Legislature(2011 - 2012)SENATE FINANCE 532

03/29/2012 01:00 PM FINANCE

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SENATE BILL NO. 25                                                                                                            
     "An Act relating to participation by the Alaska                                                                            
     Industrial Development and Export Authority in energy                                                                      
Co-Chair Hoffman communicated that  SB 25 had not previously                                                                    
been heard  by the  committee. The  intent was  to introduce                                                                    
the  legislation, hear  public testimony,  and set  the bill                                                                    
aside for further review. [Note:  the bill version discussed                                                                    
by  the committee  during the  following  meeting is  CSSSSB                                                                    
1:12:11 PM                                                                                                                    
SENATOR  LESIL   MCGUIRE,  SPONSOR,  introduced   her  staff                                                                    
Michael  Pawlowski.  She  acknowledged  the  Senate  Finance                                                                    
Committee for  work that  had contributed  to the  growth of                                                                    
the Constitutional  Budget Reserve  (CBR) and  the Statutory                                                                    
Budget  Reserve (SBR);  the funds  currently contained  over                                                                    
$15  billion.  The purpose  of  the  bill  was to  put  $250                                                                    
million  of the  money to  work  and to  set it  aside as  a                                                                    
savings  for   the  future.   She  discussed   a  PowerPoint                                                                    
Presentation,  "Alaska's  Sustainable  Strategy  for  Energy                                                                    
Transmission  and  Supply  (ASSETS)"  (copy  on  file).  She                                                                    
stated that the presentation  contained slides and estimates                                                                    
of  capital  spending  based  on   projects  that  had  been                                                                    
identified in reports  prepared for or by  the Alaska Energy                                                                    
Authority  (AEA). She  expounded that  the presentation  was                                                                    
not an  endorsement of any  of the projects or  fuel sources                                                                    
identified  by  AEA or  its  contractors.  Reports would  be                                                                    
referenced  in  order  to  show the  size  of  the  existing                                                                    
Senator McGuire continued that  the legislation was intended                                                                    
to address  a shortage in  access to capital.  She expounded                                                                    
that in  2008 the legislature  responded to high  oil prices                                                                    
and the impact the costs  had on Alaska residents (slide 4).                                                                    
She  recalled   that  oil  had  reached   $147  per  barrel;                                                                    
currently  the  price  was approximately  $110  per  barrel,                                                                    
which she  noted was not  significantly lower.  She stressed                                                                    
that  prices  continued  to  be   high  and  that  residents                                                                    
(particularly  those using  diesel  as a  fuel source)  were                                                                    
suffering.   The  legislature   had  established   the  Home                                                                    
Weatherization/Energy  Rebate  Program   and  the  Renewable                                                                    
Energy  Grant Fund.  Additionally, direct  energy assistance                                                                    
had been  offered and  the Special  Committee on  Energy had                                                                    
been established.                                                                                                               
1:15:55 PM                                                                                                                    
Senator  McGuire read  from  slide  5, "Legislative  History                                                                    
        1. Senate Bipartisan Working Group held hearings                                                                        
          across Alaska to develop draft energy programs                                                                        
          and policy recommendations.                                                                                           
        2. The Legislature passed the Omnibus Energy Bill                                                                       
          (SB 220  - Ch.  83 SLA 10)  that addresses  a wide                                                                    
          range  of  energy   issues,  ranging  from  energy                                                                    
          efficiency  for public  facilities to  an emerging                                                                    
          energy   technology   fund    and   from   heating                                                                    
          assistance  to  the  leasing  of  state  land  for                                                                    
          renewable energy projects.                                                                                            
Senator  McGuire added  that  a new  fund  had been  created                                                                    
under an  omnibus energy bill  that could be used  for loans                                                                    
related  to  energy  retrofitting. She  noted  that  to-date                                                                    
there had been over 70 applicants  for the $9 million in the                                                                    
emerging technology fund.                                                                                                       
Senator  McGuire turned  to slide  6, "Legislative  History:                                                                    
        1. The  Senate   Bipartisan    Working   Group   has                                                                    
          aggressively  led  on  energy issues  through  the                                                                    
          establishment  of sound  policies based  on public                                                                    
          input  and   the  investment  of   material  state                                                                    
          resources in energy projects.                                                                                         
        2. Significant challenges remain and SB 25 is an                                                                        
          additional   component    of   the   comprehensive                                                                    
