Legislature(2001 - 2002)
02/19/2002 02:00 PM Senate L&C
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* first hearing in first committee of referral
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SB 280-WATER/SEWER/WASTE GRANTS TO UTILITIES
CHAIRMAN STEVENS announced SB 280 to be up for consideration.
MS. WILDA RODMAN, Staff to Senator Therriault, sponsor of SB 280,
explained that it allows privately owned public water and waste
water utilities to apply for water and waste water grants under
AS 46.03.030 if they are regulated by the Regulatory Commission
of Alaska (RCA). The regulation requirement ensures that all the
economic benefits of the grants guarantees that the benefits of
the grants would be passed on to the ratepayers. Currently, only
municipalities can apply for these grants, making it unfair to
all. This would allow privately owned utilities to make utility
infrastructure improvements without forcing ratepayers to pay the
full burden through increased rates.
Additionally, the bill would increase the ability of the utility
to expand in areas that are on the peripheral of existing systems
thereby providing water and waste water services to families that
are currently on wells and septic systems. There was a letter in
support from the Fairbanks North Star Borough attesting to the
fact that there are at least two areas in Fairbanks that would
benefit from being able to have services expanded to their areas.
SENATOR LEMAN said he thought this made sense, but he was
concerned about the fiscal note from DEC that adds another
position in Construction Facility and Operation from the general
fund. He thought they needed to look at that.
MS. RODMAN said that she understood the fiscal note was because
the smaller utilities might not be as savvy as the municipal
utilities in applying for these grants, so it would take more
staff time to prepare them.
SENATOR LEMAN responded that he would like to see something
similar to the RCA, that the utilities requesting this pay a fee
rather than it just coming out of the general fund.
SENATOR AUSTERMAN said page 2, section 2, talks about prorating
and asked if municipalities have the same ratio.
MS. RODMAN said that is the same.
CHAIRMAN STEVENS asked what was the total number of utilities
that could be eligible for this.
MS. RODMAN replied according to DEC it would increase by 50 and
currently there are 35 municipalities that can apply. Of the 50,
15 are water, about 5 in sewer…[END OF TAPE]
TAPE 6, SIDE B
2:48 p.m.
CHAIRMAN STEVENS asked what size grant they can currently apply
for.
MR. DAN EASTON, Director, Facility Construction and Operation,
DEC, replied about $2 million per year. He said their mission is
to assist communities in improving sanitation conditions. They do
that by providing both grants and low interest loans to
communities and this bill deals with one of their grant programs
- the Municipal Water, Sewer and Solid Waste Matching Grant
Program. They do not have a position on it, since it deals with
policy issues, but he had information that he thought would be
helpful.
He explained that they make grants to communities for things like
replacing water and sewer lines, building new water and sewer
lines to serve new areas, building or upgrading sewage treatment
plants, building or closing or adding on to landfills and
building things like water storage tanks - capital projects.
He said the program is primarily state funded and in FY 03 the
budget is $24 million. He said they are allowed to use some
federal grant funds in some of the smaller communities. Of the
$24 million, $8.5 million is federal grant funds. The balance is
from the state. Currently, only municipalities are eligible to
participate in the grant program. In the last 10 years, 36
municipalities have received grants from them. There is a local
match requirement that varies from 15 - 50 percent depending on
population. Grants are made on a progress reimbursement basis.
They do not give the people the money ahead of time. There is a
10 percent holdback until the project is completed including a
satisfactory audit and every project is audited. Their two
programs are staffed entirely with seven positions: four
engineers, a management position, an internal auditor and a
program coordinator.
MR. EASTON said there is a sequence every year that they go
through distributing applications to municipalities. When the
applications are returned, they are ranked in priority by public
health and environmental impacts and communities' capacity to
operate and maintain the sanitation systems. The list of projects
is the basis for the governor's capital budget proposal. Once a
fiscal year budget has passed, grant offers are made and accepted
and the division administers the grants.
He said the bill would extend eligibility in the program to non-
municipal, but RCA regulated, utilities and there are about 50 of
those. Thirty-six currently participate in the program. With the
exception of Fairbanks, the 50 new non-municipally owned
utilities are largely private systems that serve subdivisions and
trailer parks. There is a fiscal note for a single engineer
position from the general fund, although there could be different
ways to come up with the funding. They see an increase in the
number of grants managed by their engineers from $8 million per
engineer in FY 98 to $12 million in FY 03. This is one of their
budget performance measures.
