Legislature(2007 - 2008)SENATE FINANCE 532

02/14/2008 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 196 PRESCRIPTION DATABASE TELECONFERENCED
Moved CSSB 196(FIN) Out of Committee
*+ SB 255 SNETTISHAM REFUNDING BONDS TELECONFERENCED
Moved SB 255 Out of Committee
+ Bills Previously Heard/Scheduled 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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