          strategy   the   Bipartisan  Working   Group   has                                                                    
          developed   to  address   the   energy  needs   of                                                                    
1:17:16 PM                                                                                                                    
Senator  McGuire  shared that  access  to  capital had  been                                                                    
identified as  a problem. The  legislature had  created more                                                                    
grants  and had  helped  residents  weatherize and  retrofit                                                                    
homes, municipal  buildings, and other. The  remaining issue                                                                    
was  related to  residents with  innovative energy  projects                                                                    
who  did  not  have  access  to  capital.  She  stated  that                                                                    
nationwide,  lenders  had  become  conservative  with  loans                                                                    
following the  recession in 2008.  She provided  an overview                                                                    
of  several relevant  documents  beginning on  slide 8  that                                                                    
included a  2010 AEA report  titled "Alaska  Energy Pathway;                                                                    
Toward  Energy  Independence."  The  report  indicated  that                                                                    
between the  present day  and the  upcoming ten  years, just                                                                    
under $2  billion in  capital spending  would be  needed for                                                                    
energy projects statewide.                                                                                                      
Senator  McGuire   communicated  that   the  first   of  the                                                                    
innovative resource plans  had come in on  schedule from AEA                                                                    
in February 2010 titled  "Railbelt Integrated Resource Plan"                                                                    
(slide  9).  She  pointed  to  the  magnitude  of  projected                                                                    
capital  spending ranging  from $13.625  billion to  $21.109                                                                    
billion  over the  upcoming ten  years. She  emphasized that                                                                    
the needs  were dire and she  believed that in parts  of the                                                                    
Railbelt  the  situation  was approaching  emergency  status                                                                    
particularly  in  transmission  and  generation  areas.  She                                                                    
pointed to some facilities that were 35 years old.                                                                              
1:19:38 PM                                                                                                                    
Senator  McGuire  pointed  to  slide  10  titled  "Southeast                                                                    
Integrated  Resource Plan  (SEIRP)" and  explained that  AEA                                                                    
had released the plan in  December 2011. She understood that                                                                    
Senator Egan,  Representative Cathy  Munoz, and  others, had                                                                    
vocalized criticism about some of  the items included in the                                                                    
plan,  but she  believed the  overall message  was that  the                                                                    
entire state  was in  dire need for  capital. She  read from                                                                    
slide 10:                                                                                                                       
     The  low end  capital cost  estimates contained  in the                                                                    
     refined screened potential hydro project table (p. 1-                                                                      
     15,   16)   identify   $1.327  billion   in   potential                                                                    
     The   capital  cost   estimates  in   the  results   of                                                                    
     transmission interconnection  economic evaluation table                                                                    
     (p.   1-19)  identify   $1.424  billion   in  potential                                                                    
     The  SEIRP  results  of  integrated  cases  -  regional                                                                    
     summary table (p. 1-37)  estimates capital spending for                                                                    
     the optimal hydro/transmission case at $1.407 billion.                                                                     
Senator McGuire added that hydropower  made up a substantial                                                                    
portion of  the energy  structures in Southeast  Alaska. She                                                                    
addressed slide 11, "Summary: Capital Estimates":                                                                               
     Alaska Energy Pathway (AEA 2010) near term:                                                                                
          $1.999 billion.                                                                                                       
     Railbelt  Integrated  Resource  Plan  (AEA  2010)  long                                                                    
          $13.625 - $21.109 billion.                                                                                            
     Southeast  Integrated  Resource  Plan (AEA  2011)  long                                                                    
          $1.407 billion                                                                                                        
     Takeaway: there will be  substantial spending on energy                                                                    
     infrastructure  in Alaska  over  the next  five to  ten                                                                    
1:21:27 PM                                                                                                                    
Senator  McGuire  turned  to  slide  12  titled  "Financing:                                                                    
Legislative  Intent."  She   discussed  a  2011  legislative                                                                    
statement   of   intent   in    regards   to   all   capital                                                                    
appropriations  working forward  in the  future. She  quoted                                                                    
from the statement (slide 12):                                                                                                  
     It is  the intent of  the legislature that  the state's                                                                    
     capital investment into  energy generation projects not                                                                    
     exceed 50%  of the  total investment required  to fully                                                                    
     complete those projects.                                                                                                   
Senator   McGuire  highlighted   that  the   bill  contained                                                                    