SENATOR AUSTERMAN said they were talking about a potential 86
utilities asking for loans under this program. Mr. Easton
acknowledged that was correct. He asked if there would be a
dwindling amount of money for the individual utilities and that
they should be looking at more money for the program.
MR. EASTON replied that there is a pie sharing element to it. On
the other hand he pointed out that by virtue of their size the
grants to the municipalities would be larger than the ones to
subdivisions and trailer parks since the magnitude of their needs
would be different.
SENATOR AUSTERMAN asked if the general fund contributed $15.5
million to the fund. Mr. Easton said that was correct.
CHAIRMAN STEVENS asked what the benefit would be from going
independent.
MR. EASTON replied that most of them don't have a choice to hook
up. It's a matter of distance and it's simply being cost
prohibitive.
CHAIRMAN STEVENS asked if there was any reaction from the
existing 36 grantees of this program to this bill.
MR. EASTON replied that he hadn't heard much so far.
MR. ANDY WARWICK, Board Chairman, Fairbanks Sewer and Water, said
they are a privately built company that was formed in 1996 to
acquire from the City of Fairbanks its water and waste water
utility. The city was participating only minimally mainly because
there weren't many grants available. Now, grants for water and
sewer projects are increasing in importance.
Because Fairbanks has privatized its utility, we are
the only community in the state that is ineligible to
participate with the exception of some of the smaller
utilities you've been discussing. SB 280 remedies this
inequity by allowing privately owned public utilities
that are regulated by the RCA to apply for grants under
AS 46.03.030 (b). This puts Fairbanks ratepayers right
there in the same position as ratepayers in every other
community in the state. I want to stress that under RCA
regulations all the economic benefits of the grants are
passed on to the ratepayers. Our company gets no rate
of return on the plant built by the grants and we get
no depreciation of the grant included in our rates.
Economic regulation essentially may turn companies
economically neutral. However, the benefits to the
ratepayers are obvious. SB 280 will reduce the burdens
to our ratepayers and improvements we made to our water
and waste water system. It will also increase the
ability of the utility to expand its water and waste
water system to include families and businesses that
currently use utilize wells and septic systems. The
vast majority of Fairbanks residents are not hooked up
to a public utility water and waste water system which
in some cases results in sanitary problems that could
be resolved by connecting to our utility system.
MR. BRUCE JONES, City Manager, Petersberg, opposed SB 280. I
worked with a DEC workgroup on capacity and development, which
ended up supporting that part of the public utility have access
to loan funds for both the drinking water and waste water.
The bill's sponsor statement said that by not having
access to matching grant funds, the privately owned
utilities are at a disadvantage. I disagree. There is
now way to fairly compare the two. Privately owned
utilities operate on profit and loss. Most utilities
like Petersberg, if required to operate the same way
would be considerably more expensive. The
municipalities are lucky to break even. The grant
program and the low interest loan program will not be
able to respond to infrastructure needs and in most
cases cannot account for depreciation. The sponsor goes
on to say that the bill would increase the ability of
the utility to expand into areas that are on the
peripheral of existing systems, thereby providing water
and waste water services to families that are currently
on well and septic systems. This is a business decision
faced by every utility. Every utility wants to sell
more service because it increases revenue, but at what
cost?
MR. JONES continued saying that if private facilities have access
to these funds, there will be even less for the municipal
projects. "In my mind, this is not an appropriate use of public
funds."
CHAIRMAN STEVENS asked if there were any private utility
providers in the City of Petersberg with water and sewer.
MR. JONES replied no.
SENATOR LEMAN asked him if he heard him say that decisions on
expansion for utilities shouldn't be made on the basis of whether
or not you get grant funds.
MR. JONES replied yes.
SENATOR LEMAN responded that probably every utility in Alaska is
making its decisions on whether or not it can get grant funds. He
thought Petersberg residents had done that consistently, too.
Possibly Mr. Jones was wondering if a publicly owned utility
should be allowed to do that and not a privately owned one.
MR. JONES agreed that they all make those decisions.
MR. TIM ROGERS, Legislative Program Coordinator for the
Municipality of Anchorage, said he is also the Public Works
Subcommittee Chair for the Alaska Municipal League. Their concern
is that there are limited source of funds for these grants and
further diluting the pot is going to create some concerns and
some problems for municipalities around the state. Their water
and waste water utility last year received $2.75 million in funds
for projects working out to a little over 11 percent of the total
amount available in the grants. For FY 03 they are up to $3
million, which works out to 12.8 percent.
