Legislature(2011 - 2012)BUTROVICH 205
02/09/2011 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| SB42 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 42 | TELECONFERENCED | |
SB 42-POWER PROJECT; ALASKA ENERGY AUTHORITY
3:36:20 PM
CO-CHAIR WAGONER moved to bring SB 42 before the committee.
There were no objections, and SB 42, version A, was before the
committee.
3:37:12 PM
SARAH FISHER-GOAD, Executive Director, Alaska Energy Authority
(AEA), said SB 42 authorizes the AEA to construct and own new
energy projects, hire staff, and adopt its own procurement code.
3:37:43 PM
MS. FISHER-GOAD said the cornerstone of SB 42 is for AEA to
construct and own new energy projects. Alaska's energy policy
target is to reach 50 percent of electricity generation through
renewable energy resources by 2025. To achieve this goal they
must pursue and invest now to develop capacity for a major
hydroelectric project. In November 2010, AEA issued a
preliminary decision document identifying a hydroelectric
project on the Susitna River as a recommended project to pursue.
AEA presented its findings and provided an overview to this
committee in January. She said Bryan Carey, AEA's hydroelectric
project manager, did that presentation. Without the authority to
construct and own new projects in SB 42, AEA would not be able
to go forward with the Susitna Hydroelectric project. With its
passage, they will file a preliminary permit with the Federal
Energy Regulatory Commission. She said most of her testimony
would be with respect to outlining the history of AEA and a few
of the other components of the legislation.
AEA was created by the State Legislature in 1976; it is a public
corporation and a component unit of the state of Alaska. Their
mission is to reduce the cost of energy in Alaska. The board of
directors of the Alaska Industrial Development and Export
Authority (AIDEA) is also the board of directors of AEA. There
are seven members - five public and the commissioners of the
Department of Commerce, Community and Economic Development
(DCCED) and Department of Natural Resources (DNR).
Through the 1980s AEA worked to develop the state's energy
resources as a key element in diversifying Alaska's economy. A
number of large-scale projects were constructed: the Four Dam
Pool Project was constructed in the 80s and sold in 2002 and the
Larson Bay Project which was transferred to the City of Larson
Bay in the fall of 2010. The Bradley Lake Hydroelectric Project
and the Alaska Intertie are the two assets that AEA still
currently owns and they provide Interior Alaska with cheaper
energy.
MS. FISHER-GOAD related that in 1993 the board of directors of
AIDEA became the board of directors of AEA. AEA has continued to
exist as a separate legal entity and but it lost the ability to
have employees and to construct or acquire new energy projects.
AIDEA personnel provide the management and support for AEA
programs.
3:42:32 PM
SENATOR MCGUIRE joined the committee.
3:42:45 PM
MS. FISHER-GOAD said the 1993 legislation required AEA to enter
into contracts with public utilities and other entities to the
maximum extent feasible to carry out AEA duties for the ongoing
operation and maintenance of the AEA-owned operating assets.
This continues to occur with the oversight responsibility
retained by AEA. For example, Homer Electric provides through a
contractual basis the services to manage the Bradley Lake Hydro
project.
In 1999, the rural energy programs that were previously
administered by the former Division of Energy, in the Department
of Community and Regional Affairs, were transferred to AEA for
administration. This was part of a larger reorganization that
took parts and pieces of the department and moved them to other
agencies. Many of them remained with DCCED, but some went to the
Department of Labor and Workforce Development (DOLWD). The
Division of Energy programs were incorporated into the Alaska
Energy Authority. These programs were originally part of AEA
prior to the 1993 reorganization. So, in 1993 AEA became a very
stripped down agency with the operation and management of the
assets it owned. The Division of Energy program, PCE, the
alternative energy programs and the rural energy technical
assistance programs were in this division.
The next change that happened in this "evolution" between AIDEA
and AEA was in 1998 when the board of directors appointed a
separate and independent AEA executive director; currently she
is that person and while she is an employee of AIDEA, she
doesn't report to the AIDEA executive director. Prior to this
point, AIDEA and AEA had one-and-the same executive director.
Legislation in 2008 added some energy development programs to
AEA - the Renewable Energy Fund and Grant Recommendation Program
- and again in 2010, AEA established the Emerging Energy
Technology Fund.
