Legislature(1993 - 1994)
04/14/1993 09:15 AM Senate FIN
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
April 14, 1993
9:15 a.m.
TAPES
SFC-93, #59, Side 1 (496-end)
SFC-93, #59, Side 2 (575-153)
CALL TO ORDER
Senator Drue Pearce, Co-chair, convened the meeting at
approximately 9:15 a.m.
PRESENT
All members (Co-chairs Pearce and Frank and Senators Jacko,
Kelly, Kerttula, Rieger, and Sharp) were present.
ALSO ATTENDING: Senator Randy Phillips; Senator Robin
Taylor; Randy Welker, Legislative Auditor; Shelby Stastny,
Director, Office of Management and Budget; Jack Fargnoli,
Office of Management and Budget; Dugan Petty, Director,
Division of General Services, Dept. of Administration; Dave
Hutchens, Alaska Rural Electric Cooperative Association;
Michael P. Kelly, Golden Valley Electric Association;
Clayton Hurless, General Manager, Copper Valley Electric
Association; Mark Hickey, Alaska Railroad Corporation; Dave
Tonkovich, fiscal analyst, Legislative Finance Division; and
aides to committee members and other members of the
legislature.
SUMMARY INFORMATION
SB 106 - AUTHORIZING POWER TRANSMISSION INTERTIES
Testimony was presented by Mike Kelly and
Clayton Hurless. Action adopting a 3/2/93
draft committee substitute was rescinded and
CSSB 106 (Finance) (dated 4/13/93) was
adopted instead. Amendments 1 and 2 were
also adopted. The bill was subsequently held
in committee for additional discussion.
SB 126 - APPROP: POWER PROGRAMS & INTERTIES
Testimony was taken in conjunction with SB
106. Both bills were held in committee for
additional discussion.
SB 128 - LEGISLATIVE AUDITS
CSSB 128 (STA) was reported out of committee
with a Senate Finance Letter of Intent and
zero Senate Finance Committee fiscal note for
the Office of the Governor/OMB.
SB 129 - POWERS OF CHIEF PROCUREMENT OFFICER
Testimony was provided by Senator Randy
Phillips, Randy Welker, and Dugan Petty.
Amendments 1 and 2 were adopted. The bill
was subsequently held in committee for
additional review.
ANNOUNCEMENT
Upon convening the meeting, Co-chair Pearce read a listing
of bills to be heard and advised that legislation relating
to school construction grants and debt reimbursement (SB 59,
60, 180 and 181) would be considered as a package at a
subsequent meeting.
SENATE BILL NO. 128
An Act relating to legislative audits.
Co-chair Frank directed attention to an April 13, 1993,
policy statement (copy on file in the original SB 128 file,
Division of Legislative Finance) from the Division of
Legislative Audit. He then MOVED to adopt recommendations
within the policy statement into a conceptual Senate Finance
Committee letter of intent. He further recommended that a
zero Senate Finance fiscal note accompany the bill and that
the policy recommendations be forwarded to the Legislative
Budget and Audit Committee.
Senator Kerttula asked if the foregoing directive in the
letter of intent and policy recommendations for Legislative
Budget and Audit Committee would raise constitutional
issues. Co-chair Frank said that, to his knowledge, none
would be posed. No objection to the letter of intent having
been raised, it was ADOPTED.
Co-chair Frank next MOVED for adoption of a zero Senate
Finance Committee fiscal note. No objection having been
raised, the zero note was ADOPTED.
Co-chair Frank MOVED for passage of CSSB 128 (STA) with the
accompanying letter of intent and zero fiscal note. No
objection having been raised, CSSB 128 (STA) was REPORTED
OUT of committee with the Senate Finance letter of intent
and a zero Senate Finance fiscal note for the Office of the
Governor/Office of Management and Budget. All members
present signed the committee report with "do pass"
recommendation with the exception of Senator Kerttula who
signed "no recommendation."
