Legislature(1997 - 1998)

02/04/1998 08:03 AM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
         HOUSE COMMUNITY AND REGIONAL AFFAIRS                                  
                  STANDING COMMITTEE                                           
                   February 4, 1998                                            
                      8:03 a.m.                                                
                                                                               
                                                                               
MEMBERS PRESENT                                                                
                                                                               
Representative Ivan Ivan, Chairman                                             
Representative Fred Dyson                                                      
Representative Scott Ogan                                                      
Representative Jerry Sanders                                                   
Representative Albert Kookesh                                                  
Representative Reggie Joule                                                    
                                                                               
MEMBERS ABSENT                                                                 
                                                                               
Representative Joe Ryan                                                        
                                                                               
COMMITTEE CALENDAR                                                             
                                                                               
* HOUSE BILL NO. 336                                                           
"An Act relating to eligibility for power cost equalization."                  
                                                                               
     - HEARD AND HELD                                                          
                                                                               
* HOUSE BILL NO. 337                                                           
"An Act making a special appropriation for the Power Creek                     
hydroelectric facility; and providing for an effective date."                  
                                                                               
     - HEARD AND HELD                                                          
                                                                               
* HOUSE BILL NO. 342                                                           
"An Act relating to optional exemptions for municipal property                 
taxes for certain residences."                                                 
                                                                               
     - BILL HEARING CANCELLED                                                  
                                                                               
(* First public hearing)                                                       
                                                                               
PREVIOUS ACTION                                                                
                                                                               
BILL: HB 336                                                                   
SHORT TITLE: ELIGIBILITY FOR POWER COST EQUALIZATION                           
SPONSOR(S): REPRESENTATIVES(S) KUBINA                                          
                                                                               
Jrn-Date    Jrn-Page           Action                                          
01/20/98      2090     (H)  READ THE FIRST TIME - REFERRAL(S)                  

01/20/98 2090 (H) CRA, JUDICIARY, FINANCE 02/04/98 (H) CRA AT 8:00 AM CAPITOL 124 02/06/98 (H) CRA AT 8:00 AM CAPITOL 124 BILL: HB 337 SHORT TITLE: POWER CREEK HYDRO PROJECT IN CORDOVA SPONSOR(S): REPRESENTATIVES(S) KUBINA Jrn-Date Jrn-Page Action

01/20/98 2090 (H) READ THE FIRST TIME - REFERRAL(S)

