Legislature(2003 - 2004)
03/02/2004 01:55 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE BILL NO. 495
An Act relating to the four dam pool joint action
agency; and providing for an effective date.
Co-Chair Harris MOVED to adopt work draft version #23-
LS168\H, Craver, 3/2/02, as the version of the legislation
before the Committee. There being NO OBJECTION, it was
adopted.
PETE ECKLUND, STAFF, REPRESENTATIVE BILL WILLIAMS, stated
that the main purpose of HB 495 is to allow the Four Dam
Pool Power Agency (FDPPA), the first agency formed under the
statute allowing the joint action agencies (JAA's) to
refinance approximately a $73 million dollar loan owed to
the Alaska Industrial Development and Export Authority
(AIDEA).
Mr. Ecklund stated that HB 495 would clarify existing JAA
statute to explicitly defined that joint action agencies are
political subdivisions of the State for the purpose of
securities law. That action is necessary if the Four Dam
Pool Power Agency (FDPPA) is to avoid certain expensive and
damaging hurdles having to do with registration of
securities under bond sale circumstances. The legislation
also allows the agency to mortgage the Four Dam Pool assets.
The assets are presently mortgaged to AIDEA.
The legislation re-states the important principal
established by the Legislature that the Four Dam Pool assets
might not be sold to a party outside the FDPPA without
legislative approval. It does clarify that mortgaging the
assets or a foreclosure, under the terms of that mortgage,
would not constitute a sale under the restriction, providing
that certain requirements are met.
TAPE HFC 04 - 38, Side B
Mr. Ecklund pointed out that when the refinancing occurs and
the AIDEA loan is retired, the State and consumers in a
large part of Alaska would benefit by:
· Allowing the FDPPA to return approximately $73
million dollars to AIDEA for other uses; and
· Helping consumers of Four Dam Pool power by
lowering interest rates and administrative costs
associated with the acquisition.
Co-Chair Harris asked if the legislation would allow JAA
bonding agency to go out and get financing or bonding at a
lower rate than they are currently getting from AIDEA,
making them "out from under the State's ownership umbrella".
He thought that savings could be passed on to the consumer.
Mr. Ecklund agreed. The purpose is to allow refinancing at
a lower rate. They, currently, are paying AIDEA, 6.5%.
Co-Chair Harris inquired what the "downside" could be.
TOM LOUVAS, CHIEF EXEUCTIVE OFFICER, FOUR DAM POOL JOINT
ACTION AGENCY (JAA), ANCHORAGE, explained that the intent is
to be able to go into the open market, issue a tax-exempt
debt and pay off or refinance the existing AIDEA loan. The
proceeds would be a cash infusion to the State of Alaska
through AIDEA and would allow a lower debt service rate on
an annualized basis. Estimates range upwards from $1 to
$1.5 million dollars per year in revenue requirements. The
reduction in debt service costs would flow to the benefit of
the ratepayers, jointly participating in the Four Dam Pool
Power Agency.
Mr. Louvas listed points for refinancing:
· Reducing annual debt service costs for owning and
operating the units;
· Removing certain operating restrictions that the
Agency faces; and
· Providing more financial flexibility into the
future.
Mr. Louvas noted that the intent of the Board indicates that
the lower interest rate could be passed on to ratepayers
after the adjustment.
Co-Chair Harris asked if an agreement had been reached from
all four utilities. Mr. Louvas stated that the participants
in the power agency are the cooperatives of Kodiak Electric
Association, Copper Valley Electric Association and three
municipalities, Ketchikan, Wrangell and Petersburg. The
Board of Directors has been informed of the proposed action
and they "strongly" support it.
Vice Chair Meyer noted that the current rate with AIDEA was
6.85%. Mr. Louvas reported that they think they can get a
4.8% - 4.9% rate for an insured issuance, which would be a
significant interest reduction during a twenty-five year
borrow. Mr. Louvas understood from information provided by
AIDEA that there had been a recent AIDEA issue at 5%. He
emphasized that time is of the essence when dealing with the
interest market.
Vice Chair Meyer inquired if they could refinance through
AIDEA.
