Legislature(2013 - 2014)NOME
07/20/2013 09:30 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB181 | |
| HB166 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| = | HB 181 | ||
| = | HB 166 | ||
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
Nome, Alaska
July 20, 2013
9:33 a.m.
MEMBERS PRESENT
Representative Gabrielle LeDoux, Co-Chair
Representative Benjamin Nageak, Co-Chair
Representative Neal Foster
Representative Bob Herron
Representative Lora Reinbold
Representative Harriet Drummond
MEMBERS ABSENT
Representative Kurt Olson
OTHER LEGISLATORS PRESENT
Representative Craig Johnson
COMMITTEE CALENDAR
HOUSE BILL NO. 181
"An Act relating to the accounting for money received by the
state from the mining license tax, mining lease payments, and
royalties from mining on state tide and submerged land seaward
of a municipality, and the availability of that money for
appropriation to certain boroughs and municipalities outside of
a borough."
- HEARD & HELD
HOUSE BILL NO. 166
"An Act relating to the bulk fuel revolving loan fund."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 181
SHORT TITLE: MINING LICENSE REVENUE; REVENUE SHARING
SPONSOR(s): REPRESENTATIVE(s) FOSTER
03/20/13 (H) READ THE FIRST TIME - REFERRALS
03/20/13 (H) CRA, FIN
04/09/13 (H) CRA AT 8:00 AM BARNES 124
04/09/13 (H) Heard & Held
04/09/13 (H) MINUTE(CRA)
07/20/13 (H) CRA AT 9:30 AM NOME
BILL: HB 166
SHORT TITLE: BULK FUEL REVOLVING LOAN FUND
SPONSOR(s): REPRESENTATIVE(s) FOSTER
03/15/13 (H) READ THE FIRST TIME - REFERRALS
03/15/13 (H) CRA
04/09/13 (H) CRA AT 8:00 AM BARNES 124
04/09/13 (H) Heard & Held
04/09/13 (H) MINUTE(CRA)
07/20/13 (H) CRA AT 9:30 AM NOME
WITNESS REGISTER
PAUL LABOLLE, Staff
Representative Foster
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Foster,
sponsor, presented HB 181.
DENISE MICHELS, Mayor
City of Nome
Nome, Alaska
POSITION STATEMENT: Testified in support of HB 181.
JOY BAKER, Harbormaster
City of Nome
Nome, Alaska
POSITION STATEMENT: During the hearing of HB 181 related the
impacts of increased mining activity to the harbor.
BILL JEFFRESS
SRK Consulting (U.S.) Inc.
Alaska Miners Association
Anchorage, Alaska
POSITION STATEMENT: Suggested amending HB 181 such that the
language would be broadened to encompass other communities
impacted by mining.
NANCY MCGUIRE
Nome, Alaska
POSITION STATEMENT: During hearing of HB 181, expressed
concerns with the impacts of the increased mining to the City of
Nome.
CHUCK WHEELER
Nome, Alaska
POSITION STATEMENT: Provided comments on HB 181.
PAUL LABOLLE, Staff
Representative Foster
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: On behalf of Representative Foster,
sponsor, presented HB 166.
JOHN HANDELAND, General Manager
Nome Joint Utility System
City of Nome
Nome, Alaska
POSITION STATEMENT: Testified that there would have to be
significant adjustments to HB 166 in order for Nome to
participate.
ACTION NARRATIVE
9:33:15 AM
CO-CHAIR BENJAMIN NAGEAK called the House Community and Regional
Affairs Standing Committee meeting to order at 9:33 a.m.
Representatives Foster, Herron, Reinbold, Olson, LeDoux, and
Nageak were present at the call to order. Also in attendance
was Representative Johnson.
HB 181-MINING LICENSE REVENUE; REVENUE SHARING
9:35:55 AM
CO-CHAIR NAGEAK announced that the first order of business would
be HOUSE BILL NO. 181, "An Act relating to the accounting for
money received by the state from the mining license tax, mining
lease payments, and royalties from mining on state tide and
submerged land seaward of a municipality, and the availability
of that money for appropriation to certain boroughs and
municipalities outside of a borough."
9:36:18 AM
REPRESENTATIVE FOSTER, speaking as the sponsor of HB 181,
thanked the committee for visiting Nome. The visit, he
remarked, is an opportunity to see rural Alaska, the Nome port
and inner harbor, and the strategic location of Nome as it's the
gateway to the Arctic.