01/20/98 2090 (H) CRA, FINANCE 02/04/98 (H) CRA AT 8:00 AM CAPITOL 124 WITNESS REGISTER REPRESENTATIVE GENE KUBINA Alaska State Legislature Capitol Building, Room 404 Juneau, Alaska 99801 Telephone: (907) 465-4859 POSITION STATEMENT: Sponsor of HB 336 and HB 337. TOM WRIGHT, Legislative Assistant to Representative Ivan Ivan Alaska State Legislature Capitol Building, Room 418 Juneau, Alaska 99801 Telephone: (907) 465-3882 POSITION STATEMENT: Discussed fiscal notes for HB 336 and HB 337. JIM ROBERTS, General Manager Cordova Electric Cooperative, Incorporated Box 20 Cordova, Alaska 99574 Telephone: (907) 424-5555 POSITION STATEMENT: Answered questions on HB 336 and HB 337. LAMAR COTTEN, Deputy Commissioner Office of the Commissioner Department of Community and Regional Affairs P.O. Box 112100 Juneau, Alaska 99811-2100 POSITION STATEMENT: Answered questions on HB 336 and HB 337. ERIC YOULD, Executive Director Alaska Rural Electric Cooperative Association 703 Tudor Road Anchorage, Alaska 99503 Telephone: (907) 561-6103 POSITION STATEMENT: Testified in support of CSHB 336 and HB 337. PATRICIA L. JONES P.O. Box 544 Cordova, Alaska 99574 Telephone: (907) 424-3652 POSITION STATEMENT: Testified in support of HB 337. SCOTT JANKE, City Manager City of Cordova P.O. Box 1210 Cordova Alaska 99574 Telephone: (907) 424-6200 POSITION STATEMENT: Testified in support of HB 336 and HB 337. HAP SYMMONDS, Plant Manager Ocean Beauty Seafoods; Vice President, Board of Directors Cordova Electric Cooperative, Incorporated P.O. Box Box 2646 Cordova, Alaska 99574 Telephone: (907) 424-7171 POSITION STATEMENT: Commented on HB 337. ACTION NARRATIVE TAPE 98-8, SIDE A Number 0001 CHAIRMAN IVAN IVAN called the House Community and Regional Affairs Standing Committee meeting to order at 8:03 a.m. Members present at the call to order were Representatives Ivan, Dyson, Sanders, Kookesh and Joule. Representative Ogan arrived at 8:10 a.m. HB 336 - ELIGIBILITY FOR POWER COST EQUALIZATION HB 337 - POWER CREEK HYDRO PROJECT IN CORDOVA Number 0062 CHAIRMAN IVAN said the committee would hear HB 336, "An Act relating to eligibility for power cost equalization," and HB 337, "An Act making a special appropriation for the Power Creek hydroelectric facility; and providing for an effective date." He noted in the committee members' files there is a blank committee substitute (CS), 0-LS1132\E, for HB 336. He said he would entertain a motion for the adoption of the proposed CS. Number 0094 REPRESENTATIVE JERRY SANDERS moved to adopt the proposed CS for HB 336, 0-LS1132\E. There being no objection, it was so ordered. Number 0121 CHAIRMAN IVAN said there also is a proposed CS for HB 337, 0- LS1133\B. He said he would entertain a motion for the adoption of the proposed CS. Number 0168 REPRESENTATIVE REGGIE JOULE moved to adopt the proposed CS for HB 337, 0-LS1133\B. There being no objection, it was so ordered. Number 0185 REPRESENTATIVE GENE KUBINA, sponsor of HB 336 and HB 337, came before the committee. He informed the committee that before he became a legislator, he served five years on the board of directors for Copper Valley Electric. Representative Kubina noted the first piece of legislation that became law which he had introduced related to the Power Line Extension Grant Program that helped hook up a lot of people to electricity. He explained that over the last couple of years, that program hasn't been funded so it doesn't do much good. REPRESENTATIVE KUBINA informed the committee that a lot of communities throughout the state receive power cost equalization (PCE). He said he has always believed that the PCE Program is very helpful to communities, but it is not always efficient. If we could take some of the cooperatives and electric utilities that are in the program and give them the resources to get some kind of alternate energy, they'd be able to come off the program. Representative Kubina pointed out the PCE only works for a certain amount of kilowatt hours. He noted he doesn't remember the top rate, but it isn't very much. It is good for the residential people, but doesn't really help businesses at all. REPRESENTATIVE KUBINA indicated that if a community applies for and receives a grant to put in a hydroelectric facility, they would go off the PCE once the facility was running. Representative Kubina said, "In essence, it takes the state of Alaska to say, 'Alright, I'm going to put up some up-front money.' In this case, Cordova would be ten years worth of PCE. They get $750,000 a year. They're one of the biggest actually users of PCE because they're one of the biggest communities that receive it. So it would take ten years worth of that or $7.5 million, use that to match money that they have been getting from the federal government. And Ted Stevens has been helping them work on this program. For a total they would get $15 million. They would build a hydro project for it with that money, and then once that hydro project gets up and running, they would no longer get PCE. So in essence, it would be a program that whereby the state of Alaska would give them their PCE up-front for ten years in exchange for not having PCE afterwards." REPRESENTATIVE KUBINA said this project would be beneficial to the business community where just receiving PCE is not beneficial to the business community. He informed the committee members that he changed the bill because the way the bill was originally written some of the smaller utilities who were receiving such a small amount of PCE might be hurt by the way it was originally worded. The last thing he wants to do is put any utilities in jeopardy of their PCE. Number 0481 REPRESENTATIVE FRED DYSON asked what would happen if PCE was phased out over the next few years. Number 0503 REPRESENTATIVE KUBINA stated he isn't sure. He said if we didn't have PCE, there would be incentive for the legislature to fund any other utilities like this one. He pointed out that there are a lot of arguments to keep PCE for the small communities. Representative Kubina said he believes that any Administration and legislature would really fight to find ways to keep PCE because there is no alternative for a lot of the places. Number 0579 REPRESENTATIVE DYSON asked if there is a specific reason that the bill only applies to hydroelectric as opposed to other new technology. REPRESENTATIVE