provisions that did not allow  for greater than one-third of                                                                    
the  total  project  cost  to  be lent  out  by  the  Alaska                                                                    
Industrial  Development and  Export  Authority (AIDEA).  She                                                                    
added that the  goal was for the state to  have "skin in the                                                                    
game" and  for projects  to pass creditworthiness;  the bill                                                                    
recognized a great  need and AIDEA's unique  authority as an                                                                    
investment bank  provided the ability  to move  forward. She                                                                    
opined that in  five years the legislature would  be able to                                                                    
look back with pride at  opportunities that would be created                                                                    
if  the legislation  became law.  She stated  that the  bill                                                                    
would  help  fill  existing  needs,  create  new  jobs,  and                                                                    
increase access  to energy transmission and  generation. She                                                                    
stressed  that without  the growth  the state's  economy had                                                                    
the   potential  to   stagnate  and   she  pointed   to  the                                                                    
overwhelming  burden  facing   Alaskans  related  to  energy                                                                    
costs.  She relayed  that Hugh  Short was  the new  chair of                                                                    
AIDEA;  she believed  that the  bill and  his background  in                                                                    
Alaska  growth capital  would help  instigate growth  in the                                                                    
1:23:50 PM                                                                                                                    
MICHAEL  PAWLOWSKI,  STAFF,  SENATOR LESIL  MCGUIRE,  stated                                                                    
that slide  13 "Financing,  Alaska Energy Pathway:  AEA July                                                                    
2010"  demonstrated   that  the  gap  experienced   by  many                                                                    
utilities  throughout  the  state  was  a  result  of  large                                                                    
capital  costs  and small  rate  bases.  He elaborated  that                                                                    
there was  a gap  between what  the utilities  could finance                                                                    
versus the demand  and infrastructure need. He  pointed to a                                                                    
graph that  showed projected capital expenditures  were well                                                                    
above both  the high  and low case  debt capacities  for the                                                                    
Railbelt  utilities (from  the Railbelt  Integrated Resource                                                                    
Plan, slide  13). He  explained that SB  25 was  intended to                                                                    
help  finance  energy  infrastructure  by  filling  the  gap                                                                    
between what utilities could do and existing needs.                                                                             
Mr. Pawlowski  pointed to the Southeast  Integrated Resource                                                                    
Plan (slide 14) and  explained that debt service, principal,                                                                    
and interest  payments were a  serious part of  any project.                                                                    
The  bill proposed  that  retaining  principal and  interest                                                                    
payments in-state  was an opportunity that  the state should                                                                    
consider. He elaborated that the  legislature had put a good                                                                    
policy statement  on the table  and that there needed  to be                                                                    
skin in  the game in  the development of energy  projects in                                                                    
the  state. The  Alaska Energy  Pathway and  other documents                                                                    
recognized the  importance of financing and  that access was                                                                    
a major  challenge facing utilities.  He reiterated  that SB                                                                    
25 was  designed to  address the  financing piece  of energy                                                                    
1:25:25 PM                                                                                                                    
Mr.  Pawlowski relayed  his intent  to  provide a  sectional                                                                    
analysis working in reverse from  the end of the bill (slide                                                                    
16). He  explained that  the material  portions of  the bill                                                                    
were in Sections  14 and 15 (beginning on page  8, line 29).                                                                    
He elaborated that page 8, line  29 through page 9, line 21,                                                                    
established the  Sustainable Energy Transmission  and Supply                                                                    
(SETS) development  program within  AIDEA. Page 9,  lines 22                                                                    
through 26 described how the  fund balance could be used: to                                                                    
finance  and to  assist  in  the construction,  improvement,                                                                    
rehabilitation, and  expansion of energy projects.  He noted                                                                    
that the fund was limited specifically to energy projects.                                                                      
Mr. Pawlowski  moved to slide  17 titled "SB 25:  Powers and                                                                    
Limitations of  SETS." The Powers  and Duties  section began                                                                    
on  page 9,  line  27 through  page 10,  line  21; the  bill                                                                    
created  a new  fund in  order to  protect AIDEA's  existing                                                                    
credit  rating  and  to provide  the  agency  with  extended                                                                    
powers  and  limitations  related to  energy  financing.  He                                                                    
moved  to page  10, lines  1 through  3 of  the legislation,                                                                    
which allowed  AIDEA to retain  the collateral it  needed to                                                                    
finance investment projects.                                                                                                    
Mr. Pawlowski shared that the  bill would provide AIDEA with                                                                    
