Legislature(2005 - 2006)CAPITOL 124
03/31/2005 08:00 AM House COMMUNITY & REGIONAL AFFAIRS
| Audio | Topic |
|---|---|
| Start | |
| HB229 | |
| HB157 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 157 | TELECONFERENCED | |
| *+ | HB 229 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE
March 31, 2005
8:08 a.m.
MEMBERS PRESENT
Representative Kurt Olson, Co-Chair
Representative Bill Thomas, Co-Chair
Representative Gabrielle LeDoux
Representative Woodie Salmon
MEMBERS ABSENT
Representative Pete Kott
Representative Mark Neuman
Representative Sharon Cissna
COMMITTEE CALENDAR
HOUSE BILL NO. 229
"An Act relating to the reinstatement of Native corporations;
and providing for an effective date."
- MOVED HB 229 OUT OF COMMITTEE
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 157
"An Act clarifying the powers of electric or telephone
cooperatives to become members of or own stock in other
entities."
- MOVED CSSSHB 157(CRA) OUT OF COMMITTEE
PREVIOUS COMMITTEE ACTION
BILL: HB 229
SHORT TITLE: REINSTATEMENT OF NATIVE CORPORATIONS
SPONSOR(S): REPRESENTATIVE(S) FOSTER
03/22/05 (H) READ THE FIRST TIME - REFERRALS
03/22/05 (H) CRA, FIN
03/31/05 (H) CRA AT 8:00 AM CAPITOL 124
BILL: HB 157
SHORT TITLE: ELEC/PHONE COOP & OTHER ENTITIES
SPONSOR(S): REPRESENTATIVE(S) ANDERSON
02/18/05 (H) READ THE FIRST TIME - REFERRALS
02/18/05 (H) CRA, L&C
02/28/05 (H) SPONSOR SUBSTITUTE INTRODUCED
02/28/05 (H) READ THE FIRST TIME - REFERRALS
02/28/05 (H) CRA, L&C
03/22/05 (H) CRA AT 8:00 AM CAPITOL 124
03/22/05 (H) <Bill Hearing Canceled>
03/31/05 (H) CRA AT 8:00 AM CAPITOL 124
WITNESS REGISTER
PAUL LABOLLE, Staff
to Representative Richard Foster
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the sponsor of HB
229, Representative Foster.
ALYCE HOUSTON, Corporation Records & Licensing Supervisor
Division of Banking & Securities
Department of Commerce, Community, & Economic Development
Juneau, Alaska
POSITION STATEMENT: Offered information regarding HB 229.
JOHN BITTNER, Staff
to Representative Tom Anderson
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified on behalf of the sponsor of HB
157, Representative Anderson.
BRIAN BOGEN, CEO/President
Delta Western, Inc
Seattle, Washington
POSITION STATEMENT: Offered information pertaining to HB 157.
BRAD REEVE, General Manager
Kotzebue Electric Association
Kotzebue, Alaska
POSITION STATEMENT: Testified in support of HB 157.
SALLY SADDLER, Business Development Specialist/Legislative
Liaison
Division of Community Advocacy
Department of Commerce, Community, & Economic Development
Juneau, Alaska
POSITION STATEMENT: Offered information pertaining to HB 157.
ERIC P. YOULD, Executive Director
Alaska Power Association
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 157.
DONNA VUKICH, General Manager
Naknek Electric Association
Naknek, Alaska
POSITION STATEMENT: Offered testimony on HB 157.
RICHARD GEORGE, Board Member
Inside Passage Electric Cooperative
Angoon, Alaska
POSITION STATEMENT: Offered testimony on HB 157.
VERN RAUSCHER, General Manager
Inside Passage Electric Cooperative
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 157.
DALE PETERS, President of the Board
Naknek Electric Association
Naknek, Alaska
POSITION STATEMENT: Testified in support of HB 157.
MEERA KOHLER, President & CEO
Alaska Village Electric Cooperative
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 157.
