grant                                                                   
     the RCA  new authority to  regulate   and,  if necessary                                                                   
       create an entity to accomplish these goals.                                                                              
     I'd like  to thank the  commissioners of the  RCA, their                                                                   
     staff and the  personnel at the Department  of Commerce,                                                                   
     Community   and    Economic   Development    for   their                                                                   
     assistance   in   bringing    this   bill   before   us.                                                                   
     Additionally,  the railbelt utilities have  demonstrated                                                                   
     an increasing  willingness to cooperate with  each other                                                                   
       both  through the  data sharing that  has been  a part                                                                   
     of  the  RCA's process  to  date  and through  real  and                                                                   
     documented  advances  in  joint  planning,  pooling  and                                                                   
     resource  sharing.    These  efforts  are  laudable  and                                                                   
     should be recognized.                                                                                                      
     All  these things  said,  there  is a  challenging  road                                                                   
     ahead   for  bringing  about   greater  efficiency   and                                                                   
     cooperation   among   railbelt    utilities.      Should                                                                   
     voluntary   measures  towards   that  end  continue   to                                                                   
     flounder, this  legislation will be primed and  ready to                                                                   
     allow the RCA to advance Alaska towards that goal.                                                                         
     At this  point, I'll hand  the presentation over  to Mr.                                                                   
     Hardenbrook,  aide  to  the committee,  to  discuss  the                                                                   
     components of the bill.  Thank you, Madame Chair.                                                                          
1:11:26 PM                                                                                                                    
JOE G.  HARDENBROOK, Staff,  Representative Grier Hopkins,  Alaska                                                              
State Legislature,  on behalf  of the  House Special Committee  on                                                              
Energy,  sponsor,  presented  HB  151.    He  paraphrased  written                                                              
information,   which  read   as   follows  [original   punctuation                                                              
     Madame  Chair     thank  you   for  the  opportunity  to                                                                   
     present   HB   151  to   the   committee  today.      As                                                                   
     Representative    Hopkins   mentioned   earlier,    this                                                                   
     legislation  has come before  us due  to the efforts  of                                                                   
     the  RCA   in  addressing   a  question  posed   by  the                                                                   
     legislature   in  2014.      Following  this   overview,                                                                   
     Commissioner  Pickett of  the RCA will  be available  to                                                                   
     discuss   at   greater  lengths   the   RCA's   process,                                                                   
     timeline,  recommendations and  findings over the  years                                                                   
     that they  have examined this  issue.  Additionally,  we                                                                   
     have  online  today  Sandon Fisher  of  the  Legislative                                                                   
     Legal Agency to answer questions from the committee.                                                                       
     I'd  like to take  a moment  to go  through the back  up                                                                   
     material  we've  provided  to the  committee  for  their                                                                   
     edification on this topic.                                                                                                 
     The  first item  is a letter  dated June  30, 2015  from                                                                   
     Commissioner Pickett    in his capacity as  Chair of the                                                                   
     RCA   sent  to then-Speaker Chenault  and then-President                                                                   
     Meyer detailing  the RCA's findings and  recommendations                                                                   
     in  response  to  the  legislature's   question  on  the                                                                   
     advisability   of   creating   an   independent   system                                                                   
     operator  or similar  structure for  the Railbelt.   The                                                                   
     letter  notes that  for over  40  years, concerns  about                                                                   
     the  "fragmented,   balkanized  and  often   contentious                                                                   
     Railbelt  utilities have  been  raised numerous  times,"                                                                   
     and  that over  $1.5 billion  had been  invested in  new                                                                   
     generation  in the five-year  span from  2010 to  2015                                                                     
     an unprecedented  level of investment.  The  letter goes                                                                   
     on to  state "To realize  the maximum benefit  from this                                                                   
     investment,   the   Railbelt   electrical   transmission                                                                   
     system  and  generation must  be  operated in  the  most                                                                   
     effective  and   efficient  manner  possible.   The  key                                                                   
     question  is: does the  current institutional  structure                                                                   
     allow  the maximum  benefits  to be  realized? Is  there                                                                   
     evidence to  believe the current system is  not optimal?                                                                   
     If   the  electrical   system   in   the  Railbelt   has                                                                   
     opportunity  for improvement, what  are the options  and                                                                   
     how  do we best  get there?"   Also  identified was  the                                                                   
     lack  of  an  institutional  structure  to  finance  new                                                                   
     transmission  projects  across  the  respective  service                                                                   
     areas  of  the  Railbelt  utilities.   A  study  by  the                                                                   
     Alaska  Energy  Authority  and  Electric  Power  Systems                                                                   
     Consulting  Engineers identified  $900  million in  such                                                                   
     cross-service area  projects that could,  if constructed                                                                   
     and  managed   for  maximum  economic   dispatch,  yield                                                                   
     annual projected savings of $146 to $241 million.                                                                          
     The  letter of  2015 identified  five  key questions  to                                                                   
     1.  What  does  an  economically   efficient  electrical                                                                   
     system look like?                                                                                                          
     2. Is there  reason to believe that the  Railbelt is not                                                                   
     a fully efficient system?                                                                                                  
     3.  What  can we  learn  from  the previous  efforts  at                                                                   