9:37:49 AM
PAUL LABOLLE, Staff, Representative Foster, Alaska State
Legislature, speaking on behalf of Representative Foster,
sponsor, explained that HB 181 redistributes the minerals mining
tax and offshore lease sales on mineral mining. The current
version of HB 181 is targeted as it only applies to offshore
lease sales located within municipal boundaries. Nome, he
highlighted, is somewhat of a special case since the city
property corners stretch out approximately 1.2 miles into the
sea. The distribution method for the revenue stream from the
lease sale and mineral mining tax would be split in half as is
currently the case. Therefore, half of the revenue would be
deposited into the permanent fund and half into the general fund
(GF). Of the half deposited into the GF, half would be split
again and separately accounted for such that the funds would
still be in the GF but be part of a separate account that could
be a revenue stream to share with affected communities upon
request of the commissioner.
9:39:25 AM
REPRESENTATIVE FOSTER noted that the committee packet includes
maps depicting the municipal boundaries in the ocean and the
lease sale tracts, some of which are overlapping. He noted that
state lease sales have resulted in an increase in traffic [in
the area].
9:40:10 AM
CO-CHAIR NAGEAK opened the public hearing for HB 181.
9:40:25 AM
DENISE MICHELS, Mayor, City of Nome, thanked the committee for
visiting Nome as it provides members a better understanding of
the situation. She then related that the City of Nome supports
HB 181. Mayor Michels then informed the committee that [this
year] the City of Nome has faced an increase in staffing that
cost about $60,000 and the growth of the Nome port facilities
has cost approximately $302,000 to support the gold dredging
fleet. She thanked Commissioner Sullivan for providing a part-
time seasonal position for the Department of Natural Resources
(DNR) in Nome to help with permitting application issues and
other issues the dredges might have in the water. The proposed
revenue sharing would allow the City of Nome the additional
resources necessary to construct the infrastructure to support
the dredging industry. More floats, another barge ramp, and
transient housing are necessary. Mayor Michels provided the
committee with a PowerPoint presentation that includes the data.
She then highlighted that Nome city staff has had to deal with
oil spills as there is no Department of Environmental
Conservation (DEC) staff in the community. In fact, last year
the city had to ship out four totes of contaminated absorbent
pad as well as other materials used in the burners. Therefore,
additional support from DEC, particularly for enforcement, would
be greatly appreciated, she relayed.
9:42:57 AM
MAYOR MICHELS, in response to Co-Chair LeDoux, clarified that
there is no DEC staff in Nome to address oil spills. For the
summer, a lot of petroleum, hydraulics, and fuel are used to
power the dredging industry and sometimes there are spills in
the inner harbor. Currently, Nome harbor staff addresses these
issues, although last year DEC staff came to Nome twice to
perform water quality and turbidity samples.
9:44:01 AM
JOY BAKER, Harbormaster, City of Nome, informed the committee
that there have been numerous reports of offshore spills, which
typically are unnoticed because the currents move them down the
coast. Therefore, it's difficult to determine the source of
such offshore spills. The harbor staff does try to respond to
everything that occurs in the harbor and reports are always
filed with the National Response Center (NRC), which sends a
report immediately to DEC and the U.S. Coast Guard. If the
spill is large enough, they come to town otherwise they follow-
up, identify the responsible party if possible, and report to
that person to work on the problem. Ms. Baker characterized it
as an ongoing and growing problem because of the fast growth of
the fleet in a short time. She said that a full-time position
could be hired to just deal with the aforementioned. In
response to Co-Chair Nageak, Ms. Baker confirmed that all the
cost is absorbed by the city.
9:45:28 AM
REPRESENTATIVE REINBOLD, recalling a discussion she had with a
dredger, related her understanding that there is "green"
hydraulic fluid that's much safer for the environment.
MS. BAKER confirmed that some dredgers are using the "green"
hydraulic fluid. Frequently, fuel is spilled.
MAYOR MICHELS then informed the committee that last year 74
permits were approved while this year 204 permits were approved.
The growth, she noted, is related to the price of gold.
9:46:28 AM
REPRESENTATIVE DRUMMOND inquired as to whether the reports filed
with NRC are filed by the harbor staff.
