Legislature(2005 - 2006)HOUSE FINANCE 519
02/03/2005 01:30 PM House FINANCE
| Audio | Topic |
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| Start | |
| HB46 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| HB 46 | |||
HOUSE FINANCE COMMITTEE
February 3, 2005
1:41 p.m.
CALL TO ORDER
Co-Chair Meyer called the House Finance Committee meeting to
order at 1:41:13 PM.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Kevin Meyer, Co-Chair
Representative Bill Stoltze, Vice-Chair
Representative Eric Croft
Representative Richard Foster
Representative Mike Hawker
Representative Jim Holm
Representative Mike Kelly
Representative Carl Moses
MEMBERS ABSENT
Representative Reggie Joule
Representative Bruce Weyhrauch
ALSO PRESENT
Tom Wright, Staff, Representative John Harris; Dan Easton,
Director, Division of Water, Department of Environmental
Conservation; Ben Brown, Legislative Liaison, Department of
Environmental Conservation
PRESENT VIA TELECONFERENCE
Steve Thompson, Mayor, City of Fairbanks; Kara Moriarty, CEO
Fairbanks Chamber of Commerce; Jim Strandberg, Regulatory
Commission of Alaska; Patrick Cole, Chief of Staff, City of
Fairbanks; George Gordon, Utility Services of Alaska;
Charlie Walker, CEO, Fairbanks Economic Development
Corporation
SUMMARY
HB 46 "An Act permitting grants to certain regulated
public utilities for water quality enhancement
projects and water supply and wastewater systems."
HB 46 was heard and HELD in Committee for further
consideration.
1:41:22 PM
HOUSE BILL NO. 46
"An Act permitting grants to certain regulated public
utilities for water quality enhancement projects and
water supply and wastewater systems."
TOM WRIGHT, STAFF, REPRESENTATIVE JOHN HARRIS, spoke on
behalf of the sponsor in support of HB 46. He explained
that the bill was introduced by request to expand
eligibility for municipal water, sewer, and solid waste
matching grants, which are administered by the Department of
Environmental Conservation (DEC), to include privately owned
water and sewer utilities. The bill also requires these
utilities to be regulated by the Regulatory Commission of
Alaska (RCA). He offered to answer questions.
Vice-Chair Stoltze referred to a controversial bill last
year concerning the removal of Regulatory Commission of
Alaska control for Anchorage. He asked Mr. Wright if there
is any intent to advance this bill and for his opinion on
it. Mr. Wright replied that there has been no discussion on
it and he said he does not believe there is any intent to
resurrect it. Vice-Chair Stoltze noted that he would not be
in support of such a bill.
Mr. Wright related that the Senate has adopted SB 32, a
companion bill to HB 46. SB 32 includes an amendment that
the Committee would like to consider in this bill. He
indicated that the language, "utilities owned and operated
by a political subdivision of the state that is a
municipality" is acceptable to the sponsor as a proposed
amendment to HB 46.
1:45:40 PM
STEVE THOMPSON, MAYOR, CITY OF FAIRBANKS, spoke in favor of
HB 46, noting that on January 31, 2005, the city council
passed Resolution 4149 in favor of the bill. He related
that Fairbanks is currently having difficulty encouraging
economic development. He emphasized that the law needs to
be changed because, as a progressive community, Fairbanks is
being penalized for privatizing utilities. He termed it
unfair that other communities served by a public utility
receive an advantage because grant funds are available to
them. He emphasized that HB 46 would level the playing
field and encourage economic development. He pointed out
that in 2002, Fairbanks supported SB 280, as shown by the
passage of Resolution 3976. Fairbanks has been in favor of
utility grants going to privately held businesses for
several years.
In response to a question by Co-Chair Meyer, Mr. Thompson
clarified that the Fairbanks utilities were sold in 1997.
Co-Chair Meyer asked if Mr. Thompson knew there would no
longer be access to grant funds when the utilities were
sold. Mr. Thompson related that the sale happened before he
became involved in politics, but at the time it was felt
that citizens would be better served by a privately held
utility. He said he did not know about the discussions
concerning grant availability. Co-Chair Meyer noted that at
the time of privatization, that was a risk that was taken.
Vice-Chair Stoltze pointed out that in order to be eligible
for grants, the rates would have to be regulated by RCA. He
asked if Mr. Thompson believes that Fairbanks wants RCA
oversight and regulation to continue. Mr. Thompson replied
that he believes that would be necessary with grants coming
in.