SENATE BILL NO. 129
An Act relating to the state's chief procurement
officer.
Co-chair Frank directed attention to Amendments 1 and 2. He
explained that Amendment No. 2 was drafted by Senator Randy
Phillips in response to concerns regarding the Wildwood
Prison acquisition. It requires that a lease-purchase
agreement be approved by the legislature if real property is
to be acquired.
SENATOR RANDY PHILLIPS advised that the amendment results
from a recent audit of the Wildwood purchase. He then
deferred further comments to the legislative Auditor.
RANDY WELKER, Legislative Auditor, Division of Legislative
Audit, came before committee. He explained that the above-
noted audit was issued by the Office of Management and
Budget. A companion audit by the Division of Legislative
Audit is underway. Information in the OMB audit concluded
it was likely the purchase was divided to circumvent the
legislative approval process when acquiring the facility.
The OMB report recommends that Title 36 be amended to
provide that all lease-purchase/lease-financing agreements
require legislative approval, regardless of the dollar
amount. Amendment No. 2 attempts to make that change. In
response to a question from Senator Kelly asking if all
lease-purchase/lease-finance arrangements would fall within
approval requirements, Mr. Welker and Co-chair Frank
clarified that Amendment No. 2 is intended to apply to real
property acquisitions. Both concurred that amendment
language does not so indicate at this time.
End, SFC-93, #59, Side 1
Begin, SFC-93, #59, Side 2
Mr. Welker noted that legislative approval is not meant to
cover items of personal property such as desks and
computers.
In response to a further question from Senator Kelly, Co-
chair Frank explained that "real estate" is defined as land
or "anything attached to land, including the building." If
the state is acquiring a building, it must seek approval
from the legislature. The Co-chairman noted the difference
between leasing property and acquiring ownership.
Co-chair Pearce asked if Amendment No. 2 would have to be
amended to apply to real property. Co-chair Frank responded
affirmatively. He then MOVED for adoption of Amendment No.
2 with addition of conceptual language applying it to real
property. No objection having been raised, Amendment No. 2
was ADOPTED, subject to the conceptual addition.
Co-chair Frank explained that Amendment No. 1 results from
lack of department ability to negotiate with existing
landlords under the new procurement code. It appears
reasonable for the state to have this ability if a savings
can be achieved. The proposed amendment provides an
exemption from the procurement code to allow the department
to negotiate with current landlords. The amendment also
requires quarterly reports to the Legislative Budget and
Audit Committee. The Co-chairman further noted need for
review of amendment language by the Dept. of Law. He then
MOVED for adoption of Amendment No. 1. Senator Rieger
inquired concerning how renegotiations would be impacted if
a cost savings was not achieved. Co-chair Frank explained
that if the original lease contains a renewal option, that
option could be exercised. If the lease has no provision
for renewal or extension, and the state would have to go out
to bid for like space, under the terms of the amendment the
state could work with the existing landlord to achieve a
reduced lease cost rather than going to bid.
No objection to Amendment No. 1 having been raised, it was
ADOPTED.
DUGAN PETTY, Director, Division of General Services, Dept.
of Administration, came before committee voicing support for
the bill. He said it would provide a window of opportunity
to renegotiate leases and obtain cost savings in return for
the extension price. It will also provide leverage for ADA
improvements needed at many sites. Further, it will allow
the division to better deal with a growing workload crisis
since renewal of existing leases requires less time and
effort than putting space requirements out to bid.
Senator Kelly asked if Range 23 was sufficiently high for
the chief procurement officer. Mr. Petty voiced the
department position that the range is appropriate.
The bill was HELD in committee for Dept. of Law review of
Amendment No. 1 language.
SENATE BILL NO. 106
An Act authorizing power transmission interties between
Anchorage and the Kenai Peninsula, between Healy and
Fairbanks, and between the Swan Lake and Tyee Lake
hydroelectric projects, and approving the design and
construction costs of the interties; and providing for
an effective date.