     4. What  are the  ranges of  generic policy  instruments                                                                   
     to move towards greater efficiency in the Railbelt?                                                                        
     5.  What are  specific  examples of  Independent  System                                                                   
     Operator  (ISO)/Transco models,  and how applicable  are                                                                   
     they to the Railbelt situation?                                                                                            
1:14:25 PM                                                                                                                    
     Additionally,  five  findings and  recommendations  were                                                                   
     included in the letter, which I will summarize here:                                                                       
     First     the Railbelt  electrical  transmission  system                                                                   
     requires  institutional reform.  The RCA recommended  an                                                                   
     independent transmission company should be created.                                                                        
     Second     While  short  term  energy  transactions  are                                                                   
     occurring  between  utilities,  true  economic  dispatch                                                                   
     system-wide  does  not occur.    The letter  noted  that                                                               
     lower  48  independent  system operator  models  may  be                                                                   
     overly  complex  for the  comparatively  small  Railbelt                                                                   
     utilities, and  that a more simple, custom  setup may be                                                                   
     more  appropriate.   The  RCA  recommended   system-wide                                                                   
     economic  dispatch  making full  use  of the  regulatory                                                                   
     and statutory  authority possessed by the RCA  and noted                                                                   
     that voluntary  efforts utilizing  power pools  could be                                                                   
     interim   steps  towards  tighter   power  pooling   and                                                                   
     economic dispatch.   Further, the letter states  that if                                                                   
     voluntary efforts  to move towards system-wide  economic                                                                   
     dispatch fail,  the RCA will  work with the  legislature                                                                   
     and  administration   to  institutionalize   system-wide                                                                   
     economic dispatch.                                                                                                         
     Third    Here  I  will read  directly  from the  letter:                                                                   
     "Many  past  efforts  to  reform   and  rationalize  the                                                                   
     Railbelt  electrical  system  have  failed.  Substantial                                                                   
     time  and   money  has   been  expended  on   consulting                                                                   
     reports,  endless  meetings, legislative  hearings,  and                                                                   
     many frustrating  hours in the RCA's East  Hearing Room.                                                                   
     A great deal  of skepticism exists about  the ability of                                                                   
     the  electric   utilities  to  voluntarily   reform  and                                                                   
     restructure  the Railbelt  grid  and  move towards  true                                                                   
     merit  order economic  dispatch."   The RCA  recommended                                                                   
     that  should  voluntary  efforts  fail  that  compulsory                                                                   
     steps be taken.                                                                                                            
     Fourth   Railbelt  utilities and consumers  will benefit                                                                   
     from systemwide reliability standards.                                                                                     
     Fifth    In  order to  implement  a Railbelt-wide  plan,                                                                   
     the  RCA's resources  will  be  stretched thin  and  may                                                                   
     require  regulatory cost  charges in  addition to  those                                                                   
     currently assessed.                                                                                                        
1:16:26 PM                                                                                                                    
     I share this  letter with the committee to  help paint a                                                                   
     full  picture   of  how   the  legislation  before   the                                                                   
     committee  has come  to be.   Commissioner Pickett  will                                                                   
     go  into greater  detail on  the  efforts undertaken  by                                                                   
     the RCA  since this letter,  and the voluntary  efforts,                                                                   
     timelines  and   data  collection  the   commission  has                                                                   
     requested,   directed   and   overseen   from   Railbelt                                                                   
     utilities since that time.                                                                                                 
     Madame Chair,  I would like  to note and appreciate  the                                                                   
     efforts of the  RCA, Legislative Legal and  the Attorney                                                                   
     General's  office in the  drafting of this  legislation.                                                                   
     I  anticipate  that  the  committee's   review  of  this                                                                   
     legislation  will be thorough,  and that these  entities                                                                   
     will continue  to play a  key role in our  understanding                                                                   
     of  this issue  and our actions  to bring  about a  more                                                                   
     cost-effective    and   resource-efficient    electrical                                                                   
     system in Alaska's Railbelt.                                                                                               
1:17:16 PM                                                                                                                    
MR. HARDENBOOK presented the sectional analysis, which read as                                                                  
follows [original punctuation provided]:                                                                                        
     Section  1  amends  AS 42.05  to  allow  the  Regulatory                                                                 
     Commission  of Alaska (RCA)  to regulate  Interconnected                                                                   
     Electric  Energy   Transmission  Networks   (IEETN)  and                                                                   
     Electric  Reliability Organizations  (ERO) and  mandates                                                                   
     that  utilities participate  in an ERO  if they  operate                                                                   
     in an IEETN.                                                                                                               
     Section 1, Subsection  b lays out a process  for the RCA                                                                 
     to certify an ERO, including rules for:                                                                                    
   1. creating and approving/denying reliability standards                                                                      
   2. membership of an ERO's board of directors and its                                                                         
     decision-making process                                                                                                    
   3. equitable distribution of fees and charges                                                                                
   4. enforcement of reliability standards                                                                                      
   5. an open process for crafting standards and exercising                                                                     
