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Vol. 15, No. 14 Week of April 04, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

RCA reg for GRETC?

Lawmakers, regulators, consumer groups, utilities make case pro, con regulation

Eric Lidji

For Petroleum News

When the Railbelt utilities want to show what they have done together and what they can do together, they point to Bradley Lake, the major hydroelectric dam in Kachemak Bay.

The six utilities each own a share of the 126 megawatts of peak power produced at the plant and, along with considerable state money, split the cost to bring it online.

That was 20 years ago.

Now, the six Railbelt utilities are throwing their weight behind the Greater Railbelt Energy and Transmission Corp., a cooperative based on the Bradley Lake model.

Only many magnitudes larger.

Instead of jointly owning one power plant, GRETC, as the cooperative is being called, could own every power plant in the Railbelt, all of the transmission lines to move that power hundreds of miles across urban Alaska, and, in some iterations, a lot more, like significant assets of the fuel production side of electricity making: leases and pipelines.

Or it could own a lot less than that, because GRETC is an optional corporation. The utilities can choose whether to join, and can participate in it as they see fit. That flexibility is the guiding principle of a recent committee substitute for the legislation, a revision of the bill then-Gov. Sarah Palin first proposed late in the 2009 regular session.

The flexibility extends to regulation, creating a natural debate: The utilities don’t want GRETC to be regulated. Some lawmakers and regulators insist it must be. Gov. Sean Parnell is in the middle. The sides made their case over half a dozen hearings in a single week.

As if the stakes weren’t high enough, the utilities also believe the Legislature needs to pass something now to guarantee utilities can start planning for future needs, even though lawmakers didn’t get a revised bill until two months into a 90-day session. The regulation question, though, threatens to make the bill too complex to handle this year.

Understanding the GRETC model

The debate is both general and particular in nature, touching not only the broad philosophical reasons for and against regulation, but also the unique case of GRETC.

While different in many ways, both the Palin and the Parnell versions of the bill would lead to the creation of a corporation that owns generation and transmission assets in the Railbelt. This corporation would sell power at wholesale rates to the utilities. Those utilities would in turn distribute this power to local customers at uniform retail rates.

The utilities would be members of the corporation and each hold seats on its board.

The basic assumption is that the utilities would be stronger working as a single unit than working individually. At a Senate Resources Committee meeting on March 24, Sen. Hollis French, D-Anchorage, asked why that assumption is valid. “If you take six small utilities, put them into one big utility: How do they get any stronger, financially, than they were before? They’re still six small utilities. Their assets don’t go up. Their balance sheets don’t get any better. You just put them all into one building,” French said.

Jim Strandberg of the Alaska Energy Authority said a single entity can reduce costs by using infrastructure more efficiently and can get better financing because of its size.

Why not JAA?

Lawmakers in both the House and Senate wanted to know why the utilities needed GRETC. Why couldn’t they use the Joint Action Agency, a provision in state statute that creates guidelines for two or more utilities to come together on project development?

Strandberg said that a JAA is geared toward helping utilities develop new projects. That’s a major piece of GRETC because the Railbelt region needs billions in infrastructure investment in the coming decades, but it’s not the only piece. GRETC would also standardize the transmission system, manage regional dispatch and make long-term plans.

In other words, the JAA was created to build isolated projects, but it doesn’t do regional planning, as Brian Bjorkquist, a Department of Law attorney with a long history working on utility matters, explained it to the House Special Committee on Energy on March 30.

The proposed GRETC bills mandate that planning. “Without it, you’re in the situation where you’re in right now: All the utilities could elect to plan on a regional basis, but for whatever reason that hasn’t happened globally throughout the Railbelt,” Bjorkquist said.

That reluctance prompted revisions to the bill, which Bjorkquist described as “a subtle shift” from a “quasi-public” corporation to a “more private” nonprofit company.

That model is essentially all carrots and very few sticks: The utilities will participate only if they see proof that doing so is in their best interest. The legislation sweetens the offer with severity, promising to funnel state funding for energy projects through GRETC, but nothing in the bill prevents a utility from being a member and working on projects alone.

The goals of regulation

The way the utilities see it, that makes them the consumers of GRETC. So when it comes to regulation, oversight meant to protect the consumer, they feel it’s unnecessary. Because the utilities are already regulated, regulating GRETC would be redundant.

“If you add another layer on there, you add cost and delay: Why is that necessary?” Joe Griffith, interim general manager of Matanuska Electric Association, asked the House Energy Committee on March 30.