Co-Chair Meyer observed that if HB 46 passes, there would be
more utilities competing for the same pot of money. Mr.
Thompson replied that he would hope that the pot would get
larger, the playing field would become more level, and the
ratepayers would benefit.
1:51:46 PM
Vice-Chair Stoltze related that the selling of utilities in
Anchorage was very contentious. He asked Mr. Thompson to
share some history of the Fairbanks process when the
proposal was made to privatize. Mr. Thompson recalled that
the proposal was approved the "first time out" even though
it was controversial. In response to a question as to who
owned the private utilities in Fairbanks, Mr. Thompson
replied, "Golden Hard Utilities, all-Fairbanks owned."
PATRICK COLE, CHIEF OF STAFF, CITY OF FAIRBANKS, continued
to discuss the history of the utility sale. The city of
Fairbanks entered the utility business only after a fire in
the 1940s, which caused the failure of private firms.
Throughout the 70s and 80s, the city council wondered if the
city should be involved in the utility business. In 1995 a
group willing to purchase the utilities approached the city
and the council agreed that the city would be better served
by a private owner. The sale closed in 1997 after vigorous
debate for over a year. He stated his belief that the sale
served the public well, the money obtained was put into a
permanent fund which the city still has, and it has been a
win-win situation for the community.
Vice-Chair Stoltze asked for information about grants as
they related to Fairbanks. Mr. Thompson replied that the
city qualified for them and they served the public well by
enabling new sewer and water lines to be extended to new
areas. He opined that current residents could still benefit
from a grants program. Vice-Chair Stoltze asked if top
dollar was received. Mr. Thompson related that the council
had a number of goals: there would be no rate increases for
three years, current employees would be retained, and all
utilities would be sold as a unit. Some of those conditions
may have meant that the top dollar was not achieved. He
emphasized that top dollar was not the only goal.
2:00:51 PM
Co-Chair Meyer asked if, at the time of the sale, the city
was aware that they would be losing the ability to use the
grant program. Mr. Thompson replied that they were aware of
it, and that for a long time the council has wanted the
program to be amended to allow for grants.
Representative Holm said he did not remember the discussion
as being the city not wanting to participate as grant
receiver. He pointed out that it was done for the purpose
of making the utility solvent during an extremely difficult
time. The idea was that the City of Fairbanks would do
better if it were not involved in the utility business, he
added.
2:04:02 PM
KARA MORIARTY, CEO, FAIRBANKS CHAMBER OF COMMERCE, spoke in
support of HB 46. She stressed that all utilities should be
on the same playing field and eligible for state grant
funds. Currently, the only utilities that are eligible for
these grants are publicly owned utilities and the grants are
primarily used for infrastructure development and upgrades.
She emphasized that based on the regulations set by RCA, the
shareholders of privately owned utilities cannot generate a
return on investments or receive depreciation expense
credits for any grant funds they receive. She related that
all utilities in Fairbanks are owned either privately or by
a cooperative, which puts the residents at a disadvantage
compared to other Alaska residents. She stressed high costs
for new businesses due to lack of infrastructure, and
suggested that being able to have access to grants would
level the playing field. She urged the committee to look at
HB 46 as a fairness issue.
Vice-Chair Stoltze asked if all utilities should be treated
equally. Ms. Moriarty replied that they should all be
treated equally, regardless of their ownership, and be able
to apply for grants, especially if they are a privately held
utility because the rate payers benefit. Vice-Chair Stoltze
pointed out that if they can expand their utilities it would
affect their bottom line.
2:09:05 PM
JIM STRANDBERG, COMMISSIONER, REGULATORY COMMISSION OF
ALASKA, in response to a question from Representative Croft,
replied that he is familiar with the letter about cost
recovery from RCA (copy on file.) Representative Croft
voiced a concern about the possibility of state money from a
grant being transferred to a private entity if a utility
were sold. He stated his belief that if RCA retains
jurisdiction, that would be unlikely to happen. He asked if
it would be contributed capital, unlikely to end up being a
private benefit to the new buyer. Mr. Strandberg replied
that a sale agreement of a regulated public utility is a
commercial agreement, which is separate from any rate
decision but linked in the following manner: a buyer can
purchase a utility for any amount, but rates will be based
on the book value of the utility, less accumulated
depreciation and less any grant funds. He explained the
process of determining the rate base when a utility is sold.
