Legislature(2001 - 2002)
02/26/2001 09:05 AM Senate FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 84(JUD)
"An Act exempting certain joint action agencies from
regulation by the state or municipalities; relating to the
relationship between certain joint action agencies and the
public utilities that form the joint action agencies; relating
to powers and immunities of certain joint action agencies;
requiring filing of certain joint action agency agreements;
relating to the financial affairs of certain joint action
agencies; declaring certain joint action agencies to be
political subdivisions for certain purposes; relating to
liability and indemnification of officers, employees, and
agents of certain joint action agencies; and defining 'agency
agreement' and 'parties to the agency agreement' as used with
reference to certain joint action agencies."
st
SENATOR ROBIN TAYLOR advised that the 21 Legislature passed
legislation creating the Power Cost Equalization (PCE) and
authorizing the sale of the Four Dam Pool Projects to local
utilities and communities. The PCE Endowment was funded by an
appropriation from the Constitutional Budget Reserve (CBR) and from
proceeds from the sale of the Four Dam Pool projects. Governor
Knowles signed the bills into law in May 2000. The Four Dam Pool
Utilities and the State have been diligently working to complete
the complex transaction by December 31, 2001. At closing, the
proceeds from the sale would be deposited into the PCE Endowment.
The Four Dam Pool communities and utilities have created a Joint
Action Agency (JAA), which will become the owners of the projects.
During the legal review of the new organization, a variety of
technical issues were raised concerning the tax and regulatory
status of the JAA.
Senator Taylor noted that SB 84 would resolve the issues so that
the sale of the project could be completed as envisioned and the
endowment would be fully funded.
The bill addresses the following four issues:
· Federal tax status of the Joint Action Agency;
· State tax status of the Joint Action Agency;
· Potential liability of member utilities for claims
against the JAA; and
· Exemption from Regulatory Commission of Alaska (RCA).
Co-Chair Kelly asked if the cooperative, currently regulated by the
RCA would be exempt.
Senator Taylor responded that none of their current regulations
would change. The owner of their utility, the JAA, would not be
subjected to that regulation.
Senator Green referenced Page 3 of the sponsor statement and asked
who would manage the tax.
Senator Taylor replied that would be levied by the State. The main
reason for exempting JAA would be to guarantee that it is an
instrumentality of government and can issue bonds. Part of the
problem is that the municipalities do not want to sign up if the
communities were to become liable if there were problems with the
dam. He recommended that should be a liability policy carried by
the JAA, not by the State. The entity itself has to have a quasi-
government look to it. The State's purpose in the sale was that
the communities could own the utilities and operate them and then
provide for an income stream back to the State. At some date in
the future, JAA will disappear when the member communities will
decide to regionalize the regulation. Until the debt has been
paid, the State of Alaska wants to make certain that the power of
sale agreement stays in place and the State is paid.
Senator Green asked who would be liable in the worst-case scenario.
Senator Taylor replied that JAA would be responsible. They are
carrying insurance and have reserve funds for that purpose.
Senator Austerman asked if the State was currently holding the
liability.
Senator Taylor responded that currently, it is the State's
liability. The benefit to the State is to get out from under the
liability for the projects. Loss of revenue for the State was the
catalyst for bringing about a final solution to the endowment
created last year. There is a reserve and insurance policy to take
care of the projects. The debt should be paid out within eight to
twelve years and could then the power costs could be reduced for
the member utilities.
Senator Green asked how the industry standard had been determined.
Senator Taylor explained that an engineering firm who provided
estimates of what the possible losses could be expected determined
number. He added that the transaction has not yet been finalized.
MICHAEL E. SCHRADER, [Testified via Teleconference], Attorney, Ater
Wynne, LLP, Portland, Oregon, stated that his firm had worked with
the Project Management Committee and the Attorney General's office
to prepare the text for SB 84.
Mr. Schrader indicated that Senator Taylor had done a great job
explaining the bill. He proposed a minor amendment to the bill.
He offered to answer questions of the Committee.
Senator Ward asked who did not have the power of eminent domain.
Mr. Schrader explained the concept of eminent domain which are
powers driven by the JAA as a governmental agency. Currently, all
the members of the cooperative have those powers. There is a
distinction in Alaska law giving cooperatives and how they exercise
those powers being one of procedure. They can authorize through a
Declaration of Taking, a procedure for title transfers and
Compensation for the Taking. In respect for the cooperatives, the
system is reversed. All of the members currently have condemnation
powers. With respect to JAA, the enabling legislation that was
adopted last year, grants JAA, the powers for a public utility of
eminent domain that is exercised by the cooperative. However, for
tax purposes, it is the condemnation powers and the powers with the
municipality. [Audio Equipment Problems].
Senator Taylor added that the member utilities all have
condemnation authority at this time. He stated that this would be
the "fine tuning" of the agreement. JAA is still limited to be
exercised to the condemnation authority within the boundaries of
where the individual owners could exercise their authority.
Senator Taylor understood that the State Attorney General had
proposed minor modifications.
BRIAN BJORKQUIST, Assistant Attorney General, Governmental Affairs
Section, Department of Law, testified via teleconference that in
lieu of the property tax other cooperatives are removed from local
property taxes. The modifications are to clarify JAA's
responsibility for their own debt. The language in the bill is
clear that the State of Alaska is not subject. He commented that
other amendments would clarify the subject of eminent domain and
declaration of taking. That should be limited to the powers of the
declaration of taking within the boundaries of the project.
Language should be issued to that section regarding all those
powers. He commented that there are three proposed changes. A
change to Page 3, Line 30, and Page 3, Line 31. The purpose those
changes would be to establish the language for the boundaries of
the project and the declaration of taking. *[Difficulty in
understanding the teleconferenced speaker - inaudible].
Senator Taylor noted that the suggested amendments would be a re-
clarification of definitions regarding imminent domain and to
guarantee that the State does not become liable for the debts
incurred by JAA. He suggested that the language be addressed
through a conceptual amendment written by the legislative drafters.
Senator Austerman moved to adopt Amendment #1. [Copy on File].
There being no objection, the amendment was ADOPTED.
Senator Leman believed that the language on Page 3, Line 12, "a
body corporate and politic and", was redundant.
Senator Taylor explained that there had been a number of attorney's
working for the communities, the Four Dam Pool group, Alaska
Industrial Development Export Authority (AIDEA) and the Attorney
General's Office. Each of those attorneys has attempted to address
all loopholes. He reiterated that is how the current language came
to be and he believed it would do no harm to the intent of the
legislation.
Co-Chair Kelly noted that currently, utilities are paying taxes
based on their wholesale value.
Senator Taylor explained that those were fully owned utilities,
owned by the municipality itself. As a consequence, they will
generate wholesale and retail to consumers of the property. They
do not charge a tax on the sale of their own electricity to their
own citizens. Coops, which are a separate entity from the
community in which they live, charge a retail tax. That tax is
actually charged by the State of Alaska.
SFC 01 # 25, Side A 10:54 AM
Senator Taylor continued, there is only one cooperative entity
listed in the bill and that group returns funds through the tax to
its service communities. They would continue to receive those
payments.
Senator Austerman moved to report CS SB 84 (FIN) out of Committee
with individual recommendations and the accompanying fiscal notes.
There being no objection, CS SB 84 (FIN) MOVED from Committee with
a "do pass" recommendation and with fiscal notes #1, #2, and #3 by
Department of Community & Economic Development.
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