Legislature(2007 - 2008)HOUSE FINANCE 519
07/31/2008 04:00 PM FINANCE
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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. 5:03:01 PM Vice-Chair Stoltze MOVED to ADOPT work draft #25-LS17557\E, Kane, 7/31/08, as the version of the bill before the Committee. There being NO OBJECTION, it was so ordered. SUZANNE ARMSTRONG, STAFF, REPRESENTATIVE KEVIN MEYER, explained the work draft, sectional analysis: · Section one pertains to the Power Cost Equalization (PCE) program containing the formula as it appeared in the original version of HB 4005 with a few modifications. Modifications including the lowering of the ceiling rate from two dollars to 75 cents a kWh. · Section two is a new addition to the bill proposing to repeal the new PCE formula on June 30, 2011 and return to the formula currently in statute. · Section three is a work in progress, the premise being, under HB4005 there are no new entrants to the PCE program. The non PCE eligible utilities will instead receive five cents per kWh for the first 500 kWh a month sold to each of the residential consumers. 5:06:23 PM Representative Joule asked about the impact on utilities. Ms. Armstrong explained that all utilities would be impacted. The bill is meant to be a two and two third year sunset, with the five cents per kWh also repealed on June 30, 2011. Co-Chair Meyer clarified that the initial intention was for a two year sunset, but he wanted to make sure the decision to continue or discontinue the program was not influenced by an election year. 5:07:40 PM Representative Nelson asked if Anchorage would pay six cents per kWh if the cost of electricity was lowered by five cents for non PCE users. Co-Chair Meyer responded that would depend on which utility company is used. Representative Nelson asked if there had been a "human cry" for rates to decrease. Co-Chair Meyer stated that the electrical costs have gone up in both urban and rural areas. 5:09:03 PM Representative Nelson wanted a perspective of costs. She referenced Stephen's Village, which pays over a dollar per kWh and would be covered up to 72.5 cents, whereas Juneau would be paying six cents per kWh. Ms. Armstrong replied that was correct; the ceiling in the committee substitute was seventy five cents per kWh. Co-Chair Meyer recognized the need to go above the seventy five cents, but he advocated a starting point. He asked that the entire package be addressed. Representative Kelly asked if the non PCE five cent approach would sunset at the same time. Ms. Armstrong replied yes, the entire PCE legislation would be addressed in the future. 5:11:09 PM Representative Crawford thought the bill might take the state in the opposite direction and that it would be a disincentive to Anchorage to conserve. Co-Chair Meyer explained that according to Chugiak, the average usage in Anchorage is 750 kWh per month and the bill is capped at 500 kWh per month, with the incentive to keep use under 500 kWh. The average monthly cost for electricity in Anchorage is $100 dollars. Representative Crawford did not think it would provide incentive to conserve. 5:14:15 PM Representative Thomas asked if the reduction would be for residential use only. Ms. Armstrong answered yes. Representative Thomas pointed out that he had not heard a "cry" for an electricity break; he noted that he had communities that pay 85 cents per kWh showing concern. Co- Chair Meyer asked what electricity would cost under PCE, at 50 cents per kWh. 5:16:21 PM DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, referenced the chart "Comparing Monthly Electric Bills at Various Costs and Usage." (Copy on File). Co-Chair Meyer clarified that if the rate was 50 cents per kWh then it would cost 15 cents with PCE, as long as the use was less than 500 kWh each month. 5:18:15 PM Representative Gara discussed Anchorage qualifications; he asked the number of those that would qualify. Ms. Armstrong replied that the two utilities in Anchorage would not qualify, because the bill proposes to add no new entrants to the PCE program. Under the proposed legislation, the non PCE utilities would qualify for the five cents per kWh for the first 500 kWh in a month. Representative Nelson asked for information on how much urban Alaskans spend on their utility bill. Mr. Teal referenced page five of the packet. 5:21:16 PM Ms. Armstrong continued with the overview: · Section four repeals the five cents per kWh on June 30, 2011. · Section five, repeals two sections that appeared in HB 152, which made the Alaska Heating Assistance st Program retroactive to November 1 2007. Co-Chair Meyer stated that "with the additional $10 million recently added to the existing federal $10 million Low Income Heating and Energy Assistance (LIHEAP) qualifying is now at 225 percent of the poverty level." He added that this bill simply increases the amount lower income people can get. Ms. Armstrong continued with section six which, applies to the state implementation of the Federal Low Income Heating and Energy Assistance Program (LIHEAP) and it provides for st the period beginning October 1 2008 through June 30, 2011. The per dollar value of a community heating cost point, which is calculated under regulation may increase to an amount of 170 dollars. Each point is calculated on a per dollar basis