Legislature(2007 - 2008)HOUSE FINANCE 519
07/27/2008 01:00 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB4005 || HB4006 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB4005 | TELECONFERENCED | |
| += | HB4006 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 4005
An Act amending the power cost equalization program,
repealing the exclusion from eligibility for power cost
equalization for certain power projects that take their
power from hydroelectric facilities, and amending the
definition of 'eligible electric utility' as it applies
to the power cost equalization program and the grant
program for small power projects for utility
improvements; and providing for an effective date.
HB 4005 was HEARD & HELD in Committee for further
consideration.
HOUSE BILL NO. 4006
An Act authorizing, as a temporary rebate of state
resources to certain state residents, payments to
assist in meeting heating costs under the federal and
state heating assistance programs; and providing for an
effective date.
HB 4006 was HEARD & HELD in Committee for further
consideration.
1:15:53 PM
KATE TROLL, EXECUTIVE DIRECTOR, ALASKA CONSERVATION
ALLIANCE, JUNEAU, voiced support of funding for power cost
equalization (PCE) and LIHEAP to provide energy assistance
for the entire state of Alaska. She signified that the
economic welfare of the villages and rural communities is
being threatened by the high energy costs. Additionally, the
Alaska Conservation Alliance wished to convey the message
through Ms. Troll, to "make a connection to energy
conservation" throughout the state. She noted the handout
(Energy Cost Relief and Energy Conservation), which
indicates ways to promote energy conservation (copy on
file.) She encouraged long term solutions.
1:20:24 PM
Representative Nelson stated that the average person
eligible for power cost equalization uses less that 400 kWh
per month. In comparison, the average electric energy use
per person in Anchorage is 750 kWh. She stated that
conservation has been taken to heart in the village areas.
1:21:11 PM
Representative Kelly asked if the Alaska Conservation
Alliance would support alternative heating source efforts in
both the rural and urban areas.
Ms. Troll replied that the Alaska Conservation Alliance does
support any type of technology measure that offers
alternatives.
1:22:59 PM
Representative Kelly commented on the Susitna Hydroelectric
project and the Alaska Conservation Alliance's opposition in
the past. He asked if the Alliance would now support those
projects. Ms. Troll responded that the Alliance is
reviewing Susitna in relationship to Railbelt energy needs.
She announced that a firm position would be taken, following
the current review. The Alliance currently views
hydroelectric power as part of the renewable energy mix.
1:25:49 PM
Representative Gara appreciated the positive proposals
submitted by the environmental organization. He asked if
the Alaska Conservation Alliance would support additional
funds to enhance the ability to meet renewable energy needs
in the future. Ms. Troll replied that the Alaska
Conservation Alliance absolutely would support the measure.
1:27:47 PM
Representative Gara commented that Ms. Troll should not be
held responsible for the past actions of the Alaska
Conservation Alliance. Representative Kelly noted his
positive treatment of the current environmental group.
1:28:50 PM
MEER KOHLER, PRESIDENT CEO, ALASKA VILLAGE ELECTRIC
COOPERATIVE, testified in support of HB 4005 and HB 4006.
Alaska Village Electric Cooperative (AVEC) is a non-profit,
member-owned electric utility serving 53 villages in rural
Alaska. She described that "although our villages are small,
our combined population is 22,000, about the same as Bethel,
Cordova, Dillingham, Kotzebue, Nome and Unalaska rolled
together." She provided members with written testimony (copy
on file):
AVEC operates 48 power plants and 47 bulk fuel tank
farms. Our costs of operation are extremely high
because of the lack of efficiencies of scale. Our per
capita electricity consumption is 242 kWh per month,
compared with 542 in Bethel and over 1,000 in Anchorage
or Fairbanks, reflecting the impact of the higher level
of commerce associated with lower cost electricity.
Consumption has always been very low, because the true
cost of electricity in the villages has always been
high. It is high because we must have one power plant
and tank farm per every 400 in population - compare
that with one power plant for Bethel's 6,000
population, or three power plants for Fairbanks, or
five for Anchorage.
We support expansion of the PCE program to include
any community contending with very high costs of
electricity because we know how crippling it is to
contend with such costs even as other energy costs
are catapulting at the same time.
