Legislature(1993 - 1994)
05/08/1993 11:15 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE BILL NO. 106 "An Act authorizing power transmission interties between Anchorage and the Kenai Peninsula, between Healy and Fairbanks, and between the Swan Lake and Tyee Lake hydroelectric projects, and approving the design and construction costs of the interties; and providing for an effective date." BRENT PETRIE, ALASKA ENERGY AUTHORITY (AEA) testified from Anchorage via teleconference. He stated that full funding for the Power Cost Equalization Program (PCE), as provided for in CSSB 106(FIN) am(efd fld) and CSSB 126(RLS) am(efd fld), will last for only 4 to 5 years. He commented on the Tyee-Swan Lake allocation. He noted that if the Southeast Energy Fund is used primarily for payment of the Tyee-Swan Lake intertie that debt service payments would be approximately $3.2 million dollars. The initial allocation to the Southeast Energy Fund is $4.2 million dollars. Mr. Petrie stressed that Alaska Industrial Development and Export Authority (AIDEA) statutes may require amendment in order to achieve comparable financing capability. He asserted that without such amendment, revenue bond financing for projects such as interties may be more costly. Mr. Petrie clarified, in response to a question by Co-Chair MacLean, that the legislation provides the following allocations from the AEA's Power Development Revolving Loan Fund (PDRLF): * 30 percent ($3.1 million dollars) to the PCE/Rural Cap Fund; * 30 percent ($3.1 million dollars) to Power Project Fund loans; and * 40 percent ($4.2 million dollars) to the Southeast Energy Fund. He noted that the cities of Wrangell and Ketchikan would be the major beneficiaries of the Southeast Energy Fund. Representative Grussendorf later clarified that Petersburg would also benefit. Co-Chair MacLean asked the rate of decline for PCE over a ten year period. Mr Petrie explained that if $17 million a year is appropriated to PCE for grants, the body of the fund would be consumed by the year 2000. After that time, 30 2 percent funding for PCE is expected. MEL KRONSENG, LEGISLATIVE STAFF, REPRESENTATIVE BARNES explained that AEA will remain intact as a corporation. The Alaska Energy Authority will be moved under AIDEA for management. The AIDEA Board of Directors will function as the Board of Directors for AEA. The transfer was recommended by bond counsel. Ms. Kronseng referred to a letter from Mr. Don Grimes, J.C. Bradford and Company (Attachment 1). She asserted that the current version of CSSB 106(FIN) am(efd fld) has addressed his concerns. She noted that AEA remains a separate entity and that there is a six month transition period. She pointed out that the rural functions of AEA will be transferred to the Department of Community and Regional Affairs. She provided members with a memorandum from AEA to the Department of Community and Regional Affairs (Attachment 2). She noted that AEA will have $19.8 million dollars available for transfer to the Department of Community and Regional Affairs. Ms. Kronseng pointed out that $90.0 million dollars of the Railbelt Intertie Reserve will be allocated as grants for the Northern and Southern interties. The remainder will be bonded through AIDEA. Ms. Kronseng provided members with a chart detailing appropriations made in CSSB 106(FIN) am(efd fld) and CSSB 126(RLS) am(efd fld) (Attachment 3). She reviewed appropriations contained in CSSB 126(RLS) am(efd fld) as shown by Attachment 3: * Tyee/Swan Lake loan, $20 million dollars at 3% over 15 years to be repaid to the Railbelt Energy Fund; * Sutton-Glennallen, $35 million dollars at 0% over 50 years to be repaid to the Railbelt Energy Fund; * $3 million dollar general fund appropriation for the Seward-Lawing Substation intertie to be repaid in to the Power Project Fund; Ms. Kronseng explained that Four Dam Pool money will be divided: * 30 percent ($3.1 million dollars) for the PCE/Rural Cap Fund; Ms. Kronseng clarified that the intent was to fund PCE for a minimum of ten years. 3 * 30 percent ($3.1 million dollars) for Power Project Fund loans; and * 40 percnet ($4.2 million dollars) for the Southeast Energy Fund. Ms. Kronseng noted that $13.2 million general fund dollars will be appropriated to complete the Sutton/Glennallen intertie. Ms. Kronseng referred to the Railbelt Energy Fund. She noted that interest from the fund has not been appropriated. The interest earnings of the Railbelt Energy Fund contained within the General Fund is $85 million dollars. The legislation proposes to appropriate the interest to the PCE/Rural Cap Fund. She agreed with Mr. Petrie that the Fund will be depleted by the year 2000. Co-Chair MacLean provided members with a spread sheet showing the decline of the PCE/Rural Cap Endowment (Attachment 4). She reiterated that the intent was to provide funding for 10 years. Ms. Kronseng continued to outline appropriations made by CSSB 126(RLS) am(efd fld): * $5.0 million dollars for Iliamna-New Halen- Nondalton hydroelectric power