Legislature(1999 - 2000)

04/23/1999 08:07 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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SENATE BILL NO. 157                                                                                                             
"An Act relating to power cost equalization; and                                                                                
providing for an effective date."                                                                                               
                                                                                                                                
MARY JACKSON, Staff, Senator John Torgerson, reviewed the                                                                       
bill.  She noted that the working group who addressed                                                                           
concerns of this bill included Senator P. Kelly and Senator                                                                     
Adams.                                                                                                                          
                                                                                                                                
Ms. Jackson spoke to the importance of the Power Cost                                                                           
Equalization (PCE) program to areas of Alaska that are                                                                          
reliant upon diesel generated power.  It is recognized and                                                                      
that the bill is intended to extend the life of the program                                                                     
by restructuring some of its components.                                                                                        
                                                                                                                                
The bill would:                                                                                                                 
                                                                                                                                
* Reduce the current 700 kWh to 350 kWh per month.                                                                              
                                                                                                                                
* Expand the method of establishing the base rate by                                                                            
including Kenai and Palmer in the weighted average                                                                              
retail residential rate which currently only                                                                                    
included Anchorage, Fairbanks and Juneau.                                                                                       
                                                                                                                                
? Restructure the program so that the equalization                                                                              
rate applies only to residential customers, as                                                                                  
opposed to the current residential and commercial                                                                               
structure.                                                                                                                      
                                                                                                                                
? Add new language to the program to ensure that the                                                                            
rate charged by a PCE utility is not lower than a                                                                               
rate charged by a non-PCE utility, so to ensure                                                                                 
that a customer who does not receive PCE pays a                                                                                 
higher rate than a customer who does receive a                                                                                  
PCE.                                                                                                                            
                                                                                                                                
Ms. Jackson provided a sectional analysis of the bill.                                                                          
Section 1 adds Kenai and Palmer into the statewide average,                                                                     
which would expand the base of the statewide average.                                                                           
Section 2 decreases the kilowatt-hours from 700 to 350 for                                                                      
consumptive use.  Section 3 adds Kenai and Palmer into the                                                                      
statewide average as does Section 1.  Section 4 decreases                                                                       
the kWh from 700 to 350 kWh and restricts it to residential                                                                     
use.  Sections 5 & 6 are housekeeping references to the new                                                                     
sub Section (j).  Section 7 establishes the effective date                                                                      
of the legislation.                                                                                                             
                                                                                                                                
Ms. Jackson referenced the April 22, 1999, Power Cost                                                                           
Equalization (PCE) spread sheet contained in members                                                                            
packets.  The sheet provides the most recent findings of the                                                                    
working group.  [Copy on File].                                                                                                 
                                                                                                                                
Co-Chair Torgerson pointed out that the State has been                                                                          
funding the current rate, however, the hoped for is 85%                                                                         
funding.  Senator Adams stated that the last supplemental                                                                       
decreased that number to 78%.                                                                                                   
                                                                                                                                
Co-Chair Torgerson asked if the working group had any                                                                           
recommendations which the full Committee should consider.                                                                       
[Copy on File].  Ms. Jackson replied that the analysis of                                                                       
that group was currently before the Committee.  She                                                                             
suggested that it could be approached either from the floor                                                                     
(9.9 to 10.9 cents/kWh) or raising the ceiling.  The working                                                                    
group approached the situation from both places and the                                                                         
premise was to have less of an impact on the small Bush                                                                         
Communities.                                                                                                                    
                                                                                                                                
Senator Kelly referenced the handout.  He explained how the                                                                     
floor was established including the calculations for Pelican                                                                    
and Skagway.  The group is waiting to determine the actual                                                                      
cost to the residential consumer.  The formula used to                                                                          
increase the floor and the impact of combining the ceiling                                                                      
from dropping down would establish the impact on the actual                                                                     
consumer.  He advised that new spreadsheets would be                                                                            
forthcoming in the following week.                                                                                              
                                                                                                                                
Senator Phillips asked the average residential use per month                                                                    
in Alaska.                                                                                                                      
                                                                                                                                
ERIC YOULD, Executive Director, Alaska Rural Electric                                                                           
Cooperative Association (ARECA), Anchorage, replied that the                                                                    
average in rural Alaska was 326 kWh.  The average kWh usage                                                                     
in the Railbelt area is 688 kWh.  He accessed that rural                                                                        
Alaska is roughly half of the other areas.                                                                                      
                                                                                                                                
