Legislature(1997 - 1998)
04/22/1997 01:48 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
April 22, 1997
1:48 P.M.
TAPE HFC 97-110, Side 1, #000 - end.
TAPE HFC 97-110, Side 2, #000 - end.
CALL TO ORDER
Co-Chair Therriault called the House Finance Committee
meeting to order at 1:48 p.m.
PRESENT
Co-Chair Hanley Representative Kelly
Co-Chair Therriault Representative Kohring
Representative Davies Representative Martin
Representative Davis Representative Moses
Representative Foster Representative Mulder
Representative Grussendorf
ALSO PRESENT
Representative Alan Austerman; Representative Bill Williams;
Bob Bartholomew, Deputy Director, Income and Excise Audit
Division, Department of Revenue; Walter Sapp, Kodiak
Electric Association; Eric Youll, Executive Director, Alaska
Rural Electric Cooperative Association; Tom Friesen, City
Council, Ketchikan; Dan Billman, Lake Louis; Mike Gravel,
Former Senator, President, Energy Group, Citizens Power of
Alaska, Richard Leary, Ketchikan Pulp Company; Allen Hayes,
Ketchikan Pulp Company; Jack Shay, Mayor, Ketchikan; John
Magyar, Ketchikan Public Utilities; Ben Williams, Ketchikan;
Robert Wilkinson, General Manager, Copper Valley Electric
Association; John Downs, Glennallen; Ed Kozak, Kodiak
Electric Association; Wayne Stevens, Executive Director,
Kodiak Chamber of Commerce; Walter Wood, Valdez; Terry
Nikodym, City Council, Wrangell; Cliff Davidson, Former
Representative, Kodiak.
SUMMARY
HB 94 "An Act relating to confidentiality of certain
municipal tax records."
HB 94 was rescheduled to another time.
HCR 16 Proposing recommendations concerning the sale of
the Four Dam Pool hydroelectric facilities.
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HCR 16 was HELD in Committee for further
consideration.
SB 49 "An Act repealing certain filing statements and
bonds for enforcement and collection of certain
taxes and license fees; relating to service of
process on nonresident taxpayers; and providing
for an effective date."
SB 49 was reported out of Committee with a "do
pass" recommendation and with a zero fiscal note
by the Department of Revenue, and with a zero
fiscal note by the Department of Commerce and
Economic Development, both dated 1/15/97.
SENATE BILL NO. 49
"An Act repealing certain filing statements and bonds
for enforcement and collection of certain taxes and
license fees; relating to service of process on
nonresident taxpayers; and providing for an effective
date."
BOB BARTHOLOMEW, DEPUTY DIRECTOR, INCOME AND EXCISE AUDIT
DIVISION, DEPARTMENT OF REVENUE testified in support of SB
49. He noted that the legislation would repeal regulations
that require nonresident corporations to file a tax
affidavit with the Department of Revenue and obtain a bond
to secure potential tax liabilities. The program was
established in 1955. He noted that the Department of
Revenue has not claimed anything against the bond. He noted
that there has been no opposition to the legislation. He
observed that the legislation will help offset budget
reductions to the Department of Revenue. He noted that it
takes approximately 800 hours of staff time and three
positions to enforce the regulations. He referred to the
Department of Revenue's fiscal note. The Department is
requesting that the fiscal note be zero to allow the
resources to be reallocated to compliance.
Representative Mulder pointed out that the State does
receive revenues from the program. He observed that the
fiscal note states that new revenues from increased
compliance would offset the lose of interest income.
Mr. Bartholomew reiterated that the Department raises a
significant amount of money through compliance.
Co-Chair Hanley MOVED to report SB 49 out of Committee with
individual recommendations and with the accompanying fiscal
notes. There being NO OBJECTION, it was so ordered.
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SB 49 was reported out of Committee with a "do pass"
recommendation and with a zero fiscal note by the Department
of Revenue, and with a zero fiscal note by the Department of
Commerce and Economic Development, both dated 1/15/97.
HOUSE CONCURRENT RESOLUTION NO. 16
Proposing recommendations concerning the sale of the
Four Dam Pool hydroelectric facilities.
