Legislature(2007 - 2008)SENATE FINANCE 532

07/31/2008 09:00 AM FINANCE

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09:13:39 AM Start
09:14:16 AM SB4002
05:58:18 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
SENATE BILL NO. 4002                                                                                                          
     "An Act establishing the Alaska resource rebate program                                                                    
     and relating to the program; and providing for an                                                                          
     effective date."                                                                                                           
Co-Chair  Stedman   announced  that   the  bill   before  the                                                                   
committee  was  CSSB  4002,  version M.    He  provided  some                                                                   
history as  to the reasoning  behind the  need for a  bill to                                                                   
address  expensive  energy costs.    Version  M of  the  bill                                                                   
addresses resource  rebate payments  to offset the  high cost                                                                   
of  heating oil.     The  program would  last  for two  years                                                                   
instead of one.   The goal is to solve the  challenges of the                                                                   
9:18:11 AM                                                                                                                    
Co-Chair  Hoffman  MOVED  to ADOPT  CSSB  4002,  labeled  25-                                                                   
GS4057\M,  Cook, 7/30/08,  as  the working  document.   There                                                                   
being NO OBJECTION, it was so ordered.                                                                                          
Co-Chair Stedman  commented that there is a  component in the                                                                   
bill dealing with natural gas that needs to be reworked.                                                                        
Senator  Dyson concurred  with  Co-Chair Stedman's  comments.                                                                   
He suggested including propane in the bill, also.                                                                               
Co-Chair  Stedman hoped  all staff  would be  engaged in  the                                                                   
9:19:42 AM                                                                                                                    
MILES BAKER, STAFF,  CO-CHAIR STEDMAN, explained  that the CS                                                                   
provides  for a resource  rebate program  and targets  actual                                                                   
energy  needs.   The  program  is a  rebate  program to  help                                                                   
offset high  heating oil costs.   It is a temporary  two-year                                                                   
program targeting  winter costs.   Residents will be  able to                                                                   
apply  for the  rebate  of  the cost  of  fuel  above $3  per                                                                   
gallon,  up to  a maximum  of  600 gallons,  for two  6-month                                                                   
Mr. Baker  explained how  the applications  would work.   One                                                                   
individual would be limited to 600 gallons per winter.                                                                          
Co-Chair Stedman  questioned the length of the  program.  Mr.                                                                   
Baker  corrected that  it  was for  seven  months during  the                                                                   
winter.   He  pointed out  that  commercial and  governmental                                                                   
facilities   are  not  eligible,   only  residential   homes,                                                                   
including multi-unit residential dwellings.                                                                                     
9:24:35 AM                                                                                                                    
Mr. Baker related that qualified  dealers would have to apply                                                                   
under Alaska Energy  Authority regulations.   There are about                                                                   
180  dealers  around  the  state.    They  would  complete  a                                                                   
registration process  to certify that they could  deliver the                                                                   
fuel.  A form  would certify that the fuel  was delivered and                                                                   
the state would provide a rebate.                                                                                               
9:27:27 AM                                                                                                                    
Mr.  Baker  referred  to  page 2,  subsection  (e),  for  the                                                                   
description  of   how  dealers  would  register.     Page  3,                                                                   
subsection  (f),  has  a  provision   that  allows  aggrieved                                                                   
parties  to request  an administrative  hearing.   Subsection                                                                   
(g) deals  with the state's  ability to recover  rebates paid                                                                   
to an  individual based on  false pretenses.   Subsection (h)                                                                   
contains hold  harmless provisions.   Subsection  (m) exempts                                                                   
fuel  payments  from  levy or  garnishment,  similar  to  the                                                                   
Governor's  rebate program.   Subsection  (n) deals  with the                                                                   
warning  if  the  submission  is  incomplete  or  inaccurate.                                                                   
Subsection  (o)  sets  up  a   class  A  misdemeanor  if  the                                                                   
individual commits  fraud.  Page 5 verifies  that "authority"                                                                   
means the  Alaska Energy Authority.   The bill  is uncodified                                                                   
law and would be repealed in 2010.                                                                                              
9:29:41 AM                                                                                                                    
Mr. Baker referred  to the new fiscal note  for $172,889,000.                                                                   
He pointed out  that on page 2 a correction is  needed to say                                                                   
seven months  instead of six  months.  He  said that it  is a                                                                   
new  program and  it  is unknown  how many  will  apply.   He                                                                   
