Legislature(2011 - 2012)BARNES 124
02/15/2011 03:00 PM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB103 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 103 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 103-POWER PROJECT; ALASKA ENERGY AUTHORITY
3:06:13 PM
CO-CHAIR PRUITT announced that the first order of business would
be HOUSE BILL NO. 103, "An Act relating to the procurement of
supplies, services, professional services, and construction for
the Alaska Energy Authority; establishing the Alaska Railbelt
energy fund and relating to the fund; relating to and repealing
the Railbelt energy fund; relating to the quorum of the board of
the Alaska Energy Authority; relating to the powers of the
Alaska Energy Authority regarding employees and the transfer of
certain employees of the Alaska Industrial Development Export
Authority to the Alaska Energy Authority; relating to acquiring
or constructing certain projects by the Alaska Energy Authority;
relating to the definition of 'feasibility study' in the Alaska
Energy Authority Act; and providing for an effective date."
3:07:13 PM
SARA FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), stated that HB 103 authorized AEA to construct and own
new energy projects, to hire staff, and to adopt its own
procurement code. She shared that HB 103 would empower AEA to
pursue a large hydroelectric project for the Lower Watana area
on the Susitna River. She referred to the renewable energy
goal, adopted by the legislature, for 50 percent of electric
power to be renewable by 2025. She declared that a large hydro
project was "critical to meet this goal." She noted that the
model would be the Bradley Lake hydrologic project. She stated
that the governor had requested, through the capital budget,
that the Railbelt energy fund be appropriated to AEA as a start
to the process. She listed the first steps for AEA were to have
the power to construct and to own the project, to file a
preliminary permit application with Federal Energy Regulatory
Commission (FERC), and to start discussions with the federal
agencies. She pointed out that the filing of preliminary permit
applications indicated to the federal agencies, especially the
resource agencies, which studies would need to be updated. She
noted that this would also assist in the formation of a project
timeline and the refinement for a project cost estimate.
3:12:29 PM
REPRESENTATIVE TUCK asked to clarify that AEA was not able to
currently file the applications with FERC.
MS. FISHER-GOAD replied that AEA could not file.
REPRESENTATIVE TUCK asked whether the State of Alaska could file
with FERC.
MS. FISHER-GOAD replied that AEA had not explored whether
another state agency could file; however, she pointed out that
any agency would need the legislative authority for project
ownership in order to issue bonds for the project.
3:13:24 PM
REPRESENTATIVE PETERSEN asked about the balance of the Railbelt
Energy Fund.
MS. FISHER-GOAD replied that about $65.7 million was available,
with the balance of the funds already appropriated to other
programs.
CO-CHAIR PRUITT asked if the $65.7 million had any other
appropriation or would it all be allocated to AEA.
MS. FISHER-GOAD replied that the capital budget designated those
funds for AEA to pursue the Susitna hydroelectric project.
3:14:37 PM
CO-CHAIR PRUITT asked if there were any stipulations on the
project.
MS. FISHER-GOAD offered her belief that the funds were for the
FERC licensing and the project design.
3:15:05 PM
REPRESENTATIVE TUCK asked to clarify the availability of the
$65.7 million.
MS. FISHER-GOAD replied that this was the unobligated balance of
the more than $100 million in the overall fund.
REPRESENTATIVE TUCK asked to clarify that $25 million of this
was not obligated to the Fire Island wind farm project.
MS. FISHER-GOAD reported that $65.7 million remained after the
payment of the Fire Island project.
REPRESENTATIVE SADDLER asked if the $65.7 million was subject to
legislative oversight after it was transferred.
MS. FISHER-GOAD replied that the appropriation of funds was in
the capital budget, and was independent of HB 103. She
clarified that HB 103 created a new fund, which would not have
any money until funds were appropriated.
REPRESENTATIVE SADDLER asked if the legislature had any
oversight to the funds after it was appropriated.
MS. FISHER-GOAD said that HB 103, as written, allowed AEA to use
the funds for these specific purposes.
