02/03/2009 09:00 AM Senate FINANCE

SENATE BILL NO. 88                                                                                                            
                                                                                                                                
     "An  Act   repealing  certain  provisions   relating  to                                                                   
     modifying  the  factors  that  apply  to  calculate  the                                                                   
     amount  of power  cost  equalization;  providing for  an                                                                   
     effective date by repealing the effective date of sec.                                                                     
     3, ch. 2, 4SSLA 2008; and providing for an effective                                                                       
     date."                                                                                                                     
                                                                                                                                
9:12:04 AM                                                                                                                    
                                                                                                                                
JAY LIVEY, STAFF,  SENATOR LYMAN HOFFMAN,  SPONSOR, explained                                                                   
that the  bill is  part of  the energy  package dealing  with                                                                   
electricity.  The bill would  make electricity affordable  in                                                                   
rural  areas through  making  permanent  changes to  previous                                                                   
legislation. During the July special  session, the ceiling on                                                                   
Power Cost Equalization  (PCE) was raised from  52.5 cents to                                                                   
$1.00. The  change was  for one year  through June  30, 2009.                                                                   
The bill would make the change to $1.00 permanent.                                                                              
                                                                                                                                
Mr. Livey  pointed out  that PCE  makes energy affordable  in                                                                   
rural  Alaska by  subsidizing  500 kilowatt-hours  (kWh)  per                                                                   
month  of power  for  families.  Power Cost  Equalization  is                                                                   
calculated on  the difference  between two ranges.  The upper                                                                   
range is $1.00.  The bottom range is the average  of costs in                                                                   
Fairbanks, Anchorage and Juneau,  and hovered around 12.2 and                                                                   
12.8 cents for  the past few years. Power between  that range                                                                   
is currently subsidized. He gave  examples that amounted to a                                                                   
difference of paying $60 instead of $140.                                                                                       
                                                                                                                                
9:15:59 AM                                                                                                                    
                                                                                                                                
Mr. Livey added that the provision  covers only the first 500                                                                   
kWh  of   power,  which  is   only  enough  for   very  basic                                                                   
electricity.  The bill  makes  sure people  can afford  basic                                                                   
electricity.                                                                                                                    
                                                                                                                                
9:17:41 AM                                                                                                                    
                                                                                                                                
Mr. Livey  reviewed sections of  the bill. The  first section                                                                   
repeals  the  previous  provision,  so  that  the  upper  PCE                                                                   
ceiling does not  revert back to 52.5 cents.  Section 2 makes                                                                   
SB 88 retroactive to June 30.  Section 3 repeats a section of                                                                   
the law that  would have made the previous  section effective                                                                   
June 30. Section 4 makes the bill effective immediately.                                                                        
                                                                                                                                
9:18:17 AM                                                                                                                    
                                                                                                                                
Co-Chair  Hoffman added  that when  the previous  legislation                                                                   
passed the Senate,  there was a broader piece  of legislation                                                                   
including communities  using hydropower above the  12.5 cents                                                                   
or that may  have otherwise been excluded.  Those communities                                                                   
included  Kodiak and  Fairbanks.  He asked  the committee  to                                                                   
consider adopting  a similar provision through  the amendment                                                                   
process.                                                                                                                        
                                                                                                                                
9:19:57 AM                                                                                                                    
                                                                                                                                
Senator Thomas  agreed and referred  to the broader  bill. He                                                                   
stated  that the  price of  oil has  negatively impacted  the                                                                   
Interior.                                                                                                                       
                                                                                                                                
Co-Chair  Stedman   referred  to  the  fiscal   note  by  the                                                                   
Department   of   Commerce  reflecting   the   $5.5   million                                                                   
appropriation need to capitalize the fund.                                                                                      
                                                                                                                                
9:21:21 AM                                                                                                                    
                                                                                                                                
Co-Chair Stedman OPENED PUBLIC TESTIMONY.                                                                                       
                                                                                                                                
DENISE  MICHELS, MAYOR,  CITY OF NOME  and PRESIDENT,  ALASKA                                                                   
MUNICIPAL  LEAGUE (testified  via  teleconference), spoke  in                                                                   
support of the legislation.                                                                                                     
                                                                                                                                
9:22:16 AM                                                                                                                    
                                                                                                                                
Senator Olson queried the cost  of a kWh in Nome. Ms. Michels                                                                   
answered 36 cents. Senator Olson  asked if that includes wind                                                                   
power put  into the grid. Ms.  Michels answered no,  as it is                                                                   
just getting going.                                                                                                             
                                                                                                                                
9:22:47 AM                                                                                                                    
                                                                                                                                
RICHARD GAZAWAY,  HEARING EXAMINER, REGULATORY  COMMISSION OF                                                                   
ALASKA   (testified   via   teleconference),   informed   the                                                                   
committee that he was available for questions.                                                                                  
                                                                                                                                