allowing the department to increase this to an amount not to exceed 170 dollars. Representative Nelson requested further explanation. Ms. Armstrong requested that Department of Health and Social Services (DHSS) address how the benefits are determined for the low income heating program. Her understanding was that the system established the criteria, and the application assigned points for status. The total number points were for heating cost point value. The value is $85 dollars per point not to exceed $170 per point. Representative Nelson asked if this meant $85 dollars per month. Ms. Armstrong replied that an individual may apply st to DHSS for the period beginning October 1 to April. The full benefit is calculated by the department; it is not a per month allocation, but a set amount. Co-Chair Meyer continued that anyone who qualified for the LIHEAP program previously will receive double the amount of assistance than from the old program. The new program will provide more money to those that need it. 5:28:17 PM Ms. Armstrong continued the overview: · Section six pertains to the Federal Low Income Heating Assistance and how the heating cost point will be adjusted. · Section seven pertains to the Alaska Heating Assistance Program and how the community heating cost point will be increased. · Section eight pertains to the Alaska Resource Rebate Section, changing the amount from $1200 to $1000, including a statement notifying recipients that the rebate is a one time payment to qualified Alaskans. · Section nine pertains to suspension of the motor fuel tax. · Remaining are effective date sections. 5:29:46 PM Co-Chair Meyer pointed out that all the sections sunset on June 30, 2001, with the exception of the Alaska Resource Rebate which is a one time payment. 5:30:18 PM Vice-Chair Stoltze commented on the conversation regarding the legislation privileging Anchorage. He did not think the issue was regional. Co-Chair Meyer pointed out that the intent of the bill is to help with four major statewide utility concerns. He admitted that the bill needs work. Co-Chair Chenault referenced page 4, line 25, stating "The Department of Revenue may assess a penalty of up to $5000 against any person that fails to provide the supporting invoices as required by this subsection." Ms. Armstrong responded that the link was included in HB 4004. 5:33:28 PM Representative Nelson asked the fiscal impact for each section. Ms. Armstrong stated that fiscal notes are currently being evaluated. Representative Nelson referenced Section two, specifically the five cent reduction in urban use versus the changes to PCE. She questioned the impact of the LIHEAP program to households. Mr. Teal stated that the graph exemplifies payments under the heating assistance. He estimated that a household could receive roughly $3000 from LIHEAP. Once a household is assigned a point value, it is adjusted for household size and income level. He referenced the chart "Heating Assistance Benefits at Various Income Levels." (Copy on File). Mr. Teal stated that people in rural Alaska could receive up to 35 points and anywhere between $1500 and $3000 depending on their income and the area in which they reside. The state LIHEAP program is assigned $10 million dollars. To double benefits, the maximum benefit increased to six thousand dollars. He concluded that without any applications received this year, the cost was yet unknown. 5:39:00 PM Representative Nelson understood the concept of pro rating; however, she wanted to understand the precise cash benefit per month to a struggling person. Ms. Armstrong responded that there was a packet of information from DHSS indicating scenarios of various areas in the state. When the department worked on the passage of state heating assistance program, they gave the estimate that 3800 additional households would become eligible. Representative Nelson stressed that her question remained unanswered. 5:40:59 PM RON KREHER, DIVISION OF PUBLIC ASSISTANCE, DEPARTMENT OF HEALTH AND SOCIAL SERVICES explained the difficulty of determining the actual benefit because of the nature of the point system. A household living in a community with a harsh climate, heating with diesel fuel, with an elder or child under the age of five could receive the maximum number of points, given this piece of legislation. That could mean $6000 per household. Depending on the heating cost needs, the purpose is to off-set costs. He explained that there is a lot of variability depending on the household income and living situation. Representative Nelson referenced page 2 and the average payment of two separate Alaskan communities. She asked if the payment was made each month. Mr. Kreher replied that one payment was made per heating season, with one heating season per year. 5:43:23 PM Representative Gara commented on providing state money to everyone in a utility below 15 cents a kWh. He wanted to see the state spend resources for those in the greatest crisis. He did not agree with giving state money to everyone in a utility below 15 cents per kWh. 5:44:44 PM Ms. Armstrong referenced the cost analysis handout. She requested further explanation of the handout by Mr. Teal. 5:45:25 PM Mr. Teal noted the cost model in column one, which is the existing program with the floor at 12.83 cents and the ceiling at 52.5 