3:17:51 PM
MS. FISHER-GOAD, in response, said that that AEA would have to
abide by the statutory limitations. She related that the
construction and ownership of projects was a power that AEA had
previous to 1993. She reported that HB 103 would allow AEA to
hire employees, adopt its own procurement code, and finance
regional power projects through the newly formed Alaska Railbelt
Energy Fund. She pointed out that AEA also had a Southeast
Alaska Energy Fund, and that the new fund would model a similar
alignment for powers and duties.
3:19:52 PM
MS. FISHER-GOAD reviewed the history of AEA: in 1976, it was
created as the Alaska Power Authority; in the 1980s, its primary
mission was energy resource development for economic
diversification; in 1993, AEA was reorganized and the projects
it owned were retained, while the grant programs and the rural
energy programs were transferred to the Division of Energy, in
the Department of Community and Regional Affairs (DCRA); the AEA
board was disbanded, there were no longer any employees, and
Alaska Industrial Development and Export Authority (AIDEA) took
over the management; in 1999, DCRA was repealed and its Division
of Energy programs were returned to AEA control; in 2008, AEA
resumed its own executive directorship, energy policy and
projects were renewed, and the renewable energy fund was
established; in 2010, the Emerging Energy Technology Fund was
established; and in 2011, AEA was identified for a key role in
planning energy infrastructure and financing. She reported that
the return of the executive director to AEA allowed for a focus
on AEA priorities and its energy plan for communities.
3:24:30 PM
MS. FISHER-GOAD explained that AEA had a specific focus separate
from AIDEA. AIDEA has a jobs and economic development mission,
whereas the mission of AEA was to reduce the cost of energy for
Alaskans. She reported that HB 103 provided for AEA to have
subsidiary corporations as a financing tool for the development
of the new hydro project. She pointed out that this bill would
allow AEA to adopt its own procurement code and system, separate
from the state.
3:27:50 PM
REPRESENTATIVE TUCK, referring to its history, asked if AEA was
currently allowed to hire employees.
MS. FISHER-GOAD replied that all the AEA personnel were AIDEA
employees. She pointed out that many of the fiscal notes to HB
103 were to allow for staff and money to be established in AEA,
rather than AIDEA.
3:29:13 PM
MS. FISHER-GOAD, in response to Representative Tuck, replied
that the AEA and the AIDEA executive directors had shared
services, especially with regard to the finance staff. She
explained that the staff was split to either AEA or AIDEA by
project.
3:30:53 PM
REPRESENTATIVE TUCK asked if AEA had the authority to hire for
the 42 positions not included in shared services.
MS. FISHER-GOAD replied that the two executive directors
currently had a hiring agreement, which would be formalized with
HB 103.
3:31:56 PM
REPRESENTATIVE PETERSEN asked if it was necessary for a separate
AEA board membership.
MS. FISHER-GOAD replied that the current seven member board,
which included five public members, had focused equitably on
both AIDEA and AEA operations.
3:33:45 PM
REPRESENTATIVE LYNN, referring to the proposed separate AEA
procurement code, asked about the necessity for changes.
CHRIS RUTZ, Procurement Officer, Alaska Energy Authority (AEA),
in response to Representative Lynn, stated that this would give
AEA an authority similar to other public corporations, and would
allow for only one procurement process. He noted that any
appeals would go to the Board of Directors, as opposed to the
Department of Transportation & Public Facilities, for final
decisions. He shared that most other processes would remain
similar, but it would allow for a more streamlined approval
process.
3:36:39 PM
MR. RUTZ added that business would still be conducted in much
the same way, with the primary difference to be the authority to
approve the waivers.
3:37:02 PM
REPRESENTATIVE LYNN asked if this would be less costly and more
efficient.
MR. RUTZ established that the internal process would become more
efficient, as it would allow for one standard procedure.
3:37:33 PM
REPRESENTATIVE TUCK asked if it would be easier to streamline
the appeal process.
MR. RUTZ offered his belief that it was not possible to
designate authority back to AEA, and that AEA would also
continue to be managed by DOT&PF for specification development
guidelines on construction projects.
3:39:58 PM
REPRESENTATIVE TUCK observed that when the state received
federal funding, the federal guidelines for procurement pre-
empted state policy, and he opined that the same would be true
for state funding to local municipalities.