Co-Chair Therriault provided members with a proposed
committee substitute, work draft #O-LS0755\B, dated 4/18/97
(copy on file). He explained that the committee substitute
instructs the Alaska Industrial Development and Export
Authority (AIDEA) to conclude negotiations with the
utilities by July 31, 1997. If at that time, AIDEA does not
receive an acceptable proposal from the utilities they would
immediately go to an open RFP. He noted that the RFP would
be open to any qualified bidder to assure that the State
receives fair market value, protect the electric power rates
to the communities, provide for adequate power for the
communities, and allow adequate reserves to ensure that
power projects are adequately maintained. He noted that any
proposals would be subject to legislative approval.
Co-Chair Therriault noted that the Power Sales Agreement is
a stand alone contract. If the utilities put together a
purchase they could modify the Power Sales Agreement. An
outside purchaser could also negotiate with the utilities to
modify the Power Sales Agreement.
Representative Grussendorf observed that the negotiations
with the utilities included a provision to honor the Power
Sales Agreement. In response to a question by
Representative Grussendorf, Co-Chair Therriault acknowledged
that the utilities are key players in any negotiations.
Representative Grussendorf asked if AIDEA should be allowed
to determine if it is in the best interest of the State to
issue a RFP. Co-Chair Therriault stated that he is
interested in finding out what is possible in the private
sector.
Representative Mulder referred to page 2, lines 27 & 28.
Co-Chair Therriault explained that the intent is that any
proposal include provisions to maintain the facilities.
Representative Davies expressed concern with placing a value
of $84 million dollars on the projects. He suggested that
the language on page 2, lines 2 and 3 be withdrawn. He
pointed out that the testimony by Mr. Simmons included
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several assumptions. Representative Mulder noted that $84
million dollars was the lower number in Mr. Simmons'
estimation of value.
ED KOZAK, GENERAL MANAGER, KODIAK ELECTRIC ASSOCIATION (KEA)
testified via the teleconference network. He observed that
KEA's average annual line loss for the past three years was
3.23 percent. This is significantly lower than the national
standard of 8 percent. The average annual outage time for
each member was 3.8 hours. The national average is 5
percent. Rates were reduced by 1.85 percent in December
1996. He emphasized that KEA has returned more than $1.6
million dollars of margins back to members of the
cooperative.
Mr. Kozak noted that a 1995, Department of Community and
Regional Affairs study showed that there are 126 utilities
in the state that have average rates higher than KEA's.
There are 21 utilities that have rates lower than KEA. He
stressed that KEA's rates are currently lower than they were
in 1986. He asked for a chance to do more for the community
and the State.
Mr. Kozak stated that long-term economic strength will be
achieved with reasonably priced and reliable electric
energy. He noted that without the Terror Lake project, that
retail rates would be higher in Kodiak and Port Lions. He
asserted that the Terror Lake project has stabilized retail
rates. He observed that the reduction of retail rates is a
corporate goal. He maintained that the sale of the projects
to the utilities will provide a stable economic base in
those communities. He asserted that retail rates will
increase if private ownership occurs. He observed that at
the end of the contract (approximately 30 years) the debt is
paid off. If the State owns the Four Dam Pool, the retail
rate will be reduced when the debt is paid. He maintained
that if the utilities own the Four Dam Pool, the retail rate
will also be reduced when the debt is paid. He asserted
that it is unlikely that a "for profit" firm would reduce
the retail rate after the debt is paid.
Mr. Kozak reiterated that KEA, Kodiak Island Borough, Kodiak
Chamber of Commerce and the City of Port Lions support local
ownership. He asserted that local ownership means that 100
percent of all savings will stay within the State of Alaska.
WAYNE STEVENS, EXECUTIVE DIRECTOR, KODIAK CHAMBER OF
COMMERCE testified via the teleconference network. He spoke
in support of the purchase by the utilities. He urged
continuation of negotiations.
JACK SHAY, MAYOR, CITY OF KETCHIKAN testified via the
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teleconference network. He stressed that it is unproductive
to try to address all the past grievances. He recommended
that discussions with the utilities be extended to January
1, 1998. He recommended that language be added on line 22
or 23 of page 2 to clarify that the Power Sales Agreement
remains in effect.