MS. BAKER answered that typically that's the case. However,
periodically the larger operators will call the U.S. Coast
Guard. If the harbor staff discovers that a report has not been
filed, it will do so.
9:47:12 AM
REPRESENTATIVE HERRON inquired as to Commissioner Hartig's
response to the need for department staff in Nome.
MS. BAKER answered that for enforcement one has to have the
training and the background required for oil spill containment
and reporting. Commissioner Hartig is aware of the issue and
with his limited staff he has provided DEC staff visits to Nome
a couple of times in the summer.
REPRESENTATIVE HERRON suggested the committee write a letter to
the DEC Finance subcommittee chair encouraging a reallocation of
the resources within the state such that this emerging industry
becomes a priority for the state.
9:49:07 AM
REPRESENTATIVE HERRON asked whether the City of Nome is impacted
by other state [mining] leases in the area.
MAYOR MICHELS acknowledged that there is mining activity on land
in Nome, but it's regulated differently than ocean leases for
mining. In further response to Representative Herron, Mayor
Michels said the [city] wants to support the [mining] industry.
9:50:43 AM
BILL JEFFRESS, SRK Consulting (U.S.) Inc., Alaska Miners
Association, disclosed to the committee that he is chairman of
the Alaska Minerals Commission and also represents a number of
the offshore and onshore mining companies in Alaska that are
doing exploration mining or development work in the Seward
Peninsula area. Mr. Jeffress related support for the concept of
revenue sharing. The Alaska Minerals Commission report, he
highlighted, cited an improved tax climate for mineral
investment and resource revenue sharing as the number one item.
Although the association supports the mayor's efforts, the
effort needs to be much broader, he opined. Nome as well as
other communities is impacted by increases in exploration and
mining activities. Several of those impacted communities are
municipalities that aren't within boroughs and thus there is no
mechanism for additional taxation. The plane rentals, lease
payments, royalties, and mining license tax could be distributed
much like the fisheries tax. The fisheries tax implemented by
the Department of Revenue (DOR) provides for an annual sharing
of the fish tax collected outside the municipal boundaries to
municipalities that can demonstrate they suffer significant
effects from fishing industry activities. Mr. Jeffress said the
association would be willing to work with the committee to draft
additional language that would broaden the legislation so that
other communities impacted by mining could share in the revenue
that's generated from the mining industry either through the
mining license tax or plane rentals and other royalties.
9:54:00 AM
REPRESENTATIVE HERRON suggested the committee request
Legislative Legal Services draft such an amendment for
unincorporated areas of the state.
CO-CHAIR NAGEAK agreed to do so.
9:54:36 AM
CO-CHAIR LEDOUX related her understanding that HB 181 only
relates to royalties for mining on tide and submerged lands.
Therefore, she inquired as to how the legislation addresses
mining not in tide and submerged lands.
MR. JEFFRESS answered that HB 181 doesn't include any provisions
for upland mining leases, mill site leases, or any of the
mechanisms the state has including annual plane rental fees that
would go to municipalities of unincorporated areas. Under the
current narrow language of HB 181, Nome is the only city that
would qualify.
9:55:39 AM
CO-CHAIR LEDOUX asked whether there is any provision in statute
that would provide a community impacted by mining activities
part of the revenue the state receives.
MR. JEFFRESS replied no, other than what the legislature
appropriates through general revenue sharing.
REPRESENTATIVE DRUMMOND reminded the committee that the
legislature acts on behalf of the unincorporated parts of the
state as their city council/municipal assembly. Therefore, she
opined it's the legislature's responsibility to step in when
communities aren't located within incorporated boroughs or
municipalities.
9:56:40 AM
MR. JEFFRESS added that the Alaska Miners Commission and the
mining community feel that [HB 181] is a fair and equitable way
to address some of the impacts. He pointed out that there are
always issues with local municipalities that don't have
additional revenue to implement something along the lines of a
severance tax. The Alaska Miners Commission and the mining
industry, he related, are concerned that additional taxes kill
investment in Alaska. He opined that passing legislation to
enable the potential revenue streams is all that's necessary.
9:57:58 AM
MR. LABOLLE informed the committee that the sponsor is working
with Senator Olson's office to try to mirror the fish tax.