discussed  the assumptions  section of  the fiscal note:  the                                                                   
average  heating  oil  consumption,  the  average  price  per                                                                   
gallon of  heating oil, and  the total number  of households.                                                                   
He detailed program cost projections.                                                                                           
9:32:29 AM                                                                                                                    
Mr. Baker  pointed out that  potential costs for  the offsets                                                                   
for the hold harmless provision  and AEA administrative costs                                                                   
are not included in the fiscal note.                                                                                            
Senator Elton  asked how  the program  would deal with  sales                                                                   
tax.   He gave  an example  of a tax  on fuel  at $5.00.   He                                                                   
wondered  if the rebate  program  would apply  to the tax  as                                                                   
well.   Mr.  Baker  replied that  as  the bill  is  currently                                                                   
written, the sales tax would be  taken off before the rebate.                                                                   
Each municipality has a different tax structure.                                                                                
Senator  Elton  suggested  including a  provision  about  the                                                                   
sales tax.                                                                                                                      
Co-Chair Stedman said those details could be worked out.                                                                        
9:35:34 AM                                                                                                                    
Senator  Dyson  suggested  that   the  paperwork  be  handled                                                                   
through  the  distributor,  not  the homeowner.    Mr.  Baker                                                                   
replied that  he looked  at that  approach, which he  thought                                                                   
had pros and cons.  Under the  distributor model any fuel the                                                                   
distributor  sells would qualify  for the  rebate.   It would                                                                   
require billing  the state for  every delivery.   The program                                                                   
in  the  bill  is  optional.    If  it  is  required  of  the                                                                   
distributor, many  more billings would  be filed.   Mr. Baker                                                                   
pointed  out  another  advantage  of the  bill's  version  of                                                                   
paying  the rebate,  a cash  management  incentive.   Another                                                                   
advantage  would  have  been  to  fix  the  amount  given  to                                                                   
distributors,  thus causing  competition.   That program  was                                                                   
not included.                                                                                                                   
9:41:16 AM                                                                                                                    
Mr. Baker thought the bill's version  of the program would be                                                                   
more acceptable.                                                                                                                
Senator Dyson  suggested giving a  premium to the  dealer for                                                                   
all of the paperwork involved.   He voiced concern about non-                                                                   
profits with residential programs.   He wished not to exclude                                                                   
those programs.                                                                                                                 
9:43:21 AM                                                                                                                    
Co-Chair Hoffman observed that  the thrust of the program was                                                                   
to  give  energy  relief  to Alaskans  for  two  years.    He                                                                   
recalled the  history of working  on the issue.   One problem                                                                   
was  identifying the  various types  of fuel  consumers.   He                                                                   
described  the process of  coming up  with a simple  program.                                                                   
He  pointed out  that the  paperwork  has to  be done  anyway                                                                   
under LIHEAP.  He mentioned the  Chevez program in Venezuela.                                                                   
He thought  that the program  in the  bill was workable.   He                                                                   
emphasized the need for relief for Alaskans.                                                                                    
9:46:51 AM                                                                                                                    
Senator  Thomas thought  the  bill  had come  a  long way  in                                                                   
addressing  the need  for energy  relief.   He mentioned  one                                                                   
method of  dealing with  refiners.   The bill recognizes  the                                                                   
problem and targets as many residents  as possible in Alaska.                                                                   
He noted  the broad  concerns considered  when designing  the                                                                   
Co-Chair Stedman noted the collaboration on the bill.                                                                           
Senator Elton  voiced appreciation for  the work.   He turned                                                                   
to page 1, line  9, to question if heating oil  needed to run                                                                   
a hot water  heater was prohibited.  He suggested  to "offset                                                                   
the cost of oil used for residences".                                                                                           
9:50:51 AM                                                                                                                    
Mr. Baker agreed.   He also observed that "60  percent" could                                                                   
be changed  to compensate  for non-heating  uses of  the oil.                                                                   
Senator Elton  thought there  could be a  better way  to word                                                                   
that section.                                                                                                                   
Senator  Huggins  asked if  senior  housing  fell under  this                                                                   