Senator Phillips asked the basic differences between the                                                                        
rural area and the Railbelt regarding use of electricity.                                                                       
Mr. Yould pointed out that the Blue Ribbon Commission                                                                           
gathered profiles as to what the 326 kWh hours would                                                                            
accomplish.  It is very different from urban areas versus                                                                       
rural Alaska, especially the refrigeration needs are higher.                                                                    
                                                                                                                                
Senator Wilken requested further clarification of the                                                                           
spreadsheet.  Senator P. Kelly pointed out that the                                                                             
spreadsheet was not accurate.                                                                                                   
                                                                                                                                
Mr. Yould suggested that it would be beneficial to go to the                                                                    
500 kWh; the 326 kWh is a monthly average and during the                                                                        
winter months, the usage increases.  He stated that there                                                                       
are individual opportunities throughout the State and that                                                                      
some of the other systems being investigated are very                                                                           
costly.  The State does have the resources; however, the                                                                        
problem is an economy of scale.  He added that diesel                                                                           
generation exists but that there is no natural gas in rural                                                                     
Alaska.  Mr. Yould noted that the State is looking for                                                                          
alternatives but that they are generally capital intensive.                                                                     
                                                                                                                                
Senator Wilken inquired about diesel efficiency and working                                                                     
in conjunction with the University.  Mr. Yould replied that                                                                     
ARECA was not working with the University at this time.  He                                                                     
understood that the University was working with Department                                                                      
of Education with a $2.6 million dollar grant to develop a                                                                      
fuel cell using diesel power.                                                                                                   
                                                                                                                                
Senator Wilken asked if the bill would exclude schools from                                                                     
PCE participation in the rural areas.  Ms. Jackson                                                                              
acknowledged that it would exclude schools.  She noted that                                                                     
Senator Torgerson had sent a letter to the Department of                                                                        
Education regarding this concern.                                                                                               
                                                                                                                                
Senator Wilken asked if Mr. Yould was aware of work being                                                                       
done on fuel cells.  Mr. Yould acknowledged that he was                                                                         
aware of the work which in Anchorage was being funded by                                                                        
Chugiach Electric.  He explained that the problem with fuel                                                                     
cells is that they are all natural gas and that it is                                                                           
difficult to distribute natural gas in rural Alaska.                                                                            
                                                                                                                                
CHARLES WALLS, President & CEO, Alaska Village Electric Coop                                                                    
(AVEC), Anchorage, (Testified via Teleconference), pointed                                                                      
out that the statistics being referenced were three years                                                                       
old.  He requested that the cap cut be reconsidered.  Mr.                                                                       
Walls recommended that the Committee carefully scrutinize                                                                       
Section 7, the new section being added. That section could                                                                      
result in a village utility in not receiving the Power Cost                                                                     
Equalization (PCE) which would establish a new floor for all                                                                    
others.  At the present time, the average revenue per                                                                           
kilowatt-hour for a non-PCE utility is regulated by the                                                                         
Alaska Public Utility Commission (APUC).  He urged that the                                                                     
bill be reconsidered.                                                                                                           
                                                                                                                                
Co-Chair Torgerson asked Mr. Walls to verify that used in                                                                       
the bill were dated from 1996.  Mr. Walls replied that the                                                                      
handout referred to was the last published statistics                                                                           
available and was complied in 1996.                                                                                             
                                                                                                                                
Co-Chair Torgerson requested that Mr. Walls fax pertinent                                                                       
information to the Committee dealing with the proposed bill.                                                                    
                                                                                                                                
BRUCE KOVARIK, Executive Director, Association of Alaska                                                                        
Housing Authority (AAHA), Anchorage, (Testified via                                                                             
Teleconference), testified that the Association supports the                                                                    
PCE program for residential and community customers.  The                                                                       
State's regional housing authority has developed and                                                                            
operated home ownership of housing programs for over 7,000                                                                      
families.  He emphasized that the worse case scenario would                                                                     
be the loss of that program.                                                                                                    
                                                                                                                                
                                                                                                                                
TAPE SFC-99 #109 Side A                                                                                                         
                                                                                                                                
                                                                                                                                
Mr. Kovarik continued his testimony.                                                                                            
                                                                                                                                
Co-Chair John Torgerson commented that it would take time to                                                                    
consolidate the State's commitment and that of AAHA.  Mr.                                                                       
Kovarik noted that a certain amount of funding could be                                                                         
taken from the Native Self-Determination Act and placed into                                                                    
a PCE fund.  That fund would be invested and the interest                                                                       
generated from the fund would go to PCE.                                                                                        
                                                                                                                                