SHIRLEY PERKINS,  BUSINESS OWNER,  ELFIN COVE (testified  via                                                                   
teleconference),  suggested amending SB  88 so that  it would                                                                   
include  small businesses.  She  owns a  small business  with                                                                   
electric   costs  of   nearly  $2,000   each  month   in  the                                                                   
summertime, even  with working to conserve.  Diesel fuel cost                                                                   
$5.70 per gallon in Elfin Cove.  Electricity is generated for                                                                   
60 cents per  kWh. The community has applied  for funding for                                                                   
hydroelectricity,  but it  takes time.  Currently PCE  covers                                                                   
the first  500 kWh  in the  home; previously  it covered  the                                                                   
first 750 kWh. She wanted funding back to the higher level.                                                                     
                                                                                                                                
9:24:58 AM                                                                                                                    
                                                                                                                                
KATHIE  WASSERMAN,   EXECUTIVE  DIRECTOR,   ALASKA  MUNICIPAL                                                                   
LEAGUE (AML),  testified in  support of  SB 88. She  reported                                                                   
that AML had just finished its  legislative conference; their                                                                   
top two priorities are energy  and transportation. The league                                                                   
intended to work closely with the legislature on PCE.                                                                           
                                                                                                                                
Senator Olson  asked if AML  had statistics about  the effect                                                                   
of energy costs  on small businesses. Ms. Wasserman  said she                                                                   
would get numbers. She added that  when businesses close in a                                                                   
small community, everyone is affected.                                                                                          
                                                                                                                                
9:27:51 AM                                                                                                                    
                                                                                                                                
MEERA  KOHLER, PRESIDENT  AND  CEO, ALASKA  VILLAGE  ELECTRIC                                                                   
COOPERATIVE, testified in favor  of SB 88. She explained that                                                                   
the  cooperative  is  a non-profit  utility  that  serves  53                                                                   
villages  throughout  the  state.   Alaska  Village  Electric                                                                   
Cooperative (AVEC) represents  the largest single consumer of                                                                   
PCE  because  their  combined  villages  represent  about  45                                                                   
percent of Alaska's village population.                                                                                         
                                                                                                                                
Ms.  Kohler  thought  it  was critical  to  retain  a  higher                                                                   
ceiling than the one in place  since PCE. The 52 cent ceiling                                                                   
has  not changed  since  it was  put in  place  in 1984.  The                                                                   
temporary  ceiling will  only  have been  in  place for  nine                                                                   
months. The cooperative  purchased their fuel last  year at a                                                                   
cost  of $26  million, almost  double  the cost  of the  year                                                                   
before.                                                                                                                         
                                                                                                                                
Ms.  Kohler  explained  that  the  Regulatory  Commission  of                                                                   
                                                                                                                                
Alaska  set  the rate  October  1to   coincide with  new  PCE                                                                   
levels.  The cooperative  would be collecting  on the  higher                                                                   
price through the end of September.  The June 30 sunset would                                                                   
cause  hardship  for  AVEC  communities,  whose  rates  could                                                                   
triple.                                                                                                                         
                                                                                                                                
9:30:54 AM                                                                                                                    
                                                                                                                                
MIKE  HARPER, DEPUTY  DIRECTOR,  RURAL  ENERGY GROUP,  ALASKA                                                                   
ENERGY  AUTHORITY, testified  in support  of SB 88,  although                                                                   
they would prefer  an extension of two to three  years rather                                                                   
than a permanent change because of oil price volatility.                                                                        
                                                                                                                                
Senator  Elton queried  the connection  between the bill  and                                                                   
the price  of oil. He  viewed the bill  as a relief  bill for                                                                   
communities  that need it  and thought  the question  was how                                                                   
much relief would be provided.                                                                                                  
                                                                                                                                
9:33:38 AM                                                                                                                    
                                                                                                                                
LINDA   MACMILLAN,  ACCOUNTANT,   ALASKA  ENERGY   AUTHORITY,                                                                   
explained that rates for communities  on the road system have                                                                   
been the highest  in Southeast Alaska. She  acknowledged that                                                                   
there is  no clear one-to-one  relationship between  the cost                                                                   
of diesel and the cost of diesel in a particular community.                                                                     
                                                                                                                                
Senator Elton  thought the issue of  SB 88 was not  the price                                                                   
of a  barrel of oil,  but the  legislature making  a decision                                                                   
about what is sustainable in a  village economy. He asked the                                                                   
relationship  between   the  cost  of  oil   and  appropriate                                                                   
assistant from the state.                                                                                                       
                                                                                                                                