We respectfully protest the implementation of a
seasonal kWh limit because, despite its good
intentions, it would actually cost all of our current
PCE beneficiary's money, rather than increasing their
assistance by 23% as suggested in the model. AVEC,
Cordova, Inside Passage Electric, Kotzebue, Naknek,
Nome and Nushagak Electric in Dillingham have all
conducted analyses of the change and all have concluded
that this change will be detrimental to consumers.
Instead, we request that this committee consider
restoring the eligible PCE cap to 700 kWh per month.
This is the level at which PCE operated for the first
15 years - from 1984 to 1999. It represents the
average kWh consumed by citizens of Anchorage,
Fairbanks and Juneau. When the program was cut back in
1999, eligible residential kWh fell by about 22%.
Since eligible kWh today is almost unchanged from 1999,
the most likely impact is that the residential kWh
covered would go back up by the 22% that it declined
eight years ago. The legislative analysis previously
presented by staff projects that the 300/700 seasonal
cap would result in additional kWh usage of about 23%
over current levels. The financial impact of a change
to the flat 700 kWh cap should be identical to the
seasonal cap's impact as calculated by staff.
In May of this year, the AVEC board adopted a
resolution declaring a fuel cost emergency. That
resolution was sent to all legislators and a copy is
attached to this testimony. The crisis we declared two
months ago is coming to its predicted peak right now.
We are two thirds of the way into our fuel delivery
season and have fuel bills of $16 million to pay for
and will have another $12 million due within the next
six weeks. Our fuel bill last year was $14 million,
and we are only half way through collecting those
monies. We have an emergency amendment to our line
of credit, raising it to $15 million. The cost of
that borrowing will add another two cents a kWh to our
already high electricity rates. There is no state fund
available to borrow from to purchase our fuel and the
small amount available in the AEA's fuel loan
program will not cover five percent of rural
Alaska's needs.
AVEC has proposed having the State provide assistance
to cap the delivered cost of fuel for generating
electricity at $10 per million btu. Alaska Power
Association endorses this approach and also advocates
for the State providing no-cost loans to cover this
year's fuel purchase. Something needs to happen
soon, or rural Alaska is going to enter this winter
without adequate fuel on hand to see them through the
season. We will then be faced with the even more
crippling cost of flying fuel in on an emergency basis.
This is not tenable, especially when our state is
bursting at the seams from revenues gleaned from the
burgeoning cost of a barrel of Alaskan crude oil.
Please support the changes proposed to PCE, with the
exception of restoring the 700 kWh cap. It is a stop
gap measure as we continue our quest to build wind
systems across our villages and tap emerging
technologies to reduce our dependence on diesel fuel.
1:34:40 PM
Co-Chair Chenault asked if it is crucial that there be one
power plant and tank farm for every 400 in population. Ms.
Kohler answered that the long term plan is to tie villages
together, by building micro grids to connect them. The
grids could eventually connect, forming regional grids,
which could then be connected to form a statewide grid.
This would allow villages to tap into more renewable energy.
She stated that this connection would eventually eliminate
the need for power plants and tank farms, which
unfortunately, would also eliminate crucial jobs.
1:36:17 PM
Vice-Chair Stoltze asked if some of the proposed mining
projects would facilitate the micro grid process.
1:36:44 PM
Ms. Kohler explained that the mining projects had been
considered years ago by Novista Light and Power. She
informed that the problem was that 200 mega-watts of power
are necessary for heating the villages, which is much more
than the projects could provide.
1:38:01 PM
Representative Kelly asked if transmission lines were
available to allow for the connection lines. Ms. Kohler
responded that AVEC was working on those developments. She
said that they promote about eight or nine potential tie
lines for interconnection. She stated that AVEC has pursued
in vain, funding from the legislature for the development of
the proposed micro projects.