MR. RUTZ replied that AEA would continue to comply with federal
guidelines.
3:41:03 PM
REPRESENTATIVE TUCK asked about the need to align procurement
policies with municipalities.
3:41:58 PM
BRIAN BJORKQUIST, Senior Assistant Attorney General, Labor and
State Affairs Section, Civil Division (Anchorage), Department of
Law (DOL), clarified that state rules would have priority over
municipal rules, but that the intent of HB 103 was to align the
AEA legislative processes with other public corporations of the
state. He stated that when any federal funding was introduced,
the federal rules applied.
3:43:35 PM
REPRESENTATIVE TUCK asked if there were multiple rules for AEA
procurements.
MR. BJORKQUIST replied that the rules were dependent on the
source of the money. He explained that if AEA was able to adopt
rules similar to other public corporations, it could establish a
unified set of rules to apply more broadly to its business in
procurement.
3:44:46 PM
MR. BJORKQUIST offered to discuss and compare FERC regulation
and licensing with that of the Regulatory Commission of Alaska
(RCA). He stated that FERC had the responsibility to license a
hydroelectric project, to estimate the cost of power, to review
the construction and operational plans and the environmental
issues, and to watch out for the public's interest. He observed
that these licensing conditions could increase the cost of
power. He pointed out that the RCA had no role with the
oversight of FERC. He explained that after the license was
issued, FERC was responsible for the compliance to the license
conditions, but it did not engage in rate regulation.
3:48:16 PM
MR. BJORKQUIST summarized that the RCA role, should financing
involve contracts between AEA and the utilities, would be to
approve the power sales agreements. He shared that RCA would
review the economic issues with a focus on the best interest of
the ratepayer. Once a power sales agreement was approved, RCA
may not invalidate sales under that agreement. He established
that, should a rate under an established contract be determined
as too high, RCA could order the contract to be renegotiated or
it could require dispute resolution between the parties. He
affirmed that RCA had statutory regulation powers. These powers
included review of the operations of services and facilities to
determine if they were unsafe, inadequate, or insufficient, as
well as the review of management practices to determine
inefficient or unreasonable operations.
3:51:03 PM
MR. BJORKQUIST referred to a handout titled HB 103 Regulation by
RCA [Included in members' packets]. He stated that under AS
44.83.090(b), AEA was not subject to jurisdiction by RCA;
however, any of the utilities that dealt with AEA were subject
to RCA regulations.
3:52:06 PM
REPRESENTATIVE TUCK asked if this was proposed or a current
statute.
MR. BJORKQUIST replied that this was a current statute. He
explained that a public utility which was owned and operated by
a political subdivision was not subject to RCA regulation under
AS 42.05.711(b), with limited exceptions, unless the political
subdivision competed directly with another utility. He pointed
to AS 44.83.090(a) which also mandated provisions for AEA power
sales agreements. These provisions included that AEA monitor
the project, provide for payment of operating and maintenance
costs, and ensure full disclosure of all cost factors for
determination of rates. He directed attention to AS
44.83.396(e) which mandated that an AEA contract for operation
of a power project must include a review of the annual operation
and maintenance budget, as well as assurance that the project
was operating efficiently and consistently with national
standards. He reported that these mandates were comparable to
the RCA regulations for utilities. He noted that RCA also had
the authority to investigate management, services, and
facilities for efficiency and safety. He clarified that the
statutory mandates on AEA "overlap" the RCA regulations. He
opined that confusion could arise if both AEA and RCA were
mandated for comparable regulations.
3:55:57 PM
MR. BJORKQUIST, directing attention to AS 42.05.431(b), stated
that a wholesale power agreement between public utilities was
subject to approval by RCA, and this would also apply to
utilities purchasing from AEA. He noted that AS 42.05.431(c)
allowed for some exemptions, and he listed the Bradley Lake
Hydroelectric Project and the original Four Dam Pool
Hydroelectric Project. He pointed out that this exemption
eliminated one step in the process, RCA approval, and it
eliminated litigation that could arise from the RCA decision.