As the Governor's Energy Report noted in January, Ms. Fisher-
Goad said, AEA has become a key agency for the planning of
energy infrastructure and financing. Currently they do this by
issuing grants through these various programs, such as the
Renewable Energy Fund. They also manage construction of many
rural energy infrastructure projects and continue to provide
technical assistance and training to local power plant and bulk
fuel operators. AEA, in partnership with RCA, manage the Power
Equalization Program.
The appointment of an AEA director separate from the AIDEA
executive director would provide AEA distinct leadership and the
focus to manage and pursue energy projects and programs that are
important to Alaska. Her predecessor, Steve Haagenson, was
instrumental in developing and publishing the Energy Pathway
that was released last year. The appointment of two executive
directors has also allowed AIDEA to develop a strategic plan and
focus on economic development opportunities that are also
important to Alaska. Since 2008, AEA and AIDEA have two very
distinct missions being pursued independently with the
leadership of two people rather than one person trying to move
two very important missions along by himself.
Providing the ability for AEA to hire employees is the natural
next step in providing further differentiation between AIDEA and
AEA. This would not be a complete separation of the two
agencies; as sister agencies there will still be shared services
and operations, and both agencies will continue to be housed in
the same building. She explained that the two agencies rely on
some very important systems that if they were separated would be
very difficult and expensive to duplicate - the database for AEA
and AIDEA loan programs, an enterprise system going beyond
providing the accounting functions for both agencies, and the
database for AEA's PCE program.
3:47:11 PM
SB 42 also allows AEA to create subsidiary corporations for the
purposes of acquiring, constructing, owning, maintaining and
operating power projects. This option could be used to limit
potential liability of AEA or to strengthen the financial
viability of a project. At this point, it's an option that is
very important to have as they pursue a large project like
Susitna. SB 42 also allows AEA to adopt its own procurement
regulations distinct from the State Procurement Code. AEA would
be required to adopt regulations governing procurement that must
reflect competitive bidding principals and provide vendors
reasonable and equitable opportunities to participate in the
procurement process, and must include procurement methods to
meet emergency and extraordinary circumstances. This amendment
to the procurement code would give AEA similar authority over
procurement that is currently exercised by the Alaska Housing
Finance Corporation (AHFC), the Knik Arm Bridge and Toll
Authority (KABATA), and the Alaska Retirement Board.
Another provision in SB 42 creates a new Railbelt Energy Fund,
called the Alaska Railroad Energy Fund, and repeals the existing
Railroad Energy Fund. AEA would be authorized to use the money
from this fund to conduct feasibility studies, license, permit
or acquire, construct or to make grants for power projects and
transmission lines and interties that serve the Railbelt region.
3:50:24 PM
MS. FISHER-GOAD said she would go through the sectional analysis
and noted seven fiscal notes, which are summarized in a
spreadsheet document.
She said Section 1 amends AS 36.30.015(f) (the procurement code)
to allow AEA to adopt its own regulations to govern AEA's
procurement of supplies, services and construction. AEA
regulations will be required to reflect competitive bidding
principles; AEA would be given authority similar to other state
corporations such as AHFC and KABATA.
SENATOR WIELECHOWSKI said he had received an email from some
contractors who are very concerned about this provision. He
asked why the current state procurement code wouldn't work for
AEA.
MS. FISHER-GOAD answered that AEA does a lot of work on behalf
of grantees that is not subject to the state procurement codes,
and some that are. So right now AEA has several different
methods of procuring goods and services and this would provide
them with one comprehensive procurement code. She said Chris
Rutz, AEA Procurement Manager, was online to and could elaborate
more what difficulties he sees in trying to manage several
different types of procurement.
SENATOR WIELECHOWSKI said that procurement is an issue for some
of the contractors out there. He asked for some more compelling
evidence as to why they should abandon the current state
procurement codes.
MS. FISHER-GOAD explained that it is not about abandoning the
current procurement codes.
3:54:13 PM
CHRIS RUTZ, Procurement Manager, Alaska Energy Authority said
they are trying to address situations that aren't currently
under the procurement code, which are typically when they act as
an agent of communities or other entities and are doing the
purchasing for them. He explained, for instance, a rural
community could be granted funds for a project and the Denali
Commission would ask AEA to do the construction on its behalf.
They would follow procedures similar to the code, but
communities are not bound by AS 36.30. If a dispute comes up,
for instance over bidder preference, the community should
resolve it, not the state. Their procedures are based on AS
36.30 as per a legislative audit that was conducted a few years
ago, but the issue of authority is not clear. So, if they had
one set of regulations to follow it would help clear up some of
the contractors' issues.
