Legislature(2015 - 2016)BARNES 124
02/20/2015 03:15 PM House LABOR & COMMERCE
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| Audio | Topic |
|---|---|
| Start | |
| HB81 | |
| HB86 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | HB 81 | TELECONFERENCED | |
| += | HB 86 | TELECONFERENCED | |
HB 86-PCE ENDOWMENT FUND INVESTMENT
4:39:35 PM
CHAIR OLSON announced that the final order of business would be
HOUSE BILL NO. 86, "An Act relating to investment of the power
cost equalization endowment fund; and providing for an effective
date."
4:39:47 PM
JERRY BURNETT, Deputy Commissioner, Office of the Commissioner,
Department of Revenue (DOR), stated that HB 86 would remove
"seven percent" from the statute and replaces it with a phrase
that reads, "to meet the objectives of the power cost
equalization and rural electric capitalization fund (AS
42.45.100)." He clarified that none of the other funds have a
numerical objective in statute, but risk is involved in trying
to reach a specific numerical objective over time.
4:40:59 PM
REPRESENTATIVE JOSEPHSON asked whether anything unfortunate
happened to the account or the language is just being adjusted.
MR. BURNETT stated that he has been with the department for 10
years. He recalled that the department suffered some fairly
large losses in 2008 in the fund, but relatively speaking there
haven't been any bad decisions during that time; however, since
he has been with the department, all five commissioners have
supported removing the number from statute.
4:42:01 PM
REPRESENTATIVE KITO said it seemed as though the investment
goals may have changed, since enough income is being generated
by the fund to pay for the current Power Cost Equalization
Program. He said it appeared as though the department wants to
manage it and not lose the ability to do so.
MR. BURNETT said it is currently probably less important to be
an aggressive investor than it might have been a few years ago.
The balance in the fund is over $950 million and a 7 percent
payout is more than what is required to manage the power cost
equalization (PCE) expenditures. He suggested it is well within
the objectives of the fund to "ratchet down risk" a little bit.
4:43:06 PM
CHAIR OLSON reported that the committee has received
documentation today that since 2000 the PCE fund has averaged
6.05 percent return on investment.
MR. BURNETT said it is a geometric annualized return and not an
arithmetic average of the returns year to year, but is a
geometric average, which includes the losses.
4:43:32 PM
REPRESENTATIVE HUGHES asked whether this is now just being
brought forward due to the market. She asked for further
clarification on the types of investments.
4:44:01 PM
MR. BURNETT said Gary Bader previously testified on the standard
deviation between different types of investments and how having
a riskier investment may look like it will reap a higher return,
which will happen arithmetically over time, but the geometric
return can be reduced due to the losses. He stated that capital
market assumptions change each year so the department considers
different levels of risk. This year the goal might be a 6
percent return and next year it might be a 9 percent return,
depending on the market. He referred to the different types of
investments such as stocks relative to bonds, or fixed
investment - which currently has little return. He reported
that the stock market has been going up for the past six years,
but it has never gone up for seven years. It doesn't mean it
won't but it has never happened since 1802, he said. This
matter was introduced in last legislature, but it did not move
through the process, he reported.
4:45:41 PM
REPRESENTATIVE HUGHES related her understanding that the 7
percent requirement was established in statute since it was what
was considered necessary to pay the PCE expenditures. She asked
for the target return to meet expenditures.
MR. BURNETT answered that the statute for the payout is 7
percent of the average of the prior three years. He said that
this is reported to the Alaska Energy Authority and they use
that figure as the maximum that it could request. He recalled
that the budget for the PCE is in $50 million range, which is
approximately between a 5-6 percent return.
4:47:03 PM
CHAIR OLSON, after first determining no one wished to testify,
closed public testimony on HB 86.
4:47:22 PM
REPRESENTATIVE HUGHES moved to report HB 86 out of committee
with individual recommendations and the accompanying fiscal
note. There being no objection, HB 86 was reported from the
House Labor and Commerce Standing Committee.