Legislature(2003 - 2004)
03/09/2004 01:30 PM Senate L&C
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 350-4 DAM POOL JOINT ACTION AGENCY
CHAIR CON BUNDE announced SB 350 to be up for consideration.
SENATOR GARY STEVENS, sponsor, moved to adopt CSSB 350(L&C),
version \D, for discussion purposes. There were no objections
and it was so ordered.
SENATOR GARY STEVENS explained that CSSB 350(L&C) allows the
Four-Dam Pool Power Agency to refinance a substantial loan that
they have owed to AIDEA [Alaska Industrial Development and
Export Authority] returning about $73 million to the state,
which the Legislature could use or redirect AIDEA to use. It
also provides several technical corrections in support of this
financing that have been requested by bond counsel. It supports
refunding money to consumers by lowering their interest rates
and also enhances the options available to the Four-Dam Power
Agency concerning Interties and other activities.
MR. THOMAS LOVAS, Chief Executive Officer, Four-Dam Pool Power
Agency, said SB 350 is supported by the five communities that
participate in it - the City of Kodiak and its environs, the
Valdez Copper Valley Basin area and the Cities of Ketchikan,
Petersburg and Wrangell.
These communities all banded together, as you recall,
in the year 2000 and formed the Four-Dam Pool Power
Agency with the intent that it would be a priority
provided by the Legislature to acquire the four
hydroelectric projects previously owned by the State
of Alaska. The financing of that particular
transaction was with the loan from the State of Alaska
through the auspices of the Alaska Industrial
Development and Export Authority. It provided for a
multiple year's financing vehicle for the acquisition.
The funds were a cash transaction from AIDEA, which
was transferred ultimately over into the Power Cost
Equalization Program. At this point in time, the
utilities and the agency representing the utilities
have paid down a portion of that debt; the interest
rate is at about 6.5 percent. What we have found in
the past year of operation is that the history of our
organization and our structure is such that we can now
consider alternative forms of financing including the
ability to actually form a bond sale of the tax-exempt
note [indisc.] to offset that high cost note with
AIDEA. We understand that the structure of the agency
was established as a tax-exempt authority for its
purposes in providing public power for the communities
and the members and we would like to move forward on
the process.
The technical corrections we have requested to the
enabling legislation in the formation of the pool do a
couple of things. It provides a technical correction
to ensure our ability to issue tax-exempt debt on
behalf of these communities and their citizens; it
also includes a clarification of our ability to use
the project as an effective security for a mortgage
note or any other vehicle that we would ultimately
come up with under a refinancing alternative. It also
insures that the projects will remain in the service
of the communities when they are assigned as security
for this debt.
As Senator Stevens indicated, the legislation does
provide a potential significant savings to the
communities on a lower interest rate as well as
bringing in a significant amount of money into the
hands of AIDEA in the refinancing of that particular
note.
I might mention, also, that the Four-Dam Pool Power
Agency passed a resolution in its December meeting
supporting the concept of refinancing using these
types of tax-exempt bonds and we appreciate your
consideration of the technical amendments to help that
promise come true. That clarifies, I hope, the intent
of the legislation. I believe it's a very beneficial
piece of legislation that works for the benefit of all
residents of the State of Alaska, as well as providing
for the needs of the Four-Dam Pool Power Agency. Thank
you very much.
CHAIR BUNDE commented that refinancing costs money, in his
experience, and asked him why this method of financing wasn't
chosen initially.
MR. LOVAS replied that he became employed by the agency about a
year and a half ago, but his understanding is that various
mechanisms were looked at then, but the agency didn't have any
history and the most expedient form of acquiring financing was
the note through AIDEA.
MR. BOB LERESCHE, Financial Advisor, Four-Dam Pool Power Agency,
agreed and said the agency had no credit when it was first
formed and these bonds have been very costly, if not impossible,
to issue. He pointed out that when AIDEA did this financing, the
interest rate of 6.5 percent was good for credit of this
quality. "Times have changed and the agency can get a better
deal for their ratepayers and at the same time return $73
million cash to AIDEA."
CHAIR BUNDE asked when the Four-Dam Pool communities issue debt,
will the full faith and credit of the State of Alaska still be
the ultimate backer of those bonds.
MR. LERESCHE replied, "No, there will be no state credit
backing, whatsoever, of these bonds."
SENATOR HOLLIS FRENCH asked what the likely new interest rate
would be on financing of this nature.
MR. LOVAS replied that interest rates could potentially go as
low as 5 percent, maybe less. Two things would be necessary, one
would be to obtain an appropriate credit rating from a registrar
of a grading agency of credit and the other would be to look at
potentially insuring the bonds with a relatively modest fee.
We believe in the range of 4.8 or 5.0 percent is a
reasonable expectation for us, if we can move forward
immediately and act in the markets within a very short
period of time.
SENATOR FRENCH asked if this would be a mortgage or a bond.
MR. LERESCHE replied, "It's a bond, but it might well include a
mortgage as part of the credit."
SENATOR FRENCH speculated that was the hitch - that ownership of
the pool could fall into hands outside the state, if it couldn't
meet its obligations.
MR. LERESCHE replied:
I guess theoretically so. However, when you issue a
bond in the open market as the agency is intending to
do, nobody wants to own the project. It's just mostly
really a psychological crutch to make them think they
really have control over these people if they don't
pay them. I might point out as well that the current
AIDEA loan includes a mortgage just as we contemplate
attaching to the new bond.
SENATOR FRENCH queried:
If you were to refinance the total amount at 5
percent, what would that do for the debt service? How
much would it go down and what do you expect that
would do, if you've calculated it to the average
homeowner's electric bill?
MR. LOVAS replied:
We've estimated as much as an annual savings of
between $800,000 to $1,500,000 depending on certain
implications of the use of the tax-exempt debt. There
are some complications having to do with securities
laws on how the tax-exempt debt could ultimately be
applied among the municipalities versus the
cooperatives and it affects the total net savings
we're likely to see. In any case, it's going to be at
least that minimum sum then.
I haven't quite measured it all the way down to the
ratepayer, frankly, because I'm looking at it from the
agencies' point of view - a wholesale power sale. We
don't sell retail. We sell as wholesale at the G&T for
power delivered to the utilities for resale to their
ultimate customers. The impact can vary depending on
what the retail rate of each of my members is. But, in
any case, that reduces the debt service cost rather
significantly by about upwards of $1.5 million and it
would have a multiple percentage reduction in our
wholesale power rate.
SENATOR FRENCH asked what current debt service costs per annum.
MR. LOVAS replied that the debt service now is about $6.5
million per year.
CHAIR BUNDE thanked them for their testimony and said there were
no further comments to come before the committee on SB 350 today
and that he would hold it for a time.
SB 350-4 DAM POOL JOINT ACTION AGENCY
CHAIR CON BUNDE announced SB 350 to be back before the
committee.
SENATOR RALPH SEEKINS moved to pass CSSB 350(L&C), version D,
from committee with individual recommendations and attached
fiscal note.
SENATOR HOLLIS FRENCH asked if it had another committee of
referral.
CHAIR BUNDE confirmed that it went to Finance. He asked for a
roll call vote. Senators Hollis French, Bettye Davis, Gary
Stevens, Ralph Seekins and Chair Con Bunde voted yea; and CSSB
350(L&C) moved from committee. There being no further business
to come before the committee, Chair Bunde adjourned the meeting
at 2:30 p.m.
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