KUBINA pointed out his original language specified only hydroelectric. He said he can see that there may be a geothermal plant. He noted that up by Shishmaref there are hot springs. Representative Kubina explained that during rewrite of the bill, he wanted it to be written so that it wouldn't hurt any of the small utilities. Representative Kubina said, "Let me tell you that this rewrite of the bill happened actually yesterday - late last night. I've been trying to get it so that it wasn't going to hurt any of the small utilities and we're very much open to a way to make it any other thing like that. I think anything we can do as a state to help them -- give them the capital costs to bring them their electric rate so they don't need to subsidize. That's the goal." Number 0650 REPRESENTATIVE DYSON said he would add the more we can get away from the dependence on hydrocarbons, particularly diesel, it would be worthy. Number 0667 REPRESENTATIVE SCOTT OGAN informed the committee that his concern with the legislation is that it kind of puts Cordova in a position of getting up-front money when the future of PCE is debatable. He noted there are a lot of arguments for it, but there is not a lot of money. He said if he understands the bill correctly, it gives Cordova ten years of PCE up-front. Representative Ogan said it seems to him that it would be unfair if PCE isn't funded. Number 0728 REPRESENTATIVE KUBINA responded, "(Indisc.) nothing that we can do is going to determine for sure what we're going to fund next year or the year after that or the year after that, but this debate about PCE has been here a long time. There has been a whole lot money spent in railbelt communities. Of course the rural areas that depend on PCE think that this is just their fair share. If you add up how much money has been spent on Susitna hydro projects, interties, et cetera, et cetera, there is hundreds of millions of dollars in there and PCE's costs is nowhere near -- come close to making up for what's already been put in those areas. But I agree with you, Representative Ogan, that you know there is no guarantee it's going to be here next year, but I don't think that that means we close our eyes on not trying to find ways to make -- to bring these people into self-sufficiency. And just as Anchorage and Fairbanks couldn't fund interties in between themselves themself -- they may have been able to, but when the state would have had the ability to help, that's what they did. We should do our best to help these people become self-sufficiency. You know the economy of smaller towns -- if they were all very healthy, why it certainly would make our railbelt area just as healthy or even healthier." Number 0855 REPRESENTATIVE OGAN asked if there is a fiscal note available. Number 0860 REPRESENTATIVE KUBINA explained the fiscal note would be the HB 337. Number 0872 TOM WRIGHT, Legislative Assistant to Representative Ivan Ivan, Alaska State Legislature, informed the committee members that fiscal notes have been requested from the Administration. He indicated he has not received a fiscal note for HB 336. A fiscal note is required for that particular bill. Mr. Wright referred to HB 337 and stated a fiscal note is not required as it is an appropriation bill. Number 0893 REPRESENTATIVE ALBERT KOOKESH stated he believes the legislation is a step in the right direction. He said, "I really think, like everybody else, I don't know what the future of PCE is going to be, but one of the things that we have to do as legislators, and people who are considered at least by some of us, leaders in the state as far as policy for the state goes, is that we need to start looking at some way to end PCE ourselves. And maybe one of the ways to end it is to make sure everybody else has some self sufficiency down the road, whether it be hydroelectric or anything else. So I really think that we have to take the first step and maybe this is the first step." Representative Kookesh informed the committee he would really appreciate continued consideration of similar bills so there are options on the table for everyone to consider. Number 0953 REPRESENTATIVE JOULE indicated he is relieved to see the proposed CS for HB 336. He referred to the original version and said, "I had concerns that if something were to happen or just normal wear and tear to regular power units in some of the smaller communities, if a purchase of a generator and replacement of some of those equipment, I was going to ask the question of whether or not that would end that kind of capital investment would end power cost assistance to those communities if that were to occur when it wasn't really an effort to find alternative power other than to just replace the aging systems. And then the other part of this is, you know, there is a task force out there looking at power cost equalization to try and find potentially I guess some revenue streams and also I imagine some alternatives for development. And I wonder whether or not something like this would be able to fall within that purview." Number 1039 REPRESENTATIVE OGAN said HB 337 is the funding mechanism and it is basically a general fund grant. He asked if it would be a general fund grant and it wouldn't come out of power cost equalization. REPRESENTATIVE KUBINA indicated that is correct. Representative Kubina stated that he knows to request $7.5 million is a hard question to ask. He urged that the legislation move to the House Finance Committee so they can consider it within the budget. Number 1101 CHAIRMAN IVAN said he also had reservations regarding the original versions of the legislation. He said he appreciates the Representative Kubina's interest in the preservation of power cost equalization to the state as a whole. Chairman Ivan said, "If we could look back and maybe have encouraged other forms to be looked at - hydro projects, natural gas, (indisc.), we wouldn't have to continue to (indisc.) and fund. Probably some of our communities would have been off PCE and make that -- I encourage that - getting off. And I see the bill doing this. I understand it will not harm the rest of the rural communities power projects that are so dependent on PCE at this time." Chairman Ivan said some of the communities he represents are trying to find ways to get off of PCE if at all possible. They are in