Legislature(2017 - 2018)SENATE FINANCE 532

03/13/2018 09:00 AM FINANCE

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Audio Topic
09:01:02 AM Start
09:01:53 AM SB108
09:13:37 AM Presentation: Power Cost Equalization and Community Assistance Overiview - David Teal
10:13:19 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Power Cost Equalization and Community Assistance TELECONFERENCED
Overview
David Teal, Director, Legislative Finance
Division
+ Bills Previously Heard/Scheduled: TELECONFERENCED
+= SB 108 MEDICAL CARE/LICENSING/MEDICAL BOARD TELECONFERENCED
Moved CSSSSB 108 Out of Committee
SENATE BILL NO. 108                                                                                                           
                                                                                                                                
     "An Act  relating to the State  Medical Board; relating                                                                    
     to  the   licensing  of  physicians,   osteopaths,  and                                                                    
    podiatrists; and providing for an effective date."                                                                          
                                                                                                                                
9:01:53 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  recalled the  history of  discussions on                                                                    
the bill in committee.                                                                                                          
                                                                                                                                
Vice-Chair   Bishop  MOVED   to  ADOPT   proposed  committee                                                                    
substitute for  SSSB 108,  Work Draft  30-LS0740\T (Radford,                                                                    
3/9/18).                                                                                                                        
                                                                                                                                
Co-Chair MacKinnon OBJECTED for discussion.                                                                                     
                                                                                                                                
JULI  LUCKY, STAFF,  SENATOR ANNA  MACKINNON, recalled  that                                                                    
during a  previous hearing  on the bill,  there had  been an                                                                    
issue regarding a possible  trademark infringement using the                                                                    
title "Certified Medical Assistant" or the initials "CMA."                                                                      
                                                                                                                                
Ms.  Lucky  discussed the  Explanation  of  Changes for  the                                                                    
CSSSSB 108(FIN), (copy on file):                                                                                                
                                                                                                                                
     Page  3,   lines  26-27:  adds  the   ability  for  the                                                                  
     department  to recognize  a  national certification  to                                                                    
     satisfy "some  or all of  the qualifications  for state                                                                    
     certification."                                                                                                            
                                                                                                                                
Ms. Lucky  elaborated that the  change allowed the  board to                                                                    
examine  the national  certification necessary  to earn  the                                                                    
trademarked  title and  apply those  qualification to  state                                                                    
certification.                                                                                                                  
                                                                                                                                
Ms. Lucky continued to discuss the changes to the bill:                                                                         
                                                                                                                                
     Page 4, lines 13-15:  rewords section 5, which provides                                                                  
     a penalty  for practicing without a  license, to remove                                                                    
     the  title "Certified  Medical Assistant"  and "C.M.A."                                                                    
     to avoid possible trademark infringement.                                                                                  
                                                                                                                                
     Page  6,   lines  11-14:  inserts  a   new  section  13                                                                  
     clarifying   that   "certification"   of   the   listed                                                                    
     professions  is considered  "licensure," ensuring  that                                                                    
     these individuals have access  to the Prescription Drug                                                                    
     Monitoring Program (PDMP).                                                                                                 
                                                                                                                                
Ms.  Lucky  explained  that  while  the  section  was  being                                                                    
drafted  it was  noticed  that the  term "Certified  Medical                                                                    
Assistant" still appeared the  bill; the amendment that will                                                                    
be presented  later in  the meeting  rewords the  section to                                                                    
say, "medical assistant certified."                                                                                             
                                                                                                                                
Ms. Lucky continued to discuss the changes:                                                                                     
                                                                                                                                
     Technical and conforming changes are on:                                                                                   
          ? Page 4, lines 1-2; Page 4, line 10; Page 6,                                                                         
          line 5: reworded to remove the phrase "certified                                                                      
          medical assistant"                                                                                                    
          ? Page 6, lines 28 & 29: changed section numbers                                                                      
                                                                                                                                
9:05:17 AM                                                                                                                    
                                                                                                                                
Senator Stevens  referenced a backlog of  290 applicants and                                                                    
wondered how the approval of licensure would be sped up.                                                                        
                                                                                                                                
Ms. Lucky stated  that the backlog was not  addressed in the                                                                    
CS.                                                                                                                             
                                                                                                                                
Co-Chair MacKinnon  interjected that once the  CS was before                                                                    
the committee the sponsor could be questioned.                                                                                  
                                                                                                                                