BOB LERESCHE, FINANCIAL ADVISOR, FOUR DAM POOL JOINT ACTION
AGENCY, JUNEAU, noted that the agency had asked AIDEA if
they could refinance and AIDEA was not willing. An
additional reason for going outside AIDEA is that it would
allow moving outside present restrictions of the loan. He
emphasized that they are "properly" strict. Mr. LeResche
pointed out that it represents an actual financial cost. At
present time, there is $30 million dollars in reserved funds
invested in securities earning 2%, while at the same time,
paying 6.5% on that to AIDEA. That amount adds up to $1.2 -
$1.4 million dollars per year for those restrictions.
Vice Chair Meyer understood that this was one of the "better
loans that AIDEA had made" and he thought that they would
regret loosing it.
Representative Fate noted that AIDEA distributes a dividend
that involves Power Cost Equalization (PCE) funds with about
$3 million dollars accruing in interest off of the $73
million dollars. He asked what would happen if the $73
million dollars went to AIDEA and was not directed to the
full benefit of PCE.
RON MILLER, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE
DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY, (AIDEA), ANCHORAGE, introduced Ms. Goade and
requested that she answer questions of the Committee.
SARAH FISHER-GOADE, (TESTIFIED VIA TELECONFERENCE), ALASKA
ENERGY AUTHORITY (AEA) & ALASKA INDUSTRIAL DEVELOPMENT AND
EXPORT AUTHORITY (AIDEA), ANCHORAGE, noted that there is
confusion regarding the relationship between the Four Dam
Pool and the PCE program. Proceeds of the sale were
deposited into the PCE endowment; there was no additional
anticipation that extra funds would go to the PCE endowment.
Representative Fate asked if there would be no more accrual
and if then, the endowment would "dry up". Ms. Fisher-Goade
explained that the Four Dam Pool was an asset of AEA. When
the project was sold, the proceeds then went to another AEA
program through the PCE endowment. That loan was financed
through AIDEA. If there were a pay-off of the loan, that
would become AIDEA funds. There is no additional
relationship to the PCE program at this point.
Co-Chair Harris noted that when the Four Dam Pools were sold
to the utilities, some of that money went into the PCE
endowment fund. The State uses a portion of those earnings
to fund PCE, subsidized with general funds to make up the
roughly $15 million dollar expenditure. The money spent on
PCE comes from two sources, earning of the PCE endowment and
the general fund. The intent was for the PCE fund to be
large enough to fund PCE. He advised that has not yet been
the case and that it is usually subsidized each year with
general funds.
BRIAN BJORKQUIST, (TESTIFIED VIA TELECONFERENCE), ASSITANT
ATTORNEY GENERAL, DEPARTMENT OF LAW, ANCHORAGE, offered to
answer questions of the Committee.
ERIC YOULD, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE
DIRECTOR, ALASKA POWER ASSOCIATION (APA), REPRESENTING THE
ELECTRIC UTILITY INDUSTRY IN THE STATE OF ALASKA, ANCHORAGE,
spoke in strong support of HB 495. He stated that the
legislation would help to lower rates to the consumers of
the Four Dam Pool. He clarified that any financing or
easing of debt of the Four Dam Pool agency would have no
impact on the Power Cost Equalization Program. The proceeds
from the sale of the Four Dam Pool have already gone into a
trust fund for PCE along with $100 million dollars from the
Constitutional Budget Reserve (CBR) distributed two years
ago. The combination of those two make up a trust fund,
which added with some general funds, comprise roughly $15.7
million dollars for Power Cost Equalization. He reiterated
that APA strongly supports the proposed bill.
Representative Foster MOVED to report CS HB 495 (FIN) out of
Committee with individual recommendations and attached
fiscal note.
Representative Croft OBJECTED for a comment. He indicated
that of all the bills addressing the Four Dam Pool, this one
is the best one. Representative Croft WITHDREW his
OBJECTION, and the bill moved from Committee.
CS HB 495 (FIN) was reported out of Committee with a "do
pass" recommendation and with a new zero note by the
Department of Community & Economic Development.
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