Legislature(2001 - 2002)

02/26/2001 09:05 AM FIN

Audio Topic
* first hearing in first committee of referral
+ 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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