SENATE BILL NO. 126
An Act making special appropriations for design and
construction of power transmission interties between
Anchorage and the Kenai Peninsula, between Healy and
Fairbanks, and between the Swan Lake and Tyee Lake
hydroelectric projects; and providing for an effective
date.
Co-chair Pearce directed that SB 106 and 126 be
simultaneously brought on for discussion. Referencing SB
106, she noted that at the March 3, 1993, meeting, the
committee adopted a draft committee substitute dated 3/2/93.
She then suggested that that action be rescinded in order to
adopt an updated draft. Senator Sharp MOVED to rescind
adoption of the 3/2/93 version. No objection having been
raised, prior committee action was RESCINDED. Senator Sharp
then directed attention to an updated draft committee
substitute (8-LS0594\C, 4/13/93, Cramer) and MOVED for
adoption. Senator Kerttula initially objected but
subsequently removed his objection, and CSSB 106 (Fin) was
ADOPTED. Senator Sharp further advised of proposed
Amendment No. 1.
At the request of Co-chair Pearce, Senator Sharp provided a
sectional review of the updated draft. (Copies of the
sectional analysis are on file in the original bill file at
the Legislative Finance Division.)
Sec. 1 sets forth reasons for enacting the legislation
and expresses legislative intent as to how the program is to
be managed. It states that power cost equalization is to be
funded for 20 years at $17 million, annually. Demands on
the general fund for this program are to decrease to zero by
the year 2000, or sooner, since it is anticipated that
revenues from the fund established by the legislation will
generate sufficient revenue to reduce general fund demands.
Sec. 2 authorizes the Alaska Energy Authority to
contract with utilities to design and construct transmission
lines. The utilities assume the risk of completion costs,
overruns, and all operation and maintenance costs.
Sec. 3 amends the definition of program receipts to
include earnings of the energy authority revolving loan
fund.
Sec. 4 provides for Dept. of Revenue investment of the
balance of the energy authority revolving fund.
Secs. 5 and 6 contain conforming amendments making
changes in references to various accounts.
Sec. 7 creates the energy authority revolving fund. It
is to become the consolidated fund for all income and assets
of the authority except for the electrical services
extension fund and the power cost equalization fund.
Secs. 8 through 30 contain transfers of existing
accounts, conforming amendments, changes in account names,
and reference changes from funds to accounts.
Sec. 31 authorizes design and construction of a
transmission intertie between Anchorage and the Kenai
Peninsula.
Sec. 32 authorizes design and construction of a
transmission intertie between Healy and Fairbanks.
Sec. 33 conditions authorization provided in Secs. 31
and 32 upon utility company agreement to pay all completion
costs above $90 million as well as operating and maintenance
costs.
Sec. 34 authorizes design and construction of a
transmission intertie between Swan Lake and Tyee Lake
hydroelectric projects upon utility company agreement to pay
completion costs above $35 million and all costs of
operation and maintenance.
Sec. 35 authorizes design and construction of a
transmission intertie between Sutton and Glennallen with
utility company agreement to pay costs above $27.5 million
and all operation and maintenance. This project is further
conditioned on Office of Management and Budget approval of
the feasibility study submitted by the energy authority.
Sec. 36 provides that AEA contract with utilities to
design and construct transmission interties unless the
utilities decline that opportunity.
Sec. 37 provides for an effective date.
Senator Kelly questioned language within Sec. 36 that would
allow AEA to design and construct a facility even if the
participating utility declines. Senator Sharp explained
that the language was intended to cover situations wherein
the utility did not wish to participate in design and
construction but wanted the project and agreed to pay cost
overruns and debt service. AEA cannot build facilities that
utilities have not agreed to operate and maintain. Senator
Kelly suggested the language requires greater definition.