umbrella.  Mr. Baker said he would find out.                                                                                    
9:52:45 AM                                                                                                                    
RANDALL  RUARO, SPECIAL  ASSISTANT, OFFICE  OF THE  GOVERNOR,                                                                   
brought up technical  issues related to the bill.   The title                                                                   
"resource rebate" no longer seems  appropriate.  He suggested                                                                   
that perhaps, "needs based assistance" would work better.                                                                       
9:55:05 AM                                                                                                                    
Co-Chair Stedman  pointed out  that the  plan was to  combine                                                                   
several of the energy bills without  causing a taxable event.                                                                   
Mr. Ruaro pointed out that the  scope of eligibility has been                                                                   
narrowed,  which  is an  issue.    The  scope has  also  been                                                                   
broadened  in that residency  requirements  are reduced.   He                                                                   
thought  the application  process  might be  a timing  issue.                                                                   
The  fiscal  impact  was reduced  compared  to  the  original                                                                   
version of the bill.                                                                                                            
9:57:17 AM                                                                                                                    
Co-Chair  Hoffman asked  for suggestions  for improvement  to                                                                   
version M.                                                                                                                      
Co-Chair Stedman recognized that  the fiscal note is now less                                                                   
than the original one.                                                                                                          
9:59:15 AM                                                                                                                    
SARAH  FISHER-GOAD,  DEPUTY DIRECTOR  OF  OPERATIONS,  ALASKA                                                                   
INDUSTRIAL  DEVELOPMENT  AND   EXPORT  AUTHORITY  AND  ALASKA                                                                   
ENERGY  AUTHORITY,  DEPARTMENT  OF  COMMERCE,  COMMUNITY  AND                                                                   
ECONOMIC DEVELOPMENT, addressed  several issues regarding the                                                                   
new  CS  to SB  4002.    The  previous version  of  the  bill                                                                   
provided  for  a rebate  to  all  Alaskans, whereas  the  new                                                                   
version  limits  aid  to  only  half of  that  number.    She                                                                   
mentioned  problems with  AEA  administering the  bill.   She                                                                   
thought a contractual  method might be used  to implement the                                                                   
10:01:36 AM                                                                                                                   
Ms. Fisher-Goad  observed that there  may be issues  with the                                                                   
Co-Chair Stedman  requested assistance in  addressing natural                                                                   
gas and propane aid for the other half of state residents.                                                                      
Co-Chair  Hoffman   noted  that  the  concept   of  abuse  by                                                                   
suppliers  is  a possibility.    He  gave  an example  of  an                                                                   
individual eligible  for 100 gallons of oil each  month.  The                                                                   
supplier would  be watching the  price and would  be unlikely                                                                   
to raise  rates due  to this  program because  they are  also                                                                   
concerned about high  energy costs.  He suggested  that there                                                                   
may be other  AEA programs that should be contracted  out, as                                                                   
10:04:55 AM                                                                                                                   
Senator  Olson referred  to the  fiscal note.   He  suggested                                                                   
that the main  emphasis is relief to residents.   He wondered                                                                   
how  the  fiscal  note  would  include  AEA's  administrative                                                                   
Ms. Fisher-Goad  replied  that she  has not  has a chance  to                                                                   
fully  consider  the  fiscal note  changes  to  include  such                                                                   
things as administrative costs.   She pointed out a potential                                                                   
area of fraud which would require  implementation costs.  She                                                                   
offered to provide those answers.                                                                                               
10:07:40 AM                                                                                                                   
Co-Chair Hoffman said that one  of his constituents suggested                                                                   
helping out those who use generators for heating.                                                                               
Senator Olson pointed  out an issue on the  North Slope where                                                                   
communities are  currently subsidized.   He wondered  if some                                                                   
relief could be found for those communities.                                                                                    
AT-EASE:       10:10:48 AM                                                                                                    
RECONVENE:     5:31:59 PM                                                                                                     
Co-Chair Stedman  noted that  there was a  new version  of SB                                                                   
4002 before the Committee.                                                                                                      
5:32:45 PM                                                                                                                    
Co-Chair Hoffman MOVED to ADOPT  a new CS to SB 4002, version                                                                   
L.   There being NO OBJECTION, it was so ordered.                                                                               
DARWIN PETERSON, STAFF, CO-CHAIR  STEDMAN, explained that the                                                                   