situations where they need help to get off PCE. He indicated Representative Kubina's legislation is a beginning. Number 1210 REPRESENTATIVE OGAN referred to a resolution in his committee file from Cordova Electric Cooperative, Incorporated, and said the letter says that they are constructing the Power Creek hydroelectric facility. He asked if it is safe to assume that the facility is currently being funded. REPRESENTATIVE KUBINA said he understands that they have received $5 million from federal appropriations over the last couple of years. He noted this happened with the help of Senator Stevens. Representative Kubina pointed out that Senator Stevens has encouraged Cordova Electric Cooperative, Incorporated, to also continue to ask the state for help in funding. Senator Stevens believes it should be a joint state/federal program. Representative Kubina said if the small communities had to pay for the whole thing, they'd still be on PCE and the rates probably wouldn't decrease. He asked how does the smaller communities get the capital costs to get something going so they can become self- sustaining. Number 1288 REPRESENTATIVE OGAN asked what the total cost is of the project. REPRESENTATIVE KUBINA responded that it is $15 million REPRESENTATIVE OGAN asked if there was a state match for the $5 million. REPRESENTATIVE KUBINA indicated there wasn't. REPRESENTATIVE OGAN asked if it was an outright grant from the federal government. REPRESENTATIVE KUBINA answered in the affirmative. REPRESENTATIVE OGAN asked if there would be any additional federal funds available if the state kicked in a smaller amount. REPRESENTATIVE KUBINA responded that Cordova Electric Cooperative, Incorporated, is going to do everything they can to get funding for as much of this project as possible. He said what they're trying to do is if they can fund half of the project from the state and half from the federal government so the capital costs will be paid for. They would give up $750,000 a year. That is a savings to the state. They would then be able to charge enough to pay all the operating costs. Representative Kubina added that they would not be able to generate all their electricity with this project as it's not big enough. They would still have diesel generation, but the blended part of it between diesel and hydroelectric would bring their costs down low enough that they could give up the PCE. Number 1317 REPRESENTATIVE JOULE referred to his earlier comment about the task force and said maybe the timing of this couldn't be "more better." He said as technology is changing how we do things. He suggested that the task force might want to work closely to monitor the plant, as it is being built, to see whether other things can be tied into it. Representative Joule said it could be used as a model as we look towards self-sufficiency. REPRESENTATIVE KUBINA explained that the task force has reviewed the original piece of legislation. He said the task force will be reviewing the new version of the legislation. Representative Kubina informed the committee that the task force is looking at how they can help communities be self-sustaining. Number 1466 JIM ROBERTS, General Manager, Cordova Electric Cooperative, Incorporated, came before the committee to give a brief history of his organization. He informed the committee that the cooperative did not become a cooperative until 1978. Consequently, they could not take advantage of the low interest rates from the federal government through the Rural Utility Service (RUS) Program. He said they have the highest blended interest rate for capital of any cooperative utility in the state of Alaska and that's one of their big problems. MR. ROBERTS informed the committee that the cooperative's average cost of power as of 1997 was over 20 cents per kilowatt-hour. He said what is being proposed regarding the Power Creek project is if they can get the funding that they want to build the project, it will drop their costs over 5 cents a kilowatt-hour. That will help not only residential, but the industry. He said the PCE does help residential, but it doesn't help their industry. The basic industry is fish processing. He noted the fish processing industry can't really compete with other communities. Cordova has lost a couple of fish processors over the past five or six years. It hurts the economy. MR. ROBERTS explained their thrust has been that they are willing to give up PCE if they can get the funding they need. Considering that Cordova is basically the largest single community in the state that receives funding from PCE, the project would allow more money to be put back into the pot for other small communities. Mr. Roberts said he believes the project makes sense and the PCE task force is going to look at that and maybe use it as a model for other communities throughout the state. MR. ROBERTS informed the committee that they received the Federal Regulatory Energy Commission (FREC) license on December 24, 1997. They have some grant funding from the federal government and they are back in for another $3.5 million to try and get the 50 percent on each side. He said he belives they have a good chance of receiving the money as Senators Stevens and Murkowski and Representative Young are in a good position to help get the rest of the funding for the project. Number 1621 MR. ROBERTS explained they are looking at construction to begin in the spring depending on the funding. He said he does have bridge interim financing set up, but it is contingent on what happens with the state as to whether or not they can proceed with the project. The Alaska Energy Authority (AEA) did a feasibility study in 1992 on the project. Mr. Roberts said, "We went out looking to see if there was something else out there RFP - internationally, we had like 70 different outfits from all over the world, not just the United States. And this was a single project that people came up with that was the most benefit to a community." He indicated the Power Creek project is something that the community very badly needs and, in the long term, it will lower the cost the state on PCE. It will help the smaller communities. Mr. Roberts stated $750,000 a year is a big bite out of the PCE. Number 1686 REPRESENTATIVE DYSON questioned how many killowats the project will generate. MR. ROBERTS responded that