Legislature(2009 - 2010)HOUSE FINANCE 519

04/10/2009 01:30 PM House FINANCE

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Heard & Held
Heard & Held
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 10, 2009                                                                                           
                         1:40 p.m.                                                                                              
1:40:23 PM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze  called the House Finance  Committee meeting                                                                   
to order at 1:40 p.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Mike Hawker, Co-Chair                                                                                            
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bill Thomas, Jr., Vice-Chair                                                                                     
Representative Allan Austerman                                                                                                  
Representative Harry Crawford                                                                                                   
Representative Anna Fairclough                                                                                                  
Representative Richard Foster                                                                                                   
Representative Les Gara                                                                                                         
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Woodie Salmon                                                                                                    
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Erin  Harrington,   Staff,  Representative   Alan  Austerman,                                                                   
Sponsor; Jay Livey, Staff, Senator Hoffman, Sponsor                                                                             
PRESENT VIA TELECONFERENCE                                                                                                    
Mike  Harper, Deputy  Director,  Rural  Energy Group,  Alaska                                                                   
Energy  Authority;  Meera  Kohler, President  -  CEO,  Alaska                                                                   
Village   Electric    Cooperative   (AVEC);    Bob   Charles,                                                                   
Association  of  Village  Council   Presidents  (AVCP);  Paul                                                                   
Kendall, Anchorage;  Michael Smith, Fairbanks,  Tanana Chiefs                                                                   
HB 150    "An  Act repealing certain  provisions relating  to                                                                   
          modifying the  factors that apply to  calculate the                                                                   
          amount  of power cost  equalization; providing  for                                                                   
          an effective  date by repealing the  effective date                                                                   
          of sec. 3, ch. 2, 4SSLA  2008; and providing for an                                                                   
          effective date."                                                                                                      
          HB 150 was heard and HELD in Committee for further                                                                    
SB 88     "An Act repealing certain provisions relating to                                                                      
          modifying the  factors that apply to  calculate the                                                                   
          amount  of power cost  equalization; providing  for                                                                   
          an effective  date by repealing the  effective date                                                                   
          of sec. 3, ch. 2, 4SSLA  2008; and providing for an                                                                   
          effective date."                                                                                                      
          SB 88 was heard and HELD in Committee for further                                                                     
1:41:19 PM                                                                                                                    
Co-Chair   Stoltze  brought   the   meeting   to  order   and                                                                   
immediately called an at-ease.                                                                                                  
AT-EASE:       1:41:57 PM                                                                                                     
RECONVENE:     1:42:21 PM                                                                                                     
HOUSE BILL NO. 150                                                                                                            
     "An  Act   repealing  certain  provisions   relating  to                                                                   
     modifying  the  factors  that  apply  to  calculate  the                                                                   
     amount  of power  cost  equalization;  providing for  an                                                                   
     effective date  by repealing the effective  date of sec.                                                                   
     3, ch.  2, 4SSLA  2008; and  providing for an  effective                                                                   
SENATE BILL NO. 88                                                                                                            
     "An  Act   repealing  certain  provisions   relating  to                                                                   
     modifying  the  factors  that  apply  to  calculate  the                                                                   
     amount  of power  cost  equalization;  providing for  an                                                                   
     effective date  by repealing the effective  date of sec.                                                                   
     3, ch.  2, 4SSLA  2008; and  providing for an  effective                                                                   
1:43:45 PM                                                                                                                    
ERIN  HARRINGTON,   STAFF,  REPRESENTATIVE   ALAN  AUSTERMAN,                                                                   
SPONSOR,  explained the  history of  Power Cost  Equalization                                                                   
(PCE),  which was  established  in 1984  at a  time when  the                                                                   
state was  making significant  investments in low-cost  power                                                                   
generation.  Specific projects  included hydro plants such as                                                                   
the  Four Dam  Pool,  Bradley Lake  Hydro  Facility, and  the                                                                   
Northern Intertie,  which links  Fairbanks to the  production                                                                   
capacity in the Anchorage area.                                                                                                 
Ms.  Harrington  related  that PCE  was  set  up in  1984  to                                                                   
include all  of the  communities that  generated at  least 75                                                                   