     its duties                                                                                                                 
     Subsection  b  further  mandates  that  an  ERO's  rules                                                                   
     provide   for  independence   from  users,  owners   and                                                                   
     operators  of bulk-power  systems and  that the  board's                                                                   
     membership  include  the  Chair   of  the  RCA  and  the                                                                   
     Attorney  General  (or their  designees)  as  non-voting                                                                   
     Section  1, Subsection  c lays  out a  process by  which                                                                 
     the RCA  can create, certify  and regulate an ERO  if no                                                                   
     entity or person steps forward to create one.                                                                              
     Section 1,  Subsection d  mandates that ERO  reliability                                                                 
     standards    and   modifications    shall   be    tariff                                                                   
     provisions,  and that  users,  owners  and operators  of                                                                   
     bulk-power   system   shall  comply   with   reliability                                                                   
     standards proposed  by the ERO and approved  by the RCA.                                                                   
     This subsection  further mandates  that any  reliability                                                                   
     standards  provide  for  operation   of  the  bulk-power                                                                   
     system  or facility,  cybersecurity  protection and  the                                                                   
     ability to  modify the standards to ensure  reliability.                                                                   
     Further,   reliability   standards   may   not   mandate                                                                   
     enlargement   of  existing   or   construction  of   new                                                                   
     transmission or generation capacity.                                                                                       
     Section  1, Subsections  e&f allow the  RCA to  approve,                                                                 
     deny,  modify   and  enforce  reliability   standards  -                                                                   
     during drafting  and when  they are in  effect    by the                                                                   
     RCA's own motion or upon complaint.                                                                                        
     Section 1,  Subsections g,  h, i &  j state that  an ERO                                                                 
     may penalize  a user, owner or operator of  a bulk-power                                                                   
     system   for   violating   reliability   standards   and                                                                   
     notifies  the RCA of  its action.   The RCA can  uphold,                                                                   
     modify  or  discard  the ERO's  penalties  upon  appeal.                                                                   
     Further,  the RCA can  order a  user, owner or  operator                                                                   
     of  a bulk-power  system to  comply  with a  reliability                                                                   
     standard  and  penalize offending  parties.    Penalties                                                                   
     must  be   commensurate  to   the  seriousness   of  the                                                                   
     violation  and consider  efforts  taken  to address  the                                                                   
     Section 1,  Subsections k &  l allow the RCA  to mandate                                                                 
     an ERO  conduct assessments  of the  bulk power  system.                                                                   
     Further, the  RCA may adopt regulations  governing EROs,                                                                   
     including  cost  recovery   surcharges  and  potentially                                                                   
     requiring  an   ERO  obtain  a  certificate   of  public                                                                   
     convenience and necessity.                                                                                                 
     Section  1, Sec  42.05.293  details the  process an  ERO                                                                 
     must  follow   to  accomplish  Integrated   Lowest  Cost                                                                   
     Planning  within  the  proposed  reliability  standards.                                                                   
     Standards  must   evaluate  the  cost-effectiveness   of                                                                   
     meeting  customer  service requirements,  including  new                                                                   
     generation,  transmission  and conservation  projects                                                                      
     at  the  lowest  cost, regardless  of  the  location  or                                                                   
     ownership of new facilities.                                                                                               
     Section  1, Sec 42.05.294  grants RCA  the authority  to                                                                 
     prohibit  or  allow  new construction  of  large  energy                                                                   
     facilities  in line  with the  requirements  of a  bulk-                                                                   
     power system  and adopted  reliability standards.   This                                                                   
     section also defines "large energy facility."                                                                              
     Section  2  defines bulk  power  systems,  cybersecurity                                                                 
     incidents,     electric    reliability     organization,                                                                   
     interconnected  electric  energy  transmission  network,                                                                   
     load-serving entity and reliable operation.                                                                                
     Section  3  authorizes  RCA to  adopt  regulations  that                                                                 
     will  take  effect  after the  effective  date  of  this                                                                   
     Sections 4 & 5 deal with effective dates.                                                                                
1:21:38 PM                                                                                                                    
MR.  HARDENBROOK,   having  concluded  his  presentation   of  the                                                              
sectional  analysis,   offered  to   answer  questions   from  the                                                              
committee  and  pointed  out that  Sandon  Fisher  of  Legislative                                                              
Legal  Services   was  available  via  teleconference   to  answer                                                              
1:21:52 PM                                                                                                                    
REPRESENTATIVE  RAUSCHER asked  which model  was used to  identify                                                              
the previously mentioned cost savings of $146-$240 million.                                                                     
MR. HARDENBROOK answered  page 2, third paragraph, of  a letter to                                                              
former  Senate President  Meyer and  former Speaker  of the  House                                                              
1:22:53 PM                                                                                                                    
The committee took a brief at-ease.                                                                                             
1:23:18 PM                                                                                                                    
MR.  HARDENBROOK   referred  again  to  third  paragraph   of  the                                                              
aforementioned letter.                                                                                                          
REPRESENTATIVE RAUSCHER asked, "Did you run it by the governor?"                                                                
MR.  HARDENBROOK  explained that  HB  151  was based  on  language                                                              
drafted by  the RCA, and  the sponsor and  staff have  worked with                                                              