the  ability  to  defer  principal  payments  or  capitalize                                                                    
interest on  energy projects (page  10, lines 4  through 5);                                                                    
the  provision related  to the  period of  time between  the                                                                    
construction  stage and  when a  project  began to  generate                                                                    
revenue and offered the ability  to enhance the economics of                                                                    
a  project  while  protecting  the   return  to  the  state.                                                                    
Additional  powers   provided  to  SETS  and   the  proposed                                                                    
development fund  (that differ from a  traditional revolving                                                                    
loan fund) were included on  page 10, line 14; the provision                                                                    
gave  AIDEA (under  its existing  statute AS  44.88.090) the                                                                    
ability to issue  debt against fund proceeds.  He pointed to                                                                    
financing limitations  on page 10, line  22; the limitations                                                                    
were more stringent than those  on AIDEA's current financing                                                                    
opportunities.  He  elaborated  that the  bill  contained  a                                                                    
threshold that  would not allow  AIDEA to finance  more than                                                                    
one-third  the   cost  of  a  project   without  legislative                                                                    
approval; the provision provided  an additional level of due                                                                    
diligence in order  to ensure the protection  of the state's                                                                    
financial assets. He added that  the loan guarantee language                                                                    
that  would require  legislative approval  in excess  of $20                                                                    
million was taken from the existing AIDEA programs.                                                                             
Mr.  Pawlowski  continued  to discuss  limitations  of  SETS                                                                    
(slide 17).  He turned to  page 10,  lines 27 through  30 of                                                                    
the  bill; financing  terms were  limited to  the life  of a                                                                    
project; however, 50 years was  allowed for transmission and                                                                    
hydroelectric  projects,  given  their  different  financing                                                                    
life-cycle.  He  moved to  the  beginning  of the  bill  and                                                                    
relayed that  Section 1 established  the bill's  short title                                                                    
on page  1. The  intent for  capitalization of  $250 million                                                                    
was  located in  Section  2,  page 1,  lines  9 through  12.                                                                    
Section 3,  page 1, line  13 through  page 3, line  22 added                                                                    
the   word  "energy"   into  AIDEA's   existing  authorizing                                                                    
statutes,  where  the  agency's  purpose  and  mission  were                                                                    
established.  Section  4   contained  additional  conforming                                                                    
language related to  the inclusion of the  word "energy." He                                                                    
relayed that the  conforming changes had been  made in order                                                                    
to  draw a  nexus between  AIDEA's authorizing  statutes and                                                                    
the  fund  to  indicate  that the  agency  was  expected  to                                                                    
finance energy projects in particular.                                                                                          
Mr.  Pawlowski  communicated  that Section  6  contained  an                                                                    
adjustment to  AIDEA's existing loan  participation program.                                                                    
He  explained that  the  agency  primarily financed  through                                                                    
either  a  direct  investment or  the  private  sector.  The                                                                    
section  allowed  AIDEA  to work  in  conjunction  with  the                                                                    
commercial financing  sector to prevent  unfair competition.                                                                    
Section  6 would  allow AIDEA  to  participate in  financing                                                                    
through  its  loan  participation   program,  if  a  private                                                                    
financial institution  wanted to finance an  energy project.                                                                    
Page 4, lines  28 through 30, included a change  in the loan                                                                    
participation  program related  to the  inclusion of  a loan                                                                    
for  financing   improvements  and  energy   efficiency.  He                                                                    
expounded  that  the  legislature  had  done  a  significant                                                                    
amount  of   work  in  the  individual   home,  public,  and                                                                    
municipal sectors, but  it had not been able  to "crack" the                                                                    
commercial   or   multi-family  residential   sectors.   The                                                                    
provision  would allow  AIDEA  to  participate with  private                                                                    
sector lending  institutions to guarantee  energy efficiency                                                                    
loans for larger commercial developments.                                                                                       
Mr. Pawlowski looked at Sections  7 through 12 and explained                                                                    
that when AIDEA invested or  loaned money it was required to                                                                    
make an interest  rate of return. The  sections amended each                                                                    
variation of  the lending abilities through  AS 44.88.159 to                                                                    
require that  the same interest  rate is earned.  Section 13                                                                    
(page  8,  line  9)  would  allow the  agency  to  offer  an                                                                    
incentive  interest rebate  of not  more than  1 percent  to                                                                    
encourage rural development,  job creation, renewable energy                                                                    