it is a six megawat project. Number 1686 REPERESENTATIVE DYSON asked if there are low-flow problems during different times of the year that would be a problem. MR. ROBERTS answered in the affirmative and said that is why it'll be suppmented with diesel. He said they have a small 1 1/4 meg hydro project that went on-line in 1991. Depending on the year and the run of the river, that provides about 10 percent to 15 percent. He noted that is during the summer when they get a lot of melt-off and rain. Power Creek is the same way. In the summer, Power Creek would provide 100 percent of what is needed. During the winter when the flow is down, they would have to supplement with deisel. Number 1731 REPRESENTATIVE DYSON referred to the winter during the low-flow conditions and asked what percentage of the power will the plant provide. MR. ROBERTS stated it depends on the winter. He pointed out the current winter is very mild and they're still getting a lot of water. It would probably 40 percent to 50 percent of what is needed. Number 1749 REPRESENTATIVE DYSON asked what the distance is from the project to where the consumers are. MR. ROBERTS informed the committee that there is a road going right to the project. It is seven miles from one of the generation plants. REPRESENTATIVE DYSON questioned what the transmission voltage will be. MR. ROBERTS responded, "12-4-70 distribution voltage. The engineers are looking at maybe stepping up to 25 KB for transmission, but everything else we have is 12-4-70 even out to the airport. That's 13 miles away and we don't have any voltage problems." Number 1779 REPRESENTATIVE OGAN referred to the bridge interim financing and asked what form of financing is it. MR. ROBERTS explained cooperatives have access to funding through cooperative banks. Co Bank is one of the lenders that they use. He said it went to their loan committee for approval. He noted the approval is contingent on the rest of the financing. REPRESENTATIVE OGAN asked if the rest of the financing is the $7.5 million. MR. ROBERTS responded in the affirmative. REPRESENTATIVE OGAN said if they don't get $7.5 million, they don't have a project. MR. ROBERTS said they could do it, but whether or not they can afford to do it is a different question. It really isn't really worthwhile to build the project if they can't keep the same cost or lower the cost. Number 1824 REPRESENTATIVE OGAN said if the recalls correctly, the project cost is $15 million. MR. ROBERTS indicated that is correct. Number 1837 REPRESENTATIVE OGAN asked if they didn't get the funding, what would their payments be. He also asked if the loan would be a low interest loan. MR. ROBERTS informed the committee it is not a low interest loan. The rate would be the market rate through the cooperative bank. He noted their rate is slightly lower than the normal market rate. REPRESENTATIVE OGAN asked if they issue municipal bonds. MR. ROBERTS said there has been discussion with the city and there is a possiblity of doing it. He informed the committee that they haven't really explored the possibility because if push came to shove, they'd probably be better off to try and go through RUS for funding. Mr. Roberts said they probably could qualify for a hardship loan of 5 percent. The funding would be quite a bit down the line as there is a lot of demand for that money. Number 1878 REPRESENTATIVE DYSON questioned when the project would pay for itself if they don't receive a grant. MR. ROBERTS said if they had to go out and borrow the rest of the money they need, he would say the break even point would be in the range of 10 to 15 years. Number 1918 LAMAR COTTEN, Deputy Commissioner, Office of the Commissioner, Department of Community and Regional Affairs, came before the committee. He pointed out that the department, through the Power Project Fund Program, has loaned this project $1 million at a zero interest rate. It is contingent upon the financing. He informed the committee that the Power Project Fund Program has loaned money to a number of energy related projects throughout the state. Mr. Cotten said it has been mentioned that there is a "Blue Ribbon Panel," which is currently composed of ten people including two legislators. He said the program has been looking at PCE since PCE runs out in the summer of 1999. He said the Administration belives that the panel approach is to look at the issue in a very comprehensive way. Mr. Cotten said, "It plans to report back to the legislature in 1999. It's going to look at about five broad areas, that is looking at funding and endowment or somehow finding capital. Looking at the impact if you did in fact terminate PCE, not only in rural Alaska, but in turn the effects you would have on urban Alaska. Looking at the history of the -- where the money has gone for energy projects, both urban and rural Alaska. Looking at long-term options to reduce rural electric utility costs. And then lastly, to look at the program -- the formula that's in place now to look whether there should be changes." MR. COTTEN said even though the department has supported the Power Creek project in the past, at this point they would certainly perfer to look at the Blue Ribbon Panel appropriate approach as probably the more appropriate approach. He said the department believes that is a better approach because it is not "piecemeal." He said, "It certainly doesn't stop the panel from looking at some of the proposals that are included in these two bills. In fact, if anything, we want to look at them very carefully. And it would not suggest that the Administration doesn't support this project. In fact, if it does come down to where Cordova Electric has to look at other loans, I know that we are in a position perhaps to help, again, if it's the right combination of grants and loans." Number 2026 REPRESENTATIVE KOOKESH said PCE, as it currently stands, whether or not it has a future, is a state benefit. He asked how the decision is made in Cordova to take it away for a different alternative. Representative Kookesh pointed out his community receives PCE and if somebody tried to take it away for a different alternative, whether or not that alternative was good or bad, that it is a state benefit. He asked how the people in Cordova makes that decision or do they. Number 2055 MR. COTTEN indicated he doesn't know