Legislature(1993 - 1994)
04/14/1993 09:15 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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 Action adopting a 3/2/93 draft committee substitute was rescinded and CSSB 106 (Finance) (dated 4/13/93) was adopted instead.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.