development, and other.                                                                                                         
1:33:38 PM                                                                                                                    
Mr.  Pawlowski  concluded  his   remarks  and  relayed  that                                                                    
Senator McGuire would explain why AIDEA had been selected.                                                                      
Senator  McGuire  communicated  that  there  had  been  some                                                                    
questions  about why  she  had selected  AIDEA  and not  the                                                                    
Alaska Housing  Finance Corporation or AEA.  She shared that                                                                    
one of the  reasons AIDEA had been selected  was because its                                                                    
obligations were  not obligations  of the state  (slide 19).                                                                    
She elaborated that  AS 44 lay out that the  bonds issued by                                                                    
the  authority  did  not constitute  indebtedness  or  other                                                                    
liability  of the  state. Another  reason the  authority had                                                                    
been selected  was due to  the dividend it paid  (slide 20).                                                                    
She read from slide 20:                                                                                                         
     Since  inception,   AIDEA  has  paid   $324,500,000  in                                                                    
     dividends to the state of  Alaska and has net assets of                                                                    
     nearly  $1  billion.  AIDEA was  capitalized  with  the                                                                    
     transfer  of $384,500,000  in general  funds and  loans                                                                    
     beginning in 1981.                                                                                                         
Senator  McGuire   added  that  AIDEA  had   come  close  to                                                                    
returning  back the  entire amount  of funds  that had  been                                                                    
used  to  create  it.  She furthered  that  $20  million  in                                                                    
dividends  had been  returned in  2011 alone.  She explained                                                                    
that when dividends  were put back in the  general fund they                                                                    
were recirculated for allocation to meet the state's needs.                                                                     
1:35:16 PM                                                                                                                    
Senator  McGuire lauded  AIDEA  for its  talented staff  and                                                                    
board members. She  believed that Mr. Short,  the new chair,                                                                    
would  bring  much  to  the  agency.  She  shared  that  the                                                                    
agency's  strong credit  rating  was another  reason it  had                                                                    
been selected (slide 21). She read from slide 21:                                                                               
     The most recent ratings report for AIDEA (Standard and                                                                     
     Poor's, December 13, 2010) reaffirmed AIDEA's "AA-"                                                                        
     rating due to:                                                                                                             
        1. A pledged portfolio of private activity economic                                                                     
          development loans;                                                                                                    
        2. A currently low loan delinquency rate;                                                                               
        3. Projected cash flows and debt service coverage                                                                       
          that  meet Standard  and  Poor's requirements  for                                                                    
          the  'AA'   category  for  state   revolving  fund                                                                    
        4. Strong legal covenants, including an additional                                                                      
          bonds  test requiring  either in  excess of  1.50x                                                                    
          annual  debt   service,  or  the   maintenance  of                                                                    
          unrestricted  surplus  equal  to $200  million  or                                                                    
          principal  outstanding and  never  less than  $100                                                                    
          million; and                                                                                                          
        5. Covenants to maintain what we view as good                                                                           
          liquidity  in  the authority's  unrestricted  cash                                                                    
          equivalents balance.                                                                                                  
Senator  McGuire recognized  that  with the  passage of  the                                                                    
bill there would continue to  be projects in need of grants;                                                                    
however, the bill provided an  opportunity for projects that                                                                    
were "on the  fence" and could undergo  a commercial process                                                                    
and creditworthiness  analysis to put  skin in the  game and                                                                    
develop a more superior project.                                                                                                
1:37:32 PM                                                                                                                    
Mr.  Pawlowski  communicated   that  under  AIDEA's  current                                                                    
leadership it  had moved  to a  more formalized  process. He                                                                    
addressed  slide 22  titled "AIDEA  has developed  a process                                                                    
for  evaluating  and  initiating  financing  decisions."  He                                                                    
detailed that  the slide  illustrated the  current schematic                                                                    
that would be adopted by the  agency in order to provide for                                                                    
multiple "no-go"  decisions, fiscal reviews, and  checks and                                                                    
balances to  a project.  He elaborated that  the legislation                                                                    
provided  AIDEA powers  to develop  fiscal controls  for the                                                                    
fund that  it would establish.  He stressed that it  was the                                                                    