MARK HICKEY, Consultant
Petro Marine Services
Anchorage, Alaska
POSITION STATEMENT: Offered testimony on behalf of Petro Marine
Services.
RAY GILLESPIE, Lobbyist
Yukon Fuel Company
Anchorage, Alaska
POSITION STATEMENT: Offered information regarding HB 157.
CHUCK HARLAMERT, Juneau Section Chief
Tax Division
Department of Revenue
Juneau, Alaska
POSITION STATEMENT: Offered information regarding HB 157.
ACTION NARRATIVE
CO-CHAIR BILL THOMAS called the House Community and Regional
Affairs Standing Committee meeting to order at 8:08:36 AM.
Representatives Thomas, Olson, LeDoux, and Salmon were present
at the call to order.
HB 229-REINSTATEMENT OF NATIVE CORPORATIONS
8:09:10 AM
CO-CHAIR THOMAS announced that the first order of business would
be HOUSE BILL NO. 229 "An Act relating to the reinstatement of
Native corporations; and providing for an effective date."
8:09:14 AM
PAUL LABOLLE, Staff to Representative Foster, Alaska State
Legislature, presented HB 229 on behalf of Representative
Foster. He explained that every two years a $100 fee and report
listing the corporate officers is required by the state. If a
Native corporation fails to file the aforementioned report
during the allocated time period, this legislation provides an
additional two-year grace period after which no compliance will
result in involuntarily disolvement and legislation is required
to reinstate the corporation. Reinstatement ensures that should
the dissolved corporation form a new corporation, it wouldn't
have its assets granted under the Alaska Native Claims
Settlement Act and thus it would be a corporation with no
assets.
8:10:13 AM
CO-CHAIR THOMAS asked if a new corporation is formed, would it
take the debts with it.
MR. LABOLLE replied that the new corporation would be not
maintain the debts or assets, although the shareholders would
have the debts and assets.
8:10:38 AM
REPRESENTATIVE LEDOUX asked why the shareholders would have the
debts of the corporation.
MR. LABOLLE related that he will refer that question to the
technical expert. He noted that the assets would be broken-up
and transferred to each member of the corporation, and thus he
assumed the same would apply for the debts.
ALYCE HOUSTON, Corporation Records & Licensing Supervisor,
Department of Commerce, Community, & Economic Development,
related that it would be "winding up business" as the statutes
allow for voluntary or involuntary dissolution.
8:11:51 AM
REPRESENTATIVE LEDOUX moved to report HB 229 out of committee
with individual recommendations and the zero fiscal note. There
being no objection, HB 229 was reported from the House Community
and Regional Affairs Standing Committee.
The committee took an at-ease from 8:12:21 AM to 8:39:37 AM.
HB 157-ELEC/PHONE COOP & OTHER ENTITIES
CO-CHAIR THOMAS announced that the next order of business would
be SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 157, "An Act clarifying
the powers of electric or telephone cooperatives to become
members of or own stock in other entities."
CO-CHAIR OLSON moved to adopt CSSSHB 157, Version 24-LS0562\L,
Craver, 3/31/05, as a work draft. There being no objection,
Version L was before the committee.
8:39:44 AM
JOHN BITTNER, Staff to Representative Tom Anderson, Alaska State
Legislature, informed the members that CSSSHB 157 is brought
forth to address concerns regarding the scope of the original
bill. He related the changes on page 2, lines 20-21, allow an
electric cooperative to form a limited liability company (LLC).
The aforementioned language updates the statutes because LLCs
weren't common in Alaska when the original statutes were
written. The language on page 2, line 22, gives the electric
cooperative the authority to sell fuel not needed to generate
electricity. He explained that these [paragraphs] are under AS
10.25.020 because "everything we do here only applies to
electric cooperatives." He mentioned that there was some
concern with regard to including telephones. However, telephone
[companies] as far as he knows aren't interested in selling fuel
whereas electric utilities already purchase bulk fuel for
personal use, and therefore it would make more sense for
electric utilities to expand into the private aspect.