However, there are some issues that Legislative Legal Service is
struggling to make work. With the fish tax there is an
automatic distribution of funds, whereas under HB 181 the funds
are deposited into the state coffers and are subject to
appropriation by the legislature. Ideally, the desire is to
have true revenue sharing such that the funds are distributed
when initially received. He reminded the committee that the
creation of dedicated funds is prohibited. Regarding other
municipal options, Mr. LaBolle said that normally one can look
at a severance tax or property tax when the activity is within
municipal borders. However, there is no way to collect property
tax on [operations] in state waters, although the property
corners in this case are at sea.
9:59:56 AM
CO-CHAIR LEDOUX related that she owned a piece of property in
Kodiak that was once land, but became submerged land after the
1964 earthquake. The Kodiak Island Borough still collects
property tax on the submerged land.
REPRESENTATIVE DRUMMOND commented that it sounds like an
annexation would be necessary, but that would be difficult to do
after the fact.
CO-CHAIR NAGEAK interjected that the Local Boundary Commission
(LBC) should address that.
MAYOR MICHELS, in response, stated that it's state land.
REPRESENTATIVE DRUMMOND reiterated that the legislature is
responsible for the unincorporated communities.
CO-CHAIR LEDOUX surmised then that the problem is there is state
land within municipal boundaries; there wouldn't be a problem
taxing municipal land within municipal boundaries.
10:02:08 AM
REPRESENTATIVE HERRON, regarding having something similar to the
fisheries tax, suggested implementing an impact tax.
10:02:53 AM
NANCY MCGUIRE told the committee that as a citizen of Nome she
is concerned with the impacts of the [increased mining] to the
City of Nome. For instance, there are impacts to the police
department and the use of the Kids Don't Float Life Preservers
used by dredgers. Therefore, it would be nice for the City of
Nome to receive a share of the lease sales, which doesn't total
much. Other impacts, she highlighted, include that the food
bank is empty at the end of the mining season. Ms. McGuire then
remarked that it would've been nice to have more public notice
of this meeting so that more of the public could've been
present.
10:05:10 AM
CHUCK WHEELER pointed out that the 2011 lease sale provided $96
million to the state and provided leaseholders interest in the
minerals in the submerged lands. The legislation, HB 181,
before the committee is difficult to deal with because the
property [submerged lands] can't be taxed and it's designed to
address impacts to the port. However, the trend of port activity
is that the trawlers will replace the smaller dredgers.
Furthermore, more dredgers are moving upland seeking properties
to mine for gold. Mr. Wheeler highlighted that most of the
money from the dredges doesn't stay in Nome as it goes South
with them. He then said it's unfortunate that the dredgers and
mining industry aren't present to testify.
10:08:37 AM
REPRESENTATIVE HERRON asked whether the number of permits should
be limited.
MR. WHEELER noted that DNR is likely changing regulations
because it hasn't addressed the large-scale offshore dredgers
but rather have primarily addressed the recreational dredgers.
However, the 2011 leases don't reflect anything related to the
recreational dredgers, which are the ones impacting the harbor.
He noted that DNR has the statistics which relate that although
there were 100 applications, 40-50 are actively dredging.
10:10:25 AM
REPRESENTATIVE DRUMMOND expressed concern with regard to the
lack of public notice of this meeting. She then inquired as to
how Mr. Wheeler knew of the meeting.
MR. WHEELER answered that as a retired resident, he follows
[legislative] activity. He, too, expressed concern with the
lack of notice.
REPRESENTATIVE DRUMMOND agreed that when a legislative committee
travels to the City of Nome the public, not just insiders,
should know it is present.
10:11:11 AM
MAYOR MICHELS informed the committee that the meeting was
advertised on the radio. She further informed the committee
that the City of Nome asked DNR, with which it has a good
working relationship, to limit its acceptance of permits, which
resulted in a deadline of May 31st. Still, there is no limit to
the number of dredgers one permit can have on the lease.
10:12:15 AM
REPRESENTATIVE HERRON requested that the co-chairs request from
the mayor and the commissioner that staff be present at the fall
meeting and that the committee has a hearing on this issue in
January 2014.
CO-CHAIR NAGEAK directed staff to do so.
10:13:11 AM
CO-CHAIR NAGEAK, upon determining no one else wished to testify,
closed public testimony.
HB 166-BULK FUEL REVOLVING LOAN FUND
10:13:21 AM
CO-CHAIR NAGEAK announced that the final order of business would
be HOUSE BILL NO. 166, "An Act relating to the bulk fuel
revolving loan fund."