cents, with a cost of $32 million. This would all go to currently qualified utilities, without any new entrants. He explained that column one exemplifies the program as it currently exists. The program is currently funded at $28 million. Column two shows what will happen if fuel and electric prices increase, and the legislature provides supplemental funding. The program costs will go up to approximately $42 million. Then PCE reimbursements would be pro-rated. It was necessary to raise the ceiling to two dollars, because currently, nobody has an electric cost of two dollars. With no ceiling, the program would cost about 58 million dollars. The floor becomes a critical factor when the large urban utilities are included. The only ones that qualify with this floor are Golden Valley, Kodiak, Homer, Copper Valley, and Kake with $15 million allocated to these newly qualified utilities and $58 million going to the existing utilities. Because there were new entrants and it was important to keep the costs the same as the existing program, the floor was raised. These were policy calls aimed at keeping costs contained. These are not policy recommendations, but merely an attempt to keep costs even. If the program is extended to all urban utilities, with a slightly reduced ceiling of 75 cents, there is a reduction in payments to currently qualified utilities and an increase in payments to the newly qualified. 5:52:01 PM Representative Gara asked for clarification on the increase to the cost of the program to $65 million, through giving utilities five cents per kWh if they are under 15 cents per kWh. Mr. Teal responded that the urban utilities are many times larger, which explains the increased cost. Representative Gara reiterated his question. Mr. Teal responded that every new utility that qualifies receives five cents per kWh. 5:54:06 PM Representative Gara asked about the expense for each of the utilities that charge less than 15 cents. Mr. Teal explained the method for adding up the cost. 5:54:35 PM Co-Chair Meyer clarified the question as "what is the state spending on those who pay less than 15 cents per kWh." 5:55:20 PM Representative Thomas noted that Kake Tribal Corporation is mistakenly misrepresented in the provided handout in regards to cost per kWh in Kake. Mr. Teal explained that this information was provided by the Regulatory Commission of Alaska (RCA) and is not completely accurate. It needs to be cleaned up. 5:57:08 PM Representative Joule pointed out that there is an anomaly, as the North Borough would not be able to take advantage of the subsidy because they do not pass along the costs to their customers. He would like to find a way to make sure that they can be reimbursed like the other utilities. Co-Chair Meyer agreed that the incentive to conserve and efficiency should always be at the forefront. 5:59:38 PM Representative Hawker referenced conflicting testimony over the weekend between the Alaska Village Electric Cooperative (AVEC) and Alaska Energy Authority (AEA) regarding revolving loan funding. He wanted representatives from those organizations to come in to clarify. It would be very helpful if the fiscal notes included per capita estimated benefits of the programs, especially from an objective source such as the departments. Vice-Chair Stoltze asked for clarification. Co-Chair Meyer noted that the revolving loan fund was never resolved and he was not sure that the PCE fund had been resolved either. He asked if the new portion included in the bill would come from the discussed PCE fund or from the general fund. Ms. Armstrong thought that would be up to the committee. She described that there is an appropriation in HB4003 for additional funds to PCE. 6:02:38 PM Representative Crawford asked about the motor fuel tax suspension, noting the amount of paperwork created. At eight cents per gallon, there is minimal benefit for the amount of paperwork required to get reimbursements. He thought that making a direct payment may be an easier way to arrive at the same goal. Co-Chair Meyer asked for clarification. Representative Crawford explained. The other point he wanted to make concerning diesel and aviation fuel. He wondered if a direct payment might make more sense. 6:05:39 PM JERRY BURNETT, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF REVENUE, explained the various tax rates on different kinds of fuel. Marine fuel is taxed at 5 cents per gallon, aviation gasoline is 4.7 cents per gallon, and jet fuel is 3.2 cents per gallon. The federal government funds the department for the cost of tracking these taxes. The positions for tracking and collecting of motor fuel tax are funded by the federal government through their tax collections, so there is not a general fund cost to do this. Representative Thomas asked if the marine fuel tax at five cents per gallon was shared with the municipalities. 