Co-Chair MacKinnon  WITHDREW her  OBJECTION. There  being NO                                                                    
further  OBJECTION, it  was so  ordered.   The  CS for  SSSB                                                                    
108(FIN) was ADOPTED.                                                                                                           
                                                                                                                                
Senator Stevens restated his question.                                                                                          
                                                                                                                                
Senator Giessel  stated that there was  nothing to guarantee                                                                    
that the  backlog would be  completely alleviated.  The bill                                                                    
could allow for clean  applications to be routinely approved                                                                    
by the executive secretary.                                                                                                     
                                                                                                                                
Senator Stevens  imagined Senator Giessel would  monitor the                                                                    
application approval process.                                                                                                   
                                                                                                                                
Senator Giessel replied in the affirmative.                                                                                     
                                                                                                                                
Senator Olson  asked if  the sponsor  was supportive  of the                                                                    
CS.                                                                                                                             
                                                                                                                                
Senator Giessel answered in the affirmative.                                                                                    
                                                                                                                                
Vice-Chair Bishop  hoped that adding  two more  positions to                                                                    
the process would enable more expeditious licensure.                                                                            
                                                                                                                                
9:08:08 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  added that  the fiscal note  reflected a                                                                    
receipt service function that would add two positions.                                                                          
                                                                                                                                
Vice-Chair Bishop MOVED to ADOPT Amendment 1:                                                                                   
                                                                                                                                
     OFFERED IN THE SENATE                                                                                                      
     BY SENATOR MACKINNON                                                                                                       
     TO:  CSSSSB 108(FIN), Draft Version "T"                                                                                    
                                                                                                                                
     Page 6, line 14:                                                                                                           
                                                                                                                                
          Delete "certified medical assistant"                                                                                  
                                                                                                                                
          Insert "medical assistant certified"                                                                                  
                                                                                                                                
Co-Chair MacKinnon OBJECTED for discussion.                                                                                     
                                                                                                                                
Co-Chair MacKinnon  WITHDREW her  OBJECTION. There  being NO                                                                    
further  OBJECTION,  it  was so  ordered.  Amendment  1  was                                                                    
ADOPTED.                                                                                                                        
                                                                                                                                
9:09:03 AM                                                                                                                    
                                                                                                                                
Vice-Chair  Bishop MOVED  to report  CSSSSB 108(FIN)  out of                                                                    
Committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal  note. There being NO  OBJECTION, it was                                                                    
so ordered.                                                                                                                     
                                                                                                                                
CSSSSB 108(FIN)  was REPORTED  out of  committee with  a "do                                                                    
pass"  recommendation and  with one  new fiscal  impact note                                                                    
from   Department  of   Commerce,  Community   and  Economic                                                                    
Development.                                                                                                                    
                                                                                                                                
9:09:36 AM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
9:13:05 AM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Co-Chair  MacKinnon  recognized Former  Representative  Bill                                                                    
Thomas,  Former Speaker  of The  House  John Harris,  Former                                                                    
Commissioner   of   Department   of  Labor   and   Workforce                                                                    
Development Diane Blumer, in the gallery.                                                                                       
                                                                                                                                
^PRESENTATION:   POWER  COST   EQUALIZATION  and   COMMUNITY                                                                  
ASSISTANCE OVERIVIEW - DAVID TEAL                                                                                             
                                                                                                                                
9:13:37 AM                                                                                                                    
                                                                                                                                
DAVID   TEAL,   DIRECTOR,  LEGISLATIVE   FINANCE   DIVISION,                                                                    
discussed the presentation,  "Community Assistance and Power                                                                    
Cost Equalization"  (copy on  file). He  turned to  Slide 2,                                                                    
"Community  Assistance  Programs:  Historical  Distributions                                                                    
(FY00-FY19)," which showed a  bar graph depicting historical                                                                    
distributions  of  the  Power Cost  Equalization  (PCE)  and                                                                    
Community Assistance  programs. He noted that  the state had                                                                    
offered   various    financial   assistance    programs   to                                                                    
communities  since 1969.  Some  were dependent  on need  for                                                                    
services,  while   others  were  based  on   state  revenue,                                                                    
population, and  some on combined  factors. Mr.  Teal shared                                                                    
that the  programs had changed  over time. The  first twenty                                                                    
years were  a combination  of the SAFE  Communities program,                                                                    
and  state revenue  sharing. He  directed  attention to  the                                                                    
left-hand  bars  on the  graph,  which  showed the  programs                                                                    
operating  simultaneously,  SAFE Communities  providing  $20                                                                    
million per  year and state  revenue providing  $10 million.                                                                    
He categorized those payments as  low; in the 1980s payments                                                                    
reached an  excess of $100  million and  at a time  when the                                                                    
budget  was  half  of  today's   -  resulting  in  a  larger                                                                    
proportion  to communities.  He relayed  that over  time the                                                                    
payments decline to  $30 million, which was  where the graph                                                                    
began.                                                                                                                          
                                                                                                                                