SENATOR WIELECHOWSKI said that this is a $5 billion-plus project
and they need to tread very carefully on this procurement issue
because it could have a huge impact on local Alaskan businesses.
3:57:35 PM
MS. FISHER-GOAD continued that section 2 amends AS 37.05.520 to
explicitly allow the legislature to appropriate money from the
Railbelt Energy Fund to the newly created Alaska Railbelt Energy
Fund (AS 42.45.035). She said there was no easy way to just
transfer the Railbelt Energy Fund to become an AEA fund.
Section 3 amends AS 39.25.110 to allow AEA to hire an executive
director and other staff.
Section 4 adds a new section creating this new Alaska Railbelt
Energy Fund as a separate fund in AEA. The Department of Revenue
would be the fiduciary as they are with other funds of AEA. This
section also will allow AEA to use the money in the fund for
power projects, transmission lines and interties serving the
Railbelt region.
Section 5 amends AS 44.83.040(a) that defines a quorum is four,
not three, AEA directors. The board of directors was the AIDEA
board of directors and it was expanded from five to seven
members last year in legislation. What was missed is that AEA
had a specific statute that defined a "quorum." This just cleans
that up by defining a "quorum" as four of those seven members.
Section 6 adds a new subsection, AS 44.83.040(e), allowing the
authority to appoint persons as staff in the exempt service
under AS 39.25.
SENATOR WIELECHOWSKI asked if it is essential to have exempt
employees.
MS. FISHER-GOAD answered that AIDEA employees are exempt and, as
they become AEA employees, they would have the same exempt
standing.
SENATOR WIELECHOWSKI asked if there are currently AEA employees
that are non-exempt.
MS. FISHER-GOAD answered no.
Section 7 amends AS 44.83.080 to acquire and construct the new
power projects and to perform feasibility studies, engineering
and design with respect to these power projects.
Section 8 adds a new section AS 44.83.085
4:00:34 PM
SENATOR FRENCH turned to section 7 on page 4, lines 4-7, and
asked what "by another person" means in talking about
"acquisition or construction of a project to be owned or leased
as lessor or lessee by the authority." She thought it was
technical.
MS. FISHER-GOAD deferred to Brian Bjiorkquist.
4:01:57 PM
BRIAN BJORKQUIST, Senior Assistant Attorney General, Department
of Law, said the language "or by another person" was taken from
pre-1993 statutory language when these powers were taken away
from the AEA. He understands this section would provide that
AEA, in issuing bonds, could be financing a project that could
be owned by another entity.
CO-CHAIR PASKVAN asked if it is necessary to allow a subsidiary
entity to fill that role.
MR. BJORKQUIST answered that is not why the language is there.
Other provisions make very clear that the definition of
"authority" also picks up a subsidiary.
SENATOR MCGUIRE asked if there was any consideration give to
legislative approval for the bonds.
MS. FISHER-GOAD replied there was not. When the legislation was
developed the issue was providing the level of authority that
AEA did have prior to 1993.
SENATOR MCGUIRE returned to page 3, subsection 4, that talks
about the Railbelt monies which would have been in part
transferred from the legislature. She wanted to hear on the
record whether there was any consideration at all that
legislative approval should be considered at that point with
respect to the Railbelt energy monies.
MS. FISHER-GOAD answered that they did go back and forth on
whether certain projects should have legislative approval. They
wanted consistency between funds and the Southeast Energy Fund
that was repealed and reenacted in SB 220 [26th legislature]
does not require additional legislative authority.
SENATOR MCGUIRE wanted the committee to think about the fact
that this would be a major departure in the practice of the
legislature's right to appropriate funds. She asked what
projects AEA has managed, under what authority, and what the
outcomes were.
4:08:46 PM
MS. FISHER-GOAD answered that the Denali Commission has granted
a considerable amount of money over 10 years to two community
projects through AEA. These are rural energy infrastructure
projects, whether they are bulk fuel projects or RPSU projects.
Since AEA doesn't have the authority to own new projects, the
only experience it has in managing and owning to this day is the
Bradley Lake Hydroelectric Project. Susitna is a much bigger
project, but AEA has hired MWH, an engineering firm, to work on
it with the $10-million appropriation. AEA's project manager has
been working with them on the process they would follow once
they file for a preliminary permit with FERC. They can follow
the Bradley Lake model with respect to partnering the utilities
with state ownership and sharing a percentage of the project
debt. This is the successful model that people have talked
about, and it's appropriate to use it moving forward.