8:42:09 AM
MR. BITTNER, in response to Representative Salmon, specified
that the difference in the number of paragraphs in HB 157 and
CSSSHB 157, Version L, is because in Version L the language is
inserted in AS 10.25.020, which only addresses electric
cooperatives. The original bill addressed both telephone and
electric cooperatives.
8:43:03 AM
REPRESENTATIVE SALMON asked, for clarification purposes, if the
legislation allows the electric company to sell fuel.
MR. BITTNER said that's his understanding.
The committee took an at-ease from 8:43:40 AM to 8:46:21 AM.
8:46:26 AM
BRIAN BOGEN, CEO/President, Delta Western, Inc., related his
concern regarding whether this legislation is a matter of "good
public policy" to encourage governmentally subsidized entities
to compete with the private sector. He added that he is not
opposed to competition, but he is "uncomfortable" competing with
entities that receive public subsidies.
8:47:52 AM
BRAD REEVE, General Manager, Kotzebue Electric Association,
testified in favor of HB 157. He explained that the original
goal of his association was to form a joint fuel buyers group to
attract competition and build a new model for fuel deliveries in
the Northwest, which has been recognized as one of the most
successful models for competitive fuel purchases in Alaska. He
noted that the [cooperative] built its own infrastructure and
has saved over $20 million in fuel costs that went directly to
the community. He highlighted that fuel costs are escalating to
the point of making a lot of communities unviable, and therefore
one must be willing to review new models to assist rural Alaska.
In establishing competitive markets, storage and financing have
been a concern. The most promising potential [solutions] has
been fuel cooperatives and other models to reduce the high cost
of energy. He related that the Northwest Artic School District
has a fuel buying arrangement with a cooperative to obtain lower
fuel costs. He opined that this legislation would allow
cooperatives, "which really don't have a profit motive," to sell
fuel and keep costs low in rural Alaska.
8:54:03 AM
CO-CHAIR THOMAS inquired as to the power cost equalization (PCE)
ramifications of this legislation.
SALLY SADDLER, Business Development Specialist/Legislative
Liaison, Department of Commerce, Community, & Economic
Development, said, "I don't have the answer to that question,
but I can get that for you."
8:55:03 AM
ERIC P. YOULD, Executive Director, Alaska Power Association,
relayed that his association represents the electric utility
industry which generates 85 percent of electricity throughout
Alaska. He related his belief that high fuel prices in rural
Alaska are exacerbated by the windfall [profit] that is coming
to the state in the form of $50 per barrel oil. He noted the
Board of Directors of the Alaska Power Association adopted a
resolution recognizing that Alaska's electric cooperatives are
increasingly receiving requests from its members asking the
cooperative to become the full service energy supplier in the
community. However, recent court cases in other states have
questioned the ability of Alaska's electric cooperatives to form
subsidiaries to respond to their members' needs. Therefore,
[per the aforementioned resolution] the Alaska Power Association
urged legislative action confirming Alaska's electric
cooperatives ability to meet the needs of their members and
communities.
MR. YOULD turned to the high cost of electricity in rural
Alaska. He informed the committee that the Inland Passage
Electric Cooperative provides electricity to Angoon, Hoonah,
Kake, Klawock, and Chilkat. A little of a year ago, the cost of
diesel fuel was $1.57 a gallon. However, this year the cost of
diesel fuel is $2.27 a gallon. In rural Alaska the average cost
of electricity is about $0.45 an hour and the increased diesel
cost creates a surcharge of almost $0.07 per kilowatt-hour.
