Legislature(2009 - 2010)BARNES 124

02/09/2010 03:00 PM ENERGY

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03:07:13 PM Start
03:07:24 PM Overview(s) on Home Energy Rebate Program & Low Income Home Weatherization Program.
04:23:11 PM HB296
04:58:26 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Presentations by Brian Butcher, AHFC:
Overviews on Home Energy Rebate Program
& Low Income Home Weatherization Program
+ Bills Previously Heard/Scheduled TELECONFERENCED
             HB 296-ENERGY EFFICIENCY BONDS; LOANS; FUND                                                                    
                   [Contains discussion of HB 305]                                                                              
4:23:11 PM                                                                                                                    
CO-CHAIR EDGMON  announced the  next order of  business would  be HOUSE                                                         
BILL  NO. 296,  "An Act  authorizing and  relating to  the issuance  of                                                         
bonds  by  the Alaska  Housing  Finance Corporation;  establishing  the                                                         
Alaska energy efficiency revolving loan  fund and relating to the fund;                                                         
authorizing  municipalities and  the State  of Alaska  to borrow  money                                                         
from the  Alaska Housing  Finance Corporation for  the purposes  of the                                                         
Alaska  energy efficiency  revolving loan  fund; and  providing for  an                                                         
effective date."                                                                                                                
4:23:34 PM                                                                                                                    
DAN FAUSKE, CEO/Executive Director,  Alaska Housing Finance Corporation                                                         
(AHFC), Department of  Revenue (DOR), informed the committee  HB 296 is                                                         
an act  authorizing and relating  to the issuance  of bonds by  AHFC to                                                         
establish an  Alaska energy efficiency  revolving fund.  He  noted that                                                         
the  bill was  a result  of  discussions with  the administration,  the                                                         
Department  of Transportation  &  Public Facilities  (DOT&PF), and  two                                                         
agencies  of  the   Department  of  Commerce,  Community,   &  Economic                                                         
Development  (DCCED),  the  Alaska   Industrial  Development  &  Export                                                         
Authority (AIDEA) and the Alaska Energy  Authority (AEA).  The agencies                                                         
met to  discuss how to  deal with the  $28.3 million received  from the                                                         
American Recovery  and Reinvestment  Act of 2009  (ARRA) for  the state                                                         
energy program.   Of  that, $18  million is  going to  state facilities                                                         
through  DOT&PF  and AHFC,  and  the  bill  would leverage  this  money                                                         
through  performance based  contracting to  $250 million.   Mr.  Fauske                                                         
noted that DOT&PF  has utilized this process previously.   He explained                                                         
that  contractors  assess   and  guarantee  that  the   energy  savings                                                         
resulting  from the retro-fit  of public  buildings  would pay for  the                                                         
debt service on the bonds.  Thus,  the contractors are "on the hook" to                                                         
meet that standard.  Basically, general  fund monies that are currently                                                         
paying  for  utilities are  saved  and  put  towards paying  the  loan.                                                         
Alaska  Housing Finance  Corporation's  position is  that spending  $18                                                         
million is  not as effective  as leveraging the  funds.  He  noted that                                                         
the state owns many facilities and  leveraging the funds would create a                                                         
revolving loan fund so the money will  continue to be loaned out as the                                                         
debt is paid.   Mr. Fauske compared the bill to the  use of the tobacco                                                         
settlement  money;  rather than  an  annual  increment, the  money  was                                                         
secured by bonds that  are paying off very well.   Under this bill, the                                                         
bonds would  be AHFC general obligation  bonds and the  paying agencies                                                         
would be the state agencies utilizing  the program, in a manner similar                                                         
to  the  purchase  of  the  Atwood  Building,  and  the  loans  to  the                                                         
University of Alaska (UA) to build dorms.                                                                                       
4:27:31 PM                                                                                                                    
REPRESENTATIVE  TUCK asked  whether performance  based contracting  was                                                         
part of the former revolving loan program.                                                                                      
4:27:56 PM                                                                                                                    
MR. FAUSKE said no.                                                                                                             
4:28:08 PM                                                                                                                    
REPRESENTATIVE TUCK asked  who would determine the  contractor on state                                                         
4:28:21 PM                                                                                                                    
MR. FAUSKE responded DOT&PF and the school districts would decide.                                                              
4:28:43 PM                                                                                                                    
MR.  BUTCHER clarified  that AHFC  would  administer the  program.   In                                                         
addition,  because the  bill would  create  a revolving  loan fund  and                                                         
funds would  remain available  in perpetuity as  the loans  are repaid,                                                         
there is not a question of whether  funds would be available for future                                                         
projects.   Furthermore,  AHFC is  comfortable that  DOT&PF would  work                                                         
with  the  other   departments  that  own  buildings   to  establish  a                                                         
prioritized list of  public buildings that are ready to  have work done                                                         
now.   AHFC would determine  a list  of priorities for  school district                                                         
and municipal projects.                                                                                                         
4:30:18 PM                                                                                                                    
CO-CHAIR EDGMON  mentioned another  provision of  HB 305  that requires                                                         