the  RCA and  the  Department of  Commerce,  Community &  Economic                                                              
Development  (DCCED), but  not  directly with  the  Office of  the                                                              
CHAIR HOPKINS  added that he  and his staff  have worked  with the                                                              
Office of  the Attorney General  - which works  with the RCA  - to                                                              
ensure  that  the  language  in   HB  151  mirrored  the  original                                                              
language put forth by the RCA.                                                                                                  
REPRESENTATIVE  RAUSCHER noted that  his district comprises  three                                                              
utilities  - Golden  Valley  Electric Association  (GVEA),  Copper                                                              
Valley  Electric   Association  (CVEA),  and   Matanuska  Electric                                                              
Association  (MEA) -  and he asked  whether the  bill sponsor  had                                                              
"discussed  it  with  each  or   one  of  those  utilities  before                                                              
drafting it."                                                                                                                   
CHAIR HOPKINS  answered that he  had not spoken directly  with the                                                              
utilities,  because they  had the  opportunity to  comment on  the                                                              
draft  legislation  put forward  by  the RCA.    He remarked  that                                                              
since  it is  only the  railbelt utilities  being addressed,  only                                                              
GVEA  and MEA,  in Representative  Rauscher's  district, would  be                                                              
impacted by the Electric Reliability Organization (ERO).                                                                        
REPRESENTATIVE RAUSCHER  asked if the utilities are  in support of                                                              
the proposed language.                                                                                                          
CHAIR  HOPKINS answered  that support  varied  with each  utility.                                                              
He  explained that  some  want the  voluntary  ability, some  want                                                              
stronger action, and some have concerns about cost options.                                                                     
MR. HARDENBROOK  added that  the sponsor's  staff has  reached out                                                              
to  the representatives  of  all the  railbelt  utilities to  make                                                              
sure they are  aware of the work  being done on the  issue and the                                                              
hearing that would be taking place today.                                                                                       
VICE CHAIR SPOHNHOLZ  offered her understanding that  the railbelt                                                              
utilities have  been working for  several years to put  together a                                                              
Railbelt  Reliability Corporation  (RRC),  and  currently four  of                                                              
the six have  agreed to participate.  Further,  she proffered that                                                              
this  is the  second consecutive  legislature where  the chair  of                                                              
the House Special  Committee on Energy has  introduced legislation                                                              
encouraging  the railbelt  utilities  to engage  in a  reliability                                                              
project.   She indicated that  Alaska has  a lot of  utilities for                                                              
its  comparatively  small  population,  in  part  because  of  the                                                              
geography  of  the  state,  and the  state  cannot  overbuild  its                                                              
energy capacity.   She said a  proposed rate savings  of $146-$241                                                              
million  annually is  a significant  amount.   She suggested  that                                                              
utilities could  be invited to testify  at a future hearing  on HB                                                              
151  to express  their thoughts  about  the proposed  legislation.                                                              
She  asked  Representative  Rauscher  if that  would  address  his                                                              
REPRESENTATIVE  RAUSCHER  said he  doesn't  understand much  about                                                              
this,  but  appreciates  what  has   been  said.    He  asked  for                                                              
confirmation that the comment period had ended a few weeks ago.                                                                 
CHAIR HOPKINS responded yes.                                                                                                    
REPRESENTATIVE  RAUSCHER  asked what  the RCA  has  done with  the                                                              
VICE  CHAIR  SPOHNHOLZ  suggested  the  question  could  be  asked                                                              
directly of a representative of the RCA, Robert Pickett.                                                                        
REPRESENTATIVE  RAUSCHER  shared  that  he had  not  realized  Mr.                                                              
Pickett would be available at today's hearing.                                                                                  
MR.  HARDENBROOK  noted  that  the  legislature  would  receive  a                                                              
report early  next week  from the  RCA detailing  its work  on the                                                              
issue,  including the  five areas  Mr.  Hardenbrook mentioned  and                                                              
progress  to date  since  2015.   He indicated  there  would be  a                                                              
wealth of documentation for those interested to review.                                                                         
VICE CHAIR  SPOHNHOLZ announced  the committee would  hear invited                                                              
testimony on HB 151.                                                                                                            
1:30:15 PM                                                                                                                    
ROBERT  PICKETT,  Commissioner,  Regulatory Commission  of  Alaska                                                              
(RCA), Department  of Commerce,  Community & Economic  Development                                                              
(DCCED), imparted that  he has been commissioner for  12 years and                                                              
chair of the  commission for 6 of  those years.  He  remarked that                                                              
the previous  speakers had given  good information  regarding what                                                              
the RCA did  in 2014 and the  letter of 2015, which  contained the                                                              
RCA's findings  and recommendations.   Regarding the  language put                                                              
out by the RCA  in mid-March, he said the RCA  thought it would be                                                              
helpful  to  get  input from  the  industry  and  "other  impacted                                                              
parties"   regarding  areas   the  RCA  considered   in   need  of                                                              
attention.   That said,  he highlighted  that  at this point,  the                                                              
RCA has  a formalized  process by which  it determines  support or                                                              
opposition to  a bill.   He observed that  the language in  HB 151                                                              
seems  "conservative" compared  to  the language  put  out by  the                                                              
RCA.   He  added, "We  have  not, however,  addressed  all of  the                                                              
comments  we  did  receive  and  ...  hammered  out  some  further                                                              
language."   Notwithstanding  that, he  opined that  HB 151  would                                                              
"get  the ball  rolling."   He  confirmed that  the  RCA would  be                                                              
submitting its  findings to the  legislature early next week  in a                                                              
three-page letter  to leadership made available to  all members of                                                              
the legislature.   He said there  would be approximately  17 pages                                                              