Therefore, the situation in rural Alaska is quite chronic. He
added that fuel brought into rural Alaska communities go to the
local electric utility, retail distribution, and school
districts. The aforementioned have varied fuels prices and
often the cooperative's price is less than all three. The
reason for the cooperative's low price is because of its
competent management staff who are part of the communities and
try to obtain the cheapest bid price from the distributors, he
opined. He said his association would like to be able to
"knock" the high cost of fuel as low as possible. The problem
is many cooperatives are trying to get into the fuel business to
provide propane for their own users. He explained that
basically, electric cooperatives would allow stock in a
subsidiary corporation that sells gas to the cooperative
members. The aforementioned was challenged in the states of
Alabama, Colorado, and Kentucky where state courts found that
the electrical cooperatives couldn't move into the propane
business due to existing state statute. In the challenges in
the states of Georgia, Mississippi, and Texas state courts found
that the local state statutes allowed the cooperatives to be in
the subsidiary businesses. Therefore, HB 157 attempts to
clarify that cooperatives can be in the business of providing
fuel without it being illegal. This legislation modernizes the
statutes by specifying that cooperatives can own stock and
ownership in a LLC, because there was no such entity when the
original cooperative statute was written. He concluded by
relating that the Alaska Power Association strongly supports
this legislation and hopes it's reported from committee today.
9:01:55 AM
REPRESENTATIVE LEDOUX inquired as to the rationale for allowing
electric cooperatives to sell fuel as opposed to other
commodities, such as groceries, that are also exorbitant in
rural areas.
MR. YOULD highlighted that cooperatives are "member driven" and
aren't in the market of looking for business ventures but rather
responding to member's requests, in order to drive down the
costs of collective goods. The cooperatives are not in the
market to make profits because it could lose its tax-exempt
status. He opined that electric companies should be looking for
as much competition as possible. In rural Alaska, there is
almost no competition, and it's almost a monopolistic system.
He related there is not a "ground swell" of cooperatives wanting
to enter the fuel business, presently only two communities are
looking into the business because the local retailers are
looking to get out of the business. The only difference between
cooperatives and the private sector is that cooperatives don't
pay taxes. Nevertheless, the cooperative always operates on the
zero profit margin in order to keep the cost to the consumer as
low as possible while private companies will always try to
[increase] profit as possible, he said.
9:05:24 AM
DONNA VUKICH, General Manager, Naknek Electric Association,
related that over the last eight to ten years Naknek Electric
Association's members have expressed the desire to find a fuel
entity to provide the needs of the community. However, due to
the earlier mentioned court cases, Naknek Electric Association
doesn't feel it can invest or leverage its members' money and
face an uncertain outcome were there a challenge. Ms. Vukich
explained that Naknek Electric Association is reviewing a "for
profit corporation subsidiary" of the cooperative and some money
would go into a dividend in order to build a reserve. "We
believe that we could keep the cost down for our community so
that it is a savings for our community," she opined.
9:07:23 AM
RICHARD GEORGE, Board Member, Inside Passage Electric
Cooperative, relayed that the unemployment rate in the community
of Angoon is about 80 percent. He said that in his 30 years
with the cooperative he has never seen the price of fuel as such
the issue it is today. The price of fuel in Angoon is $2.72 per
gallon. He informed the committee that the Inside Passage
Electric Cooperative purchases fuel at the same source [as the
retailer] for $1.71, so there is a "wide spread for
profitability." Fuel costs, he opined, need to be lower in
order to help alleviate the current living conditions of rural
communities. In fact, there has been discussion of closing the
local school early due to the high operational costs, which most
view [as the fault] of utilities. He related many of the areas
in which increased fuel costs have impacted people. He said
electric utilities aren't trying to make profits from selling
fuel but rather help alleviate the cost of the commodity in
order to sustain [the rural] lifestyle.
9:11:59 AM
VERN RAUSCHER, General Manager, Inside Passage Electric
Cooperative, offered his support of HB 157. He turned to a
graph that highlights the barge fuel cost, which has increased
140 percent over the last 10 years, 110 percent over the last
five years. As a cooperative there is an obligation to provide
low cost services while searching for ways in which to enhance
the welfare of the customers, he added.