project; and * $3.9 million for operating expenses in the Department of Community and Regional Affairs. Ms. Kronseng stated that Representative Barnes would favor a 10 percent decrease to the Power Project Fund and an accompanying increase in the PCE/Rural Cap Fund. Co-Chair MacLean noted that Mr. Petrie indicated that the bonding capability of AIDEA would be in question. Ms. Kronseng replied that bond counsel signified that, since bonds will not be issued for a year of more, amendments to bonding statutes could be delayed. Representative Martin questioned the 0 percent interest rate loan to complete the Sutton-Glennallen intertie. Ms. Kronseng stressed that the 0 percent loan is needed to make the project feasible. Representative Grussendorf expressed concern that legislative overview will be diminished. Ms. Kronseng assured him that the legislative overview process will be improved. Representative Brown referred to CSSB 106(FIN) am(efd fld) 4 page 37, section 36. She noted that the state will retain ownership of power projects. Co-Chair Larson discussed the FY 94 spending plan. Ms. Kronseng reviewed fund transfers. Co-Chair MacLean asked where AEA umbrella projects will be addressed. Ms. Kronseng noted that projects will be addressed in the capital budget. Co-Chair Larson relayed constituent concerns regarding the Sutton/Glennallen intertie. Ms. Kronseng stressed that an intertie needs to be built in the Sutton/Glennallen area to complete the power grid system between Fairbanks, Anchorage and the surrounding areas. Co-Chair Larson asked if right-of-way rights, feasibility studies and permits are in place for the Sutton/Glennallen intertie. (Tape Change, HFC 93-133, Side 1) Ms. Kronseng assured Co-Chair Larson that right-of-way rights have not been purchased. She stated that alternative routes are being researched. She emphasized that further public testimony will be taken. She stated that "if the line is not feasible, it will not be built." Representative Brown asked why the project should be authorized and committed to prior to the completion of the feasibility study. She noted that there is local opposition to the project. Ms. Kronseng observed that the Solomon Gulch hydroelectric project near Valdez is at peak demand. She pointed out that there are a variety of economic development projects in the area waiting for sufficient electrical power to begin operations. Ms. Kronseng clarified, in response to a question by Representative Therriault, that the administration could delay appropriations to projects contained in the legislation until the end of the fiscal year. She noted that the effective date clause failed in the Senate. Representative Parnell suggested that a legal written opinion be obtained to confirm that outstanding AEA bonds will not be affected. JIM BALDWIN, ASSISTANT ATTORNEY GENERAL, DEPARTMENT OF LAW stated that the Department of Law would like to see language added to allow moral obligation debt. He observed that AIDEA does not have the ability to issue moral obligation debt. He indicated that bond counsel feels that moral 5 obligation bonds would be needed for issuance of intertie projects. He pointed out that AEA does have the ability to issue moral obligation bonds. He agreed that it is not essential that AIDEA be given the ability to issue moral obligation bonds at this time, since bonds will not be issued for a year or more. Co-Chair MacLean asked how the legislation will address concerns regarding the comparative bond capabilities of AEA and AIDEA. Mr. Baldwin emphasized that moral obligation bonding is a significant marketing factor. Mr. Baldwin discussed areas of concern to bond counsel. He mentioned jurisdiction of the Alaska Public Utility Commission (APUC). He noted that under existing law AEA has APUC exemptions. He pointed out that AIDEA does not have a similar exemption. Mr. Baldwin maintained that in order to assure investment bankers AIDEA should be a signatory to the grant agreements. Representative Parnell reiterated concerns regarding AEA's outstanding bonds. Mr. Baldwin pointed out that there are project specific bonds and general obligation bonds. He stressed that AEA will retain its framework with sufficient power to fulfill bond covenants. Representative Brown asked what authority AEA will retain. Ms. Kronseng clarified that AEA will retain all functions except the initiation and construction of new projects. Co-Chair Larson provided members with resolutions from the Matanuska-Susitna Borough regarding the Sutton/Glennallen intertie (Attachment 5). The resolutions recommend that alternatives be studied and that a feasibility study be completed. Representative Brown discussed the classification of employees transferred to the Department of Community and Regional Affairs. She noted that AIDEA and AEA employees are exempt. Employees of the Department of Community and Regional Affairs are not exempt. Representative Brown asked if AEA's investigation authority will be repealed. Mr. Petrie noted that in section 