Legislature(1993 - 1994)

04/14/1993 09:15 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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                             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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