the answer. REPRESENTATIVE KOOKESH informed Mr. Cotten that he doesn't really expect an answer. He said somebody ought to look at that because if somebody in Cordova says, "Wait a minute, I want PCE and I don't want you guys to do these other things," how would they get around the question. CHAIRMAN IVAN said he would leave that decision up to the community. Number 2075 REPRESENTATIVE KOOKESH said currently, the community is not making that decision and the cooperative is. Number 2095 MR. ROBERTS came back before the committee. He referred to Representative Kookesh's question and said it is a decision of the cooperative, but the reason there is the backing of the community is that the only way this can be done is if the cost of power goes down and it will not impact residential growth. REPRESENTATIVE KOOKESH pointed out that he wasn't speaking so much to the Cordova question, but was speaking to the statewide question of whether PCE has a future or not, it is a state benefit. Number 2127 REPRESENTATIVE JERRY SANDERS said when Mr. Roberts referred to the break even point being somewhere between 10 and 15 years, was he talking about current prices or anticipated savings prices. MR. ROBERTS said they are looking at the savings price. He said what they are looking at for a rate, depending on the financing, it would change them quite a bit one way or another. REPRESENTATIVE SANDERS questioned whether the price would decrease when the electric comes on or will the price remain the same for 10 or 15 years. MR. ROBERTS said the cooperative would look at having to try to lower the cost. He said he doesn't see how they can, in good faith, build the project by giving up PCE if they don't get the needed funding. Mr. Roberts explained they can't ask the people to pay what they are currently paying without the PCE offset of the cost. He referred to the residental people who are receiving a credit from the state on their monthly bill and said the promise the cooperative has made to them is that the cooperative will not increase what they are currently paying out of their pocket by building the project. Mr. Roberts stated that if they can't get the funding, then they won't build the project. Number 2218 ERIC YOULD, Executive Director, Alaska Rural Electric Cooperative Association (ARECA), testified via teleconference from Anchorage. He said ARECA represents virtually all of the electric utilities of the state. He said he would like to go on record, on behalf of the association, in favor of HB 336, as amendmend, and also HB 337. He said the amended version is much more in consonance with what the electric utility industry could support. He said he believes that using renewable resource projects as a solution for electrical needs throughout the state is the way to go. Mr. Yould said he believes some of the original problems associated with communities that have no choice but to remain on diesel power would have been hurt by the earlier version of the legislation. The Power Creek project is an excellent project. He noted that back in the 1940s, the federal government looked at developing the project. Later, the state of Alaska also looked at developing the project, but it got caught in a time warp because other projects were also being looked at and the Power Creek project didn't go forward. Mr. Yould commended Cordova Electric Cooperative for their efforts to bring it forward. MR. YOULD said he is also a member of the Blue Ribbon Committee task force. He pointed out they have just began to meet and he is very impressed with the integrity of the members and the seriousness with what they're deliberating on this very difficult issue. Mr. Yould said, "Obviously, power cost equalization is a program that is somewhat the underpinning of a sound economic structure in rural Alaska and it's certainly not our place to establish policy for where the state should go in terms of rural Alaska, but it is our position that if you are going to have a sound economy in rural Alaska that power cost equalization is a very important element of that overall mix. As a matter of fact it's virtually the keystone of whether or not we'll have some form of business in rural Alaska." MR. YOULD said in speaking for himself, he believes that the committee will find that the Blue Ribbon Committee task force would view the legislation in consonance with the overall policy that they will probably be reporting out roughly a year from now. Mr. Yould said, "We do strongly support, that is the electric utility industry, these two bills and the second one as amended." MR. YOULD referred to Representative Kookesh's question of how does a community decide whether or not they want to forego their power cost equalization and said, "At least in the case of Cordova, and as a matter of fact this is the case in most of the -- or many of the rural communities, Cordova Electric Co-op is in fact a co-op and that means that it is owned by everybody in that community. They all have a voice in what that co-op does because they all own shares in that co-op. So I guess I'd have to say that by virtue of its governing body adopting a resolution in support of this particular position, you've pretty well heard from the community itself that they agree that this approach to weaning themselves off power cost equalization in favor of a long-term solution is what they'd like to do." Mr. Yould said he would answer any questions the committee may have. Number 2396 REPRESENTATIVE OGAN said, "You are on the power cost equalization task force. I'm always (indisc.) that all the task forces are 'blue ribbon,' but anyway -- and I'm sure that people on there are of the highest caliber, but I'd just like to see a white ribbon panel some time. But anyway, what is the -- do you think this is a little bit of the cart before the horse. I mean we have this question where this funding goes away in 1999. You know we're being offered a deal that they'll back out of power cost equalization if we fund this out of our capital budget. But it seems to me that we need to determine the future of power cost equalization both as a -- your task force that you serve on as well as the legislature before we make any major decisions on deals on something that might not be around. Do you care to comment on that?" MR. YOULD said, "Unfortunately, this is