10:13:31 AM
REPRESENTATIVE FOSTER, speaking as the sponsor of HB 166, began
by informing the committee that Nome receives its fuel via the
barge, which substantially adds to its energy costs. Currently,
the bulk fuel revolving loan fund covers communities with a
population of 2,000 or less. The legislation recognizes there
are hub communities [with a population larger than 2,000] not on
the road system that receive their fuel via the barge as well.
Therefore, HB 166 proposes to expand the bulk fuel revolving
loan fund to serve more communities.
10:14:56 AM
PAUL LABOLLE, Staff, Representative Foster, Alaska State
Legislature, explained that small isolated communities located
off the road system that are frozen in most of the year have to
order fuel in the fall and have enough on hand for the entire
winter. The aforementioned is a large capital outlay for small
communities. Therefore, the bulk fuel revolving loan fund
offers reasonable interest and time to pay the cost. He noted
that in many cases these small communities are unable to even
get a loan of the amount necessary from a bank. Furthermore,
it's not uncommon for them to incorrectly estimate how much fuel
they will need for the winter. For instance, Teller frequently
runs out of fuel and Nome has to provide the fuel. Therefore,
the ability for the hub communities to have excess fuel is
helpful to the smaller communities. However, the current
population limits in statute don't allow hub communities to
participate in the bulk fuel revolving loan fund. The
legislation before the committee proposes to change that.
Although on page 2, line 5, the 2,000 population limit is
maintained, language is added such that communities located off
the interconnected state road system with a population of 4,000
can qualify for the bulk fuel revolving loan fund. The
legislation also changes the top end loan amount from $750,000
to $1,500,000 in order to mirror the increased population [of
the hub communities]. Echoing his comments at a prior hearing,
Mr. LaBolle emphasized that the population threshold of 4,000
was simply a starting point. He then pointed out that the
committee packet includes a list of communities, noting the
communities that would be included and those that would not.
The communities highlighted in green are included because of
population, but may not qualify for the bulk fuel revolving loan
fund if they are located on the state road system. Furthermore,
highlighted green communities such as Cordova would qualify for
the fund, but don't have the need for shipping the fuel all at
once since they have an open port year-round. Mr. LaBolle
pointed out that Barrow doesn't qualify because its population
is over 4,000. Bethel isn't on the list at all because the list
is of communities with a population under 5,000. He suggested
that the committee may want to consider what population and loan
amounts to target. Mr. LaBolle then reminded the committee of
the department's testimony that since the bulk fuel revolving
loan fund is a pre-capitalized fund, it doesn't go through the
appropriation process. Therefore, it would be a first come
first serve process such that new entrants would be involved in
an existing fund and when the fund is all loaned no more
entrants are included. The department suggested that the bulk
fuel revolving loan fund be capitalized with approximately $10
million to address the demand HB 166 would create.
10:20:16 AM
CO-CHAIR LEDOUX asked whether HB 166 would've addressed the
situation with the [Russian tanker] Renda.
REPRESENTATIVE FOSTER related his understanding that issue is in
litigation. The supplier says it was a force majeure situation
in which a storm made [the tanker] unable to deliver, but the
local fuel vendor disagrees. Either way, the situation isn't
related to what this legislation would address. In further
response to Co-Chair LeDoux, Representative Foster confirmed
that money had nothing to do with the situation.
10:21:17 AM
REPRESENTATIVE DRUMMOND related her understanding that the
department's presentation is a document entitled "Effects of
HB 166 on Bulk Fuel Loan Account." She then related that she
learned from Meera Kohler's presentation at the Pacific
NorthWest Economic Region (PNWER) this week that the Alaska
Village Electric Cooperative (AVEC) ensures that its
participating communities have 14 months of fuel available to
avoid running out. The AVEC communities, she noted, wouldn't
necessarily be able to participate in the bulk fuel revolving
loan fund. Representative Drummond agreed with earlier
statements regarding the need to ensure all citizens are kept
safe in terms of access to fuel, regardless of the population
size.
MR. LABOLLE explained that the change to $1.5 million in the
legislation is the result of taking an existing program and
scaling up to a larger population. He stressed that it's
possible that the numbers aren't where they should be in which
case the numbers should be decoupled if the desire is to ensure
that communities have 14 months of fuel available.