Co-Chair  MacKinnon asked  whether  the state  had begun  to                                                                    
pick  up  costs  for  communities in  other  ways  when  the                                                                    
payments declined.                                                                                                              
                                                                                                                                
Mr. Teal  responded in  the affirmative.  He noted  that the                                                                    
two impacts were responsible for the reduced payout.                                                                            
                                                                                                                                
9:16:24 AM                                                                                                                    
                                                                                                                                
Mr. Teal continued  to address Slide 2. He  shared that both                                                                    
state  revenue sharing  and SAFE  Communities terminated  in                                                                    
2003, leading to 5 years  of Energy Assistance programs. The                                                                    
first  year,  2004,  was temporary  federal  fiscal  relief,                                                                    
followed by  small amounts of energy  assistance, growing to                                                                    
larger amounts of Municipal  Community Energy Assistance. He                                                                    
related that  during the Energy  Assistance years  there had                                                                    
been  a debate  over revenue  sharing meant  no state  money                                                                    
meant no  money for  distribution. That argument  favored ad                                                                    
hoc payments  that were depended on  the financial condition                                                                    
of  the  state,  making  funding   levels  a  year  by  year                                                                    
decision.  The  other  argument  asserted  that  communities                                                                    
needed money  that they could  count on in advance  and that                                                                    
the ad hoc method did not  give communities time to plan for                                                                    
their local budgets.  He stated that the push  was for long-                                                                    
term predictable  funding that  resulted in  the legislature                                                                    
establishing the Community Assistance  fund as a compromise.                                                                    
Deposits to the  fund depend on revenue,  which have revenue                                                                    
sharing elements,  but distributions to communities  did not                                                                    
depend on revenue in the  current year, rathe the balance in                                                                    
the fund. This  meant that communities had  a reduced payout                                                                    
of revenue in prior years had  been low but there would be a                                                                    
known amount that communities could  loan for, with a 3-year                                                                    
phase out. He said that there  had been a $60 million payout                                                                    
target, which  had occurred for  several years but  in 2012-                                                                    
2013, state revenue  allowed for extra money to  be added on                                                                    
top of the fund  distributions. Those payments have declined                                                                    
as  revenue  had decline  and  the  $60 million  target  was                                                                    
fading.                                                                                                                         
                                                                                                                                
9:19:41 AM                                                                                                                    
                                                                                                                                
Mr.  Teal  turned to  Slide  3,  "Community Assistance  Fund                                                                    
Illustration,"  which showed  a  table that  showed how  the                                                                    
Community Assistance  Fund worked.  He noted that  each year                                                                    
one-third of the balance of  the fund was distributed. There                                                                    
would  be  a  $60  million  distribution  and  a  subsequent                                                                    
deposit  of  $60 million  to  bring  the  fund back  to  the                                                                    
starting point  of $180  million. He  relayed that  with the                                                                    
crash  of oil  prices, in  FY 15  the legislature  deposited                                                                    
only  $52 million,  bringing the  balance  to $172  million,                                                                    
with a distribution  of $157.3 million. He  pointed out that                                                                    
no money had been deposited in  FY 16, which had resulted in                                                                    
a fund balance  of $114 million, with a  distribution of $38                                                                    
million.  He  pointed  out  that  communities  knew  of  the                                                                    
decline in  distribution a year before  receiving the funds.                                                                    
He  explained  that  the  passage  of SB  196  in  2016  had                                                                    
provided  an  alternative source  of  funding;  it could  be                                                                    
predicted that general  funds were not a  reliable source to                                                                    
fund  the  revenue  sharing  element  of  the  program,  but                                                                    
changing the  name to  Community Assistance  would recognize                                                                    
that the funding  no longer depended on the  amount of state                                                                    
revenue  available,   Community  Assistance  was   simply  a                                                                    
program providing  assistance to communities. He  added that                                                                    
alternative funding  for the program from  came from earning                                                                    
from the PCE endowment.                                                                                                         
                                                                                                                                
9:22:10 AM                                                                                                                    
                                                                                                                                
Mr.  Teal   displayed  Slide  4,  "History   of  Power  Cost                                                                    
Equalization":                                                                                                                  
                                                                                                                                