AEA to  establish an  energy index  database and  that further  revises                                                         
current  law regarding  energy audits.    He asked  whether the  energy                                                         
standards required by  HB 305 would make the program  established by HB
296 more effective.                                                                                                             
4:31:05 PM                                                                                                                    
MR.  BUTCHER relayed  that  representatives  from affected  departments                                                         
advised  that gathering  the  information needed  to  create an  energy                                                         
index  would cost  "in  the millions."    Furthermore,  as the  program                                                         
established by  HB 296 evolves, this  information would be  gathered by                                                         
energy  auditors   during  the   process.    Also,   he  was   told  by                                                         
representatives at DOT&PF  that they are already aware  of the priority                                                         
order of buildings with energy efficiency needs.                                                                                
4:32:16 PM                                                                                                                    
CO-CHAIR  EDGMON  asked whether  the  different agencies  working  with                                                         
DOT&PF have different standards.                                                                                                
MR.  BUTCHER  clarified that  the  agencies  have the  same  standards;                                                         
however, there  is the  question of  whether to develop  an index  at a                                                         
high cost, before any work is done.                                                                                             
CO-CHAIR EDGMON  observed that one  of the  goals of the  energy policy                                                         
bill  is  to increase  the  overall  efficiency  levels by  15  percent                                                         
between 2010 and  2020.  He asked  what impact this bill  would have on                                                         
the approximately 700 state buildings administered by DOT&PF.                                                                   
4:34:01 PM                                                                                                                    
MR. BUTCHER  stated that a  portion of  the appropriation to  the state                                                         
energy  program  (SEP) is  being  used  to  determine a  benchmark  for                                                         
improving  energy efficiency  on  the  "residential  side."   Regarding                                                         
public  facilities,  he   deferred  the  question  to   DOT&PF  or  the                                                         
Department of Administration (DOA).                                                                                             
4:34:39 PM                                                                                                                    
JACK KRIENHEDER, Chief  Policy Analyst, Office of  the Director, Office                                                         
of Management  & Budget  (OMB), Office  of the  Governor, informed  the                                                         
committee HB 296  is a continuation  of a program DOT&PF has  in place.                                                         
He offered  to provide  information from DOT&PF  on 16  state buildings                                                         
that have  had performance contract  energy upgrades.  This  data would                                                         
reveal  the energy  savings  per building.    Mr.  Krienheder told  the                                                         
history of the DOT&PF program.   In response to Representative Tuck, he                                                         
said that historically,  the energy performance contract  firm does the                                                         
initial audit and provides  a report of the recommended  work.  For the                                                         
ongoing DOT&PF program,  the energy performance contractor  was Siemens                                                         
Energy.   The  energy performance  contractor then  collects bids  from                                                         
local subcontractors  to do  the work  similar to  deferred maintenance                                                         
contracts that use local hire.                                                                                                  
4:38:48 PM                                                                                                                    
REPRESENTATIVE  TUCK surmised  that  Siemens Energy  is a  professional                                                         
auditor for commercial facilities that would oversee the work.                                                                  
4:39:07 PM                                                                                                                    
MR. KRIENHEDER  said correct.   He added  that Siemens Energy  would do                                                         
the audit,  submit a proposal, guarantee  the savings, and  monitor the                                                         
project  after, to  make sure  that  the projected  energy savings  are                                                         
being realized.                                                                                                                 
4:39:30 PM                                                                                                                    
REPRESENTATIVE JOHANSEN asked for further  information about the DOT&PF                                                         
4:39:56 PM                                                                                                                    
MR. KRIENHEDER  relayed that  the program was  modeled after  a similar                                                         
energy savings  program in  Washington.   The first  energy performance                                                         
contract was signed 4 to 5 years  ago, and about 16 buildings have been                                                         
improved since then.   In further response  to Representative Johansen,                                                         
he  advised that  the  performance contractor  does  an initial  energy                                                         
audit and  predicts the  savings over  a certain  payback period.   The                                                         
financing  aspect can  be handled  in different  ways.   The work  done                                                         
includes new  lighting, upgrades to  heating controls,  improvements to                                                         
insulation,  and general  projects  to  reduce the  energy  use of  the                                                         
building.   He  pointed out  that for  these projects  DOT&PF has  been                                                         
borrowing money  from DOR, or through  the contractor; HB  296 proposes                                                         
to use AHFC  bonds instead, in order  to get a lower  interest rate and                                                         
to simplify the  process.  Furthermore, the energy savings  pay for the                                                         
loan payments  until the loan  is paid off,  and then the  full savings                                                         
begin to accrue to the state.                                                                                                   