Representative Croft asked if a grant could end up as a
state grant to a private entity if there were a proposal to
take a utility out of RCA jurisdiction or regulation. Mr.
Strandberg agreed that it is a possibility.
2:15:04 PM
DAN EASTON, DIRECTOR, DIVISION OF WATER, DEPARTMENT OF
ENVIRONMENTAL CONSERVATION responded to a question from Co-
Chair Chenault about Fiscal Note DEC #2, which totals $132.2
thousand. He explained that the fund source is in CIP
receipts rather than in program receipts because it makes
the most sense and is the simplest method. As in other
grant programs, a separate allocation for the amount of what
it costs to run a program for a year is in the capital
budget, along with all of the different projects that the
program would fund in the fiscal year. If the capital
budget passes, then money is transferred into the
department's operating budget, which shows the CIP receipts.
Co-Chair Chenault used, as an example, an oil industry
program that is tied into a fee or cost which helps pay for
the program, and asked why a utility program wouldn't be the
same. Mr. Easton replied that fees are not typically
charged for programs where funding is provided, instead, the
cost is taken off the top first. Co-Chair Chenault
commented that once a program is started, it costs the state
and contributes to the budget deficit. He emphasized a need
to be frugal and suggested that there be a buy-in from
municipalities. Mr. Easton opined that it is not a large
program. Co-Chair Chenault argued that $132,000 is a large
amount of money.
Co-Chair Meyer inquired if another person is needed to
review 8 or 9 more grants. Mr. Easton replied that it is
slightly more complex than that. He explained that
currently, there are 7 to 12 million-dollar grants, and
there would be a potential shift from making a small number
of large grants to a larger number of smaller grants, as
well as expanding to new clients, which requires more help
from the department.
2:22:57 PM
Representative Holm asked if another full-time employee is
necessary if only one grant per month is being done. Mr.
Easton responded that the workload could potentially double.
He stressed that the fiscal note was approached very
frugally. Representative Holm said he is confused because
the fiscal note is for $132 thousand and yet only $83
thousand is shown for personal services. He asked where the
other $50 thousand is going. Mr. Easton replied about $30
thousand is for support costs such as computers, copy
machines and overhead, and $20,000 is for contractual money
to purchase audits.
Representative Hawker expressed a belief that the committee
is justified in amending the fiscal note to a zero fiscal
note. Co-Chair Meyer agreed that this is the direction the
bill is headed, and he announced that it would be held over.
Vice-Chair Stoltze suggested taking a comprehensive view.
Representative Holm asked where the pot of money will come
from and how large the grants are. Mr. Easton replied,
primarily from state funds and some federal grant funds. He
related that the amount has varied: $9.4 million in 2004,
$6.4 in 2005, and $11 million proposed for 2006. Mr. Wright
noted that the figures are available in the handout,
"Municipal Water, Sewerage and Solid Waste Matching Grants
Program Description" (copy on file.)
2:29:53 PM
Representative Kelly explained that the focus of the program
is to benefit the consumer of a large state with relatively
little infrastructure. He related that RCA is aware of how
to handle grants and how to make sure that they directly
benefit the consumer. He stressed that an existing
municipality fully qualified today for these funds is just
as likely to make a sale to someone who could then advantage
this in the future, or might if they were deregulated. He
pointed out that the benefit would go to the consumer and
stated his support for the bill.
Representative Hawker commented that a premier example of
public funds being used to support private interests might
very well be the permanent fund.
Representative Holm responded that it could be argued that
government-owned utilities are thereby competing unfairly
with privately owned utilities.
2:33:09 PM
CHARLIE WALKER, CEO, FAIRBANKS ECONOMIC DEVELOPMENT
CORPORATION, encouraged support of the bill.
Co-Chair Meyer closed public testimony and noted that the
bill would be held over.
Representative Croft noted that after listening to the
testimony he changed proposed Amendment 1 to read: "Any
grant to a public utility that is not a municipality must be
repaid with interest from the date the grant was issued if
the public utility ceases to be regulated by the RCA within
five years of receipt of the grant."
Co-Chair Meyer replied that Amendment 1, as well as the
amendment from SB 32, would be incorporated into a new CS
for the next meeting.
Mr. Wright reread the proposed amendment from SB 32 for the
committee to think about.
HB 46 was heard and HELD in Committee for further
consideration.
ADJOURNMENT
The meeting was adjourned at 2:39 PM
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