     ? Established in 1985 to assist rural residents with                                                                       
     energy costs                                                                                                               
     ? At the time, urban communities benefited from state-                                                                     
     subsidized energy projects such as the Four Dam Pool                                                                       
     and Bradley Lake                                                                                                           
     ? PCE Program directly subsidizes high energy costs                                                                        
     for ratepayers                                                                                                             
                                                                                                                                
Mr.  Teal recognized  that it  might seem  odd that  the PCE                                                                    
Fund  and the  Community  Assistance Fund  were related.  He                                                                    
recalled that  during the  late 1970s  and late  1980s there                                                                    
were  large expenditures  for energy  projects, particularly                                                                    
hydro  projects   that  benefitted  urban  areas,   and  the                                                                    
question  was  how rural  areas  could  benefit from  energy                                                                    
projects and  the funds  that had  been put  into subsidized                                                                    
power costs for urban areas.  He explained that this was how                                                                    
PCE  was born.  He related  that  it was  difficult to  have                                                                    
large hydro projects that helped  smaller areas because they                                                                    
were  dependent upon  expensive diesel  generation. The  PCE                                                                    
program  took  the  average  rates   paid  by  residents  in                                                                    
Anchorage, Fairbanks, and Juneau  and the difference between                                                                    
the local  communities' rates subsidized a  portion of small                                                                    
community  payments,   with  the  limit  of   usage  of  500                                                                    
kilowatts (equivalent  of approximately a $50  electric bill                                                                    
in urban centers).                                                                                                              
                                                                                                                                
Mr. Teal reviewed Slide 5, "PCE Fund":                                                                                          
                                                                                                                                
     ? Until FY01, PCE was funded through annual GF                                                                             
     appropriations                                                                                                             
     ? In FY01, $100 million from the sale of the Four                                                                          
     Dam Pool and from the CBR was used to capitalize the                                                                       
     PCE Endowment                                                                                                              
     ? $182.8 million added in FY07 and $400 million added                                                                      
     in FY12                                                                                                                    
     ? GF funding was phased out and replaced with payouts                                                                      
     from the PCE Endowment                                                                                                     
                                                                                                                                
Mr. Teal said  that until 2001, PCE had  been funded through                                                                    
annual appropriations  of general funds, with  a long period                                                                    
when  the  funding  was capped  at  $15.7  million  annually                                                                    
despite  higher  program  costs, the  program  was  prorated                                                                    
during those years.  In 2001, $100 million from  the sale of                                                                    
the Four Dam Pool and from  the CBR, was appropriated to the                                                                    
PCE endowment fund, another $182  million was added in 2007,                                                                    
and $400  million was added in  2012. He said that  the $400                                                                    
million  was  enough  to  fully fund  the  PCE  program  but                                                                    
because of  the 3  to 4  year look back  on the  balance the                                                                    
$400 million did  not begin to fully fund  the program until                                                                    
the  3-year  phase  in,  or  look  back  period,  was  fully                                                                    
implemented. He  stated that  2015 was  the first  year that                                                                    
the  general  fund  subsidy  to   cover  program  costs  was                                                                    
eliminated.                                                                                                                     
                                                                                                                                
9:26:08 AM                                                                                                                    
                                                                                                                                
Mr. Teal showed Slide  6, "Power Cost Equalization Endowment                                                                    
Fund (Includes SB 196)," which  showed a data table entitled                                                                    
'History and Projections (in  Millions)." He reiterated that                                                                    
SB 196  had passed  in 2016 that  allowed PCE  earnings from                                                                    
the endowment  to be used  for other  purposes, specifically                                                                    
including  Community Assistance  and Rural  Energy programs.                                                                    
He said that  the rule was that if endowment  earning in the                                                                    
second prior year exceeded program  costs, 70 percent of the                                                                    
excess  earning  were  available   first  to  the  Community                                                                    
Assistance program  (up to $30  million), then  Rural Energy                                                                    
programs  (up  to $25  million),  and  leftover funds  would                                                                    
remain in  the endowment.  He relayed  that the  program had                                                                    
begun in  FY 17 and  looking back  at the second  prior year                                                                    
earnings  showed  $33 million  in  earning  to pay  for  $40                                                                    
million  in program  costs,  leaving  nothing for  Community                                                                    
Assistance or energy programs.                                                                                                  
                                                                                                                                