6:06:45 PM Mr. Burnett answered that there is not a tax sharing with anything except for the aviation fuel portion sold at municipal airports. Representative Thomas asked if the state would be subsidizing the non-resident fishermen by suspending the motor fuel tax. Representative Gara commented on a gasoline study showing that refiners set their price based on what they know Alaskans would have to pay if importing gas from the lower 48 state. He asked whether the refiners or the dealers pay the motor fuel tax to the state. Mr. Burnett replied that the motor fuel tax is collected at the distributer level when it is sold to retailers. Representative Gara stated that refiners base their charge, not on what it costs them to refine fuel, but what they know they can charge given the alternative of shipping gas up from the lower 48. He maintained that once the eight cents is suspended, the refiners will just add it back on. Mr. Burnett could not speak to what refiners or distributors would charge for their fuel. He asserted that, in other states where motor fuel tax has been removed, gas prices have fallen as a result. Representative Gara pointed out that other states are not 1,000 miles away from the nearest refinery source. He requested information to dispute the finding that gas refiners charge what they know they can, based on how much it would cost to import gas from the lower 48. Mr. Burnett did not have any information to dispute that. Representative Gara stated that he did not want to give money to the refiners. Mr. Burnett responded that there is some competition on the market. Not all fuel is sold by one refiner or distributor, so he believed that with the motor fuel suspension, there would be a price effect. Representative Gara asked for the administration's analysis before the suspension was implemented. He felt there was no credible information that the savings will make it to the consumers. Mr. Burnett was not familiar with the study and therefore did not have a response. Co-Chair Meyer pointed out that Anchorage is a competitive market so that if one distributer removed the eight cents, the others would have to as well. Representative Gara asked who pays the tax. Mr. Burnett replied that the tax is collected at the distributer level when the retailer purchases it from the distributer. The wholesaler is adding the tax to the price when the retailer buys it from the wholesaler. 6:12:39 PM Co-Chair Meyer requested that members attempt to achieve a balance between urban versus rural, and low income versus middle income. He encouraged awareness regarding the five cent credit per kWh portion of the PCE enabling a $25 dollars per month savings in Anchorage, and $300 dollars per month benefit in some rural areas. He recommended a new draft based on comments. He recommended that amendments be taken. Representative Nelson requested follow up on Representative Hawker's suggestion regarding the bulk fuel revolving loan fund. Ms. Armstrong offered to speak with Ms. Sarah Fisher- Goad at the Department of Commerce, Community and Economic Development, and attempt to get in touch with Ms. Meer Kohler of AVEC for input. Representative Gara wanted the administration to testify on behalf of a plan to bring the savings from the gas tax to the consumer. He wanted to see an analysis by the administration. Co-Chair Meyer agreed that an analysis would be important, because if the tax were suspended, the consumer would expect to see an eight cent savings. 6:16:51 PM Representative Thomas commented on the Railbelt energy area where 63 percent of the people live, and only 27 percent live in the rural area. He stated that one-third of the 27 percent don't drive. Co-Chair Meyer responded that aviation and marine fuel are also included in the tax suspension. 6:18:06 PM Representative Gara suggested the committee find out how much the state would pay by suspending the gas tax, and then put it into another program that would benefit Alaskans. Co-Chair Chenault commented that gas tax raises about $40 million dollars. Mr. Burnett agreed. Co-Chair Chenault asked where the eight cents goes. 6:19:04 PM RANDALL RUARO, SPECIAL ASSISTANT, OFFICE OF THE GOVERNOR believed that consumers will see most of the savings. One reason he cited was the competitive market. If a retailer was not lowering their price then they would sell less gas. The proposed suspension will benefit particularly the urban areas. He referred to a study of a gas suspension in the year 2000 in Indiana and Illinois, which determined that 60 to 80 percent of the savings were being passed on to the consumers. He pointed out that they had worked on an amendment to insure that the savings pass through. 6:20:58 PM Representative Gara understood that other states administer the tax in a way that the cost actually goes back to the consumer. Refiners are charging by what it would cost to bring gas up from the lower 48 states. Refiners that pay the gas tax probably will not reduce the gas price. Instead, they will say "go get it from the Lower 48." The retailers are not paying the gas tax. He questioned if refiners are basing the charge on the cost to bring gas from the Lower 48, how the money will be passed to consumer. Mr. Ruaro added that the distributors have a line item for the eight cent a gallon tax. The line items would be on their invoices so the retailers will be paying less, allowing them to pass the savings on. Representative Gara projected that the company selling the gas to the retailer will raise their price by eight cents prior to selling it. Mr. Ruaro thought that the language of the amendment would insure that the savings are passed on. Representative Gara suggested that retailers pay the gas tax so the savings gets back to the consumer. Mr. Ruaro disagreed and thought that the saving would be passed on, to the consumer with the help of an amendment. Representative Gara wanted to know that the disagreement was based on a study. Mr. Ruaro stated that the amendment would be sufficient, but it would not be perfect. The only guarantee in the bill is that if we do not suspend the tax, then Alaskans will continue paying it. 6:24:27 PM Vice-Chair Stoltze spoke to the surcharge and questioned the effect on businesses that did not want to raise prices. He had spoken with some business owners in favor of the gas suspension because even if it did not result in a savings, the business owner might not have to increase the price or add a surcharge. 