Referring back to AS 42.05.431(b), he commented that after RCA
approved a wholesale power agreement, it could not invalidate
that sale. He pointed to AS 42.05.431(a), which included
provisions for a municipal utility to include debt covenants in
rates, noting that RCA could not reject that rate, as it allowed
utilities to finance projects.
3:59:20 PM
CO-CHAIR PRUITT, referring to the handout titled HB 103-FERC
Oversight [Included in members' packets], directed attention to
3(c) and read: "FERC oversight might impact efficiency and
costs, but is not focused on economic regulation." He cited the
lack of an RCA role in an AEA owned project, noted that FERC did
not focus on economic regulation, and asked about any economic
oversight on an AEA project.
MR. BJORKQUIST clarified that only limited AEA wholesale power
agreement projects, identified in the statute, were not subject
to FERC approval. He pointed out that any wholesale power sales
agreement would necessitate RCA agreement before any utility
could buy power from a project. He stated that RCA would
evaluate all the economic issues with a focus to the best
interest of the ratepayers.
4:02:22 PM
CO-CHAIR PRUITT asked to clarify where the responsibility for
oversight to cost overruns existed.
MR. BJORKQUIST replied that it was the obligation of AEA project
management. He stressed that the decision to proceed with the
project would be based on the best information available. He
offered his belief that RCA, although approving costs, did not
continue to monitor construction.
4:05:18 PM
MR. BJORKQUIST directed attention to the handout titled "HB 103
Updated Sectional Analysis by the Alaska Energy Authority"
[Included in members' packets]. He explained that Section 1 of
the bill would amend the procurement code to give AEA powers
comparable to other public corporations for procurement. He
noted that AEA would be obliged to:
Reflect competitive bidding principles and provide
vendors reasonable and equitable opportunities to
participate in the procurement process and must
include procurement methods to meet emergency and
extraordinary circumstances.
MR. BJORKQUIST clarified that this mandate was the same as other
public corporations.
MR. BJORKQUIST explained Sections 2, 4, 13, and 16, which
created a new Railbelt energy fund, the Alaska Railbelt Energy
Fund, and repealed the existing Railbelt Energy Fund. He stated
that Section 2 would appropriate the funds in the existing
Railbelt Energy Fund to capitalize the new Alaska Railbelt
Energy Fund. He noted that Section 3 and Section 6 empowered
AEA to hire employees and advisors. He explained that Section 4
created the new Alaska Railbelt Energy Fund and its associated
powers.
4:08:01 PM
REPRESENTATIVE SADDLER asked to clarify the names of the energy
funds.
MR. BJORKQUIST replied that the current fund was the Railbelt
Energy Fund and the proposed new fund would be the Alaska
Railbelt Energy Fund.
MS. FISHER-GOAD clarified that it was necessary to create a new
fund and that attempts had been made to avoid confusion.
4:09:36 PM
REPRESENTATIVE OLSON asked if this reflected the balance of the
"old Southern Intertie Railbelt account."
MS. FISHER-GOAD, in response, said that the $65.7 million
appropriation in the capital budget was the unobligated balance
of the existing Railbelt Energy Fund, which she opined was the
remaining balance of the Susitna project from the 1980s.
4:10:10 PM
REPRESENTATIVE TUCK asked which department was the current
overseer of the Railbelt Energy Fund.
MS. FISHER-GOAD replied that it was managed by Department of
Revenue (DOR). She presented examples of current AEA funds
managed by DOR, which included the Renewable Energy Fund and the
Power Cost Equalization Endowment Fund, and she stated that the
proposed Alaska Railbelt Energy Fund would also be managed by
DOR.
REPRESENTATIVE TUCK asked if the fund management staff would be
from DOR.
MS. FISHER-GOAD offered her belief that it would.
REPRESENTATIVE TUCK asked to clarify that DOR was the current
fund overseer and manager, but that this fund would be closed, a
new fund would be opened, and that DOR would manage the new AEA
fund.
MS. FISHER-GOAD agreed, explaining that repealing one fund,
while creating a new fund, was the easiest way to make it an AEA
fund.
4:13:24 PM
CO-CHAIR PRUITT requested a list of the AEA funds.