1:40:19 PM
Representative Hawker asked Ms. Kohler to shed more light on
her expressed concern about legislative funding for the
revolving bulk fuel acquisition loan. Ms. Kohler responded
that they want to be sure that they take advantage of the
low cost of fuel early in the season. She pointed out that
in years past, some villages placed their orders in August,
which was too late to borrow the $500 thousand [per village]
needed to barge the fuel. She stated that her concern is
that she did not want to fly fuel in because there were no
loan funds available. Representative Hawker asked Ms. Kohler
to quantify the deficiency in the revolving loan fund before
the end of special session. Ms Kohler opined that $35 - $40
million would be necessary, as opposed to the now available
five million dollars.
1:43:35 PM
Representative Hawker stated that the committee would try to
set up an additional meeting on the topic of the revolving
loan fund with Alaska Energy Authority Director Steve
Haagenson.
1:44:19 PM
Representative Kelly focused on the 52.5 cents cap and asked
why the state would consider going that high. Ms. Kohler
replied that the Alaska Power Association (APA) supports the
PCE cap change to 72.5 cents. That number was determined by
looking at the fuel price when the PCE program first began
in 1984, which was at $1.17 a gallon. They then escalated
that number with 3% inflation, arriving at an expected price
of $2.30 per gallon. For every 50 cent increase cost in
fuel, an increase in kWh of about 4 cents is seen. She
continued to explain the formula used to arrive at 72.5
cents: "$2.50 divided by 50 gives you five, times four gives
you twenty, add to 52.5 gives you 72.5".
1:46:28 PM
Representative Kelly asked if the number was 72.5 cents.
Ms. Kohler replied yes, adding that the proposed 12.5 kWh
was significantly higher than what is currently embedded in
the PCE statute. The generation efficiency in statute is a
very high standard. There is room to incentivize
alternative energy. She continued that the use of
alternative energy increases the efficiency per gallon of
fuel.
1:47:54 PM
Representative Nelson inquired about raising the cap by $2.
She thought that the prices would never decrease in rural
Alaska. Some places are now paying over a $1 per kWh. She
felt the prices were outrageous. There is recognition that
the villages with those excessively high rates are in the
minority, however they must be accommodated. Ms. Kohler
agreed that there are a few villages in that situation. She
stated that AVEC promoted that future changes in the cost of
fuel be accompanied by a similar adjustment so that if the
cost moves higher or lower, then the cap would also float up
and down. In the case of these villages paying excessively
high prices per kWh, the conflict is with the perception
that the cap is somehow encouraging excessive consumption of
electricity. There should be extra attention paid to how
those costs can be reduced. She thought that with the new
generating system that they had in those villages, they
should now be seeing lower costs.
1:50:55 PM
Representative Hawker referenced the cap of the PCE amount
and the discrimination in the determining methodology. He
commented on the economy of scale because certain providers
are serving relatively few households for comparable costs.
Ms. Kohler agreed that this is a dilemma. She stated that
AVEC serves a couple of villages that have only 20
households. She maintained that because AVEC has brought
together 53 communities there are some modest economies of
scale. She mentioned individual fuel costs; villages do
have options to band together with others to help reduce
costs. She encouraged that mechanism.
1:53:57 PM
Representative Hawker asked if the legislature should
encourage more collective organization of power statewide.
Ms. Kohler noted that it can work, pointing out that they
are a small village utility. She reiterated that their
approach does work.
1:55:10 PM
Representative Nelson asked if the AVEC board has to okay
communities coming into the coop. She commented that "if
they are in such dire straits your board has refused
membership to certain communities." Ms. Kohler stated that
was correct. She cited a recent example of refusal to the
village of Tuluksak; the system was in such a poor state of
repair that a large infusion of investment was going to be
necessary to bring them up to operating standards and AVEC
did not believe that their membership should pick up the
tab. She stressed that AVEC was willing to do it if the
state would bring the system up to a condition where we
could bring it into our system. She pointed out that it was
the state's decision not to upgrade the system.
1:56:33 PM
Representative Nelson reiterated that villages can only join
can at their (AVEC board's) discretion.
1:57:10 PM
Representative Hawker asked how many households live in
Tuluksak village and what would be the capital construction
cost to provide a barrier. Ms. Kohler observed 500 people
live in Tuluksak. She remembered that their project had not
been well operated. She informed that it was under size in
capacity. It was not capable of handling the power needs of
the school, nor did it have a tank farm available. AVEC put
together a list to bring it up to pare. She thought that
estimate was about $2-$2.5 million.