REPRESENTATIVE DRUMMOND suggested that it's a matter of
communication with Ms. Kohler regarding how AVEC came to its
number and ensures that 14 months of fuel is in its communities
prior to the end of the barge season.
MR. LABOLLE added that currently AVEC doesn't use the existing
bulk fuel revolving loan fund program, although it does qualify
for it.
10:24:10 AM
REPRESENTATIVE HERRON commented that AVEC doesn't need the
program rather the "mom and pop" communities need the program.
He then inquired as to the price of fuel when the current loan
threshold of $750,000 was established. He suggested that the
[loan thresholds] should be based on the current price of oil.
MR. LABOLLE informed the committee that the existing $750,000
loan threshold was established in the oil hike of 2008 and
prices are essentially the same now. In 2008 heating fuel was
set at $6.05 per gallon and as of March 2012 it was $5.83 per
gallon. The price of gasoline in 2008 was $5.36 per gallon and
now it's $6.11 per gallon.
10:25:23 AM
REPRESENTATIVE FOSTER informed the committee that in Nome today
diesel is $6.39 per gallon.
MR. LABOLLE, in response to Representative Foster, further
explained that there have been numerous increases to the cap of
this the program. For instance, in 2002 the cap was increased
to $200,000 and in 2003 it was increased to $300,000 and in 2006
it was increased to $400,000. In 2008 the program cap was
increased twice to $500,000 during the regular session and then
to $750,000 during the special session in Senate Bill 4002.
10:26:38 AM
CO-CHAIR LEDOUX suggested that perhaps an automatic adjustable
arm tied to the price of fuel should be included in the
legislation, which would alleviate the need to have legislation
to address it.
MR. LABOLLE explained that the state does that to a certain
extent in the operating budget with the fuel trigger for
departments. Through the fuel trigger when the price of oil is
over a certain amount, funds are automatically released. The
aforementioned meets the needs of the departments while
maintaining some budgetary control such that funds aren't over-
appropriated when they aren't needed. A complicating factor in
this situation is that since [the bulk fuel revolving loan fund]
is a capitalized fund not an appropriation, there isn't a way in
which to ensure there are sufficient funds within the
capitalized fund to meet a potential drain in funds if there was
a significant spike in price.
10:28:15 AM
REPRESENTATIVE FOSTER opined that although the increase in loan
amount from $750,000 to $1.5 million is large, it's a small
number in terms of the [cost of the fuel communities use]. For
example, the amount of fuel the small community of Unalakleet
uses in a year far exceeds $1.5 million, he suggested.
10:29:06 AM
CO-CHAIR NAGEAK opened public testimony.
10:29:42 AM
JOHN HANDELAND, General Manager, Nome Joint Utility System, City
of Nome, informed the committee that for Nome the price
difference in fuel as of June 1 and today is $.31. For the
order of 2.4 million gallons on the way to Nome that amounts to
a $749,520 increase.
10:31:32 AM
MR. HANDELAND, in response to Co-Chair LeDoux, stated that the
City of Nome purchases on an annual basis 2.4 million gallons of
fuel for the operation of its power utility and the heating of
its school district. The Nome City Council directed that the
fuel for the school district should be purchased with the annual
fuel purchase for the utility as it can result in a more
favorable rate. The school district contracts with a local
company to have the fuel brought to its facilities. The
aforementioned significantly reduces the cost of school
operations as well as the contribution the city makes directly,
he highlighted. Fuel can arrive in Nome once the port is ice
free, which can occur as early as the end of May. This year,
however, the port wasn't ice free until June 10. Some years, he
noted, fuel has been able to be delivered as late as the middle
of October. He lauded the valiant efforts of the U.S. Coast
Guard last year in assisting the Renda to Nome for a fuel
delivery in January. In response directly to Co-Chair LeDoux
regarding the purchase of fuel, Mr. Handeland explained that the
City of Nome contracts the purchase of fuel in January for
delivery during a delivery window. The contract includes a
known component for the transportation, which includes some
profit for the vendor. However, the price of the fuel is
unknown until delivery. The City of Nome uses a 30-day average
for the price of fuel in the month in which it's lifted. The
upcoming fuel will be lifted around August 2nd and thus the fuel
price will be based upon an average of the price of fuel in
August. Presently, the purchase price is estimated to be $8.5
million, although based on the June 1 price and the price Friday
the estimate will increase to about $9.3 million.