4:12:23 PM
SENATOR FRENCH returned to page 4, lines 21 and 22, that adds a
couple of powers to the types of contracts AEA can enter into,
and said he thought there was one too many "constructions."
MS. FISHER-GOAD answered she believed it was a duplication.
She continued with Section 8 that adds a new section to AS
44.83.085 allowing AEA to create subsidiary corporations for the
purpose of acquiring, constructing, owning, maintaining,
operating, or financing power projects.
SENATOR FRENCH asked why it helps AEA to distance itself from
the financial obligations of a project, and more specifically,
does the Alaska Railroad have this authority or KABATA?
MS. FISHER-GOAD answered that AHFC legislation last year for gas
development created a subsidiary corporation, and AEA and while
it's not necessary for the initial steps, it is a good option to
have in the future.
SENATOR WIELECHOWSKI returned to page 6, lines 3-5, and asked
how it is possible to transfer or spin off the state assets and
say that those debts are not the obligation of the Authority.
MS. FISHER-GOAD answered that subsidiary corporations are often
times created to insulate the parent corporation from those
liabilities.
4:16:28 PM
MR. BJORKQUIST elaborated that subsidiary corporations are
formed to shield the parent corporation; and this line expresses
that basic intent.
SENATOR FRENCH said maybe they should go ahead and be explicit
about it if they are going to create the Susitna Hydro Now
Corporation.
MS. FISHER-GOAD replied that they could explore that option.
MS. FISHER-GOAD continued with section 9 that adds new
subsection AS 44.83.090(c) allowing the subsidiaries to exercise
powers granted to it by the AEA.
SENATOR WIELECHOWSKI asked if he is reading section 9 correctly
in that subsidiaries are exempt from regulation by the RCA.
MS. FISHER-GOAD answered that she believes that is correct.
SENATOR WIELECHOWSKI asked how it is in the best interest of the
public and ratepayers to exclude AEA from regulatory oversight.
MS. FISHER-GOAD answered that it does not exclude companies that
purchase power. To her understanding that is how the Bradley
Lake Project is run. Essentially, the new project would mirror
that exemption.
CO-CHAIR PASKVAN clarified that that is the system that is
operating now.
MS. FISHER-GOAD answered yes, it is similar.
CO-CHAIR PASKVAN asked if that is accurate.
MR. BJORKQUIST replied yes.
4:20:52 PM
SENATOR WIELECHOWSKI said he has always had great concern about
exempting things like this (a $5-billion-plus project) from RCA
regulations. Once you get to the utility level you lose that
oversight over the construction and he didn't know if that
protects the ratepayers. It's something that needs more in-depth
discussion.
MR. BJORKQUIST said the AEA has an independent obligation to
review projects it manages for efficiency and that type of
thing, and AS 44.83.396(e) requires the RCA do that for other
projects. So, part of the reason AEA-owned projects are exempt
is so there is no duplicative state oversight over some of those
functions.
SENATOR WIELECHOWSKI referred to the fiscal note and said
sometimes he does not see efficiency in government agencies.
He'd like to trust, but have RCA verify by having oversight.
4:23:46 PM
CO-CHAIR WAGONER asked what oversight FERC has on this project.
MR. BJORKQUIST answered that this project would be FERC-
licensed, and therefore FERC would have certain oversight over
the it just like any other of their projects.
SENATOR WIELECHOWSKI said that was a good point, and asked if
FERC has oversight over the rates that are set.
MR. BJORKQUIST replied that FERC has some ability to effect what
the rates are, but it doesn't regulate the rates that are
charged by a hydroelectric project.
CO-CHAIR WAGONER said the power company sells power, but the
utilities will have the rates that are reviewed by the RCA.
MR. BJORKQUIST replied yes; the RCA would have regulation over
the rates that the utilities charge to their customers.
CO-CHAIR PASKVAN said asked Mr. Bjorkquist to more fully develop
whether there is consumer advocacy oversight of the wholesale
rate charged to the utilities.
MR. BJORKQUIST answered that he is not prepared to give a more
detailed response. There are certain components that FERC has in
regards to oversight.
CO-CHAIR PASKVAN said the committee would be very interested in
understanding if there were to be massive overruns, if there was
an ability to control that through oversight as opposed to just
passing it on to the consumer.
SENATOR WIELECHOWSKI said he would be interested in hearing what
FERC and the RCA would actually regulate and in seeing a side-
by-side breakdown of what they are getting themselves into.