1:58:57 PM
Representative Joule asked how many villages are operating
their own electrical utility. Ms. Kohler answered
approximately 75.
2:00:49 PM
Co-Chair Meyer questioned the proposal on the bill to change
from 500 kWh per month to a split 700/300 kWh per month. Ms.
Kohler answered that the analysis done by the Legislative
Finance Division had predicted that with the 700/300 split,
eligible residential kWh would go up by 23%. Ms. Kohler
disagreed with the prediction and felt that eligibility
actually falls by 5 - 10%. She proposed that simply
restoring the cap to 700 kWh would be equitable because it
would represent the average usage in the compared
communities of Anchorage, Fairbanks, and Juneau. She stated
that it would not increase the usage in the summer, but
would allow for more coverage in the winter.
Co-Chair Meyer stated that he appreciated the feedback. He
questioned if they were to bump up to 700 kWh, would that
keep people from conserving. Ms. Kohler responded that she
would like to see a program that encouraged the development
of renewable and alternative energy in the village/rural
areas. She pointed out that AVEC is a firm advocate of the
power cost monitor plan discussed by Ms. Troll.
2:05:46 PM
Co-Chair Meyer asked about computers, assuming they probably
use a lot of electricity. Ms. Kohler stated that computers
were actually conservative, since they went into sleep or
low power mode, when not in use. She explained that using
power strips to control electricity usage was also helpful.
2:06:52 PM
Representative Joule asked about the 700 kWh versus the
700/300 kWh split. He emphasized that what the committee was
discussing was residential electric use versus
commercial/school use. He asked if there had been a change
of consumption in Nelson Island Communities with the use of
wind power. Ms. Kohler responded that she had not noticed
any change in energy consumption. Representative Joule
deduced that the areas hardest hit don't take advantage of
some flexibility.
2:08:52 PM
Representative Kelly asked if the administration was working
on increasing the financing cap. Ms. Kohler responded that
as a practical matter there is no other source of funds,
without an appropriation from the administration. She
thought that it would be easy to put money in a revolving
loan fund. She expressed that she would like to see a cap on
the interest rate charged. Representative Kelly pointed out
that the legislature was there to address an emergency and
he felt that moving the cap made sense.
2:12:04 PM
Representative Gara commented that perhaps a tie in would
benefit the rural areas, due to the potential for wind
power. He asked if AVEC could apply for a renewable energy
project, for the purpose of tying in rural communities.
Ms. Kohler answered that it was her understanding the
renewable energy fund included money for intertie projects;
she does know that nothing had happened yet with the $50
million that was appropriated. Representative Gara asked Ms.
Kohler to review the language on the renewable energy fund,
and look for a solution. He also asked if there would be a
benefit to raising the amount for the last three years of
the renewable energy fund, currently funded at $50 million a
year. Ms. Kohler responded in support of the idea because
AVEC had at least three years worth of projects that were
ready and in need of this funding.
2:15:30 PM
Vice-Chair Stoltze said that he wanted the monies given to
districts to be equitable. Ms Kohler did not disagree.
2:17:33 PM
Representative Joule asked if the recommended 72.5 cent fuel
cap (versus the proposed 52.5 cent cap) was based on
information from small communities or from broader Alaska.
Ms. Kohler responded that the number was extrapolated based
on the cost of fuel when the PCE was first instituted.
2:19:09 PM
JULIE KITKA, ALASKA FEDERATION OF NATIVES, responded to
earlier testimonies. In regard to the issue of emergency
fly-in of fuel, she suggested that the committee ask the
state and the emergency response office for a detailed cost
of the last three to five years. She also suggested,
inviting the head of the Denali Commission's energy program
to testify as well as the federal co-chair of the Denali
Commission with the purpose of answering specific questions
proposed earlier regarding bulk fuel. She thought that the
Denali Commission could also give details about cooperative
buying agreements and cooperative management agreements
among villages. She observed that there was talk of
coordinating federal agencies and negotiating a bulk fuel
purchase agreement with the Department of Defense in a past
Denali Commission meeting.