4:13:40 PM
REPRESENTATIVE OLSON asked about accrued interest in the funds.
MS. FISHER-GOAD offered her belief that the fund had been
amended to allow the interest to remain in the fund, although
interest had not been accrued during the entire fund history.
REPRESENTATIVE OLSON requested details about the interest
accrual for the AEA funds.
4:15:03 PM
REPRESENTATIVE FOSTER asked if any other group had expressed
interest in this money.
MS. FISHER-GOAD replied that the Railbelt utilities would be
those most attracted to the use of the fund.
4:16:29 PM
REPRESENTATIVE FOSTER asked for an estimate of prior fund
expenditure.
MS. FISHER-GOAD replied that the Fire Island Intertie project
was the most recent appropriation, though it was deemed a
regional fund.
REPRESENTATIVE OLSON offered his belief that some money had been
appropriated by Fairbanks.
MS. FISHER-GOAD affirmed that she would have to review the
history of the fund appropriations.
REPRESENTATIVE OLSON reflected on the fund history.
4:18:42 PM
REPRESENTATIVE FOSTER asked about the general sentiment among
the utilities.
MS. FISHER-GOAD reported that the fund had been more territorial
during the time of smaller capital budgets, but that she was not
aware of sentiments.
4:20:43 PM
MR. BJORKQUIST returned attention to Section 5, and explained
that it was a provision to increase the AIDEA board to seven
members. He explained Section 6, which empowered AEA to hire
staff, and Section 7, which allowed AEA to acquire, construct,
own, and operate new power projects. He stated that Section 7
also expanded AEA power to conduct feasibility, engineering, and
design studies for power projects. He summarized Sections 8, 9,
and 11, which empowered AEA to establish subsidiary corporations
to support the acquisition, construction, ownership, and
operation of power projects. He noted that this would shield
AEA from liabilities, and allow each project to be isolated from
the success or failure of other projects. He stated that
Section 9 exempted AEA from RCA jurisdiction and imposed the
obligations for entering power sales agreements. He confirmed
that this would apply to the subsidiary development
corporations, as well.
4:25:10 PM
REPRESENTATIVE SADDLER asked if the subsidiary corporations
would have their own boards of directors.
MR. BJORKQUIST replied that each subsidiary would have its own
board, and that these could be the same, or different, members
than the AEA board.
REPRESENTATIVE SADDLER asked if there was a provision to
determine either.
MR. BJORKQUIST replied that it would only have to be a non-
profit corporation, and the decision would be made by the AEA
board of directors. He pointed out that AEA would own and
control the subsidiary, and could determine its management.
4:26:42 PM
CO-CHAIR PRUITT asked whether the AEA board of directors or the
legislature determined the by-laws of the subsidiary
corporation.
MR. BJORKQUIST replied that the board of directors made those
decisions. He clarified that AEA could not grant powers to the
subsidiary beyond its own powers. He moved on to explain that
Section 10 amended AS 44.83.396(a) which addressed how AEA
administered new power projects and contracts for operators. He
declared that Section 11 was a new sub section, which provided
that the subsidiary corporation for a new project was also
included. He reported that Section 12 amended the definition of
feasibility study. He announced that Section 13 repealed the
existing Railbelt Energy Fund, while Section 16 made this
contingent on the transfer of those appropriated funds to the
new Alaska Railbelt Energy Fund, or to another approved project.
4:29:55 PM
MR. BJORKQUIST moved on to Section 14, explaining that this
would instruct the revisor to amend the statutory heading to
reflect that it would address employees. He said that Section
15 addressed the transfer of employees from AIDEA to AEA. He
shared that Section 17 was the effective date for this bill.
4:31:23 PM
REPRESENTATIVE TUCK offered his belief that shared employees had
efficiencies that would be lost when the groups were separated.
He opined that the Department of Administration was proud of its
procurement policies and that a separate AEA procurement policy
would be less efficient.
MS. FISHER-GOAD replied that, in 2008, there was discussion
about the separation of AEA and AIDEA. She opined that this
would have been detrimental to the programs, but that the hiring
of separate executive directors now allowed for leadership and
focus for both programs. She explained that the proposed
transfer of staff positions still recognized the strong value of
shared services, specifically in the finance department, and
would maintain the momentum and efficiency for both agencies.