Co-Chair John Torgerson questioned how to get all parties to                                                                    
agree.  Mr. Kovarik reiterated that the participation in the                                                                    
plan would have to be voluntary and flexible.  The Housing                                                                      
Authority has investment strategies and cash flow                                                                               
considerations based upon work to be developed.  It would                                                                       
need to be a plan which allows for the investment of funds.                                                                     
There are federal requirements and regulations.  The hope is                                                                    
for assistance from the Department of Community and Regional                                                                    
Affairs.                                                                                                                        
                                                                                                                                
Co-Chair John Torgerson stressed his intention to move the                                                                      
bill through the Legislature this session.  He commented                                                                        
that if the Housing Authority was to be used as a potential                                                                     
funding source, it is important to finalize that commitment.                                                                    
He was not sure about the possibility of using Alaska                                                                           
Industrial Development Export Authority (AIDEA) funds.                                                                          
                                                                                                                                
Senator Randy Phillips questioned if there had been                                                                             
consideration by the Office of the Governor to use AIDEA                                                                        
funding.  Mr. Kovarik replied that the only comments he had                                                                     
heard were at press conference regarding the consolidation                                                                      
of the Department of Commerce and Economic Development and                                                                      
the Department of Community and Regional Affairs.                                                                               
                                                                                                                                
DICK ENERMAN, Planner, Division of Energy, Anchorage,                                                                           
(Testified via Teleconference) offered to answer any                                                                            
technical questions of the Committee.                                                                                           
                                                                                                                                
Senator Pete Kelly noted that Mr. Enerman would be preparing                                                                    
a spreadsheet for the Committee's review for the following                                                                      
week and recommended any suggestions be given to him.  Mr.                                                                      
Enerman detailed the information he had been requested to                                                                       
present on the spreadsheet.  The spreadsheet would indicate                                                                     
for each of the PCE utilities, an impact of various changes                                                                     
to the PCE would affect the financial impact.                                                                                   
                                                                                                                                
Co-Chair John Torgerson asked if the average use by month                                                                       
would be included.  Mr. Enerman responded that information                                                                      
was not available and would not be included.  The total                                                                         
residential kWh under PCE and for each utility and the                                                                          
number residential customers would be included.  The                                                                            
calculated average annual use per customer could be made                                                                        
with that information, otherwise, only estimates can be                                                                         
made.                                                                                                                           
                                                                                                                                
Co-Chair John Torgerson asked about the data.  Mr. Enerman                                                                      
replied he would be using data from FY96.  Data from FY97                                                                       
and FY98 had not been compiled and examined at present time,                                                                    
however, if possible, he would use more current information.                                                                    
Co-Chair Torgerson asked if the data would be more current                                                                      
than 1986.  Mr. Enerman did not believe that it would be                                                                        
because at this time, that is all which has been published.                                                                     
                                                                                                                                
Senator Adams asked Mr. Enerman's spreadsheet could indicate                                                                    
the effect of changing the floor from 9.9 to 10.9.  Mr.                                                                         
Enerman acknowledged that was his intent.                                                                                       
                                                                                                                                
BRAD REEVE, General Manager, Kotzebue Electric Association                                                                      
(KEA), Kotzebue, (Testified via Teleconference), testified                                                                      
that having power is an important aspect of the future.  He                                                                     
stated that a flat 350 kWh per month rate would not                                                                             
adequately recognize the actual use patterns in Alaska.                                                                         
                                                                                                                                
Mr. Reeve added that KEA has raised two other utility grade                                                                     
wind turpins in Kotzebue.  He suggested that would be the                                                                       
technology that will benefit rural Alaska.  The goal is to                                                                      
reduce annual diesel consumption by about 300 thousand                                                                          
gallons annually.  The program allowed communities to                                                                           
maintain power plants while they investigated alternate                                                                         
power sources that were less expensive.  Mr. Reeve                                                                              
anticipated that diesel would continue to play a large part                                                                     
of power for communities in the future.                                                                                         
                                                                                                                                
WALTER SAMPSON, NANA Corporation, Kotzebue, (Testified via                                                                      
Teleconference), voiced his appreciation of the Committee's                                                                     
effort to address the rural power situation.  He restated                                                                       
the high cost of fuel in rural Alaska and the difficulty in                                                                     
getting it those remote areas.  He pointed out that there                                                                       
are fears in many communities that power systems will be                                                                        
shut down.  Mr. Sampson urged the Committee to give                                                                             
communities an opportunity to look at alternative fuel                                                                          
sources.                                                                                                                        
                                                                                                                                
Co-Chair John Torgerson noted that the bill would be held in                                                                    
Committee.                                                                                                                      
                                                                                                                                
SB 157 was HEARD and HELD in Committee for further                                                                              
consideration.                                                                                                                  
                                                                                                                                

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