The committee substitute produced by the joint utility task force did not regulate GRETC at all, but the Parnell administration balked. As a compromise, the utilities agreed to a five-year sunset clause. Now, regulation beyond 2015 would require legislative action.

“During that five-year period, we will prove to you that we don’t need RCA regulation,” Rick Schikora, a board member of Golden Valley Electric Association, said on March 25.

Upon direct questioning from lawmakers, several utilities explicitly said they would still participate in GRETC even if it were permanently regulated. The need to cooperate, they said, is too immediate. However, they pleaded with lawmakers not to change the bill.

“If we follow the Bradley model, regulation is unnecessary,” Mark Johnson, general counsel for Chugach Electric Association, member of the task force that revised the bill and former Regulatory Commission of Alaska commissioner, told Senate Resources March 29.

Unnecessary because the GRETC structure inherently achieves the goals of regulation.

Protect the consumer? The utilities are the consumer. Prevent monopoly pricing? The utilities don’t have to buy power from GRETC. Restrain investment spending? All GRETC projects would have to follow the guidelines of an Integrated Resource Plan.

“These are the goals,” Johnson said. “It’s not like there’s a bunch of other stuff out there that the Legislature needs to be concerned with.”

An unregulated energy giant

The Legislature is concerned, though.

Across the various meetings, lawmakers continually asked about the scope of GRETC.

Various iterations of the bill would allow the GRETC to buy oil and gas leases, to own pipelines, to conduct business outside the state and to have the power of eminent domain.

The utilities and the AEA say the point is simply to create opportunities for chasing down the best deals. Anchorage Municipal Light & Power is the envy of the Railbelt utilities because it owns a share in the Beluga gas field, and other utilities want that opportunity.

Some lawmakers, though, see the possibility of an unregulated energy behemoth.

House Energy Co-Chair Charisse Millett, R-Anchorage, presented a scenario where a state-financed GRETC starts exploring for natural gas in the Cook Inlet basin, chases away private sector explorers and then gobbles up all the infrastructure left behind.

“I’m worried we’re setting up a state-owned oil and gas company to drive existing oil and gas players in the Cook Inlet out of the market. That scenario could happen,” Millett said.

Because of those concerns, some of those provisions are not in the most recent bill, but this point is so crucial that Homer Electric Association suggested it might not join GRETC unless certain provisions related to fuel supplies remained in the final bill.

On a more near-term basis, some lawmakers and regulators see GRETC differently than the utilities. They see ratepayers in the Railbelt as the primary consumers of GRETC.

House Majority Leader Kyle Johansen, R-Ketchikan, said he wouldn’t support the bill on the House floor unless it contained Regulatory Commission of Alaska protections. That’s a philosophical decision: Johansen represents a district not directly impacted by the bill.

“To use an old, tired-out term: In my mind, the customers need to be protected,” he said.

Senate Resource Co-Chair Bill Wielechowski, D-Anchorage, offered the utilities a bit more wiggle room. “From my perspective, they will have a very high burden of proof to prove, at least to me, why not being regulated after five years is a good thing,” he said.

A big dog in the fight

Naturally, regulators have also expressed concerns and questions.

The Regulatory Commission of Alaska supported the original incarnation of GRETC last year, RCA Chairman Bob Pickett reminded the House Energy committee on March 30.

The changes, though, have Pickett concerned. Speaking for himself, not for the commission — something several utility representatives challenged him on later — Pickett questioned the “layers” touted by Griffith and the “goals” touted by Johnson.

“I think it’s fair to say there is this underlying assumption throughout the bill that auditing equals regulation, or corporate governance equals regulation, or there are some federal forms of regulation that supplant the normal ratemaking process,” Pickett said. “Again — keep in mind I’m speaking for myself — I think nothing could be further from the truth.”

Pickett sees ratepayers as the consumers. He noted that GRETC would manage the two most expensive components of household electricity bills: generation and transmission.

“It’s going to become the driver for individual household electric bills,” he said.

It’s no secret that GRETC would fundamentally change the electricity market in the Railbelt, but Pickett said, “If the deregulation of the electrical utility system, the system as a whole, is actually one of the inherent main goals of GRETC, I think that decision should be made transparently, out in the open, with all of the arguments.”

The RCA called an emergency meeting on March 31 to consider the legislation, taking two hours of testimony from utility representatives in favor of the bill as it stands and several consumer groups generally in favor of the GRETC concept, but not its execution.

The two bills remain in committee, each with several committees still to pass through before reaching a vote on the floor. The legislative session ends on April 18.

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