10:36:01 AM
REPRESENTATIVE DRUMMOND inquired as to the definition of
"lifted."
MR. HANDELAND answered that "lifted" refers to the date on which
the hose is connected to the header [on the barge at the
departure point]. Usually, it takes 10 days from the time the
fuel is lifted to its arrival in Nome because of other stops
along the way. Nome Utilities is part of the Western Alaska
Fuel Group, which is a group of communities that band together
to receive volume discounts in the purchase of bulk fuel. The
Norton Sound Economic Development Corporation (NSEDC) has a
program through which it attempts to assist communities with
fuel purchases. The assistance from NSEDC isn't limited to a
utility or city but rather can include a store, a church, or
other entity that has a large volume fuel purchase. Mr.
Handeland highlighted that Nome has had a great relationship
with Wells Fargo Bank over the last 25 years; money hasn't been
the problem, but Nome is looking for ways to cut costs where it
can in order to avoid utility rate increases. He informed the
committee that Nome pays a rate of 5 percent on its fuel
currently. If Nome were able to participate in the [bulk fuel
revolving loan] program, it appears Nome could have a rate of 3
percent.
10:39:30 AM
MR. HANDELAND, speaking specifically to HB 166, suggested that
there would have to be significant adjustments made to HB 166 in
order for Nome to participate. The placeholder numbers in
HB 166 are a good start as they would likely address many of the
smaller communities, but Nome is considering $8-$10 million in
purchases. Since the fund only has $20 million if no one else
borrows from it, there wouldn't be room for Nome, he pointed
out.
10:40:38 AM
MR. HANDELAND highlighted the city's suggestions to increase the
cap and adjust the repayment as mentioned by AVEC, which has a
14-month supply of fuel on hand. Since it's unknown when the
ocean will be [free of ice], the desire would be to have more
than a year's worth of fuel available. With regard to the
reference that loans must be payable in nine equal monthly
payments, the City of Nome makes payments on cargo over the
course of 12-16 monthly payments, depending upon the quantity.
He explained that they're attempting to match the [city's]
revenue stream to the actual fuel cost. Therefore, he suggested
that the repayment period language on page 1, line 11, of HB 166
be adjusted.
MR. HANDELAND then turned his comments to energy costs
generally. As has been mentioned communities in rural Alaska
are locked into a season when they can receive fuel as they
don't have the opportunity to avail themselves of the
fluctuation in the market. At one point there was discussion of
the option of purchasing fuel in advance and storing it at Adak,
but that results in double shipping costs and there continue to
be storage and financing costs as well as costs related to the
oil spill pollution requirement. Therefore, that option
includes additional costs. He informed the committee that the
City of Nome has considered purchasing futures in order to have
the opportunity to hedge market fluctuations. However, that
proposal initially ran into a snag with the power cost
equalization (PCE) program because with futures sometimes one
wins and sometimes one loses. Furthermore, the hedging costs
when the futures were higher were considered ineligible. Mr.
Handeland suggested addressing this issue on a statewide basis
by having economists in the permanent fund determining how to
reduce fuel costs such that communities have some certainty in
terms of fuel costs.
10:46:54 AM
REPRESENTATIVE FOSTER characterized Mr. Handeland's suggestion
as a great idea. Although Representative Foster acknowledged
that the futures market is volatile, he pointed out that over
the course of a year it's the same in terms of communities being
unable to purchase [when the fuel is cheaper].
10:47:37 AM
CO-CHAIR NAGEAK suggested opening the rest of Alaska to what the
rest of the state enjoys whether it is by a rail system or road
system that at least reaches the regional centers. Such action
would open markets for rare earth minerals and other things that
would drive up the economy of the state, help the communities in
those regions, and reduce costs for the communities in the
regions.
MR. HANDELAND remarked that the City of Nome appreciates Co-
Chair Nageak's efforts.
10:50:49 AM
CO-CHAIR NAGEAK, upon determining no one else wished to testify,
closed public testimony.
10:51:27 AM
MR. LABOLLE pointed out that one of the benefits of including
larger entrants in the bulk fuel revolving loan program is that
they are more reliable. He explained that the more people
paying the fund on time, the better off the fund is in general.
10:53:02 AM
ADJOURNMENT
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 10:53 a.m.
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