27, AEA's ability to conduct reconnaissance and feasibility studies is repealed (AS 44.83.170). Representative Brown asked how ongoing projects will be affected. Mr. Petrie stated that the major feasibility study being conducted by AEA is the Sutton/Glennallen intertie feasibility study. He stated that AEA would try to complete the study before the 6 statute is repealed. He noted that the preliminary study showed that there might be a cost savings in down scaling the project. Ms. Kronseng stated that AIDEA would determine the fate of AEA's employees. Representative Brown asked if there will be a change in how AEA's budget will be reviewed by the Legislature. She asked if AIDEA has independent authority. She asked if legislative oversight will be lessened. Mr. Baldwin noted that the operating budget of AIDEA is subject to the Executive Budget Act. The nonoperating portion of AIDEA's budget is not scrutinized by the Legislature. There must be legislative approval for bond issuances of more than $10.0 million dollars. Representative Brown noted that AIDEA could allow small energy projects without legislative scrutiny. Ms. Kronseng stated that it is her understanding that legislative oversight would not be altered. She emphasized that AIDEA's Board of Directors becomes the Board of Directors for AEA. KRISTINA ERHART, VOLUNTEER, ALASKA ENVIRONMENTAL LOBBY asked that the Committee consider least cost planning and energy efficiency as state policy. She supported the use of integrated resource management planning (IRMP). She emphasized that IRMP would result in net long term savings. She stressed that a 1989 AEA study concluded that the proposed interties are only marginally cost effective. She noted that the study found that demand side efficiency investments provide a higher cost benefit ratio. Ms. Erhart asserted that subsidized power utilities have little incentive to look for more cost effective measures. She noted that other state industries emphasizing energy efficiencies are adversely affected. Ms. Erhart stated she had spoken with Sutton/Glennallen residents. She discussed concerns of the Sutton/Glennallen residents. She noted that conversations with AEA indicate the feasibility study will be completed by December 1, 1993. She noted that public testimony is being compiled and will not be available until December 1, 1993. She asked that authorization for the intertie be postponed until after completion of the feasibility study. BILL LEEDY, ALASKA APPLIED SCIENCES INCORPORATED spoke on behalf of renewable energy interests. He emphasized that the intertie concept is a poor investment relative to demand side management. (Tape Change, HFC 93-133, Side 2) 7 Representative Brown requested that a statewide teleconference be held for public comment on CSSB 106(FIN) am(efd fld) and CSSB 126(RLS) am(efd fld). Co-Chair MacLean provided members with AMENDMENT 1 (Attachment 6). She noted that it is the intent of the legislature to fund the PCE program at a least 17 million annually. She observed that this will provide funding for only 80 percent of PCE needs. She asserted that the allocation from the PDRLF Fund plus the initial grant of $66.9 million dollars will not be enough to continue funding for PCE at the $17 million dollar level. Amendment 1 would state that it is the intent of the legislature to continue support for PCE at the $17.0 million dollar level until the year 2013. Representative Martin expressed concern with the cost of assuring equality. Representative Grussendorf established that rural areas pay between .34 to .54 cents a kilowatt hour. Anchorage and other urban areas pay approximately .095 cents per kilowatt hour. Ms. Kronseng clarified, in response to a question by Representative Brown, that the legislature must make an annual appropriation from the PCE Rural Cap Fund for PCE reimbursements. To continue the program past the year 2000, additional legislative appropriations would have to be made. Co-Chair MacLean MOVED to ADOPT AMENDMENT 1. Representative Martin OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Brown, Grussendorf, Hoffman, Navarre, Foster, Therriault, MacLean, Larson OPPOSED: Martin, Parnell Representative Hanley was not present for the vote. The MOTION PASSED (8-2). Co-Chair Larson provided members with AMENDMENT 2 (Attachment 7). Mr. Baldwin explained that Amendment 2 would allow the issuance of moral obligation debt solely for a power transmission intertie. Co-Chair Larson MOVED to ADOPT AMENDMENT 2. Representative Brown OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Foster, Martin, Parnell, Therriault, Grussendorf, Hoffman, Navarre, MacLean, Larson OPPOSED: Brown 8 Representative Hanley was not present for the vote. The MOTION PASSED (9-1). Representative Brown provided members with AMENDMENT 3 (Attachment 8). Representative Brown noted that section 39 should not have been added to page six of Amendment 3. There being NO OBJECTION, section 39 was deleted from page six of Amendment 3. She explained that the