sponsor's  intent  that  strong  fiscal  controls  would  be                                                                    
instituted to ensure that state assets would be protected.                                                                      
Mr. Pawlowski  provided a brief  review on how  the proposed                                                                    
structure would work  (slide 23, "How SETS  will work within                                                                    
AIDEA").  The structure  had multiple  steps: (1)  the state                                                                    
would   establish   SETS   and   capitalize   it   with   an                                                                    
appropriation, (2)  AIDEA would use proceeds  within SETS to                                                                    
finance  energy projects,  (3) energy  projects would  repay                                                                    
the  fund  (AIDEA had  the  power  to borrow  money  against                                                                    
proceeds from the  capital markets in order  to return money                                                                    
to the fund that could be  loaned to more projects), and (4)                                                                    
AIDEA would  pay a dividend  back to  the state based  on 25                                                                    
percent to 50  percent of its earnings. He  relayed that the                                                                    
point was  to put some of  the state's money to  work within                                                                    
the  state  that  would  earn  a  rate  of  return,  provide                                                                    
financing to projects, and  generate additional revenues for                                                                    
the state's treasury.                                                                                                           
Mr. Pawlowski emphasized that SB  25 would fill a portion of                                                                    
the puzzle that  the Senate had addressed  for several years                                                                    
related to energy problems within the state.                                                                                    
1:40:03 PM                                                                                                                    
Senator Thomas  observed that some projects  had significant                                                                    
upfront and  long-term costs, but  had a dramatic  impact on                                                                    
the state's  economy. He wondered whether  consideration had                                                                    
been  given to  what  the state  received  from some  lesser                                                                    
interest  rates compared  to the  annual interest  rate that                                                                    
would  be achieved  from  internal  and external  investment                                                                    
managers of  AIDEA funds. He  asked whether the  sponsor had                                                                    
looked at  some of the  lower interest rates that  the state                                                                    
received from long-term bonds.                                                                                                  
Mr.  Pawlowski replied  in the  affirmative. He  shared that                                                                    
the  decision  had  been  made   to  moderate  the  interest                                                                    
incentive  to the  existing  economic  development that  may                                                                    
allow for  an interest rate of  up to 1 percent.  Related to                                                                    
statewide  benefits,  the  theory   was  that  because  most                                                                    
projects would  need legislative approval, once  a financing                                                                    
plan  was  in place  and  came  before the  legislature  for                                                                    
approval, the  ancillary benefits  could be  thought through                                                                    
at the legislative  level. He furthered that  the bill would                                                                    
not give  AIDEA the  power to delve  into questions  of that                                                                    
nature.  The goal  had been  to keep  AIDEA to  a commercial                                                                    
lending decision  base to protect  its credit rating  and to                                                                    
protect  the return  to the  treasury. He  added that  there                                                                    
would  always be  a need  for  additional capitalization  in                                                                    
addition to what SB 25 would provide.                                                                                           
1:43:10 PM                                                                                                                    
Senator  McGuire  emphasized  that the  purpose  behind  the                                                                    
creation  of   AIDEA  was  that   it  would   support  state                                                                    
infrastructure, which  was the  reason it had  been selected                                                                    
for the location of the  proposed fund. She referenced other                                                                    
provisions  that  would  allow   AIDEA  to  defer  principal                                                                    
payments and  other. She was  open to proposed  changes that                                                                    
would not change  the intent of the bill in  major ways. She                                                                    
believed it  was important that  a return was  generated and                                                                    
given  back  as  a  dividend. She  recognized  the  dramatic                                                                    
impact renewable  energy projects  in particular  would have                                                                    
to  the  state.  She  hoped that  the  board  would  analyze                                                                    
projects for their potential benefit to the state.                                                                              
Senator  Thomas  appreciated  a  memorandum  that  had  been                                                                    
provided to members related to  some projects that were more                                                                    
politically motivated rather than economically motivated.                                                                       
1:45:15 PM                                                                                                                    
AT EASE                                                                                                                         
1:46:32 PM                                                                                                                    
1:46:37 PM                                                                                                                    
BOB LOESCHER,  ALASKA TECHNOLOGY DEVELOPMENT  GROUP, JUNEAU,                                                                    
testified in support of SB  25. He discussed his involvement                                                                    