Mr. Teal  continued to look  at Slide  6, noting that  in FY                                                                    
18, earnings  were $8.9 million,  less than the cost  of the                                                                    
program, with  no money to  distribute. He  highlighted that                                                                    
in FY 19,  earnings on the endowment (from FY  17) were $112                                                                    
million,  with program  costs at  $33.1 million.  There were                                                                    
two things to  consider: a huge increase in  earnings, and a                                                                    
decrease in  program cost. He  shared that the  $112 million                                                                    
in earnings left $79 million  in excess after paying for the                                                                    
PCE  program; $55  million  of the  excess  funds was  first                                                                    
distributed  through   the  Community   Assistance  program,                                                                    
followed  by Rural  Energy programs,  leaving  $24.2 in  the                                                                    
fund and bringing the balance to over $1 billion.                                                                               
                                                                                                                                
9:29:19 AM                                                                                                                    
                                                                                                                                
Mr. Teal  continued to  discuss Slide 6.  He stated  that in                                                                    
the future,  a 6 percent  earnings rate would  generate some                                                                    
funds,  but   not  the  full   $30  million   for  Community                                                                    
Assistance.  He  said that  if  the  state  were to  earn  6                                                                    
percent  annually   the  amount   of  money   for  Community                                                                    
Assistance would  be roughly $20  million per  year, leaving                                                                    
the  legislature  to  find an  alternative  source  for  the                                                                    
mission $10 million, presumable general funds.                                                                                  
                                                                                                                                
Mr. Teal changed the earnings amount  on the graph from 6 to                                                                    
seven  percent.  He observed  that  the  change would  allow                                                                    
money to  be deposited to the  Community Assistance program;                                                                    
it  would take  4  or 5  years before  the  $30 million  was                                                                    
achieved,  which  would  be   distributed  to  Rural  Energy                                                                    
programs.  He relayed  that based  on projected  revenues of                                                                    
the Permanent  Fund, it was likely  the Community Assistance                                                                    
would not be fully funded from  the PCE program for a number                                                                    
of years.  He stressed that  earning was volatile,  and some                                                                    
years would be fully funded, but not for several years.                                                                         
                                                                                                                                
Senator Olson  asked why there  was such  a spike in  FY 17,                                                                    
and what looked like a loss of $20 million.                                                                                     
                                                                                                                                
Mr.  Teal observed  that there  were  variable earnings;  in                                                                    
some years the fund lost money  and some years it made a lot                                                                    
of  money.    He  stressed   that  it  depended  heavily  on                                                                    
earnings.                                                                                                                       
                                                                                                                                
9:32:36 AM                                                                                                                    
                                                                                                                                
Co-Chair   MacKinnon  recalled   that  the   Senate  Finance                                                                    
Committee had  advanced 2 pieces  of legislation  that spoke                                                                    
to the issue.                                                                                                                   
                                                                                                                                
Co-Chair   Hoffman  thanked   Co-Chair  MacKinnon   for  her                                                                    
guidance  on  SB  196,  which  had  recognized  the  state's                                                                    
financial problems  and reduced the Revenue  Sharing program                                                                    
down to $30 million and  renamed it the Community Assistance                                                                    
program, while examining how the  excess earnings of the PCE                                                                    
endowment  should be  spent. He  believed  that the  program                                                                    
provided a mechanism where excess  earning could be used for                                                                    
additional  programs.  He  queried   the  discussion  as  to                                                                    
whether the PCE Endowment Fund was overcapitalized.                                                                             
                                                                                                                                
Mr.   Teal    thought   it    was   important    to   define                                                                    
'overcapitalized,' which he thought  meant spinning off more                                                                    
earnings  than  were  necessary   to  support  the  intended                                                                    
programs. He  continued that looking  at a 7  percent future                                                                    
return,  Community  Assistance  would not  be  fully  funded                                                                    
until  2024.  He  stated  that  after  paying  for  PCE  and                                                                    
Community Assistance costs the  endowment was supposed to be                                                                    
spinning off  enough to  put $25  million into  Rural Energy                                                                    
programs. He  lamented that  the state was  a long  way from                                                                    
reaching   that    goal.   He    did   not    believe   that                                                                    
overcapitalization  would  be an  issue  until  as early  as                                                                    
2030.                                                                                                                           
                                                                                                                                
9:36:04 AM                                                                                                                    
                                                                                                                                
Senator von Imhof discussed the  variability of earnings and                                                                    
payments. She  wondered whether  there was  a recommendation                                                                    
to smooth out the payments and make them more predictable.                                                                      
                                                                                                                                