of an  appendix detailing each  recommendation.   That information                                                              
would be backed up by a record of nearly 2,000 pages.                                                                           
1:33:01 PM                                                                                                                    
MR.   PICKETT   reviewed   the   first   recommendation   in   the                                                              
aforementioned   letter,   which   read   as   follows   [original                                                              
punctuation provided, with some formatting changes]:                                                                            
     Recommendation   No.1:   An   independent   transmission                                                                 
     company should  be created  to operate the  transmission                                                                   
     system  reliably  and  transparently  and  to  plan  and                                                                   
     execute   major    maintenance,   transmission    system                                                                   
     upgrades,  and new transmission  projects necessary  for                                                                   
     the  reliable delivery  of  electric  power to  Railbelt                                                                   
     customers.   This   independent   transmission   company                                                                   
     should  be  certificated  and   regulated  as  a  public                                                                   
     utility  under  AS  42.05.  The RCA  should  be  granted                                                                   
     siting  authority for new  generation and  transmission,                                                                   
     and granted  explicit authority  to regulate  integrated                                                                   
     resource planning  in the Railbelt electrical  system. A                                                                   
     mandatory report  on the status  of the current  efforts                                                                   
     to    develop   an    independent   Railbelt    electric                                                                   
     transmission   company   shall   be   filed   with   the                                                                   
     Commission  no later than September  30, 2015.  A second                                                                   
     report  on  transmission restructuring  shall  be  filed                                                                   
     with  the Commission  no later than  December 31,  2015.                                                                   
     Failure  to file these  reports will  be construed  as a                                                                   
     failure of the  current voluntary efforts to  develop an                                                                   
     independent Railbelt  electric transmission  company. If                                                                   
     voluntary  efforts fail, the  Commission will work  with                                                                   
     the Legislature  and the  Administration to develop  and                                                                   
     implement   specific  legislation   and  to   prioritize                                                                   
     actions  necessary  to create  an  independent  Railbelt                                                                   
     electric transmission company.                                                                                             
MR. PICKETT  stated that the idea  has been around for  quite some                                                              
time.  He continued as follows:                                                                                                 
     In  fact, back  in  2007, the  legislature  appropriated                                                                   
     roughly  $800,000 to  put into  effect  what was  called                                                                   
     the [Railbelt  Electrical Grid Authority]  (REGA) Study.                                                                   
     That was  when the  Watana planning  was still going  on                                                                   
     and there were  some obvious constraints in  the defense                                                                   
     mission  a couple years  later that  went to the  Alaska                                                                   
     Energy  Authority study  on  transmission,  and the  ...                                                                   
     figure that  was mentioned  a little earlier,  with some                                                                   
     ...  savings   -  I   think  there's   been  a  lot   of                                                                   
     reassessment  of that particular  study, and with  that,                                                                   
     ... they're  probably not nearly  as robust as  what was                                                                   
     indicated  in the  outcome of  that study.   But ...  we                                                                   
     have clearly  identified some  real savings that  can be                                                                   
     attained ...  from the world's large utilities  over the                                                                   
     past five years.                                                                                                           
1:34:02 PM                                                                                                                    
MR. PICKETT reported  that since 2015, a business  plan was filed,                                                              
and  a  certificate  of public  inconvenience  and  assessment  of                                                              
application was anticipated  by September 2016, but  over the next                                                              
few  years  progress  seemed  to  slow  down.   He  said  the  RCA                                                              
received  an application  on 2/25/19 for  transfer certificate  of                                                              
public convenience  and necessity  (CPCN).  He  said, "It  did not                                                              
have  all of  the  ... utilities  involved  as [signatories],  but                                                              
they have  been involved in  terms of the  planning process."   He                                                              
said he could  not speak to that  further, but noted that  the RCA                                                              
supports  the recommendation  for the creation  of an  independent                                                              
transmission  company.   He said  it is highly  unlikely that  the                                                              
legislature will  be able to  make significant appropriations  for                                                              
transmission projects,  but he talked  about mechanisms  being put                                                              
in place.                                                                                                                       
1:35:49 PM                                                                                                                    
MR. PICKETT referred  to the second recommendation  in the letter,                                                              
which read  as follows [original  punctuation provided,  with some                                                              
formatting changes]:                                                                                                            
     Recommendation  No.2: System-wide  merit order  economic                                                                 
     dispatch of  the Railbelt's electrical  generation units                                                                   
     will  bring  the  maximum  benefit  to  ratepayers.  The                                                                   
     Commission should  use all the regulatory  and statutory                                                                   
     authority   it  currently   has   to  strongly   promote                                                                   
     economic dispatch,  and seek new statutory  authority as                                                                   
     needed to  promote this goal.  Voluntary efforts  by the                                                                   
     utilities  to  utilize  loose   power  pools  should  be                                                                   
     encouraged  as an interim step  towards a tighter  power                                                                   
     pooling system.  As actual data is generated  concerning                                                                   
     costs, benefits  and other  outcomes of voluntary  power                                                                   