new CS  has three components.   Sections 1-5 deal  with power                                                                   
cost  equalization  (PCE),  Section   6  creates  the  Alaska                                                                   
resource  rebate program,  which is an  umbrella program  for                                                                   
Sections  7 and  8.   Section  7 is  the  resource rebate,  a                                                                   
payment  of $250  for  each Alaskan  resident  which will  be                                                                   
attached to the Permanent Fund  Dividend (PFD).  Section 8 is                                                                   
the home heating fuel portion  of the bill, which was amended                                                                   
based on the Committee's suggestions for improvement.                                                                           
Mr. Peterson  explained that  the program  is now called  the                                                                   
Emergency  Energy  Relief  Program   and  the  Alaska  Energy                                                                   
Authority  (AEA) will continue  to administer  it.   He said,                                                                   
"They shall  provide persons with  energy relief  payments to                                                                   
offset  the   cost  of  fuel   used  for  residences."     He                                                                   
highlighted  a  change  from "individuals"  to  "persons"  in                                                                   
order to satisfy concerns by non-profit organizations.                                                                          
Mr.  Peterson  related that  another  change  was from  "home                                                                   
heating oil" to "fuel", with the  definition of fuel being on                                                                   
page 7,  line 29,  which now  includes propane.   The  change                                                                   
addresses Senator Dyson's concern.   A change on page 4, line                                                                   
21,  says "fuel  used for  residences" rather  than "fuel  to                                                                   
heat residences".  This addresses Senator Elton's concern.                                                                      
5:36:15 PM                                                                                                                    
Mr. Peterson highlighted  page 5, lines 7 and  8, which gives                                                                   
AEA  permission  to  contract   administrative  duties  to  a                                                                   
private  firm.   On page  7, lines  24 and  25, language  was                                                                   
deleted for conforming purposes.                                                                                                
Co-Chair  Stedman  asked for  an  explanation  about the  PCE                                                                   
JAY LIVEY, STAFF,  SENATOR HOFFMAN, explained  the changes to                                                                   
the PCE  part of the  bill, which is now  Section 1.   In the                                                                   
previous version  of the  bill, the amount  of money  paid to                                                                   
public facilities  was based  on population.   That  has been                                                                   
changed  to consider  the  amount of  power  produced by  the                                                                   
Co-Chair Stedman requested definitions.                                                                                         
Mr.  Livey  related that  the  PCE  program is  for  eligible                                                                   
electric utilities and is based  on not more than 70 kilowatt                                                                   
hours a month for  each resident of the community.   That has                                                                   
been  amended so  that large  communities  no longer  qualify                                                                   
based on a residential consumption  level of more than 25,000                                                                   
megawatt-hours during the previous calendar year.                                                                               
5:40:03 PM                                                                                                                    
Co-Chair Stedman defined PCE as Power Cost Equalization.                                                                        
Senator  Olson asked  what affect  this version  of the  bill                                                                   
would  have on  smaller communities.   Mr.  Livey said  there                                                                   
would  be no  affect;  the new  version  of  the bill  mainly                                                                   
excludes Fairbanks.   Senator Olson asked if  villages on the                                                                   
North Slope would be affected.   Mr. Livey said they were not                                                                   
eligible for PCE and would not  be affected by these changes.                                                                   
He  thought  they  would  be eligible  for  some  power  cost                                                                   
5:41:31 PM                                                                                                                    
Senator  Dyson asked  what the  lower  limit has  been for  a                                                                   
community to  qualify for PCE.   Mr. Livey reported  that the                                                                   
lower limit was 12.8 cents per  kilowatt, and the upper limit                                                                   
was 52.5 cents  per kilowatt.  Senator Dyson  asked how small                                                                   
a community could be in order  to qualify under existing law.                                                                   
Mr. Livey explained  that current law states  that to qualify                                                                   
for PCE a community  must be rural, have a certain  amount of                                                                   
kilowatt   usage,  and   use  oil  for   the  production   of                                                                   
electricity.  He shared the history of PCE since 1984.                                                                          
Senator  Dyson asked  if a  community  has to  have a  public                                                                   
utility.  Mr. Livey said he thought  it had to have a utility                                                                   
registered  through  the  Regulatory  Commission  of  Alaska.                                                                   
Senator Dyson asked  how small a 10 megawatt  community might                                                                   
be.  Mr. Livey said he would have to check on that.                                                                             
Co-Chair  Stedman said  that legislative  finance would  help                                                                   