percent  of  their power  with  diesel.   Under  the  current                                                                   
program, 135 communities  are covered.  They  are represented                                                                   
by 85 utilities,  the largest of which is the  Alaska Village                                                                   
Electric   Cooperative   (AVEC),   which   consists   of   50                                                                   
communities  where the  average cost  of power production  is                                                                   
about 62 cents  per kilowatt hour.  Other  utilities involved                                                                   
include   the  Alaska   Power   and  Telephone,   the   Inlet                                                                   
Cooperative,  the  Middle  Kuskokwim  Cooperative,  and  many                                                                   
single villages.                                                                                                                
Ms. Harrington  discussed  the PCE endowment  which has  been                                                                   
funded  by various  mechanisms and  covers a  portion of  the                                                                   
program's costs.                                                                                                                
1:45:26 PM                                                                                                                    
Ms. Harrington  related that currently  in rural  Alaska some                                                                   
communities  are still  paying more  than $7  per gallon  for                                                                   
heating  fuel.    Rural  Alaska   has  not  seen  any  recent                                                                   
reductions  in  costs that  other  parts  of the  state  have                                                                   
Ms. Harrington  outlined how  the program  works.   The price                                                                   
floor  is set  at  an average  of Anchorage,  Fairbanks,  and                                                                   
Juneau's  power production  cost.  Currently,  that is  about                                                                   
12.8 cents.  The ceiling was at  52.5 cents and was raised to                                                                   
$1 last  year during the special  session.  That  ceiling had                                                                   
not been changed  since 1984.  The bill before  the Committee                                                                   
extends the sunset  date which would allow the  $1 ceiling to                                                                   
Ms. Harrington noted  that the program only  covers the first                                                                   
500 kilowatts  that are  used in a  household, which  is less                                                                   
than  typically  used.   The  program  covers one  meter  per                                                                   
residence.  Businesses are not  eligible for the program, but                                                                   
some community buildings are.                                                                                                   
1:48:22 PM                                                                                                                    
Ms.  Harrington related  that  the purpose  of HB  150 is  to                                                                   
remove the  sunset date and to  continue the $1 ceiling.   At                                                                   
times of  low fuel  prices, there  will be  no impact  to the                                                                   
program.   The program allows  for a response when  prices go                                                                   
Ms. Harrington  pointed out  that HB 150  is identical  to SB
1:50:22 PM                                                                                                                    
JAY  LIVEY, STAFF,  SENATOR  HOFFMAN, SPONSOR,  emphasized  a                                                                   
couple  of  points.   The  PCE  program  is not  designed  to                                                                   
equalize  costs between  urban  and rural  Alaska.   The  PCE                                                                   
program  only applies  to the  first 500  kilowatts of  power                                                                   
used,  which would  not finance  a  normal household's  total                                                                   
fuel costs.  Even with PCE, a  rural resident would still pay                                                                   
more than urban residents.  The  intent of the bill is not to                                                                   
equalize  power  costs,  but   to  subsidize  the  first  500                                                                   
kilowatts of rural usage.                                                                                                       
1:53:08 PM                                                                                                                    
Representative Crawford  wondered if PCE would  deter efforts                                                                   
toward  finding alternative  fuels.   Ms. Harrington  did not                                                                   
believe  it would  because  the program  does  not cover  all                                                                   
energy costs.                                                                                                                   
Representative  Crawford  knew   there  were  incentives  for                                                                   
consumers to take  cost-savings methods.  He  wondered if the                                                                   
legislation would  de-incentivize the utilities  from seeking                                                                   
renewable energy sources.                                                                                                       
Mr.  Livey  stated  that  the   bill  gives  the  utility  an                                                                   
incentive to  make power cheaper.   Only 30 percent  of power                                                                   
produced by  a local utility  goes to residential  customers.                                                                   
Others consumers could use an incentive for cheaper power.                                                                      
1:55:56 PM                                                                                                                    
Representative  Gara spoke  in support  of moving the  sunset                                                                   
date.   He inquired  what the  annual cost of  PCE was.   Mr.                                                                   
Livey replied  that if the  bill were  not to pass,  it would                                                                   
cost $32  million.  If  the bill were  to pass, it  would add                                                                   
$5.5 million to the program.                                                                                                    