4:44:19 PM                                                                                                                    
CO-CHAIR MILLETT asked whether the  performance standards are being met                                                         
and whether there are savings.                                                                                                  
4:44:44 PM                                                                                                                    
MR.  KRIENHEDER  said   yes.    The  savings  are   guaranteed  by  the                                                         
performance contractor; thus if the  targets are not met the contractor                                                         
must pay  the state.   In fact, the savings  targets have been  met and                                                         
exceeded.   The contractor's  guarantee  is on the  quantity of  energy                                                         
saved, but the  dollar savings fluctuates with the cost  of energy.  He                                                         
offered to provide information from DOT&PF on the actual savings.                                                               
4:46:32 PM                                                                                                                    
REPRESENTATIVE JOHANSEN observed the zero fiscal note is incorrect.                                                             
4:46:47 PM                                                                                                                    
MR. BUTCHER assumed  that after the loan is paid  off the savings would                                                         
go to the department, thus the fiscal note should be indeterminate.                                                             
4:47:32 PM                                                                                                                    
MR. KRIENHEDER  clarified that  the intent  of the  fiscal note  was to                                                         
address  the cost  to DOT&PF  of  performing this  program.   Personnel                                                         
would  be  hired  for  the management  of  the  performance  contracts;                                                         
however,  these positions  would  be  paid for  from  the federal  ARRA                                                         
funds.  Regarding  energy savings, the amount is too  speculative to be                                                         
4:48:41 PM                                                                                                                    
REPRESENTATIVE  TUCK asked  whether  the energy  savings goes  directly                                                         
back  to the  revolving  loan fund.    Further, he  asked  if there  is                                                         
interest or other benefits paid to AHFC.                                                                                        
4:49:34 PM                                                                                                                    
MR. BUTCHER responded  that AHFC is not going to  operate at a deficit,                                                         
but the cost of the loan has  not been determined.  There would be some                                                         
interest charged at a low rate.                                                                                                 
REPRESENTATIVE  TUCK  asked  for the  meaning  of  "sovereign  immunity                                                         
4:50:32 PM                                                                                                                    
MR. KRIENHEDER  understood that language  is needed to secure  the loan                                                         
from AHFC.                                                                                                                      
4:50:54 PM                                                                                                                    
REPRESENTATIVE TUCK then asked whether  AHFC would verify the proposal,                                                         
and how performance contractors are "on the hook."                                                                              
4:51:49 PM                                                                                                                    
MR. BUTCHER  expressed his  belief that the  energy department  at AHFC                                                         
would look  at the contract.   Regarding energy  performance contracts,                                                         
other states  have had success  making the  energy savings part  of the                                                         
contract.  In  most cases, if the energy savings  exceeds the estimate,                                                         
the excess goes to the contractor;  however, this aspect is not part of                                                         
the DOT&PF contracts.                                                                                                           
4:52:56 PM                                                                                                                    
MR.  KRIENHEDER added  that  performance contractors  are  on the  hook                                                         
financially because they have to provide a bond.                                                                                
4:53:23 PM                                                                                                                    
REPRESENTATIVE  TUCK  surmised that  it  is  in the  municipality's  or                                                         
school  district's  best  interest  to  get bids  from  more  than  one                                                         
contractor in order to get accurate  numbers.  He then asked whether in                                                         
the case of higher  savings, the loan would be paid  off quicker, or if                                                         
the additional savings would benefit the municipality.                                                                          
4:54:37 PM                                                                                                                    
MR. KRIENHEDER  explained that contracts  have varying terms;  in fact,                                                         
some do  provide for shared  savings to be  split.  He  understood that                                                         
DOT&PF's contract  with Siemens  Energy did not  have a  shared savings                                                         
arrangement and additional  savings would go to the state.   He said he                                                         
would confirm  whether the loan terms  were fixed and the  loan payment                                                         
amount  would  stay  the  same;  however,   in  the  recent  past,  the                                                         
additional savings were used to avoid  higher costs due to the spike in                                                         
oil prices.                                                                                                                     
4:57:46 PM                                                                                                                    
[HB 296 was held over.]                                                                                                         

Document Name Date/Time Subjects
HB 296 SEP bonds Sponsor Statement.pdf HENE 2/9/2010 3:00:00 PM
HENE 2/23/2010 3:00:00 PM
HB 296
Energy Savings Performance Contracting Summary-DOT.pdf HENE 2/9/2010 3:00:00 PM
ARRA Energy funds, SEP plan.pdf HENE 2/9/2010 3:00:00 PM
HB0296-1-1-011910-REV-N.pdf HENE 2/9/2010 3:00:00 PM
HENE 2/23/2010 3:00:00 PM
HB 296
HB0296-2-1-011910-DOT-N.pdf HENE 2/9/2010 3:00:00 PM
HENE 2/23/2010 3:00:00 PM
HB 296
Agenda 02092010.PDF HENE 2/9/2010 3:00:00 PM
House Energy AHFC powerpoint.ppt HENE 2/9/2010 3:00:00 PM
AM#1 HB296.pdf HENE 2/9/2010 3:00:00 PM
HB 296
AM#2 HB296.pdf HENE 2/9/2010 3:00:00 PM
HENE 2/23/2010 3:00:00 PM
HB 296