Co-Chair Hanley recounted that the AIDEA Board gave Mr.
Simmons until July 31, 1997 to conclude negotiations.
RICHARD LEARY, KETCHIKAN PULP COMPANY testified via the
teleconference network. He stated that the negotiations
have been conducted in good faith and should be allowed to
continue to conclusion.
ALLEN HAYES, OPERATIONS MANAGER, KETCHIKAN PULP COMPANY
testified via the teleconference network. He echoed remarks
by Mr. Kozak and Mr. Leary. He expressed concern with the
date of July 31, 1997. He recommended the date be changed
to the next legislative session or the conclusion of
discussions. He expressed concern with the use of the word
"unwarranted" on line 23, page 2.
JOHN MAGYAR, KETCHIKAN PUBLIC UTILITIES testified via the
teleconference network. He asserted that communities will
not be in a good position if a "for profit" firm owns the
operation. He suggested that a linkage to the Power Sales
Agreement be contained on line 23, page 2.
BEN WILLIAMS, KETCHIKAN testified via the teleconference
network. He stated that a high electrical rate is a
constraint on business development. He urged an extension
on the time line.
(The teleconference network was temporally lost due to a
power outage.)
WALTER SAPP, PRESIDENT, KODIAK ELECTRIC ASSOCIATION BOARD OF
DIRECTORS testified in opposition to HCR 16. He noted that
over a thousand letters have been mailed or faxed to the
Legislature in opposition to the resolution. He maintained
that a stable, reliable, low cost, source of energy is
essential to the economic well being of their community. He
asserted that the best option for rate stabilization in
Kodiak is for the divestiture negotiations between the
utilities and communities, and the Alaska Energy Authority
to continue.
Mr. Sapp observed that communities that receive energy from
the Four Dam Pools have paid almost $100 million dollars in
debt service. He added that over $46 million dollars in
operations and maintenance have been paid. He spoke against
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ownership by out-of-state investors.
Mr. Sapp pointed out that the Power Sales Agreement ensures
that the wholesale power rate will be established by the
Committee. He noted that the rate has been basically flat
since 1985. He noted that the debt service payment on the
Power Sales Agreement ends in the year 2030. He emphasized
that the power rate could be reduced by $.04 cents when the
debt service ends. He did not think a private investor
would pass on the savings. He stressed that ownership
should remain in Alaskan hands. He urged the defeat of HCR
16.
ROBERT WILKINSON, GENERAL MANAGER, COPPER VALLEY ELECTRIC
ASSOCIATION testified via the teleconference network. He
spoke in opposition to HCR 16. He noted that he has been
involved in the Four Dam Pool divestiture negotiations with
AIDEA. He stressed that utilities and the State have worked
hard and spent a considerable amount of time and resources
during the negotiation. He stated that the parties have
made significant progress. He asserted that the
negotiations should be allowed to be concluded. He
maintained that the only transfer that satisfies the terms,
outlined on page 2, is the transfer to the utilities. He
observed that the Four Dam Pool is unique and complex. He
did not think any owner other than the utilities would be in
the best interest of the utility rate payers. He maintained
that an investor owned company would be unlikely to share
the primary goal of providing safe, reliable, and affordable
service to members. He thought a private sale would be
difficult due to the Power Sales Agreement. He urged that
the resolution be held.
Mr. Wilkinson responded to comments concerning the Power
Sales Agreement remaining in effect until after the
transfer. He stressed that a level playing field needs to
be developed. He stated that if there is a possibility that
the Power Sales Agreement can be changed in a deal structure
between the State and the utilities, then they should be
given the opportunity. He noted that according to a letter
by Mr. Jim Ayers, dated June 29, 1995, the Power Sales
Agreement must stay in effect until after the ownership
transfer. He agreed that it might be appropriate for AIDEA
to decide if a formal RFP should go forward. He suggested
that language identifying the value at $84 million dollars
be deleted. He emphasized that there are a number of
significant assumptions involved in the selling price. He
noted that assumptions about future load growth, the loss of
customers, inflation, increased competition, discounted rate
and regulatory risk, and reform impact the determination of
the present value.