Mr. Teal thought  that payouts to communities  could be very                                                                    
stable. He moved back to slide  3 and contended that as long                                                                    
as  the $30  million deposit  was equal  to the  $30 million                                                                    
payout  -  Community  Assistance was  extremely  stable.  He                                                                    
related that the problem was  that the PCE endowment was not                                                                    
guaranteed  to  spin  off  enough  money  to  meet  the  $30                                                                    
million,  which would  require use  of the  general fund  to                                                                    
make up  the difference. He said  that if no more  money was                                                                    
allocated by  the legislature, the  fund balance  and payout                                                                    
would drop  but communities  would have a  year to  plan for                                                                    
that  and a  3-year phase  out of  the program.  He did  not                                                                    
suggest that  the Community  Assistance program  should live                                                                    
of die  by PCE  earnings, which  he believed  would maintain                                                                    
the volatility of the payments. He  said that it would be up                                                                    
to  the  legislature to  deposit  money  into the  Community                                                                    
Assistance  program   in  years   in  which   earnings  were                                                                    
insufficient.                                                                                                                   
                                                                                                                                
Senator  von Imhof  asked whether  payments  could still  be                                                                    
volatile, even  with a larger endowment,  because the market                                                                    
was volatile.  She hoped that  management of the  fund could                                                                    
make it more stable.                                                                                                            
                                                                                                                                
9:39:30 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon asked  to isolate  the  two issues.  She                                                                    
said that PCE  had undergone multiple changes  over the past                                                                    
5 years. One  of those changes had been in  the area of risk                                                                    
reduction. She  mentioned legislation sponsored  by Co-Chair                                                                    
Hoffman.                                                                                                                        
                                                                                                                                
Co-Chair Hoffman  thought the difference  was from 7.5  to 6                                                                    
percent estimate  rate of  return. The  concept had  been to                                                                    
invest in  less risky investment  to provide the  lower rate                                                                    
of return.                                                                                                                      
                                                                                                                                
Co-Chair MacKinnon reiterated that  while the fund grew over                                                                    
its  first  15  years,  the funds  financial  advisors  were                                                                    
deploying  resources  into  investment portfolios  that  had                                                                    
higher  rates of  return accompanied  by  greater risk.  The                                                                    
committee had  passed a bill  to reduce interest  rates with                                                                    
the  goal of  lowering  risk and  stabilizing earnings.  She                                                                    
admitted that  she was  surprised to see  the growth  in the                                                                    
PCE  endowment  but  believed that  the  pattern  would  not                                                                    
continue.  She  stressed to  the  committee  that in  future                                                                    
years  Community Assistance  would  require  a general  fund                                                                    
appropriation to keep  the balance whole or  prepare for the                                                                    
3-year drown down of the program for communities.                                                                               
                                                                                                                                
Co-Chair  MacKinnon  returned to  Slide  6.  She noted  that                                                                    
total program costs remained fixed  at 33.1 million after FY                                                                    
19,  which was  lower than  costs from  FY 18.  She wondered                                                                    
whether the  number was unrealistic.  She asked  whether the                                                                    
PCE  program   was  based  on   kilowatt  hours   used  plus                                                                    
administrative expenses or on a fixed dollar fee.                                                                               
                                                                                                                                
9:43:44 AM                                                                                                                    
                                                                                                                                
Mr. Teal  replied that future  costs would be  determined by                                                                    
the  price  of  fuel  in  rural  areas  because  that  would                                                                    
determine the cost  of electricity. He said  that Juneau and                                                                    
Anchorage had  fairly fixed fuel prices;  Fairbanks was more                                                                    
reliant on fossil fuels and  their price was higher and more                                                                    
variable. He  reiterated that future  costs would  depend on                                                                    
fuel prices,  he did not  believe that  administrative costs                                                                    
would change from year to year.  He said that the number was                                                                    
not based on individual usage,  500 kilowatt hours per month                                                                    
was  minimal. He  reiterated  that the  amount  of the  rate                                                                    
subsidized was  determined by  the cost  differences between                                                                    
hydro and gas power versus diesel power.                                                                                        
9:46:53 AM                                                                                                                    
                                                                                                                                
Co-Chair  MacKinnon asked  whether a  cap on  kilowatt usage                                                                    
for individual consumers benefitting from PCE programs.                                                                         
                                                                                                                                