explain the financial analysis at a later date.                                                                                 
5:45:51 PM                                                                                                                    
Mr. Livey turned to Section 2  of the bill to explain the PCE                                                                   
floor and ceiling.  Subsection  (c)(2)(A) defines a new upper                                                                   
limit of $1.15, which used to be $2.00.                                                                                         
Mr. Livey referred  to subsection (c)(1), which  calculates a                                                                   
new lower  limit at  95 percent of  the difference  between a                                                                   
minimum power  cost calculated  as five  cents less  that the                                                                   
weighted average retail residential  power rate in Anchorage,                                                                   
Fairbanks,  and Juneau.    It  sets a  lower  limit than  PCE                                                                   
previously had.                                                                                                                 
5:48:00 PM                                                                                                                    
Mr. Livey  referred to Section  4, subsection (k)  to explain                                                                   
that no utility  would have less than five  cents a kilowatt-                                                                   
hour  reduction in  PCE.   All  utilities  will receive  some                                                                   
electrical relief.                                                                                                              
Senator  Huggins  requested  more   information  about  which                                                                   
communities  fall  into  the various  categories.    Co-Chair                                                                   
Stedman  said that  legislative  finance  would provide  that                                                                   
5:49:39 PM                                                                                                                    
Senator Dyson  referred to page  3, line 9, which  defines an                                                                   
eligible electrical  utility.   He pointed  out that  it does                                                                   
not say it falls under the Regulatory  Commission and it does                                                                   
include an individual.  Co-Chair  Stedman offered to find out                                                                   
more about the eligible electric utility.                                                                                       
Mr.  Livey said  the  eligible electrical  utility  describes                                                                   
which utilities  can be eligible  for PCE, and the  amount of                                                                   
PCE will  be based  on the utility's  costs as determined  by                                                                   
SARAH  FISHER-GOAD,  DEPUTY DIRECTOR  OF  OPERATIONS,  ALASKA                                                                   
INDUSTRIAL  DEVELOPMENT  AND   EXPORT  AUTHORITY  AND  ALASKA                                                                   
ENERGY  AUTHORITY,  DEPARTMENT  OF  COMMERCE,  COMMUNITY  AND                                                                   
ECONOMIC DEVELOPMENT,  explained  Section 5 on  page 3.   She                                                                   
defined "public" as  ten or more people.  She  requested that                                                                   
RCA clarify that.                                                                                                               
5:52:34 PM                                                                                                                    
Mr.  Livey  reported  that  the final  change  was  that  500                                                                   
kilowatt-hours per  month is the amount used  for eligibility                                                                   
in the current bill.                                                                                                            
Co-Chair Hoffman thought the bill  was a comprehensive relief                                                                   
package for Alaskans.                                                                                                           
5:54:27 PM                                                                                                                    
Senator  Dyson encouraged  the Committee  to think about  the                                                                   
wisdom of grouping all components together in one bill.                                                                         
Senator Huggins  thought that some sacrifice  would be needed                                                                   
in order  to meet energy needs.   He approved of  the package                                                                   
concept and the short term limit,  as well as the expectation                                                                   
that programs will be forthcoming to meet energy costs.                                                                         
5:56:18 PM                                                                                                                    
Co-Chair  Stedman turned  to page  4, line  11, and  stressed                                                                   
that  the  rebate  has  not  been  entirely  removed.    Each                                                                   
component of  the energy  package is an  attempt to  help the                                                                   
citizens across the state with  energy relief, which would be                                                                   
a two-year program, except for the $250 rebate.                                                                                 
5:58:18 PM                                                                                                                    
Co-Chair  Hoffman  observed two  other  areas  that would  be                                                                   
served  by an  appropriation  bill.   One  is an  alternative                                                                   
energy  program   with  an  additional  $40   million  added.                                                                   
Another  is the  energy  rebate  program with  an  additional                                                                   
appropriation  of $30 million.   They do  not appear  in this                                                                   
bill;  however,  the  Senate  plans  to  address  alternative                                                                   
energy  programs,  and  a general  appropriation  of  a  $250                                                                   
rebate added  to the permanent  fund.   The result will  be a                                                                   
broad spectrum of relief that Alaskans are expecting.                                                                           
SB  4002  was  heard  and  HELD   in  Committee  for  further                                                                   

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