Legislature(2013 - 2014)NOME


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Location: Nome City Council Chambers
Informational Hearing and Discussion on
Heard & Held
Heard & Held
                    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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                               
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                                                                                                                   
There being no further business before the committee, the House                                                                 
Community and Regional Affairs Standing Committee meeting was                                                                   
adjourned at 10:53 a.m.                                                                                                         

Document Name Date/Time Subjects