Amendment would require railbelt utilities to develop integrated resource plans prior to participation in the projects contained in CSSB 106(FIN) am(efd fld) and CSSB 126(RLS) am(efd fld). She maintained the need to assure that utilities consider the most cost effective alternatives. Ms. Kronseng replied that utilities operating under REAA's are required to provide an integrated management system. She emphasized that larger utilities are already performing integrated management plans. She felt that Amendment 3 would be redundant. She asserted that the Amendment would allow APUC to tell utilities how to construct their projects. Representative Brown stressed that the Amendment would only affect large railbelt utilities. She observed that projects executed by AIDEA will be subject to APUC jurisdiction. Ms. Kronseng replied that AIDEA will not be constructing the interties. The interties will be constructed by the utilities. DAVE HUTCHENS, ALASKA RURAL ELECTRIC COOP ASSOCIATION (ARECA) stated that utilities are already providing planning. He asserted that the Amendment would transfer responsibility for the planning process from utilities to APUC. He noted that ARECA is opposed to the Amendment. Representative Brown MOVED to ADOPT AMENDMENT 3. Representative Therriault OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Brown, Grussendorf, Hoffman, Navarre OPPOSED: Foster, Martin, Parnell, Therriault, MacLean, Larson Representative Hanley was not present for the vote. The MOTION FAILED (4-6). Co-Chair MacLean provided members with AMENDMENT 4 (Attachment 9). She explained that Amendment 4 would increase the allocation percentage to the PCE Rural Fund from 30 to 40 percent and decrease the allocation for the Power Project Fund to 20 percent. She asserted that the 30 percent allocation does not come close to providing adequate 9 funding for capital projects administered by AEA. Ms. Kronseng stated that Representative Barnes supports Amendment 4. She noted that funding for statewide projects will be reduced. Members discussed uses for the Power Project Fund. Mr. Petrie noted that repairs are needed on a section between Wrangell and Petersburg. Repair costs are estimated at $12 million dollars. Representative Navarre asked how long revenues will be received from the Four Dam Pool agreement. Mr. Petrie stated that revenues will continue until the year 2030 at approximately $12 million dollars a year. Representative Navarre questioned the ability to finance the Tyee/Swan Lake intertie based on an annual appropriation. Mr. Petrie agreed that obtaining financing based on annual legislative appropriation will be difficult. The total project cost is $60 million dollars. Representative Navarre suggested that varying energy policies are being set up for different areas of the state. Members discussed financing for the Tyee/Swan Lake intertie. Representative Navarre noted that the city of Ketchikan will need to guarantee financing. Co-Chair MacLean MOVED to ADOPT AMENDMENT 4. Representative Navarre OBJECTED. A roll call vote was taken on the motion. IN FAVOR: Foster, Hoffman, Martin, Parnell, Therriault, MacLean, Larson OPPOSED: Martin, Navarre, Grussendorf Representatives Brown and Hanley were not present for the vote. The MOTION PASSED (6-3). Mr. Hutchens, in response to a question by Representative Foster, stressed that AEA's existing programs for rural energy can be administered by the Department of Community and Regional Affairs. He noted that the Department of Community and Regional Affairs would need to gain expertise and surmised that personnel from AEA would be transferred to the Department. (Tape Change, HFC 93-134, Side 1) Ms. Kronseng explained how the dissolution of AEA became incorporated into CSSB 106(FIN) am(efd fld). She asserted 10 that it is appropriate that the rural functions of AEA be performed by the Department of Community and Regional Affairs. She noted that AEA was originally established to oversee large energy projects. She emphasized that except for the interties there are no major projects on the horizon. Representative Hoffman asked if there is adequate representation on the AIDEA Board to address rural concerns. The Board consists of the commissioners of the Department of Community and Regional Affairs, Department of Revenue, Department of Commerce and Economic Development and two public members. The two public members are not currently from rural Alaska. Representative Grussendorf expressed concern that the legislation goes to far. Representative Therriault MOVED to report HCS CSSB 106(FIN) out of Committee with individual recommendations and with the accompanying fiscal note. Representative Brown OBJECTED. She noted that there are fifteen fiscal notes associated with the legislation. Mr. Petrie observed that the existing fiscal notes did not apply to the HCS CSSB 106(FIN) version. Representative Brown suggested that the bill be held until the Committee could obtain updated fiscal notes. HCS CSSB 106(FIN) was was HELD in Committee.