She noted the importance of recognizing the identity of each
agency, while maintaining some necessary shared services.
4:38:05 PM
REPRESENTATIVE TUCK asked if HB 119 would allow AEA many of its
requests.
MR. BJORKQUIST, in response to Representative Tuck, stated that
HB 103 was necessary as AEA and AIDEA were separate, independent
public corporations. He clarified that, as AIDEA powers could
not be transferred to AEA, proposed HB 103 was necessary.
4:39:23 PM
REPRESENTATIVE TUCK asked if AEA would have the same authority
as AIDEA, if there was not a separation.
MR. BJORKQUIST, in response, clarified that AEA was a separate,
independent, public corporation, and not under AIDEA, although
there were connections between the two corporations. He
stressed that AEA could not use AIDEA statutory powers.
4:41:29 PM
MR. BJORKQUIST, in response to Co-Chair Pruitt, reported that
employees could perform work for either public corporation, if
they were directed, but that the statutory authority of AIDEA
could not be transferred to an AEA project.
4:42:22 PM
REPRESENTATIVE TUCK asked which corporation had the stronger
bonding ability, and whether the separation would affect the
ability of AEA for bonding.
MR. BJORKQUIST replied that AIDEA had a much stronger bonding
authority, as it had substantial assets. He clarified that AEA
had "the ability to exercise the moral obligation of the state
and that's the backing that the Alaska Energy Authority would be
able to bring to a bonding."
4:43:28 PM
MS. FISHER-GOAD acknowledged the difficulties for defining the
AEA program and the AIDEA program, as it was often misunderstood
that AEA was a "subset of AIDEA, or somehow is within AIDEA, and
it really is not." She agreed that the lack of a line item for
personal services, as opposed to contractual costs, on the
budget was confusing. She directed attention to the handout
titled, "Fiscal Note Numbers:" [Included in members' packets],
and explained that the center bar separated the AIDEA fiscal
notes on the left side with the AEA fiscal notes on the right
side. Addressing the first line, "Personal Services," she
explained that this was a transfer of 42 staff positions from
AIDEA to AEA, and a request for 1 new loan underwriting staff
position for AIDEA, with a net change of 41 AIDEA staff
positions. She explained that line 3, "Contractual," reflected
an increase to AIDEA for shared services as it was not possible
to "cut a PCN in half." She noted that AIDEA would no longer be
responsible for $5.3 million of cost for management of AEA
programs, as reflected on line 3, "I/A Receipts," listed under
"Funding Source." She noted that the staff office building was
currently paid through the AIDEA budget, and that, although
AIDEA would not charge rent to AEA, there would now be a
facilities charge to AEA for upkeep and utilities. She
expressed the desire for "a net zero change" to the AIDEA
operating budget. She reported that the remainder of the fiscal
notes were adjustments of other AEA components, and would house
all the positions in one component. She directed attention to
Fiscal Note 2 of 2, representing the need for additional staff,
which would be funded by the CIP (Capital Improvement Project)
receipts. She offered her belief that HB 103 would allow for
the [AEA] structure, but that there was still the need for a
project office for the Lower Watana area hydroelectric project.
She declared that there would be an increase of $400,000 to the
general fund.
4:53:51 PM
REPRESENTATIVE TUCK pointed out that HB [119] allowed AIDEA to
own subsidiary corporations. He opined that it would be better
for AIDEA to own AEA as a subsidiary corporation, which would
allow for greater efficiency.
MR. BJORKQUIST replied that it would not work under existing
statute. He explained that AIDEA could form a subsidiary within
the boundaries of its statutory authority, but it could not add
the statutory authority for AEA into a subsidiary.
4:55:39 PM
CO-CHAIR PRUITT asked if a change in statute to transfer AEA
statutory authority to AIDEA would accomplish the same changes
as proposed in HB 103.
MR. BJORKQUIST replied that it would work in the context of one
organization that could do all of the programs of both
corporations, but that the impact on the financial standing of
AIDEA could be severe.
4:56:30 PM
HB 103 was held over.