in  energy and  economic  development for  rural and  Native                                                                    
communities; he had  also served on the AIDEA  board for two                                                                    
terms  as  a  public  member.  He  believed  AIDEA  was  the                                                                    
appropriate location  for the fund  and that the  agency was                                                                    
vital  to   the  economic  development   and  infrastructure                                                                    
support of  Alaska. He  relayed that  AIDEA was  involved in                                                                    
port   development,   commercial  development   of   tourism                                                                    
facilities,  malls, airports,  and other.  He stressed  that                                                                    
the agency's contribution  to the state had  allowed for the                                                                    
utilization of Alaska's financial  resources and had brought                                                                    
in  capital   from  national  institutional   investors.  He                                                                    
emphasized that  AIDEA had protocols to  balance investments                                                                    
from various  enterprises across the state.  He relayed that                                                                    
there were needs in rural and  urban areas that needed to be                                                                    
balanced as  Alaska committed to  investments. He  urged the                                                                    
committee's support of SB 25.                                                                                                   
1:49:50 PM                                                                                                                    
MARK DAVIS,  DEPUTY DIRECTOR, ALASKA  INDUSTRIAL DEVELOPMENT                                                                    
AND  EXPORT AUTHORITY,  stated that  SB 25  would create  an                                                                    
energy  infrastructure  bank that  would  be  a new  program                                                                    
within AIDEA. The  fund would be separate  from the agency's                                                                    
current Enterprise Development Fund,  which was used to fund                                                                    
AIDEA's  loan  participations  and project  development.  He                                                                    
stressed that  the powers proposed in  the legislation would                                                                    
fit  into the  current financial  markets. He  remarked that                                                                    
interest rates  were currently at  low levels  and commodity                                                                    
prices were at  high levels, meaning that  there was capital                                                                    
seeking to invest  in infrastructure that would  earn a rate                                                                    
of return.  The type of return  put forward in the  bill was                                                                    
consistent  with  market-based  rates that  AIDEA  currently                                                                    
used  in loan  participations.  He believed  the bill  would                                                                    
create  the opportunity  for leveraging  money with  private                                                                    
capital in order  to build energy projects.  He relayed that                                                                    
energy  projects tended  to be  expensive; therefore,  large                                                                    
amounts of capital would be needed.                                                                                             
Mr.  Davis listed  important  powers  under the  legislation                                                                    
including  the  capitalization  of  interest  to  allow  for                                                                    
"patient capital." He provided an  example of a project when                                                                    
AIDEA provided  bonds that were  paid back over  a long-term                                                                    
period;  the  example  was  consistent   with  the  type  of                                                                    
financing used  for infrastructure.  The bill  would provide                                                                    
AIDEA with the ability to  make direct loans and allowed for                                                                    
bond  and   loan  guarantees.  He  explained   that  a  bond                                                                    
guarantee could be  useful if a utility issued  a bond based                                                                    
on  its overall  financial condition  because the  guarantee                                                                    
could allow  the rate  to be lowered;  the lower  rate could                                                                    
save  rate  payers  a  significant   amount  of  money  with                                                                    
relatively low risk.                                                                                                            
PETER  NAOROZ,   MANAGER,  KOOTZNOOWOO,  JUNEAU,   spoke  in                                                                    
support of  SB 25.  The organization  believed the  bill was                                                                    
needed  and  that it  would  allow  the public  and  private                                                                    
sectors  to   come  together.  Kootznoowoo  had   been  very                                                                    
involved  in  the  Southeast Integrated  Resource  Plan;  he                                                                    
recalled that it had been  discussed throughout the drafting                                                                    
process how  expensive energy projects  were and  how Alaska                                                                    
did  not have  enough money.  He believed  that Alaska  is a                                                                    
great  investment and  that  the ability  to  invest in  the                                                                    
state  would   attract  a  substantial  amount   of  private                                                                    
capital. He  provided an  example related  to land  owned by                                                                    
the  organization.  He  emphasized  that SB  25  provided  a                                                                    
mechanism  to attract  capital  investment  from inside  and                                                                    
outside of the  state, which would be beneficial  due to the                                                                    
high infrastructure costs.                                                                                                      
1:56:29 PM                                                                                                                    
DUFF   MITCHELL,   ALASKA    INDEPENDENT   POWER   PRODUCERS                                                                    
ASSOCIATION,  JUNEAU,  testified  in  favor  of  SB  25.  He                                                                    