9:36:04 AM                                                                                                                    
                                                                                                                                
Mr.  Harper gave  examples of  various prices  of crude  oil,                                                                   
which affects the  price of the rate for residents.  Up until                                                                   
three  years  ago,  the  price of  diesel  was  steady.  More                                                                   
recently it  has been up and  down. He thought  the extension                                                                   
was a better course of action.                                                                                                  
                                                                                                                                
Senator Elton  did not think it  mattered where the  cap was.                                                                   
Mr. Harper replied that the floor  of the formula is based on                                                                   
what urban communities pay, ranging  from 12.5 cents and 52.5                                                                   
cents. No one knows what the cost of oil will be.                                                                               
                                                                                                                                
Co-Chair Stedman  said there would  be a future  presentation                                                                   
with more  detail  on how the  formula would  work. He  asked                                                                   
that the  Alaska Energy  Authority (AEA) include  information                                                                   
about  how their  endowment functions,  as  there are  issues                                                                   
about the endowment that need to be corrected.                                                                                  
                                                                                                                                
Co-Chair Hoffman asked if either  of the AEA testifiers lived                                                                   
in a  community benefiting  from PCE.  Ms. MacMillan  replied                                                                   
that she  had lived in  such a community  in the past  but no                                                                   
longer did. Co-Chair  Hoffman asked if they  wanted long-term                                                                   
assurance that power  rates would be as low  as possible. Mr.                                                                   
Harper replied in the affirmative.                                                                                              
                                                                                                                                
9:40:02 AM                                                                                                                    
                                                                                                                                
Co-Chair Hoffman  said that  history has  shown the  price of                                                                   
oil to be  steady for a  long period of time,  though reports                                                                   
say that the  price of oil may  go up above $100  per barrel.                                                                   
There are  communities paying  as high as  $1.17 per  kWh. If                                                                   
the measure  were temporary,  the legislature  would  have to                                                                   
revisit  the  issue,  which  would  create  work  and  create                                                                   
anxiety for  communities dependent  on PCE. He  stressed that                                                                   
the state has higher  revenue when the price of  oil goes up.                                                                   
He thought  the testimony  of people  living in the  affected                                                                   
communities would be different.                                                                                                 
                                                                                                                                
9:42:37 AM                                                                                                                    
                                                                                                                                
Senator  Olson  suggested  taking  the position  of  a  small                                                                   
business person in  a village who wants to expand  but has no                                                                   
stable power  source. The increasing  costs will result  in a                                                                   
migration out  of the village.  He thought the  suggestion of                                                                   
an extension was a conservative and short-sighted outlook.                                                                      
                                                                                                                                
Mr. Harper discussed  historical changes in the  program that                                                                   
affected businesses. The program  has grown to $35-40 million                                                                   
for  the  PCE  expenditure.  He   agreed  the  situation  was                                                                   
difficult  for  small business  owners,  and  he wanted  that                                                                   
addressed. On the other hand,  he had concerns about the high                                                                   
price.                                                                                                                          
                                                                                                                                
9:45:58 AM                                                                                                                    
                                                                                                                                
Senator  Olson suggested  looking at the  whole picture.  The                                                                   
cost of PCE may be higher, but  the state is in a much better                                                                   
position financially.                                                                                                           
                                                                                                                                
Co-Chair   Stedman   reiterated   concerns  about   the   AEA                                                                   
endowment.  If the  agency  still  wants a  one  or two  year                                                                   
extension  after  reconsidering  its position,  he  requested                                                                   
that  they come  forward with  a suggestion  for a  long-term                                                                   
solution. He  stated the committee wanted  multi-generational                                                                   
solutions to energy challenges.                                                                                                 
                                                                                                                                
9:47:51 AM                                                                                                                    
                                                                                                                                
MICHAEL HOFFMAN,  ASSOCIATION  OF VILLAGE COUNCIL  PRESIDENTS                                                                   
(AVCP), BETHEL  (testified via teleconference),  testified on                                                                   
behalf of his  own company, Kuskokwim Wilderness  Adventures.                                                                   
Customers are  canceling due to  high prices because  of fuel                                                                   
costs. This affects the whole community of Bethel.                                                                              
                                                                                                                                
MYRON  P.  NANENG  SR.,  PRESIDENT,  ASSOCIATION  OF  VILLAGE                                                                   
COUNCIL PRESIDENTS (testified  via teleconference), testified                                                                   
in support  of the legislation.  He explained that AVCP  is a                                                                   
regional  non-profit   tribal  corporation   representing  56                                                                   
tribal governments on the Yukon-Kuskokwim Delta.                                                                                
                                                                                                                                