Representative Gara  looked at the fiscal note  and requested                                                                   
more  information.   Ms.  Harrington  related  that when  the                                                                   
program was amended  last year, the cost rose  from about $28                                                                   
million to  $38 million.  The  expected impact in  the coming                                                                   
year is $5.5 million.                                                                                                           
Representative  Gara understood  that  part of  the cost  was                                                                   
funded  by endowment  funds and  part by general  funds.   He                                                                   
asked  if  the $5.5  million  was  additional funding.    Ms.                                                                   
Harrington said that was correct.                                                                                               
1:58:41 PM                                                                                                                    
Representative  Gara  wondered   how  much  comes  from  each                                                                   
Representative  Austerman thought that  the total cost  as, a                                                                   
result of  passing HB 150, would  be $37.6 million  and would                                                                   
include the $5.5 million.                                                                                                       
Co-Chair Stoltze  noted that  a full  analysis of the  fiscal                                                                   
note would be forthcoming.                                                                                                      
Representative  Gara  asked  if  $38  million  included  both                                                                   
endowment and  the general  funds.  Representative  Austerman                                                                   
replied that it does.                                                                                                           
2:00:09 PM                                                                                                                    
MIKE  HARPER, DEPUTY  DIRECTOR,  RURAL  ENERGY GROUP,  ALASKA                                                                   
ENERGY AUTHORITY,  testified via teleconference.   He offered                                                                   
to answer questions.                                                                                                            
MEERA  KOHLER,  PRESIDENT  -  CEO,  ALASKA  VILLAGE  ELECTRIC                                                                   
COOPERATIVE  (AVEC), via  teleconference,  reported that  her                                                                   
organization accounts  for about a  third of PCE users.   She                                                                   
observed that  the PCE legislation regarding  the ceiling was                                                                   
drafted last year  in response to a need.   She detailed what                                                                   
would happen if the sunset date was not extended.                                                                               
2:04:35 PM                                                                                                                    
Representative  Joule  asked   about  AVEC's  efforts  toward                                                                   
renewable energy.                                                                                                               
Ms. Kohler reported  that AVEC has a wind  generation program                                                                   
in 10 communities.   She maintained that PCE does  not pose a                                                                   
disincentive for  alternative energy  programs.  She  gave as                                                                   
an example, Cordova's change to hydropower.                                                                                     
Representative  Joule  asked what  the  savings  has been  in                                                                   
communities that  have converted to  wind power.   Ms. Kohler                                                                   
reported that more than 100,000 gallons of fuel were saved.                                                                     
2:07:51 PM                                                                                                                    
Representative Salmon wanted to  know the total amount of PCE                                                                   
funding, the total  endowment amount, and how  the investment                                                                   
Mr.  Harper reported  that  it would  take  $37.6 million  to                                                                   
fully fund  the program, of which  about $21 million  is from                                                                   
the endowment,  and the balance  is from general funds.   The                                                                   
endowment has  taken a  severe beating.   He deferred  to the                                                                   
Department of Revenue for those figures.                                                                                        
Ms. Harrington  pointed out that  the invested assets,  as of                                                                   
December 31, 2008, were $288,816,014.52.                                                                                        
2:10:57 PM                                                                                                                    
Representative  Gara  voiced appreciation  for  Ms.  Kohler's                                                                   
work with AVEC.   He wondered what the cost  of adding school                                                                   
districts to PCE would be.                                                                                                      
Ms. Kohler  thought about  1/3 of AVEC's  energy sales  go to                                                                   
their school districts.   If all schools were  made eligible,                                                                   
it would about double the cost of the PCE program.                                                                              
Representative   Gara   requested   information   about   the                                                                   
endowment losses.                                                                                                               
2:12:44 PM                                                                                                                    
Ms.   Kohler  addressed   the  endowment   fund,  which   was                                                                   
originally started with $100 million  from the Constitutional                                                                   
Budget  Reserve (CBR).   She  reported that  $85 million  was                                                                   
added when  the Four Dam  Pool project  was sold back  to the                                                                   
communities.   Another $182.7  million was added  three years                                                                   