MEERA KOHLER, ALASKA VILLAGE  ELECTRIC CO-OP, ANCHORAGE (via                                                                    
teleconference),  responded that  the cap  was 500  kilowatt                                                                    
hours per month.  She said that the floor was  the base rate                                                                    
that  everyone had  to  pay, which  was  currently $.18  per                                                                    
kilowatt hour.  She furthered the  PCE was calculated  by 95                                                                    
percent  of   the  value  of  the   difference  between  the                                                                    
utilities cost  of power and  the $.18 floor. She  said that                                                                    
the typical rate in villages was  $.21 to $.22 for the first                                                                    
500 kilowatt  hours. The price  for some  villages increased                                                                    
to $.48,  and as high as  $.72, because fuel had  to be flow                                                                    
in.                                                                                                                             
                                                                                                                                
Co-Chair MacKinnon noted the cap in the kilowatt usage.                                                                         
                                                                                                                                
9:49:16 AM                                                                                                                    
                                                                                                                                
Senator Stevens  stressed the  energy benefits  for Alaskans                                                                    
that  had  been achieved  over  the  previous 30  years.  He                                                                    
referenced  the Bradly  Lake Dam,  which effected  Homer and                                                                    
the   Kenai  Peninsula.   He  spoke   to  the   Terror  Lake                                                                    
Hydroelectric  project,   which  had  benefitted   the  area                                                                    
greatly.  He hoped  that others  could benefit  from similar                                                                    
projects in the future.                                                                                                         
                                                                                                                                
Vice-Chair Bishop discussed program  costs and thought there                                                                    
was  a   direct  correlation   between  program   costs  and                                                                    
allocations  to  rural  energy programs.  He  lamented  that                                                                    
there  was  not more  funding  for  energy projects  in  the                                                                    
state.                                                                                                                          
                                                                                                                                
Co-Chair MacKinnon agreed that  energy projects had benefits                                                                    
to offer the state.                                                                                                             
                                                                                                                                
9:51:43 AM                                                                                                                    
                                                                                                                                
Senator Stevens relayed  that Kodiak had reduced  the use of                                                                    
fuel to 1 percent and was at 99 percent renewable energy.                                                                       
                                                                                                                                
9:52:15 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  mentioned tax  credits, for  urban areas                                                                    
such  as  the  Cook  Inlet Basin.  She  discussed  that  tax                                                                    
credits  had been  used  to secure  energy  in the  Railbelt                                                                    
area,  which  provided lower  cost  energy  than would  have                                                                    
otherwise been available. She noted  that there was a reason                                                                    
that the Senate had issued  Cook Inlet Region tax credits to                                                                    
incentivize  the base  and provide  energy to  the Railbelt.                                                                    
She  said that  as the  debate  about whether  the PCE  fund                                                                    
should  be  available  for appropriation,  or  protected  to                                                                    
benefit all of  Alaska, it was important  to understand that                                                                    
the state came together to invest in Cook Inlet.                                                                                
                                                                                                                                
9:54:07 AM                                                                                                                    
                                                                                                                                
Senator Micciche thought almost every  area of the state had                                                                    
benefitted from energy programs. He  thought much of PCE was                                                                    
used to  lower the cost of  relatively unsustainable sources                                                                    
of   energy.  He   wondered   if  longer-term,   sustainable                                                                    
opportunities were  not available in rural  areas, could the                                                                    
funds be used to fund other, ore sustainable projects.                                                                          
                                                                                                                                
Co-Chair  Hoffman  knew  there were  communities  that  were                                                                    
considering  the   viability  of  getting  off   diesel  and                                                                    
considering  hydro-power. He  thought  that  changes in  the                                                                    
program could  be made  once the demand  in rural  areas had                                                                    
been reduced.                                                                                                                   
                                                                                                                                
9:56:52 AM                                                                                                                    
                                                                                                                                
Co-Chair MacKinnon  noted that Co-Chair Hoffman  and herself                                                                    
served on  the Alaska  Renewable Energy Advisory  Board. She                                                                    
noted that AEA had adopted  criteria that examined the costs                                                                    
of individual communities and the return on investment.                                                                         
She  thought  the committee  needed  to  be aware  that  the                                                                    
environment was affected  in a positive way,  but not always                                                                    
the cost of  fuel supply. She said that if  a state facility                                                                    
was the center of a community  it could be the anchor tenant                                                                    
and cost  savings were not  realized. She elaborated  on her                                                                    
point about  why costs did  not always go down  under energy                                                                    
programs.                                                                                                                       
                                                                                                                                
9:59:16 AM                                                                                                                    
                                                                                                                                
Senator von  Imhof summarized her  understanding of  the two                                                                    
issues under discussion; revenue  and expense. She expressed                                                                    
appreciation for predictability.                                                                                                
                                                                                                                                