6:26:27 PM Co-Chair Chenault wondered if the provision on page 4, line 25 is new or in existing law. Mr. Ruaro observed that the provision is new and is intended to ensure the savings is passed on to the consumer. Co-Chair Chenault noted that the Tesoro refinery in his district does not benefit from the high price of oil. Most Kenai gas stations buy gas from Tesoro. 6:28:50 PM Representative Crawford observed that competitive market forces do not exist in Alaska outside of Anchorage. He did not think an eight cent tax cut would be passed to consumers. 6:30:39 PM Representative Hawker stressed that the overriding objective is efficient, equitable, and effective legislation and that benefits the consumer. He expressed concern about moving the bill out too quickly. 6:33:30 PM Representative Thomas questioned if the cap on PCE would be raised. Co-Chair Meyer agreed that the next CS would exhibit a higher PCE cap. Representative Nelson observed that Ms. Meer Kohler, President of (AVEC) had communicated earlier today that she supported raising the cap to $1.15. Co-Chair Meyer pointed out that the provision has a sunset and can be fine tuned in future years. 6:35:54 PM Representative Gara observed that Alaska is paying the highest gas prices in the nation, even though refinery costs are not the highest in the nation, given the cost they are paying for oil. He offered to present the study at a later date, which he had been referring to throughout the committee meeting (analysis by Professor Burman at the University of Alaska in Anchorage). Co-Chair Chenault expressed concerns with the gas tax. He would like to see the high price of gas be addressed in this bill as well. Many Alaskans have to commute to work, and he said that it does cost a "small fortune" to fill up some vehicles. 6:38:23 PM Representative Kelly requested that page two, line 25, be changed to "an electric utility whose customers receive a power cost subsidy under this section." He suggested this to eliminate confusion that "we are somehow in the PCE program." Ms. Armstrong stressed that the mentioned section is a work in progress. She is working with her legal drafting team to clear it up. Representative Kelly suggested a floor or a date to prevent driving the kWh cost below what it has been for years. Representative Kelly noted concern that in the future, the Legislature will be considered less beneficial and promote less self reliance than it appears. He worried specifically about the LIHEAP increase and how that will be handled in the future, and he worried about the total amount that eventually might be taken away and the pain this might cause some Alaskans. He encouraged legislators to seriously consider programs that will be carried into the future. 6:43:12 PM Representative Gara asked about the amendment process moving so quickly. Co-Chair Chenault did not know if it would happen in one day. Representative Gara requested an extra day. Co-Chair Chenault could not make that commitment. Representative Crawford asked if the Committee would be required to submit amendments tonight. Co-Chair Chenault offered to take amendments. 6:45:11 PM SARAH FISHER-GOAD, DEPUTY DIRECTOR OF OPERATIONS, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, understood that there were questions regarding AVEC's need for a loan for fuel purchases vs. the bulk fuel revolving loan fund. Representative Hawker noted that he had raised that question. He hoped for a round table discussion with AVEC and Ms. Goad, with the goal of sorting the issue out. Co-Chair Meyer asked that there be teleconference discussion between Ms. Fisher-Goad and AVEC. Ms. Fisher-Goad understood that AVEC had a loan requirement. The question was whether the requirement was for an amendment for the bulk fuel revolving loan fund or not. Because of the loan amount needed, it will be a $20 million dollar loan vs. our $500 thousand cap for a bulk fuel revolving loan fund. The fund has come in to existence for smaller communities where typically a borrower wouldn't have the ability to ask a private bank for a one year loan. She offered to work with the staff to add the issue outside of the bulk fuel program. Representative Hawker wanted that question answered and to have AVEC testify. 6:49:55 PM Representative Gara referenced the handout from AHFC regarding the question of how to maintain the rebate program, which AHFC had estimated at $60 million dollars. 6:51:35 PM Co-Chair Meyer requested that amendments be drafted for the next meeting. He requested that all the players be present to answer the questions. HB 4005 was HEARD and HELD in Committee for further consideration.