Senator Kerttula said he had no problem with the intertie
connections or where or how they are funded. He stressed,
however, that debt service on an electrical project is owed
to the general fund. The proposed legislation would make
those revenues the property of AEA (similar to AIDEA
capitalization). He raised public policy concerns regarding
that approach.
Senator Kerttula further noted that the proposed bill
guarantees nothing for the power cost equalization program
since provisions for funding at $17 million for 20 years are
stated in intent language only. He questioned whether a set
amount would cover population increases in rural Alaska over
that time period.
Senator Sharp acknowledged that all future expenditures from
the revolving fund would have to be authorized by future
legislatures, including power cost equalization. He
directed attention to a spread sheet tracking bill proposals
from 1993 through 2003 and explained that provision of rural
technology assistance funding is intended to allow present
PCE recipients to modify facilities "to get off of PCE over
the same period of time."
In response to a question from Senator Rieger concerning
funding for intertie construction, Senator Sharp advised
that Amendment No. 1 would change troublesome wording.
Senator Rieger voiced his understanding that the legislation
specifies the total cost as well as the amount to be
provided by utilities.
Further discussion of interest rates for various projects
followed between Senator Rieger and Senator Sharp.
Senator Rieger directed attention to Page 7, Lines 2 and 3,
and questioned authority ability to "enter into agreements,
with respect to the revolving fund, that it considers
necessary to secure its bonds." Senator Sharp voiced his
understanding that the forgoing represents standard
procedures.
Senator Sharp MOVED for adoption of Amendment No. 1. Co-
chair Pearce voiced OBJECTION to both Amendment No. 1 and
No. 2. She then called for a show of hands on the motion.
Amendment No. 1 was ADOPTED on a vote of 5 to 1. (Co-chair
Pearce opposed the motion, and Co-chair Frank was not
present during the vote.)
Senator Sharp MOVED for adoption of Amendment No. 2. Co-
chair Pearce OBJECTED and again called for a show of hands.
Amendment No. 2 was ADOPTED on a vote of 5 to 1. (Co-chair
Pearce was opposed, and Co-chair Frank was absent from the
meeting.)
Co-chair Pearce announced her intent to HOLD the bill in
committee for further discussion but suggested that public
comment begin at this time.
CLAYTON HURLESS, General Manager, Copper Valley Electric,
came before committee. He explained that CVE serves a large
geographic area in Southcentral Alaska (Glennallen to
Valdez). Members pay the highest unsubsidized rates in the
state. (Residential consumers in Glennallen pay
approximately 21 cents per kilowatt hour.) CVE has
attempted, for a number of years, to find a solution to high
costs. Connection to the railbelt electrical system would
provide much lower cost power from "a tremendous surplus."
Mr. Hurless noted railbelt support for CVE's endeavors.
CVE is at a critical point in that the productive capability
of the Solomon Gulch hydroelectric plant, owned by the state
and operated by CVE, will be completely "used up in 1993."
Additional needs beyond that load will have to be served
from supplemental resources--two aged diesel plants.
Considerable capital expenditure will have to be made if
these plants are to meet power needs. The intertie would
avoid that major expenditure as well as the obvious rate
impact.
Mr. Hurless said he was familiar with changes within the
legislation and said that of all proposals before the
legislature, the present approach serves Copper Valley best.
He urged passage of CSSB 106 as amended by committee.
MIKE KELLY, General Manager, Golden Valley Electric,
Fairbanks, next came before committee in support of the
railbelt interties. He noted that the railbelt energy fund
has dwindled from approximately $200 million to $120
million. Utilities in the railbelt have gone from potential
100% grant funding to the present agreement whereby utility
members would pay 50% of the cost of the interties plus any
cost overruns.
Mr. Kelly voiced support for CSSB 106 as amended and urged
that it be passed to the Senate for a floor vote.
ADJOURNMENT
The meeting was adjourned at approximately 10:10 a.m.
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