9:13:46 AM
DALE PETERS, President of the Board, Naknek Electric
Association, said he supports HB 157. He offered that people in
Naknek are moving because of the high cost of living and this
legislation would change the statutes in order to help the
communities. Economic development is one of the associations'
highest priorities and it's important to meet the members'
needs.
9:15:13 AM
MEERA KOHLER, President & CEO, Alaska Village Electric
Cooperative, related that her cooperative serves 52 villages,
which represent 44 percent of Alaska's village population. She
noted that the cooperative's "huge" business expense is fuel.
She said her cooperative is one of the few locally controlled
and owned operations that is economically sustainable, which she
attributed to the force of many villages working together to
provide their own needs. She highlighted that the rural
communities have issues with aging wires, Internet access, and
jobs. The cooperative is always on the cusp of what is allowed
by statute. With regard to earlier comments that cooperatives
are "subsidized", Ms. Kohler specified that the only subsidy
electric cooperatives receive is what its members receive in
PCE. She highlighted that PCE is computed by the state based
upon the actual costs of doing business. If the cooperative was
able to diversify and provide other services, costs would be
reduced because the costs would be spread amongst other
businesses. Furthermore, diversification would be a benefit to
PCE because it would reduce the allowable costs for PCE. Ms.
Kohler explained that as a nonprofit cooperative, its assets are
capitalized over a long-term period of 15-30 years, and
therefore the cost included in the electric base rates is only
one-fifteenth to one-thirtieth of the cost of those assets.
However, a private entity typically collects on its assets
within 5 years. "The back of rural Alaska is breaking; they're
economically strapped. And this bill will go a long way towards
empowering them to help themselves to achieve that
sustainability," she said. She urged the committee to move HB
157 out of committee.
9:19:05 AM
MARK HICKEY, Consultant, Petro Marine Services, related that his
company is an Alaska-based company that is concerned about this
legislation, although no formal position has been taken. The
concern is regarding whether there's a level playing field for
competition. Mr. Hickey indicated that the concern stems from
tax treatment and subsidies. With regard to subsidies, there is
a more significant subsidy with the cooperatives than the PCE,
which is found in the capital side. In the past the subsidy has
come in the form of state programs, although more recently it
has surfaced in program with the Denali Commission and the U.S.
Department of Agriculture's rural development program. He
relayed that in the 2004 report from the Department of
Agriculture, some $20 million worth of grants went to
cooperatives and another $14 million-plus in low interest loans
went to cooperatives. Private companies don't have access to
those types of funds and aren't asking for such. However,
cooperatives do ask for that money. The aforementioned is
something which the committee should examine with regard to
whether it's a level playing field. With regard to the tax
treatment, Mr. Hickey suggested that the committee may want to
take some time and question what it means to allow cooperatives
to sell fuel without doing so through a corporation or an LLC.
For instance, the state may not be able to collect state fuel
and marine fuel taxes from the cooperative because of its tax-
exempt status, which would result in a negative fiscal impact
for the state.
9:22:21 AM
CO-CHAIR THOMAS pointed out that electric companies don't seem
to be interested in buying some of the rural fuel
distributorships, while the cooperatives may want to buy those
local facilities. He asked if there would be a problem with the
aforementioned when the [electric companies] don't want to have
a presence in an area.
MR. HICKEY replied that's a problem throughout rural Alaska and
perhaps there are locations and conditions that warrant [the
cooperatives help], but still the question regarding whether
there is a level playing field should be addressed as well as
whether the state wants to encourage subsidies in private
business.
9:23:52 AM
CO-CHAIR THOMAS opined that no privately owned electric
companies want to buy the local fuel companies in the rural
villages.
MR. HICKEY said the aforementioned instances presents a problem.