ago by  Governor Murkowski.   A total  of about $367  million                                                                   
has been put into  the endowment fund.  The  fund reached its                                                                   
peak at  $404 million and has  since been drawn upon  to fund                                                                   
programs.  As of  the end of last year, the  fund was at $288                                                                   
million.   A few weeks  ago, it was  at $258 million,  but it                                                                   
has since gone up slightly.                                                                                                     
2:14:08 PM                                                                                                                    
BOB  CHARLES,  ASSOCIATION  OF   VILLAGE  COUNCIL  PRESIDENTS                                                                   
(AVCP),  via  teleconference,  thanked  the  legislature  for                                                                   
addressing  the energy  needs  of rural  Alaska  and for  the                                                                   
increase in the PCE ceiling last  year.   He reported that it                                                                   
helped the  villages and he  emphasized that the  PCE program                                                                   
is a priority.   He requested  continued funding for  PCE and                                                                   
the  elimination of  the  sunset date,  as  contained in  the                                                                   
bill.   He discussed  what would happen  if the funding  does                                                                   
not  continue.   He described  the problems  related to  high                                                                   
fuel costs in the villages.  He  spoke of efforts to equalize                                                                   
rural/urban fuel costs.                                                                                                         
2:20:15 PM                                                                                                                    
PAUL KENDALL,  ANCHORAGE, via teleconference,  disagreed with                                                                   
the  legislation.    He  spoke of  individual  freedom.    He                                                                   
suggested looking  at fossil fuel  issues.  He  thought there                                                                   
should  be  a leadership  conference.    He  suggested  using                                                                   
hydroelectric projects.                                                                                                         
2:26:32 PM                                                                                                                    
Representative  Fairclough noted that  a public committee  on                                                                   
energy is being formed.                                                                                                         
MICHAEL  SMITH,   FAIRBANKS,   TANANA  CHIEFS  COUNCIL,   via                                                                   
teleconference, testified in support  of SB 88 as a manner of                                                                   
economic equity in rural areas.   The cost of energy in rural                                                                   
areas is the worst in the nation.   The Tanana Chiefs Council                                                                   
is concerned with conservation  principals.  They are looking                                                                   
at how to  use the energy  stimulus package.  He  pointed out                                                                   
that PCA addresses  only a portion of the energy  crisis.  He                                                                   
thought  the subsidy  should  be extended  in  order to  help                                                                   
rural areas with economic development.                                                                                          
2:31:24 PM                                                                                                                    
Representative  Joule spoke  of a previous  reference  to the                                                                   
cost  of  fuel  decreasing.    He wondered  if  the  cost  of                                                                   
transporting the fuel was decreasing  and if there were other                                                                   
vessels that were  cheaper.  Co-Chair Stoltze  wondered about                                                                   
the cost of fuel storage.                                                                                                       
Mr.  Livey reported  that AVEC  has had  contracts with  fuel                                                                   
distributors and could answer that question.                                                                                    
2:33:22 PM                                                                                                                    
Ms. Kohler addressed the issue  of fuel transportation costs.                                                                   
She related  that  ten years ago  the delivery  cost of  fuel                                                                   
was, on  average, about $1.29  a gallon.  That  price covered                                                                   
transportation  and fuel costs.   The transportation  element                                                                   
of that cost averaged  about 40 cents per gallon.   This year                                                                   
the average  transportation cost  doubled over the  last year                                                                   
to about  $1.10 per gallon.   The fuel transportation  charge                                                                   
was at  the end  of a  5-year contract  based on  Anchorage's                                                                   
CPI.   The  transportation  element  now  is over  $1.00  per                                                                   
gallon, with small  village orders averaging $1.50  or more a                                                                   
Representative  Joule  emphasized   that  those  other  costs                                                                   
justify the need for PCE.                                                                                                       
Representative Austerman  agreed with Representative  Joule's                                                                   
point.  He  pointed out that the cost  of soon-to-be-required                                                                   
double-hulled barges  and the fact  that the Coast  Guard has                                                                   
banned floating fuel lines are hidden expenses.                                                                                 
2:37:07 PM                                                                                                                    
Representative  Foster noted  that taxes  and insurance  also                                                                   
contribute to high fuel costs in villages.                                                                                      