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JOHN DOWNS, GLENNALLEN testified via the teleconference
network. He spoke against the purchase of the Four Dam
Pools by an outside entity. He stressed that the current
negotiations should be completed before others begin.
TERRY NIKODYM, CITY COUNCIL, CITY OF WRANGELL, AND
REPRESENTATIVE, PROJECT MANAGEMENT COMMITTEE, FOUR DAM POOL
testified via the teleconference network. He pointed out
that when the projects were first conceived, Wrangell chose
the dam development as their top capital projects priority.
He observed that local communities placed $390 million
dollars of their grant funds into the projects. He urged
that HCR 16 be set aside until negotiations are complete.
WALTER WOODS, VALDEZ testified via the teleconference
network. He stated that the divestiture negotiations should
be allowed to come to completion.
DAN BILLMAN, PRESIDENT, GREAT COPPER VALLEY CHAMBER OF
COMMERCE, LAKE LOUISE testified via the teleconference
network. He stressed that safe, reliable, economical
electrical power is the basis of economic development in the
State. He stressed the need to assure that the resource is
at the benefit of Alaskans. He urged that the resolution be
held until negotiations are exhausted.
MIKE GRAVEL, FORMER SENATOR, PRESIDENT, ENERGY GROUP,
CITIZENS POWER OF ALASKA testified via the teleconference
network in support of the resolution. He maintained that
the resolution only addresses the issue of using a sole
source process for the divestiture of a valuable asset. He
maintained that a person in Nome owns as much of the Four
Dam Pool as a person in the Copper Valley or Ketchikan. He
emphasized that it is important to all Alaskans to have a
competitive sale. He stressed that the Energy Group is made
up of Alaskans and outside investors. He maintained that
half of the owners would be individual consumers who would
own shares in the Corporation. He concluded that more than
half of the company would be Alaskan owned. He asserted
that the private sector can produce electricity cheaper than
the municipalities or associations. He stated that there
would be no rate increase for 30 years. He stressed that
there would be immediate profits occurring to the consumers
and investors.
(Tape Change, HFC 97-110, Side 2)
Mr. Gravel stated that the operation costs of the dams is
$.02 cents per kilowatt hour. He emphasized that this is
above the national average. He maintained that the dams can
be more efficiently operated. He asserted that the intent
was to give the municipalities the dams for nothing at the
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expense of the rest of Alaskans. He summarized that rates
will not increase, the dams will be more efficiently
operated and more than 50 percent of the dams will be owned
by Alaskans.
Representative Grussendorf maintained that Mr. Gravel sought
a sole source contract for the dams. Mr. Gravel denied that
he sought a sole source contract. He observed that the
Energy Group met with the utilities to determine if they
would support their effort. He
alleged that the utilities traveled to Washington State at
the expense of their consumers. He observed that the Energy
Group's proposal stipulated that they would not raise rates
for 30 years except for a CPI factored increase for the cost
of operation. The utilities declined their offer. He
stressed that the proposal represents investment in Alaska
from outside investors. He concluded that a RFP was their
only alternative. He emphasized that there should be a
competitive bid.
Representative Davies observed that, while he agrees in
general that sole source distributions should not be done,
since municipalities are an extension of the State and the
projects included local funds, that it is appropriate that
municipalities have first right of refusal. He disagreed
that the projects were at the expense of other areas of the
State. He observed that state funds were spent in other
areas of the State at the same time that these projects were
constructed. Mr. Gravel denied that the cooperatives are an
extension of the state. He added that the municipalities
are governments. He maintained that it is better for
consumers to have the activity operated by the private
sector.
Representative Kelly did not think that the City of
Fairbanks would have elected to sell their power to an
outside entity.
CLIFF DAVIDSON, FORMER REPRESENTATIVE, KODIAK testified via
the teleconference network. He observed that power rate
equity will be an issue for many years. He noted that
negotiations between public agencies are very complex. He
pointed out that it is difficult to compare Alaska to the
rest of the nation. He questioned if rural Alaskans will
buy stock in a company that they already own as part of a
cooperative. He noted that it is difficult to foresee the
effect of the CPI in thirty years. He urged that
negotiations be allowed sufficient time to continue.