9:51:07 AM                                                                                                                    
                                                                                                                                
Mr.  Naneng Sr.  testified  that the  tribal  leaders in  the                                                                   
villages were  nervous about the  coming winter  because they                                                                   
were forced  to pay  the highest  fuel costs  on record.  The                                                                   
villages  off road have  to import  fuel by  barge or  air in                                                                   
emergencies and have to sign no-fault  contracts with vendors                                                                   
if deliveries  are delayed. Some  of the villages  are unable                                                                   
to make fuel  orders in concordance with state  programs such                                                                   
as the bulk fuel loan in time to get lower rates.                                                                               
                                                                                                                                
Mr. Naneng Sr.  explained the extremely high  cost of living.                                                                   
For  example, the  people of  the Wade  Hampton district  pay                                                                   
$0.62 per kWh  for electricity, $7.68 per gallon  for heating                                                                   
fuel, and  as much  as $11 for  heating fuel  that had  to be                                                                   
flown  in. Energy  costs  are up  to 60  percent  or more  of                                                                   
household  costs  for  many  rural   Alaskans  whose  average                                                                   
incomes are  $30,184. People have  to do without  electricity                                                                   
and heat.  These costs  combined with  severe cold  make life                                                                   
unsustainable and a threat to general health.                                                                                   
                                                                                                                                
Mr.  Naneng  described  the remoteness  of  villages  in  his                                                                   
region  from  transportation  hubs  and  commercial  centers.                                                                   
There are tremendous logistical  problems in addition to high                                                                   
costs for  transporting fuel. Diesel  fuel is often  the only                                                                   
and  best solution  for  fuel. Diesel-electric  power  plants                                                                   
provide an  efficient and effective  energy solution  in many                                                                   
cases and PCE provides a buffer  against high electric costs.                                                                   
                                                                                                                                
Mr. Naneng  stated that  he had to  pay $600 for  electricity                                                                   
during the month of December.  He referred to concerns in the                                                                   
legislature that  SB 88 would create an  unending entitlement                                                                   
program  and described  the unusual  conditions that  brought                                                                   
about  the  energy   crisis:  the  high  price   of  oil  and                                                                   
catastrophic conditions  for the commercial fisheries  on the                                                                   
Kuskokwim  and  Yukon rivers.  Because  of the  poor  fishing                                                                   
season,  the   cash  usually  generated  by   the  commercial                                                                   
fisheries is not  there for energy or provisions  for hunting                                                                   
and fishing to gather food.                                                                                                     
                                                                                                                                
Mr. Naneng  pointed out that  rural Alaska faces  the highest                                                                   
energy and food  costs in the nation, as Governor  Palin told                                                                   
the  U.S.  Army when  they  proposed  to reduce  payments  to                                                                   
Native Elders who had served in  the Territorial Guard. Using                                                                   
the emergency  funds will protect people. He  compared energy                                                                   
and  food  prices in  Anchorage  to  prices in  remote  rural                                                                   
villages.                                                                                                                       
                                                                                                                                
Mr. Naneng  told the  committee that  AVCP had provided  low-                                                                   
income  energy assistance  to 1,846  households. The  council                                                                   
supports a  permanent fix to PCE  regardless of how  high the                                                                   
cost of oil rises.                                                                                                              
                                                                                                                                
9:58:33 AM                                                                                                                    
                                                                                                                                
TOM  LAKOSH,   ANCHORAGE   (testified  via   teleconference),                                                                   
testified  in  support of  the  legislation.  He thought  the                                                                   
power management  system in Alaska  needed to be  revamped to                                                                   
be  more  equitable  and  provide  a  long-term,  sustainable                                                                   
solution to the generation of  power in rural communities. He                                                                   
thought  the  PCE should  be  based  on individual  need  for                                                                   
subsidy  rather than  community needs.  He did  not want  the                                                                   
state to subsidize  communities without energy  conservation.                                                                   
He  suggested  an  amendment calling  for  a  full-scale  re-                                                                   
assessment of energy needs and  more cost-effective solutions                                                                   
to energy  production and consumption,  such as  a state-wide                                                                   
building code, particularly where energy is being wasted.                                                                       
                                                                                                                                
10:02:22 AM                                                                                                                   
                                                                                                                                
PAUL   D.    KENDALL,   SELF,   ANCHORAGE    (testified   via                                                                   
teleconference), expressed concern  about PCE. He opined that                                                                   
PCE  should no  longer exist.  He described  problems in  the                                                                   
state, all with  energy in common. Electricity  and water are                                                                   
basic  needs. He  thought  energy should  be  a priority.  He                                                                   
listed different forms of harnessing energy.                                                                                    
                                                                                                                                
10:05:51 AM                                                                                                                   
                                                                                                                                
SB  88   was  HEARD  and   HELD  in  committee   for  further                                                                   
consideration.                                                                                                                  
                                                                                                                                
10:07:42 AM         AT EASE                                                                                                   
10:11:58 AM         RECONVENED