     pooling  strategies, quarterly  reports  shall be  filed                                                                   
     with  the Commission.  These  reports  will be  analyzed                                                                   
     and   reviewed   to  assess   the   organizational   and                                                                   
     governance   structure   needed   for   an   independent                                                                   
     consolidated  system operator.  The  first report  shall                                                                   
     be  for the  fourth  quarter of  2015  (October 1,  2015                                                                   
     through December  31, 2015) and shall be  filed no later                                                                   
     than January  30,2016. Quarterly reports shall  be filed                                                                   
     with the Commission  throughout 2016, due no  later than                                                                   
     30  days  after  the end  of  the  applicable  reporting                                                                   
     quarter.  Failure to file  these quarterly reports  will                                                                   
     be construed  as a failure of voluntary efforts  to move                                                                   
     towards  system-wide merit  order economic dispatch.  If                                                                   
     voluntary  efforts fail, the  Commission will work  with                                                                   
     the Legislature  and the  Administration to develop  and                                                                   
     implement  specific  action  steps  to  institutionalize                                                                   
     system-wide merit order dispatch.                                                                                          
MR. PICKETT  explained that  the new  generation is  significantly                                                              
more  efficient in  terms  of natural  gas  or coal,  and the  RCA                                                              
wants  to encourage  institutional  change that  would "make  that                                                              
happen."    He  said  given  the   size  of  the  market,  it  was                                                              
determined  that it  would be  more  effective to  focus first  on                                                              
loose,  power  pool  agreements,  then  move  into  more  binding,                                                              
longer-term,  tighter pool agreements.   He  said after  2016, the                                                              
idea  of  creating  a stand-alone,  unified  system  operator  was                                                              
deemed  to be  "not the  most effective  use for  resources."   He                                                              
said pooling  may provide a  "platform in  the future for  that to                                                              
happen."  He  said Chugach Electric and Municipal  Light and Power                                                              
started  with very  tight pooling  and  estimated a  savings of  a                                                              
minimum of $10 million  annually.  He said they  were beginning to                                                              
apply  that model  for the  rest of  the railbelt.   He  indicated                                                              
that three  utilities in the  central railbelt "eventually  signed                                                              
on, on a  more formalized basis  into this tight pool"  and saw an                                                              
estimated  savings of up  to $16  million.   He mentioned  a joint                                                              
agreement  that  was  entered  into,  and  there  was  a  one-year                                                              
development period,  and "they  did come back  to us  in September                                                              
of  2017 and  continued to  have  a fairly  optimistic picture  of                                                              
what  was going  on."    He said  those  involved  were trying  to                                                              
figure  out  how to  integrate  the  nonparties  - both  GVEA  and                                                              
Palmer Electric  Company (PEC).   He mentioned a  presentation was                                                              
made in  May 2018 and  follow-up efforts  were made in  June 2018.                                                              
He said:                                                                                                                        
     That  was  after a  merger  was  approved by  voters  of                                                                   
     Anchorage,  and  we had  some  questions as  to  whether                                                                   
     that was going  to have any impact on this,  and at that                                                                   
     time  we were  told  that,  "No, it  would  not."   That                                                                   
     changed, and  by October of last year, we  were informed                                                                   
     that  that process  had essentially  stopped, and  until                                                                   
     all  of the  activities  related  to the  proposal  were                                                                   
     dealt with one  way or another, they could  not make any                                                                   
     commitments as to when it would resume.                                                                                    
MR. PICKETT  said the bad  thing is that  the savings will  not be                                                              
realized  by the three  utilities until  "this process  restarts,"                                                              
but the positive  thing is that there has been an  increase in the                                                              
action  between  dispatch  centers   and  a  better  understanding                                                              
between utilities.                                                                                                              
1:40:46 PM                                                                                                                    
VICE CHAIR SPOHNHOLZ  asked Mr. Pickett if he was  saying that the                                                              
merger was responsible for the slowdown.                                                                                        
MR. PICKETT  answered, "It  was alluded that  that was  the fact."                                                              
The  transaction was  not  finalized,  and he  said  he could  not                                                              
speak  to  it  one  way or  another.    Notwithstanding  that,  he                                                              
proffered  that  it was  a  matter  of  staff resources  and  "the                                                              
ability to  continue on  all these  paths at the  same time."   In                                                              
response to a follow-up  question, he said the names  of the three                                                              
utilities  mentioned previously  were Municipal  Light and  Power,                                                              
Chugach Electric, and MEA.                                                                                                      
MR. PICKETT  said the RCA  continues to support  Recommendation 2,                                                              
as  shown  in  the  letter,  regarding   system-wide  merit  order                                                              
economic dispatch  of the Railbelt's electrical  generation units.                                                              
He  noted that  even though  there is  better cooperation  between                                                              
utilities, there is no institutional change.                                                                                    
1:43:29 PM                                                                                                                    
MR.  PICKETT next  brought attention  to Recommendation  3 in  the                                                              
letter,  which read  as  follows [original  punctuation  provided,                                                              
with some formatting changes]:                                                                                                  
     Recommendation  No.3: Though history strongly  indicates                                                                 
     that  the current  voluntary transmission  restructuring                                                                   
     and  economic  dispatch  efforts by  the  utilities  may                                                                   
     fail,  the Commission  believes  the  utilities must  be                                                                   