ERIC YOULL, EXECUTIVE DIRECTOR, ALASKA RURAL ELECTRIC
COOPERATIVE ASSOCIATION noted that the cooperatives in the
Association produce approximately 95 percent of the power in
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Alaska. He concurred that there should be reference to the
Power Sales Agreement. He stressed that Power Sales
Agreement was made in good faith between the communities and
the State of Alaska. He suggested that communities be given
the first right of refusal to buy the projects for whatever
the highest bid is, if the projects are put out to an RFP.
He observed that an investor owned utility would have to
negotiate with each of the five communities subject to
benefits from the projects. An investor owned utility would
have to bid a rate that would take into account taxes, the
high cost of management, a 12 - 15 percent return in
investment, debt financing of 8 - 10 percent, and profits to
the 50 percent owned by individual Alaskans. He maintained
that the resulting proposal would be significantly less than
$84 million dollars. He questioned why a private entity
should get the windfall at the end of 30 years when the debt
is paid off. He suggested that the windfall should go to
strengthening the communities. He pointed out that other
hydro power projects in Alaska have lasted between 50 and
100 years.
Mr. Youll pointed out that investor owned entities go where
they can make a profit. He observed that private owned
utilities have gravitated to urban areas. They did not go
into rural areas. The federal government recognized that
the only way to electrify rural areas was with the Rural
Electrification Administration (REA). He noted that REA's
are the predominate entities in the State of Alaska. He
acknowledged that the REA rates are approximately 20 percent
higher. He maintained that the difference is due to low
population density not management. He concluded that if
negotiations are not successful that AIEDA should be tasked
to come up with a responsible recommendation to the
Legislation.
Representative Grussendorf observed that Mr. Youll was the
first Executive Director of the Alaska Power Authority. In
response to a question by Representative Grussendorf, Mr.
Youll noted that the flat rate, offered by the Energy Group,
would be based on nominal dollars rather than real dollars.
He noted that this is more than what the utilities have
negotiated. He maintained that rates would increase under
the Energy Group. He stressed that under the Power Sales
Agreement the rate would remain flat.
TOM FRIESEN, CITY COUNCIL, KETCHIKAN clarified erroneous
comments made in previous meetings. He observed that the
loan that Representative Barnes stated was not paid back,
was a $20 million dollar loan to Ketchikan. He stressed
that the loan was not taken out. The loan sits in the
Department of Community and Regional Affairs. The loan will
be taken out if the line is energized to the Tyee
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Hydroelectric Project. He disputed comments that people in
areas outside of the Four Dam Pools communities have an
equal interest in the dams. He noted that the meeting that
Mr. Gravel referred to, in which utilities sent
representatives to Washington, was a regularly scheduled
meeting of the Project Management Committee that met in
Seattle due to the flight difficulties in Juneau and
Anchorage. He noted that the meeting was not a special
meeting, paid by rate payers, to hear Mr. Gravel's proposal.
He observed that the cost of power in Ketchikan is $.024
cents for operation and maintenance. He estimated that if
the utility owned the project that they could reduce their
rate by half of a cent. He observed that 35 percent of
their operation costs go to the State for administration.
He asserted that the projects belong to the communities. He
maintained that the Project Management Committee will make a
present day value offer to the State. He spoke against the
resolution. He stressed that July 31, 1997 should not be a
completion date. He noted that the Committee was given July
31, 1997 as a target date for a legitimate offer.
In response to a question by Representative Kelly, Mr.
Friesen reiterated that ownership by the utilities could
result in an immediate reduction of four-tenths of a cent or
one-half of a cent.
Representative Martin clarified that the City of Ketchikan
spent their 1982 capital funding on the purchase of a
sawmill site in Ketchikan.
Co-Chair Therriault MOVED to adopt work draft #O-LS0755\B,
dated 4/18/97. There being NO OBJECTION, it was so ordered.
HCR 16 was HELD in Committee for further consideration.
ADJOURNMENT
The meeting adjourned at 3:15 p.m.
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