project that its time has come. Whether PCE is out there or not, it's a project that very much should go forward based on its own economic merits. Unfortunately, with a capital intensive project like this one, even through it's economically feasible it's very difficult for small communities to be able to absorb the high front-end cost associated with a project until it's ten years out, then all of a sudden the line crosses below the cost of diesel power. Mr. Yould pointed out that it is kind of like buying a capital intensive house or renting forever. Over the long haul, the house that you're renting is going to cost you more money than if you were to buy it outright. However, in the early years that rent is relative low. He said that is kind of what Cordova is dealing with. In this particular instance, we're really talking about single project...." TAPE 98-8, SIDE B Number 0001 MR. YOULD continued "...he'll be given a permit from the Federal Energy Regulatory Commission that will give him a specific window in which to construct his project. If he doesn't construct in a timely fashion, he could have his permit revoked. All be it, I think that that is improbable. I think you could go back to the Federal Energy Regulatory Commission and get them to extend that. We certainly had to do that when we were building the hydropower projects in the earlier part of the 1980s from time to time. But I appreciate your concern. I don't think that this particular project is precedence setting. I don't think that it necessarily puts the cart before the horse." Number 0032 PATRICIA L. JONES testified via teleconference from Cordova. Ms. Jones informed the committee she has been a resident of Cordova for over 40 years. She said she has voted in every state election since statehood. Ms. Jones said she represents many people in Cordova who believes that the cost of electricity in their area is much too high, running over 20 cents per kilowatt-hour. She said, "With the grant fund financing, we would be able to lower the average cost of power about 5 cents per kilowatt-hour. This is a top priority for all Cordovans. The state of Alaska and the legislature have given $300 million in grants to the Four Dam Pool hydro project and $15 million in grants to Seward for an intertie to the railbelt power grid. The Federal Energy Regulatory Commission or FERC issued the license for the Power Creek hydroelectric project on December 24th of 1997, just last year. So all of the environmental studies have been done. Cordova has received $4 million in grants from the federal government and we are in line to receive $3.5 million this year thanks to Senator Stevens and to the congressional delegation. We are urging this committee and the Twentith Legislature to vote to match this amount of money from the federal government for the special appropriation under House Bill number 337 for $7.5 million for the Power Creek hydroelectric facility. Please help us on this hydroelectric project. Thank you." Number 0116 SCOTT JANKE, City Manager, City of Cordova, was next to testify via teleconference from Cordova. He explained the City of Cordova has been a major supporter of this project. During the last four years, the city council has made it one of their top priorities and has authorized him to help the Cordova Electric Cooperative board of directors and Jim Roberts in fundraising efforts and lobbying the legislature. Mr. Janke said he believes that Mr. Roberts and other speakers have done a good job of discussion on the economies that are prevelant in Cordova and how they will be affected by either having the project go forward or not allowed to go forward by not granting these monies. Mr. Janke said a member of the committee asked the question of whether or not the community could do a bond for this project. He explained that is extremely unlikely. On March 3, 1998, Cordova voters are going to be voting on $4.3 million in bonds for a water system improvement and a land fill improvement. These are projects that are becoming necessary due to federal and state regulatory requirements. That, by itself, is over $1,400 per capita of debt. They simply can't afford to pay for a hydroelectric project and they need state assistance. Mr. Janke said, "Our fish processing industry is teetering on the edge because of the high cost of energy and obviously to keep that industry healthy, which is one of the most important industries in Alaska, they need a better energy cost equation so they can compete in the world marketplace. But again, the city council has made this a top priority for at least four years that I've been here - possibly longer. And I would ask and urge you to support this -- Mr. Kubina's bill to allow funding for this extremely important project for Cordovans." Number 0217 HAP SYMMONDS, Plant Manager, Ocean Beauty Seafoods; Vice President, Board of Directors, Cordova Electric Cooperative, Incorporated, was next to testify via teleconference from Cordova. He said he would like to make some points in reference to HB 337. Mr. Symmonds said, "We seem to be hung up partially on the giving up of PCE as a tradeoff for funding. In the business world, the $54 of PCE credit is meaningless. The nickel a kilowatt-hour lowering of the electric rate is what the business community in this town is looking at. And as Scott Janke (indisc.) said the seafood processing industry, as a whole, and especially in Cordova, is on the brink of going under so anything that can be done to lower the cost overall and especially major factors such as electricity is something that is very much needed. Of course, we all look at - as Pat said - the funding that has gone into the Four Dam Pool and the intertie and I think we tend to seat up against them. And I have spoken at other gatherings and I think that the committee needs to remember that, you know, urban and rural Alaska are all still one state of Alaska, and just because something benefits one group and maybe doesn't have a direct benefit with the other group is something that we need to look at as Alaskans. Thank you." Number 0318 REPRESENTATIVE DYSON confessed that he had not done his homework on the issue and he isn't prepared to vote the legislation out of committee. He said that he would appreciate not moving the legislation out until the next meeting so he can