     given   the  opportunity  to   succeed.  The   timelines                                                                   
     outlined  in  Recommendations 1  and  2 allow  for  this                                                                   
     potential  success.  Failure  of the  voluntary  efforts                                                                   
     and  initiatives  will  trigger   the  compulsory  steps                                                                   
     identified in Recommendations 1 and 2.                                                                                     
MR. PICKETT  said many  comments have  been received from  various                                                              
entities and utilities,  and the RCA will address  those comments.                                                              
He said,  "So, we do  continue to  support the voluntary  efforts,                                                              
but we believe  that at this stage ... some  additional incentives                                                              
and pressure need to be put on."                                                                                                
1:45:43 PM                                                                                                                    
MR. PICKETT turned  to Recommendation 4 in the  letter, which read                                                              
as follows  [original punctuation  provided, with some  formatting                                                              
     Recommendation   No.4:   Enforceable    and   consistent                                                                 
     Railbelt   operating  and   reliability  standards   are                                                                   
     necessary   for   consistent,    safe,   reliable,   and                                                                   
     efficient  operation of  the  Railbelt electric  system.                                                                   
     The RCA strongly  encourages the IMC and  Homer Electric                                                                   
     to  resolve  their  differences  and  develop  a  common                                                                   
     Railbelt   operating   and  reliability   standard.   In                                                                   
     January  2016  the  RCA  will   initiate  a  process  to                                                                   
     determine  if  it should  adopt  regulations  concerning                                                                   
     Railbelt operating and reliability standards.                                                                              
MR.  PICKETT said  Alaska is  the only  state that  does not  have                                                              
enforceable  electric reliability  standards.   He said the  Lower                                                              
48  is   under  the  jurisdiction   of  the  National   Electrical                                                              
Reliability  Council  (NERC)  and the  Federal  Energy  Regulatory                                                              
Commission  (FERC).  Following  a major  blackout in the  Midwest,                                                              
in 2003,  NERC was created with  the authority to set  up regional                                                              
electrical  liability  organizations,  with  mandatory  terms  and                                                              
stringent  penalties  set  up.     Hawai'i  and  Alaska  were  not                                                              
covered.   Hawai'i has since adopted  many of the  NERC guidelines                                                              
and reliability  standards in its  state statute.  Alaska  is left                                                              
as the state  that has done  nothing.  Mr. Pickett  explained that                                                              
utilities have  had standards on a  voluntary basis.  Most  of the                                                              
utilities  signed on to  the Intertie  Management Committee  (IMC)                                                              
standards,  while   Homer  Electric  developed  its   own  set  of                                                              
standards;  the  two  standards   were  not  entirely  consistent.                                                              
After  10  years,  with  the  hard   work  of  representatives  of                                                              
utilities  and  the  Alaska Energy  Authority  (AEA),  a  modified                                                              
standard applying to  all the railbelt utilities was  adopted.  He                                                              
indicated  this happened  in April  2018, which  pleased the  RCA.                                                              
He  stated, "We  would  see an  RRC-type  of organization  fitting                                                              
nicely  into  the   ERO  role,  under  the  jurisdiction   of  the                                                              
commission,  and it  would make  things  a lot  more flexible,  in                                                              
terms of the  maintenance and development of standards."   He said                                                              
utilities  have technical  expertise in terms  of operational  and                                                              
liability aspects  of the standards  and how this relates  back to                                                              
capital investment and "what might or might not have to happen."                                                                
MR. PICKETT  said there are areas  that need to be  "fleshed out."                                                              
He mentioned  cyber-security  concerns and  physical security  and                                                              
"other  things  that   are  a  little  bit  outside   just  normal                                                              
operational issues  but can provide  a very significant  impact to                                                              
the functioning  of the  railbelt electric system."   He  said the                                                              
utilities   that  voluntarily   participated   in  several   cyber                                                              
security  exercises   have  offered  ideas  on  how   to  maintain                                                              
confidentiality  and the handling  of classified information.   He                                                              
characterized the  voluntary efforts in the reliability  sector as                                                              
"demonstrating  the greatest  amount of progress,"  but said  that                                                              
"the  statutory  approach that  is  mirrored  in [HB]  151"  would                                                              
provide additional  tools.  Notwithstanding that, he  said the RCA                                                              
is  strongly encouraging  the  RRC to  "proceed  ahead" and  "keep                                                              
moving as they have  been moving" to be in position  to respond to                                                              
any changes                                                                                                                     
1:52:40 PM                                                                                                                    
MR.  PICKETT  directed  attention   to  Recommendation  5  in  the                                                              
letter,  which read  as  follows [original  punctuation  provided,                                                              
with some formatting changes]:                                                                                                  
     Recommendation  No.5: The  RCA will  be hugely  impacted                                                                 
     by  these  proposed Railbelt  electric  system  changes.                                                                   
     The  initial action  steps will need  to be  implemented                                                                   
     within existing  RCA resources. The Commission  is self-                                                                   
     supporting through  regulatory cost charges  (RCCs), and                                                                   
     does  not rely  upon state  undesignated general  funds.                                                                   
     If  the RCA  receives the  necessary Administration  and                                                                   
     Legislative  support,  the   FY  2017  RCA  budget  will                                                                   
     require   the   necessary   RCC  funded   resources   to                                                                   
     implement  these proposed recommendations.  Each  of the                                                                   
     findings   and    recommendations   were    voted   upon                                                                   
     individually  at the June 29,  2015, RCA Special  Public                                                                   