We have worked very hard to ratchet up the amount of
money that's available for capital projects through
this program and we see this dilution as a concern to
amount of money that will be available to us for those
projects.
MR. ROGERS said there is one very large multi national
corporation [Waste Management] that deals in the solid waste
services that would also be eligible for this fund and it would
be tough for municipalities to compete with a $12 billion a year
organization for these funds.
SENATOR DAVIS said she is concerned that there is only one
particular agency that is really interested in this legislation,
the group from Fairbanks and the fact that they are private and
not public. She thought that something needed to be done about
their needs without bringing in the 86 other groups.
CHAIRMAN STEVENS asked if another source of funds existed for
utilities and if there were figures on what percentages of monies
go to water systems, waste water systems and solid waste.
MR. EASTON said he guessed that most of the funds would go to
drinking water and then waste water and then solid waste.
CHAIRMAN STEVENS asked if the $24 million feeds all of those
functions and if there was one dominant area.
MR. EASTON replied that drinking water projects tend to compete
better, because they have a bigger public health impact. Of the
$24 million, more drinking water projects get funded.
SENATOR THERRIAULT, sponsor, said:
I didn't anticipate opening this up to any large multi
national, that being Waste Management. So if there's a
way to easily carve them out of the participation, I
would certainly be amenable to that.
With regard to the concern of any municipality being
opposed to anyone else being in the pool competing,
certainly the residents in the Fairbanks utility were
in that pool up until the time that the decision was
made to sell the utility. I think the community made a
wise decision in moving in that direction. In fact, I
think across the nation, municipalities and
constituency groups are considering that - private
management versus the public management of water
systems. I don't know, though, that having made that
decision that the residents in the Fairbanks area are
any less deserving of having access to safe water and
sewer systems than anyone else in the State of Alaska.
So, I think the public policy call we need to make is
how do we use limited funds to benefit the overall
constituency in the State of Alaska as far as the
attainment of safe water and sewer systems.
I don't know that we should penalize communities or
restrict or try to deter them from making the decision
of whether they want to sell their utility. I can see
if any other group is making a pitch for the purchase
of a municipal system, privatizing a municipal system,
that it would be brought up - well, you do that and
you're going to cut off any access to state grant
funds. I'm not sure that's the type of system that we
want to put in place here. Hopefully, with these grant
funds we're able to serve the largest number of the
most deserving citizens in the State of Alaska and we
do that through a sort of scoring system in the grant
process, not necessarily differentiating [between
private and municipal systems].
SENATOR AUSTERMAN asked him to comment on Senator Davis' idea
about dealing with Fairbanks on its own and leaving the grant
program alone.
SENATOR THERRIAULT replied that he would consider those
discussions, but they would still be excluding a large number of
Alaskans from even being considered for participation. The vast
majority of systems are very small. So the impact on the grant
funds would be "fairly diminimous." He thought there would be
some that wouldn't even be sophisticated enough to apply.
SENATOR AUSTERMAN said that the issue of profiting from state
funding needed to be answered.
SENATOR THERRIAULT agreed. He said that was brought up when
access to the loan funds was considered. The legislature made a
determination that they should serve the citizens of Alaska with
access to the loan fund.
By linking it to the regulated utilities, we have tried
to make sure that you're not pumping up the profits so
that the dividend on a yearly basis, which is the way
the gentleman from Petersberg portrayed it, would be
pumping up dividends paid to shareholders every year.
With regulated utilities, they would not be able to
build into their rate base a return of that capital. It
is not capital that they as shareholders brought into
the system. So, by having them come under the
regulation of the RCA, I don't believe that they are
able to reap a benefit that they would then pay a
dividend back to the shareholders on a yearly basis.
SENATOR THERRIAULT said he asked the RCA that question and they
should have their response in their packets.
SENATOR LEMAN asked if the private utility gets to book that
investment as equity.
SENATOR THERRIAULT replied he understands that it would become
overall equity, just like it becomes equity of the municipal
system, too.
SENATOR LEMAN said he could understand people's concern.
CHAIRMAN STEVENS said they would hold SB 280 for further work to
make the parameters "more refined."
SENATOR THERRIAULT agreed.
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