Legislature(2001 - 2002)

03/15/2002 09:10 AM Senate FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     SENATE BILL NO. 185                                                                                                        
     "An Act relating to the basis for determining eligibility for                                                              
     and the amount of power cost equalization payments; and                                                                    
     providing for an effective date."                                                                                          
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
ERIC YOULD, Executive  Director, Trade Association  for the Electric                                                            
Utility  Industry  in Alaska  (ARECA),  testified  that  ARECA is  a                                                            
"strong supporter  of the Power Cost Equalization  (PCE) program" as                                                            
it provides  a strong economic  stimulus to  rural Alaska where  the                                                            
cost  of  electricity  is  "four times  higher"  than  the  cost  of                                                            
electricity  in urban areas, "yet  disposable income is so  low." He                                                            
stated  the ARECA  Board of  Directors  is presenting  a  resolution                                                            
[copy on file]  dated Feb 22, 2002  to the Committee that  "strongly                                                            
opposes"  SB  185.  He  stated  if SB  185  were  passed,  it  would                                                            
significantly curtail the  PCE program and hurt the economy of rural                                                            
Alaska.                                                                                                                         
                                                                                                                                
Mr. Yould continued  that legislation being discussed  in the United                                                            
States Congress might financially  assist the PCE Endowment Fund and                                                            
passage of  SB 185 "would  shut the gate and  curtail the amount  of                                                            
funding"  that  might  be  forthcoming.   On  behalf  of  ARECA,  he                                                            
"strongly recommended"  that the Alaska  Legislature not  change the                                                            
PCE funding formula.                                                                                                            
                                                                                                                                
MEERA  KOHLER, President  and  CEO,  Alaska Village  Electric  Co-op                                                            
(AVEC),  testified in  opposition  to SB  185. She  stated that  the                                                            
Legislature has  reduced funding for the PCE program  numerous times                                                            
since its inception in  1984, and currently rural electric consumers                                                            
collectively  pay approximately  80 percent  of the "extremely  high                                                            
cost of electricity"  with the PCE program paying  the balance of 20                                                            
percent. Ms.  Kohler stated "the much  needed construction  of basic                                                            
infrastructure  such  as  water  and  sewer  facilities  and  health                                                            
clinics" has increased  the demand for power in the rural areas. She                                                            
informed  the   Committee  these   improvements  have  been   almost                                                            
exclusively  funded  with  federal  grants and  other  sources.  She                                                            
stressed  that the State's  creation of the  PCE Endowment  Fund two                                                            
years ago has  provided rural residents a "powerful  tool to take to                                                            
Washington D.C." to persuade  the United States Congress to allocate                                                            
additional  funds   to  enable  the  Endowment  Fund   to  be  self-                                                            
sufficient. She urged the  Committee to not amend the PCE formula at                                                            
this time.                                                                                                                      
                                                                                                                                
BOB  POE, Executive  Director  of Alaska  Industrial  Development  &                                                            
Export  Authority   (AIDEA)  and   Alaska  Energy  Authority   (AEA)                                                            
commented  his  Department   has been  conducting   an  analysis  of                                                            
different  options for the  PCE program.  He referenced legislative                                                             
"findings  stating  the purpose  of  PCE  is to  provide  affordable                                                            
energy  as essential  for  the economic  and  social  well being  of                                                            
Alaska." He continued that  the high "cost of power is a significant                                                            
detriment to economic development in Rural Alaska."                                                                             
                                                                                                                                
                                                                                                                                
SFC 02 # 34, Side A 10:51 AM                                                                                                    
                                                                                                                                
                                                                                                                                
Mr. Poe commented the economic  health of Rural Alaska has an affect                                                            
on the commerce  of other  parts of the State.  He detailed  some of                                                            
the effects  on Anchorage: Rural Alaska  accounts for 20  percent of                                                            
all goods  and services  sold; accounts  for one  in eight jobs;  50                                                            
percent of all construction  work by Anchorage and Mat-Su companies;                                                            
and 100 percent of resource  extraction. He stressed there is a huge                                                            
economic connection between rural and urban Alaska.                                                                             
                                                                                                                                
Mr. Poe  stated  there is  " a self-interest"  factor  in the  urban                                                            
support of the PCE program.                                                                                                     
                                                                                                                                
Mr.  Poe  contended  that  if  both  economies   benefit  from  this                                                            
connection, then  modifications to provide incentives  to reduce the                                                            
cost of power  in rural Alaska should  be considered. He  encouraged                                                            
the  Committee to  give  the PCE  program more  time  to be  further                                                            
analyzed.                                                                                                                       
                                                                                                                                
Mr. Poe  stated if  Anchorage,  Juneau, and  Fairbanks were  removed                                                            
from the  cost of  power in Alaska  analysis,  then the comparative                                                             
base  would not  accurately  represent  what the  cost  of power  is                                                            
throughout the State.                                                                                                           
                                                                                                                                
Senator  Hoffman  summarized  if the  cost  of power  in  Anchorage,                                                            
Juneau,  and Fairbanks  were  removed from  the PCE  analysis,  what                                                            
would remain  would be the highest  costs of power in the  state and                                                            
therefore would not result in a PCE program.                                                                                    
                                                                                                                                