Vice-Chair Thomas  stated support for the bill.   He reported                                                                   
that  he  researched  adding   municipalities,  schools,  and                                                                   
businesses to  the bill, but  it would have cost  $65,580,000                                                                   
million  more.   He listed  areas  in his  district that  are                                                                   
experiencing  problems  related  to  high  fuel  costs.    He                                                                   
mentioned Hoonah Cold Storage's  fuel expenses.  Haines hydro                                                                   
from IPEC has a high fuel cost.   Yakutat has high fuel costs                                                                   
for  their cold  storage.   Cordova is  on PCE  and saved  $9                                                                   
million  by  going from  diesel  to  hydro, which  saves  PCE                                                                   
money.  Gustavus  will also be using less PCE  money when its                                                                   
goes to  hydro.   He stressed  the importance of  subsidizing                                                                   
high fuel  costs and stated support  for the bill.   He spoke                                                                   
of a proposed amendment  which he would not put  forth due to                                                                   
the additional cost.                                                                                                            
2:42:21 PM                                                                                                                    
Representative Foster spoke in favor of the bill.                                                                               
Representative  Salmon highlighted  some of  the problems  in                                                                   
his district.   Some  of the  villages do  not receive  barge                                                                   
services,  but receive their  fuel by  plane.  Storage  costs                                                                   
are high and there is not adequate storage.                                                                                     
Representative  Austerman discussed  why someone from  Kodiak                                                                   
would introduce legislation  on PCE.  He emphasized  that PCE                                                                   
affects  all  Alaskans.   There  are  13 communities  in  his                                                                   
district that  are not connected  to hydro and  need economic                                                                   
assistance.  The cost factors  are quite different and should                                                                   
be equalized.                                                                                                                   
Representative   Joule  suggested   not   loosing  sight   of                                                                   
exploration  for   alternative,  renewable  energy   such  as                                                                   
natural gas and  wind energy.  The state has  lands that also                                                                   
hold promise for alternative energy sources.                                                                                    
2:47:54 PM                                                                                                                    
Representative Kelly stated that  between 2009 and 2010 there                                                                   
will be a deficit of $2 billion.   He recalled that last year                                                                   
when he  had a concern about  raising the PCE ceiling  to $1,                                                                   
he  was assured  that  it  was  a one-time,  one-year  issue.                                                                   
Currently, he did not feel that  it was time to add onto this                                                                   
program in  light of  the fact that  fuel costs are  dropping                                                                   
and the price  of oil remains somewhat stable.   He testified                                                                   
against the legislation.   He recalled that  "Susitna did not                                                                   
get built".   He agreed  with Representative Joule  about the                                                                   
need to  "look ahead".   He suggested  building a road  and a                                                                   
power line to the villages.                                                                                                     
2:50:43 PM                                                                                                                    
Representative  Gara thought  the Committee  should not  lose                                                                   
sight of  the benefits of PCE.   He maintained that  the bill                                                                   
costs $20 million less than what  was budgeted last year.  He                                                                   
agreed   with  Representative   Joule's   suggestions   about                                                                   
alternative  energy.   He  highlighted  the  higher costs  of                                                                   
power in  rural areas.  He  noted that urban areas  receive a                                                                   
great  deal  of  federal  money  for  power.    He  suggested                                                                   
cleaning up diesel fuel plants.                                                                                                 
Representative  Kelly  drew  attention   to  the  per  capita                                                                   
distribution of  the budget, which he opined  addresses rural                                                                   
Alaskan needs.                                                                                                                  
HB 150 was heard and HELD in Committee for further                                                                              
SB 88 was heard and HELD in Committee for further                                                                               
The meeting was adjourned at 2:54 PM.                                                                                           

Document Name Date/Time Subjects
GVEA residential rates.doc HFIN 4/10/2009 1:30:00 PM
SB 88
CCED PCE Overview .pdf HFIN 4/10/2009 1:30:00 PM
SB 88
HB 150 Support Packet Attachment.PDF HFIN 4/10/2009 1:30:00 PM
HB 150
HB 150 Sponsor Statement.pdf HFIN 4/10/2009 1:30:00 PM
HB 150
HB 150 Sectional Analysis.pdf HFIN 4/10/2009 1:30:00 PM
HB 150
HB 150 Public Testimony Summary.pdf HFIN 4/10/2009 1:30:00 PM
HB 150
HB 150 Public Support III.pdf HFIN 4/10/2009 1:30:00 PM
HB 150
HB 150 PCE One-Page Briefing Paper.pdf HFIN 4/10/2009 1:30:00 PM
HB 150
HB 150 Attachment to Sectional Analysis.PDF HFIN 4/10/2009 1:30:00 PM
HB 150
HB150-CCED_PCE_Overview_.pdf HFIN 4/10/2009 1:30:00 PM
HB 150
HB150 - SB4002Z-1.pdf HFIN 4/10/2009 1:30:00 PM
HB 150
Legal memo 012809.pdf HFIN 4/10/2009 1:30:00 PM
SB 88
Naneng Testimony.pdf HFIN 4/10/2009 1:30:00 PM
SB 88
Sponsor Statement SB 88.doc HFIN 4/10/2009 1:30:00 PM
SB 88