4:28:10 PM
MS. FISHER-GOAD continued with section 11 that adds AS
44.83.396(f) to include subsidiary-owned projects in the
operation of a power project.
Section 12 amends AS 44.83.990(3) by defining "feasibility
study" to include the new power projects.
Section 13 repeals the Railbelt Energy Fund - AS 37.05.520,
Section 14 has revisor's instructions and section 15 is a
transition section of certain state employees from AIDEA to AEA
by providing a deadline of 12/31/2011.
Section 16 is a conditional effective date for the repeal of the
Railbelt Energy Fund referring back to section 13, which would
occur when the balance of the fund is appropriated and
transferred to the new Alaska Railbelt Energy Fund or
appropriated and expended for other purposes.
There is an immediate effective date for all sections except
what is provided in section 16.
SENATOR WIELECHOWSKI asked why they would want to abolish the
Railbelt Energy Fund.
MS. FISHER-GOAD answered that it is not their intent to abolish
the Railbelt Energy Fund, and if there was a really easy way to
transfer the Railbelt Energy Fund to AEA's statutes, they would
have done that. Repealing one fund and creating a new one in AEA
statutes was a way to accomplish that. The new fund is called
the Alaska Railbelt Energy Fund to distinguish easily between
the two.
SENATOR FRENCH recalled that the fund is at $67 million.
MS. FISHER-GOAD answered she thought it was at $65.7 million.
The fund has more cash than that, but that is what is currently
not obligated.
SENATOR WIELECHOWSKI said that expenditures under the Railbelt
Energy Fund have to be appropriated by the legislature now, and
making this change would give those powers to the AEA.
MS. FISHER-GOAD answered the recreation of the Railbelt Energy
Fund into AEA as the Alaskan Railbelt Energy Fund mirrored what
happened with the newly created Southeast Alaska Energy Fund.
Money going into that would not need further appropriation. AEA
has other funds with other levels of oversight, and that is why
they are going through the process of discussing these issues.
The Renewable Energy Fund is probably the example of a fund and
program they have the least control over because they go through
the recommendation process. Then the legislature appropriates
money to the fund. Then AEA manages the projects - rather than
money into the fund and AEA managing the projects. So, there is
a variety of ways that this can be accomplished and at different
levels of oversight.
4:33:12 PM
MS. FISHER-GOAD said that concluded the sectional analysis and
offered to go through the fiscal note summary with the
committee. Most of the fiscal notes deal with costs associated
with the transition of staff from AIDEA to AEA. There is the
shared-services concept between the agencies. Now, since it's
all AIDEA staff, interagency receipts pay for them. AEA pays for
work that AIDEA is doing through a reimbursable service
agreement. AIDEA owns the building that they are all located
in. Currently all maintenance is paid by AIDEA. They are not
planning on "charging rent" to AEA. However, the facility costs
would be a shared cost based upon the number of employees that
are AEA versus AIDEA. AEA would pick up approximately $142,000
of the facilities expense that AIDEA currently bears. The goal
of the fiscal notes on AEA's side was to keep AEA's operating
budget status quo. So, the money saved from facilities would be
able to be used in operations.
She said they asked for one new AIDEA position in Finance that
is needed to accommodate some increased work load, and they
think continuing to have shared services is cost effective.
Finance bears the brunt of the additional costs that would be
created by this separation, but both agencies have increased
workloads as well as increased workloads from the
reorganization.
She said there are two fiscal notes for the same component; one
fiscal note is the transfer in of the AIDEA positions and the
addition of one position for an AEA loan officer, which they
don't want to be a shared position. The second fiscal note is
what would be needed for a project office to pursue a large
project. They used some standard numbers for leasing costs and
contractor space. She said she would be happy to sit down and
discuss these costs in more detail, and assured the committee
that they had taken a very fiscally responsible view point in
developing this fiscal note.
4:43:12 PM
CO-CHAIR PASKVAN held SB 42 in committee for further discussion.
There being no further business to come before the committee, he
adjourned the meeting at 4:43 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB42_Hearing Request Letter.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB 42_Bill_Version A.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB 42_Sectional Analysis.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42_Fiscal Note.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42 Fiscal Note 1.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42 Fiscal Note 2.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42 Fiscal Note 3.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42 Fiscal Note 4.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42 Fiscal Note 5.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42 Fiscal Note 6.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |
| SB42 Fiscal Note 7.pdf |
SRES 2/9/2011 3:30:00 PM |
SB 42 |