2:22:59 PM
Representative Kelly asked about any possible impediment to
wood burning from the Division of State Forestry. Ms. Kitka
replied that she was not aware of any such reports. She
expressed that she was in favor of wood burning and the
technology available to enhance the process.
2:24:59 PM
Ms. Kitka was encouraged with some of the new innovative
fuel burning projects. There is a range of new, low cost
ideas that could be implemented relatively quickly.
2:25:03 PM
Representative Kelly requested news of any blocks issued in
the future regarding the burning of wood. Ms. Kitka agreed
to report any information on this subject.
2:25:51 PM
DORIS CABANA, HOMER testified via teleconference, in favor
of both HB 4005 and HB 4006. She expressed support for all
people in the state. She stated that her family does
commercial fishing, which has been hit hard with the
increased cost in fuel. She urged that the legislation move
quickly as the need is critical. She felt that the
assistance should not be attached to the Permanent Fund
Dividend (PFD). Many seniors and families with small
children need to be helped quickly. She worried about those
that will "fall through the cracks this winter". She
indicated support and appreciation for the legislature and
for all of the bills proposed by the governor.
2:30:00 PM
PAUL KENDALL, ANCHORAGE, testified via teleconference. He
opposed previous comments and the cost associated with
energy assistance. He thought that all the previous
testimony was "fear based". He felt that the problem stems
from the leadership. "The source of the problem is people
with an interest in the fossil fuel distribution network."
Mr. Kendall recommended a 90-day energy review and energy
form, which should occur in Anchorage. He maintained that
there are too many parties that need to have accountability
and stressed that the focus should be on the whole. He
worried that the state will move toward bankruptcy by
providing "those people the money". He proposed that each
dwelling have an energy allotment and then be encouraged to
incentivize. He asserted that the producers and distributors
must be accountable. "If they refuse, those producers
should be sued."
AT EASE: 2:43:45 PM
RECONVENED: 2:53:49 PM
DEL CONRAD, CEO RURAL ALASKA FUEL SERVICES, MANAGER BULK
FUEL BRIDGE LOAN PROGRAM, ANCHORAGE testified via
teleconference. He commented on the amount of money that
has been lent on outstanding loans and cash pending loans
for the upcoming fuel season. He addressed the loan
program's status. Last year, the bulk fuel bridge loan
program loaned $2.3 million dollars. This year there has
been an increase in autumn deliveries, meaning that $2.3
million dollars will not be enough. He asserted that last
year's amount will not meet the needs. The bridge loan
program is set up so that only borrowers turned down by AEA
become eligible. He stated that in order to meet the needs
this year, there will need to be greater funding. He hoped
to see an increase in the program of about $5 million, in
order to meet the needs, with the increased cost of fuel
deliveries. Currently, there is a loan limit amount of
$500,000 dollars. He requested an increase to $750,000 in
the loan limits.
2:58:00 PM
Representative Nelson asked if the requested increase to $5
million was truly adequate. Mr. Conrad thought that $5
million would be sufficient for this year and noted that it
depends on the price of oil. Fuel prices are tracking
closely with what is happening with the worldwide price of
oil. With oil up over $150 a barrel, $5 million dollars will
probably be a questionable amount. He thought that $5
million should be the minimum; and he was more comfortable
with $7.5 million dollars.
2:59:39 PM
Representative Hawker asked Mr. Conrad about the loan loss
history. Mr. Conrad pointed out that they are working with
borrower's that are not able to borrow money from AEA.
There have been "slow" borrowers. Everyone has ultimately
paid back their loans. The program differs in that it goes
out to the communities and reviews the cost matrixes to
cover all costs. Sometimes the borrowers run out of cash,
because the charged prices were too low. Sometimes credit
collection policies are developed. The issues are
identified and provide better acceptance in addressing the
actual costs. Some loans have been delinquent, yet none
ever lost.
3:02:03 PM
DR. VI GERALD, HOMER testified in support of HB 4005 and HB
4006 via teleconference. She added her support for the PCE
bills and noted her appreciation of the legislature's work.
3:03:11 PM
HB 4005 and HB 4006 were HEARD & HELD in Committee for
further consideration.
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