10:01:02 AM                                                                                                                   
                                                                                                                                
Mr. Teal  surmised that the  excess earnings  were currently                                                                    
determined by earnings, which were  volatile, and the amount                                                                    
available  could be  stabilized  by moving  to an  endowment                                                                    
model rather than an earnings model.                                                                                            
                                                                                                                                
Mr.  Teal looked  back  at the  interactive  graph that  was                                                                    
shown  on slide  6. He  said that  if the  state paid  out 5                                                                    
percent of  market value  there would be  up to  $20 million                                                                    
per  year,  on  a  stable  basis,  available  for  Community                                                                    
Assistance. He said  that going to an  endowment model could                                                                    
make it so  that general fund need is more  stable. He added                                                                    
that the  endowment was currently  large enough  to consider                                                                    
making the switch.                                                                                                              
                                                                                                                                
10:02:45 AM                                                                                                                   
                                                                                                                                
Co-Chair  MacKinnon  reminded  that  the  current  year  was                                                                    
unique because  of high earnings  in FY 17. She  stated that                                                                    
there  would be  some  money  from PCE  to  help reduce  the                                                                    
general fund payment and maintain the program.                                                                                  
                                                                                                                                
Senator  Micciche looked  at the  table on  slide 6  and was                                                                    
curious about the average earnings from FY 04 to FY 17.                                                                         
                                                                                                                                
Co-Chair MacKinnon estimated 10 percent.                                                                                        
                                                                                                                                
10:04:08 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:04:23 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
Mr. Teal stated  that the average earnings from FY  04 to FY                                                                    
17 were roughly 9 percent.                                                                                                      
                                                                                                                                
Senator Micciche  pointed out that  an endowment model  at 5                                                                    
percent was proven to be an adequately conservative model.                                                                      
                                                                                                                                
Co-Chair MacKinnon stated that  there was a former committee                                                                    
member that had  pointed out that there  were individuals in                                                                    
the state that  did not benefit from the PCE  program or the                                                                    
Cook Inlet tax credits. There  were people in rural parts of                                                                    
Mat-Su that  believed they did not  benefit from investments                                                                    
the state made in other energy sources.                                                                                         
                                                                                                                                
10:06:22 AM                                                                                                                   
                                                                                                                                
Senator  Micciche thought  that the  credits had  benefitted                                                                    
Alaskans.                                                                                                                       
                                                                                                                                
Co-Chair MacKinnon  knew that  there were  many perspectives                                                                    
on  policy decisions  made by  the legislature.  She thought                                                                    
that  the discussion  of energy  projects had  been thorough                                                                    
and inclusive.                                                                                                                  
                                                                                                                                
Co-Chair  Hoffman thought  energy costs  continued to  be an                                                                    
issue for all  areas of the state. He  thanked the committee                                                                    
for working  on the issue.  He pointed out that  even though                                                                    
Alaska was  a major provider  of energy to other  areas, the                                                                    
state continued to  have very high energy  costs. He thought                                                                    
that the  state would benefit  from a natural  gas pipeline.                                                                    
He  thanked  people  in urban  Alaska  for  recognizing  and                                                                    
supporting the energy needs of rural Alaskans.                                                                                  
                                                                                                                                
10:10:26 AM                                                                                                                   
                                                                                                                                
Senator  Olson echoed  the remarks  of Co-Chair  Hoffman. He                                                                    
lamented that  the rural  population of  Alaska was  at risk                                                                    
due to the  cost of energy. He expressed thanks  to his late                                                                    
predecessor Senator Al Adams for his work on the issue.                                                                         
                                                                                                                                
10:11:31 AM                                                                                                                   
                                                                                                                                
Co-Chair  MacKinnon expressed  her appreciation  for members                                                                    
of  the committee  who had  worked  in the  issue, past  and                                                                    
present.                                                                                                                        
                                                                                                                                
Co-Chair MacKinnon discussed housekeeping.                                                                                      
                                                                                                                                

Document Name Date/Time Subjects
3 13 18 SFC Power Cost Equalization and Community Assistance.pdf SFIN 3/13/2018 9:00:00 AM
Power Cost Equalization and Community Assistance
SB 108 amendment T.1.pdf SFIN 3/13/2018 9:00:00 AM
SB 108
SB108 FIN CS work draft version T.pdf SFIN 3/13/2018 9:00:00 AM
SB 108
SB 108 FIN CS Summary.pdf SFIN 3/13/2018 9:00:00 AM
SB 108