Co-Chair Donley  clarified it would be "the highest  costs" of those                                                            
places that are  not included in the PCE program,  and this would be                                                            
"much fairer,"  as currently the PCE program "subsidizes  below what                                                            
some people have to pay who aren't eligible for PCE."                                                                           
                                                                                                                                
Senator Leman  voiced three  concerns: a cash  flow stream  that did                                                            
not materialize  as promised  when the program  was restructured  in                                                            
1999; the  fact that communities  not eligible  for the PCE  program                                                            
are paying  more than the subsidized  PCE rate; and the question  of                                                            
how to  provide incentives  to reduce  the costs  of generating  and                                                            
delivering power in the rural areas.                                                                                            
                                                                                                                                
Senator Leman stated the  Legislature is attempting "to fit all this                                                            
together in a policy statement and have it make sense."                                                                         
                                                                                                                                
Mr. Poe commented  that the endowment  fund losses were a  result of                                                            
the stock market.                                                                                                               
                                                                                                                                
Mr.  Poe  informed  the Committee   that 79  percent  of  all  rural                                                            
ratepayers  are eligible for  the PCE program  and the remaining  21                                                            
percent  are businesses or  other non-eligible  entities. He  stated                                                            
that  the eligible  group  uses  only  29 percent  of  the  eligible                                                            
kilowatt-hours.                                                                                                                 
                                                                                                                                
Senator  Leman clarified  that his  cash flow  concern involved  the                                                            
National  Petroleum  Reserve  Alaska   (NPR-A)  funding,  that  "was                                                            
offered  in  good  faith,  received   in  good  faith  and  did  not                                                            
materialize,"  as a contribution  to the  endowment fund. He  stated                                                            
this resulted in a shortfall in funding revenues.                                                                               
                                                                                                                                
RECESS 11:00 AM / 3:03 PM                                                                                                       
                                                                                                                                
DENNIS  WATSON, Mayor  of  Craig, testified  offnet  from Craig  and                                                            
urged  the Committee  to  make no  changes to  the  PCE program.  He                                                            
stated, "Rural  Alaska has  always considered  that our part  of the                                                            
pie of  the oil revenues,  was the  PCE" and  the endowment  fund is                                                            
what they hoped would support the PCE "in perpetuity."                                                                          
                                                                                                                                
ALAN  JOSEPH,  Vice   President,  Association  of  Village   Council                                                            
Presidents,  testified offnet from  Bethel in opposition  to SB 185.                                                            
He stated  the downturn  in the  fishing industry  has affected  the                                                            
economy in  the region and any reduction  in the PCE assistance  the                                                            
Yukon  Kuskoquim Delta  region would  contribute  negatively to  the                                                            
situation.                                                                                                                      
                                                                                                                                
MARLENE MOTO,  testified offnet from  Deerling, in opposition  to SB
185.  She stated  that  reductions  to the  PCE program  would  make                                                            
electricity too expensive  and people in rural regions are "having a                                                            
hard time paying bills" now.                                                                                                    
                                                                                                                                
ERIC  HANNEN, General  Manager,  Alaska  Power &  Telephone  (AP&T),                                                            
testified via teleconference  from Tok on behalf of Don Mayhan, Vice                                                            
President of Operations  of AP&T. Mr. Hannen stated that AP&T serves                                                            
approximately  6,000  customers  in 20  rural communities,  and  the                                                            
current cost  of power in rural Alaska  is approximately  four times                                                            
more expensive  than power in urban Alaska. He contended  that rural                                                            
area incomes are  half of the income level of urban  areas and there                                                            
are very few job opportunities.  He stated that the residents' fixed                                                            
incomes  could not  absorb  a 25  percent increase  in  the cost  of                                                            
power.  Rural  communities  "have  been encouraged  to  raise  their                                                            
standards of  living" and such things  as water and sewer  treatment                                                            
plants  have been  constructed  and all  require  power to  operate,                                                            
especially in the winter  months. He voiced opposition to SB 185 and                                                            
stated it  would decrease  the standard of  living in Rural  Alaska,                                                            
reduce power  consumption, and decrease  business margins  resulting                                                            
in an  increase  of rates  with the  overall result  of a  "downward                                                            
spiral."                                                                                                                        
                                                                                                                                
CHARLIE  WALLS,  Manager  of  Nushagak  Cooperative   testified  via                                                            
teleconference  from Dillingham in  opposition to SB 185.  He stated                                                            
if  SB  185  were  passed,   the  result  "would  essentially   drop                                                            
Dillingham off the rolls  of the PCE," and would cause real hardship                                                            
to the residents  who "are at the  mercy of oil prices" and  have no                                                            
other  power  supply  options  such  as  access  to  hydropower.  He                                                            
stressed that "now is not the time to change the formula."                                                                      
                                                                                                                                
ALAN JOSEPH,  testified offnet from  Bethel on behalf for  Arthur J.                                                            
Lake, President  of the Association of Village Council.  He read Mr.                                                            
Lake's prepared  testimony [copy on  file] in opposition  to SB 185.                                                            
                                                                                                                                
The bill was HELD in Committee.                                                                                                 
                                                                                                                                
RECESS 3:20 PM / 3:27 PM                                                                                                        
                                                                                                                                
                                                                                                                                

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