believed  the bill  offered one  portion of  a portfolio  of                                                                    
opportunities that  would allow  the state to  become energy                                                                    
independent and  would lower and/or stabilize  energy costs.                                                                    
He stated that  the bill would enable the  private sector to                                                                    
invest  capital  and  help projects  reach  development.  He                                                                    
furthered  that  a  unique  aspect  of  the  bill  was  that                                                                    
leveraging  and  syndicating a  loan  would  allow AIDEA  to                                                                    
bring  in state  money, which  would reduce  risk for  large                                                                    
international   and   national    firms   to   invest.   The                                                                    
organization  believed  SB  25   was  good  and  responsible                                                                    
legislation.  He shared  that  infrastructure investment  in                                                                    
energy  paid dividends  in two  ways: (1)  it paid  back the                                                                    
loan and (2) it paid a  dividend to lower or stabilize rates                                                                    
for   economically   feasible   long-term   projects   (e.g.                                                                    
hydropower  projects). He  stressed that  long-term projects                                                                    
became feasible  when dividends were  paid back  to citizens                                                                    
over time.  He reiterated the association's  support for the                                                                    
legislation.  He  believed   increasing  the  capitalization                                                                    
amount included  in the bill  would be  beneficial; projects                                                                    
of magnitude could evaporate the total fund rapidly.                                                                            
1:59:32 PM                                                                                                                    
ROBERT  WILKINSON, CHIEF  EXECUTIVE  OFFICER, COPPER  VALLEY                                                                    
ELECTRIC,  GLENNALLEN  (via  teleconference),  testified  in                                                                    
support of  SB 25.  He referenced a  letter of  support from                                                                    
Copper  Valley Electric  (copy on  file).  He discussed  the                                                                    
company's  current  Allison  Creek hydropower  project  that                                                                    
would  cost  $40  million;  the  company  had  received  $14                                                                    
million  in funding  through the  Renewable Energy  Fund and                                                                    
capital budget  appropriations. He  shared that  the company                                                                    
would likely borrow  most or all of the  remaining funds; SB                                                                    
25 would  allow it to borrow  the money from the  state. The                                                                    
company believed  that the bill  was an opportunity  for the                                                                    
state to  invest in worthy infrastructure  projects and that                                                                    
it would  help achieve lower  power costs for  Copper Valley                                                                    
members and would  earn a return for the  state treasury. He                                                                    
noted that the legislature  had created the Renewable Energy                                                                    
Fund in 2008 and the  Sustainable Energy Act in 2010. Copper                                                                    
Valley  believed that  SB 25  was the  next logical  step in                                                                    
fulfilling  the vision  that had  been  unfolding in  recent                                                                    
years. He urged the committee to pass the legislation.                                                                          
2:01:53 PM                                                                                                                    
Senator McGuire  thanked testifiers for their  time and drew                                                                    
attention to letters of support  in members' packets (copies                                                                    
on  file). She  opined that  the bill  represented the  next                                                                    
logical step following efforts that had been made.                                                                              
SB  25  was   HEARD  and  HELD  in   Committee  for  further                                                                    
2:02:25 PM                                                                                                                    
AT EASE                                                                                                                         
2:04:51 PM                                                                                                                    

Document Name Date/Time Subjects
SB 25 - GVEA Suppport Letter - March 9 2012.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 APED resolution.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 ABC Support Letter.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Alaska Industrial Development Export Authority Rating Report.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 CVEA letter 2 13 2012.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Development Flow Chart draft v1.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Changes in CS SS SB 25 version E.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Loan Participation Processv6-landscape (2).pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 McGuire.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Legislative Research Report AIDEA.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Simplified project process flow chartv6-landscape pdf.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Sponsor StatementFeb 2012.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 Sectional Analysis version D.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
SB 25 support RDC.pdf SFIN 3/29/2012 1:00:00 PM
SB 25
HB250 Energy Policy.pdf SFIN 3/29/2012 1:00:00 PM
HB 250
HB250 Sponsor Stmt.pdf SFIN 3/29/2012 1:00:00 PM
HB 250
HB250 Supporting Docs letters.pdf SFIN 3/29/2012 1:00:00 PM
HB 250
HB250 Supporting Docs Articles.pdf SFIN 3/29/2012 1:00:00 PM
HB 250
SB 182 Changes to CSSB 182.pdf SFIN 3/29/2012 1:00:00 PM
SB 182
SB 182 Letter of Intent.pdf SFIN 3/29/2012 1:00:00 PM
SB 182
SB 182 Public testimony.msg SFIN 3/29/2012 1:00:00 PM
SB 182
SB 182 2012-03 student transportation.pdf SFIN 3/29/2012 1:00:00 PM
SB 182
SB 182 Sectional Analysis.pdf SFIN 3/29/2012 1:00:00 PM
SB 182
SB 182 Support.msg SFIN 3/29/2012 1:00:00 PM
SB 182
HB 250 REF Tech and Econ performance 2-4-12.docx SFIN 3/29/2012 1:00:00 PM
HB 250
HB 250 CrimpSpreadsheet Document.pdf SFIN 3/29/2012 1:00:00 PM
HB 250
HB 250 Cost Saving Spreadsheet.pdf SFIN 3/29/2012 1:00:00 PM
HB 250
SB 25 Power Point Presentation S FIN Corrected.pptx SFIN 3/29/2012 1:00:00 PM
SB 25
SB 182 Druce Written Testimony.pdf SFIN 3/29/2012 1:00:00 PM
SB 182