     Meeting   and  all   were   passed  unanimously.   These                                                                   
     recommendations   are  respectfully  submitted   to  the                                                                   
     Legislature  for  its  review  and  consideration.  Upon                                                                   
     request,  the  Regulatory   Commission  of  Alaska  will                                                                   
     assist   the   Legislature   in   developing   solutions                                                                   
     addressing  these critical  issues.  Thank  you for  the                                                                   
     opportunity to provide this information to you.                                                                            
MR. PICKETT said  for the past four and a half  years, the RCA has                                                              
been  able to  operate within  its budgetary  constraints, and  it                                                              
anticipates  that will not  change with  the proposed  fiscal year                                                              
2020 (FY  20) budget.   He  talked about  flexibility in  position                                                              
descriptions,  and  indicated it  is  difficult  to fit  into  the                                                              
state  classification system,  especially  in  terms of  technical                                                              
engineering and policy positions.                                                                                               
MR. PICKETT  concluded by  offering to  answer questions  from the                                                              
1:54:13 PM                                                                                                                    
REPRESENTATIVE  LINCOLN  asked  Mr. Pickett  to  briefly  describe                                                              
some of the projects that the $900 million would cover.                                                                         
MR.  PICKETT answered  that the  RCA  has "not  really taken  that                                                              
into  that  much  account,"  because   it  thinks  an  independent                                                              
assessment  of  specific,  cost-effective  projects  needs  to  be                                                              
done.   Nevertheless, he mentioned  a project involving  cable run                                                              
from  the Kenai  Peninsula  to the  Beluga/Tyonek  area, which  he                                                              
said is  probably one  of the  single biggest  components  of that                                                              
budget.  He talked  about an incorrect projection  of savings that                                                              
he read.   He said, "It sort of  laid out an optimal  road map, if                                                              
you wanted  to maximize  security and  redundancy and  reliability                                                              
in the  railbelt and  not be  subject to  having one  transmission                                                              
line go down  and having a big  impact, this is one  way you might                                                              
do it; and ... that just sort of fell out of that."                                                                             
1:56:20 PM                                                                                                                    
REPRESENTATIVE RAUSCHER  referred to resolutions currently  in the                                                              
House, one  to support a  railway from  Canada and one  that would                                                              
support money  coming from  the U.S.  Department of Defense  (DoD)                                                              
to connect  CVEA to  GVEA and MEA.   He  surmised that  the future                                                              
holds  "an  interesting  aspect  here."    He  asked  if  CVEA  is                                                              
"advised of the talks going on."                                                                                                
MR. PICKETT  recollected  that in  terms of filing,  CVEA  has not                                                              
participated  directly in the  last four  years; however,  he said                                                              
the  RCA's process  is  open to  the  public.   In  response to  a                                                              
follow-up  question, he  said the  RCA gives  notice but does  not                                                              
extend  specific invitations.    He indicated  that  those on  the                                                              
mailing  list,  who actively  participate  are  probably  notified                                                              
"more than  they want to be many  times."  He indicated  that CVEA                                                              
is on  the mailing  list and  does receive  notice of  any changes                                                              
related to electric utilities.                                                                                                  
REPRESENTATIVE RAUSCHER  asked how important it is  to the process                                                              
going forward that all the utilities participate.                                                                               
MR.  PICKETT answered  it  is important  "to  promote the  maximum                                                              
cooperation with all  of the entities impacted - ...  not just the                                                              
utilities  - because  this is a  fairly significant  change."   He                                                              
stated  his belief  that the  reliability aspect  is so  important                                                              
that the division  will proceed with all statutory  and regulatory                                                              
authority "to keep moving the ball forward."  He continued:                                                                     
     What  is possible  through  legislation,  however, is  a                                                                   
     structure that  would be much  more amenable  and easier                                                                   
     to  work with  for the  utilities,  for the  commission,                                                                   
     and for  other parties,  because if  we have to  distill                                                                   
     everything down  to a ... two-year, rule-making  process                                                                   
     every  time we  change  reliability standards,  I  don't                                                                   
     think  anybody's going  to  be particularly  happy  with                                                                   
     that approach.                                                                                                             
1:59:36 PM                                                                                                                    
VICE  CHAIR  SPOHNHOLZ  remarked  that  that  would  not  be  very                                                              
practical.   She then  asked Mr.  Pickett if  he would  submit his                                                              
notes from  his talking  points to the  committee for  the benefit                                                              
of the recording secretary.                                                                                                     
CHAIR  HOPKINS clarified  that HB  151 deals  with the  generation                                                              
infrastructure and  trying to provide the lowest  cost electricity                                                              
to  consumers along  the railbelt  and forcing  utilities to  work                                                              
together   toward  those   mandated  standards.     He   mentioned                                                              
different  processes going  forward  simultaneously.   He said  he                                                              
hopes to  make clarifications to  HB 151 during Interim,  based on                                                              
the feedback Mr. Pickett provided.                                                                                              
[HB 151 was held over.]                                                                                                         

Document Name Date/Time Subjects
2019-05-08 HB 151 Fiscal Note.pdf HENE 5/9/2019 8:30:00 AM
HB 151
2019-05-08 - RCA order Re Proposed Legislative Language.pdf HENE 5/9/2019 8:30:00 AM
HB 151
HB 151 - RCA Order inviting comment on Proposed Legislative Language
2019-05-08 - RCA Proposed Legislative Language.pdf HENE 5/9/2019 8:30:00 AM
HB 151
RCA Proposed Legislative Language
HB 151 - Sectional Analysis.pdf HENE 5/9/2019 8:30:00 AM
HB 151
2015-06-30 - RCA Recommendation to Legislature.pdf HENE 5/9/2019 8:30:00 AM
HB 151