Legislature(2007 - 2008)SENATE FINANCE 532
02/14/2008 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB255 | |
| SB196 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 196 | TELECONFERENCED | |
| *+ | SB 255 | TELECONFERENCED | |
| + | TELECONFERENCED |
9:09:00 AM SENATE BILL NO. 255 "An Act relating to refunding of certain outstanding bonds issued by the Alaska Industrial Development and Export Authority concerning the Snettisham hydroelectric project and related assets; and providing for an effective date." Senator Elton presented an overview authorizing Alaska Industrial Development and Export Authority (AIDEA) to refinance bonds for the Snettisham Hydroelectric project in Southeast Alaska. Senator Elton read the sponsor statement. SB 255 authorizes the Alaska Industrial Development & Export Authority (AIDEA) to refund bonds for the Snettisham hydroelectric project in Southeast Alaska. If bond markets are favorable and the bonds meet both market and AIDEA financial tests, this refinancing will save money for ratepayers whose electricity comes from the Snettisham dam at no cost to the state. In 1998, AIDEA bonded $100 million to buy the Snettisham hydro project from a federal energy authority and construct project capital improvements. A private utility pays the debt service on those bonds and operates the project. Recent trends in the financial markets suggest the debt can be refunded at significantly lower interest rates than the current debt. The utility operating the Snettisham project asked AIDEA to look into refinancing the debt by refunding the remaining bonds, which have an outstanding balance slightly over $82 million. AIDEA's legal counsel advises that in order to roll the costs of issuing new bonds, along with premiums paid to retire the old bonds early, into the new bond issue, AIDEA must receive legislative authorization. SB 255 provides an explicit statement of authority to refund the bonds. The bill provides a direct benefit to ratepayers in the form of lower electric bills in homes and businesses buying kilowatt hours generated at Snettisham. 9:12:40 AM SARA FISHER-GOAD, ACTING EXECUTIVE DIRECTOR, OPERATIONS, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), thanked Senator Elton for introducing SB 255 and asked if the Committee had questions. Senator Thomas questioned the anticipated cost of refinancing this bond. Ms. Fisher-Goad replied that there were $82 million in bonds outstanding, and although she was unable to give the actual cost of the issuance, she anticipated the cost of 3 per cent to finance the bonds. She also indicated that the market circumstances dictate the amount of savings. Senator Thomas added that the specific day the transaction occurred would also affect the savings. Co-Chair Stedman inquired about the coupon rate is on the bond. VALERIE WALKER, DEPUTY DIRECTOR, FINANCE, AIDEA responded that the current rate range was 4.85 percent to 5.5 percent, but did not have the actual rate available. The bonds are outstanding through 2034 but they are not fully refundable until October 2008, so the rate will be whatever the market is on that date. Refunding will only occur if rates continue to be favorable and rates are favorable at this time. She amended that the current rates ranges are 4.85 percent to 6 percent. Co-Chair Stedman asked for confirmation that the bonds were callable in October. Ms. Walker clarified that they were callable in January 1, 2009; however the tax rules allow the bonds to be refunded up to ninety days before that date. She continued that a new issue could be made by October 2, 2008, and with the proceeds of the new bond, the old bond would retire on the date of issuance. TIM MCLEOD, PRESIDENT AND GENERAL MANAGER OF ALASKA ELECTRIC LIGHT AND POWER COMPANY (AELP) supported this bill; he believes there is potential savings for the customers. He noted that Snettisham currently provides about 85 percent of the energy for Southeast Alaska and that the debt service for that project is a significant portion of the rate structure. 9:18:20 AM Senator Thomas inquired about the yearly kilowatt hour costs for hydroelectric as opposed to other sources. Mr. McLeod replied that the company normally provides about 100 percent from hydroelectric resources. When in a hydro deficient, as currently being experienced, some power has to be provided with diesel. Diesel costs approximately 20 cents per kilowatt hour versus hydro costs of 3.5 cents per kilowatt hour. Co-Chair Stedman inquired if this was the actual cost, not what was being billed to the customer. Mr. McLeod confirmed that this was not the amount billed to the customer. Senator Huggins inquired on the effect to the company if SB 255 did not pass. Mr. McLeod responded that the company would not be allowed to borrow more than par value of the bonds for the Snettisham project, requiring additional costs to be through traditional financing. This additional cost of $80,000 to $100,000 a year would be passed to the customers. Senator Huggins noted that this could possibly cause a significant rate hike to the customers. Mr. McLeod agreed that additional costs would be passed to the customers but that it would not be a significant rate hike. Senator Huggins asked about the "no cost to state" and wondered if there was any scenario there would be a cost to the state. Mr. McLeod indicated that there would never be a cost to the state. 9:20:32 AM Co-Chair Stedman requested from Ms. Fisher-Goad a response to Senator Huggins' question about "no cost to the state" and asked if there is any other entity that AIEDA needs to refinance in the capital markets. Ms. Fisher-Goad replied there would not be any additional costs to the State of Alaska. She added that there are no outstanding bonds at AIDEA that need refunding or legislation. 9:21:58 AM Senator Elton MOVED to REPORT SB 255 out of Committee with individual recommendations and the accompanying fiscal note. Senator Huggins OBJECTED for discussion. Senator Huggins thanked Senator Elton for his work in making this legislation happen for the people of Southeast Alaska. Senator Elton commented that as a rate payer, he would benefit along with the community. Senator Huggins WITHDREW his OBJECTION. 9:23:28 AM SB 255 was REPORTED out of Committee with a "do pass" recommendation and accompanying new zero fiscal note by the Department of Commerce, Community and Economic Development. AT EASE: 9:23:47 AM RESUME: 9:27:03 AM
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