However, creating broad authority, without regard to
circumstances, allowing government supported subsidized
cooperatives to compete with the private sector without
restriction and without the same tax treatment is "unfair in our
view." He added that Petro Marine Services is not the retailer
in many of the smaller locations, but individual retailers stop
operating because of the thin margins in the area. He opined
that this legislation may impact the community by pushing the
small retailer out of business.
9:26:01 AM
RAY GILLESPIE, Lobbyist, Yukon Fuel Company, expressed concern
about government subsidized competition from tax-exempt
organizations. However, he acknowledged that there are certain
circumstances in rural Alaska that deserve attention and a
solution. He indicated that Alaskans are the victims of forces
outside of [the state's] control. This legislation, he opined,
significantly expands the cooperative authority to enter the
private for-profit business. He, too, mentioned the issue of
subsidies to these cooperatives, which Yukon Fuel has supported.
Although these [subsidy] programs tend to reduce the cost of
fuel in rural Alaska and make fuel storage and distribution more
environmentally safe, allowing those subsidies to be used in
direct competition with the private sector are questionable. An
ill-advised system could result in driving private investment
and competition from the market place and replacing it with a
more government dependent system. With regard to the CS
specifically, Mr. Gillespie suggested that it goes far beyond
the original legislation by allowing cooperatives to go directly
into the fuel sales business.
9:29:32 AM
CO-CHAIR OLSON asked about the tax issues of this bill.
CHUCK HARLAMERT, Juneau Section Chief, Tax Division, Department
of Revenue, detailed that [paragraph] (8) enables cooperatives
to establish subsidiaries, specifically LLCs. If the subsidiary
is established as an LLC, the taxable income of that LLC will be
attributed to the cooperative and be exempt based on the
cooperative's exempt status. He opined that the same mechanism
applies to the majority of businesses that operate in the state,
such as S corporations. He added that thus far the Department
of Revenue sees no additional tax consequences.
9:32:16 AM
CO-CHAIR THOMAS asked if there are any bonding requirements.
MR. HARLAMERT replied not to his knowledge.
9:32:29 AM
CO-CHAIR THOMAS related his understanding that this legislation
establishes that cooperatives can buy shares of another fuel
company and become partners.
MR. HARLAMERT related that is his understanding, and under those
circumstances the corporation would be a taxable commodity under
state law for excise, fuel, and corporate income taxes. Only in
the case of an LLC as a single member LLC or one that elects to
be treated as a partnership for income tax purposes that there
would be any sheltering under the cooperative's exemption .
MR. HARLAMERT related that [paragraph] (9) enables cooperatives
to directly sell fuel in communities and have exempt status
[from the motor fuel tax]. He highlighted that normally taxable
fuel is paid to the state by the seller, who would be exempt in
this case. Whether that exemption can flow to the user of the
fuel however, he was unsure of the legalities and offered to get
back to the committee with more information.
9:35:22 AM
REPRESENTATIVE LEDOUX asked, assuming the users are liable for
the "use" tax, who would be liable for collection.
MR. HARLAMERT replied the users are liable to report and pay
directly to the department. He opined that the likelihood of
collection is "much diminished under those circumstances."
9:35:58 AM
CO-CHAIR THOMAS highlighted that at the local level people
cannot afford to run schools and businesses [because of high
fuel costs].
9:37:01 AM
REPRESENTATIVE SALMON commented it is cheaper to get fuel from
an aircraft in Fairbanks than from the local fuel companies, and
therefore competition would be good for rural communities. He
further commented that this legislation is good legislation that
will create that [competition].
9:38:03 AM
CO-CHAIR OLSON moved to report CSSSHB 157, Version 24-LS0562\L,
Craver, 3/31/05, out of committee with individual
recommendations and the accompanying fiscal notes. There being
no objection, CSSSHB 157(CRA) was reported out of the House
Community and Regional Affairs Standing Committee.
ADJOURNMENT
9:38:29 AM
There being no further business before the committee, the House
Community and Regional Affairs Standing Committee meeting was
adjourned at 9:38 a.m.
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