do his homework. Number 0339 CHAIRMAN IVAN said that he feels the legislation is so important that the committee needs to do a good job with the information that is coming to the members. He asked Representative Dyson if he would have enough time to review the legislation if he holds the bill until Friday. REPRESENTATIVE DYSON indicated Friday would be fine. CHAIRMAN IVAN stated that he would like to take some action on the CS. He referred to page 1 of the proposed CS for HB 336, lines 9 and 10, "An electric utility loses its eligibility under AS 42.45.100 - 42.45.150 if, on or after January 1, 1998, it constructs a hydroelectric generation facility..." He referred to "hydroelectric generation facility" and said he would like to expand the language to include other projects that may be available for renewable resources. It would include other projects that may be available besides hydroelectric generation projects. Chairman Ivan said he would entertain a motion for the adoption of the language change. Number 0434 REPRESENTATIVE JOULE questioned where the change would be made. CHAIRMAN IVAN responded the change would be on page 1, line 10, after "hydroelectric generation facility." The amendment would include "other projects using renewable resources." Number 0455 REPRESENTATIVE SANDERS asked if it would have the same effect by deleting "hydro" and say "electric generation facilities." Number 0466 REPRESENTATIVE DYSON stated that he would encourage Chairman Ivan not use the limiting word "renewable." He noted he is thinking particularly of legislation by Representative Ogan which was passed about a year ago that had to do with shallow gas wells. Representative Dyson said he believes the interest is with nondiesel fired. He said we're looking for alternatives to expensive diesel generators on the bush. Representative Dyson said, "I would encourage us to not limit it." CHAIRMAN IVAN said that he is trying to make other options and opportunities available. Number 0510 REPRESENTATIVE OGAN indicated that he understands the Chairman Ivan's point. He informed the committee he concurs with Representative Dyson's analysis. He said he knows, for a fact, that in Naknek they're looking at developing shallow gas resources that generate electricity. He suggested making the language broad enough to include that. Representative Ogan said he isn't sure how to do that. If the bill isn't going to move, he would suggest the committee consider the appropriate language change and maybe adopt it at the next committee meeting. CHAIRMAN IVAN said Representative Ogan's point is well taken and he would consider the suggestion before the next committee meeting the following Friday. Number 0559 REPRESENTATIVE DYSON said, "If you have the votes to move it out of committee, my feelings won't be hurt, you know, if you go ahead and move it. So you can do what you choose and I won't be upset. Just for my sake, I probably can't vote for it to move as of yet. If you have the votes, go for it." CHAIRMAN IVAN indicated it would be up to the committee members as to whether the bill moves. He noted there is not a fiscal note for HB 336. Following past procedures, the bill will have a zero fiscal note to accompany the bill. Chairman Ivan again stated he would like to make other options available. Number 0604 REPRESENTATIVE OGAN said, "I would (indisc.) move a conceptual amendment or at least an amendment that we delete the word 'hydroelectric' and put 'logical generation facility that is financed in whole or part.' I think that would probably [be] broad enough that it would include generation facility, financial gas or otherwise." Number 0624 REPRESENTATIVE KUBINA said he agrees with the Chairman's intent. He said his fear is that if it is not limited somewhat, it would be the same as his original version of the legislation. The small utilities that may need help if they had a new diesel generator, would still have the high cost. Since they received help they would have jeopardized their PCE. He suggested using the term "alternative nondiesel generators." Number 0664 CHAIRMAN IVAN said he would introduce a conceptual amendment to the CS before the committee. Number 0669 REPRESENTATIVE OGAN said he would withdraw his motion for the amendment. CHAIRMAN IVAN asked Representative Kubina to repeat his suggested wording. REPRESENTATIVE KUBINA said, "alternative nondiesel generation." CHAIRMAN IVAN said if there is no objection, the language would be included. Number 0696 REPRESENTATIVE JOULE made a motion to move HB 336 out of committee with individual recommendations, a zero fiscal note and with the conceptual amendment. REPRESENTATIVE DYSON objected to the motion. Number 0713 A roll call vote was taken. Representatives Kookesh, Joule and Ivan voted in favor of the motion. Representatives Dyson, Sanders and Ogan voted against the motion. So HB 336, as amended, failed to move out of the House Community and Regional Affairs Standing Committee. CHAIRMAN IVAN announced the legislation would be considered again at the meeting on Friday. Number 0774 REPRESENTATIVE OGAN said, "A point of procedural order here. I'm not sure that we amended the bill. Representative Joule had a motion to move the bill with a conceptual amendment. I don't think we ever had it -- I withdrew my motion for my amendment. I don't think we ever had a motion to amend the language - a proper motion. So maybe we could bring that up at the next meeting. We might want to check the record to make sure..." CHAIRMAN IVAN said if he isn't mistaken, he did introduce that amendment as presented by Representative Kubina. REPRESENTATIVE OGAN said, "That's correct, Sir. With all due respect, I don't believe there was a motion or we voted on the amendment though so we might have missed a procedural thing there. I think you moved the motion, but there was never a vote on the motion or the amendment." REPRESENTATIVE DYSON said he gave a thumbs up. CHAIRMAN IVAN said he didn't hear an objection to the motion. REPRESENTATIVE OGAN said, "Okay, alright, I stand corrected." CHAIRMAN IVAN indicated HB 336 and HB 337 would be addressed again at the meeting on Friday. ADJOURNMENT Number 0843 CHAIRMAN IVAN adjourned the House Community and Regional Affairs Standing Committee meeting at 9:15 a.m.

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