Legislature(1993 - 1994)

02/04/1994 09:00 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                        February 4, 1994                                       
                            9:10 a.m.                                          
  SFC-94, #17, Side 1 (405-end)                                                
  SFC-94, #17, Side 2 (end-000)                                                
  SFC-94, #19, Side 1 (000-end)                                                
  CALL TO ORDER                                                                
  Senator  Drue  Pearce,  Co-chair,  convened the  meeting  at                 
  approximately 9:10 a.m.                                                      
  In addition to  Co-chair Pearce,  Senators Sharp, and  Jacko                 
  were present.  Co-chair Frank, Senators Kelly, Kerttula, and                 
  Rieger joined committee after the meeting was in progress.                   
  ALSO  ATTENDING:     Representative  Harley   Olberg;  Edgar                 
  Blatchford, Commissioner, Department of Community & Regional                 
  Affairs; Bruce Geraghty, Deputy  Commissioner, Department of                 
  Community  &  Regional  Affairs;  Robert  Harris,  Director,                 
  Energy Division, Department of Community & Regional Affairs;                 
  Randy   Welker,   Legislative  Auditor,   Legislative  Audit                 
  Division; Terry Cramer, Attorney, Legislative Legal Counsel,                 
  Legislative  Affairs  Agency,  Division of  Legal  Services;                 
  Virginia Stonkus, fiscal analyst, and Mike Greany, Director,                 
  Legislative Finance Division; aides to committee members and                 
  other members of the legislature.                                            
  SUMMARY INFORMATION                                                          
  SB 243:   An  Act  relating to  the  four dam  pool transfer                 
            A presentation was made by Terry Cramer, Attorney,                 
            Legislative  Legal  Counsel,  Legislative  Affairs                 
            Agency; Virginia Stonkus, fiscal analyst, and Mike                 
            Greany,  Director,  Legislative  Finance Division.                 
            Edgar  Blatchford,  Commissioner,   Department  of                 
            Community  &  Regional  Affairs;  Bruce  Geraghty,                 
            Deputy  Commissioner,  Department  of Community  &                 
            Regional  Affairs;  and  Robert Harris,  Director,                 
            Energy   Division,   Department  of   Community  &                 
            Regional Affairs,  fielded questions asked  by the                 
            committee.  Due to  lack of time, SB 243  was held                 
            in committee until Wednesday, February 9, 1994.                    
  SENATE BILL NO. 243:                                                         
       An Act relating to the four dam pool transfer fund.                     
  CO-CHAIR PEARCE  invited Mike Greany,  Director, Legislative                 
  Finance Division, to  come before the committee  and outline                 
  the presentation on  SB 101 and  SB 126, the intertie  bills                 
  passed last year.                                                            
  MIKE  GREANY  said that  the  presentation would  attempt to                 
  explain in plain language the effects  of SB 101 and SB 126.                 
  Handouts  were provided to  the committee.   He reminded the                 
  committee  of their  request for a  description of  what had                 
  been enacted  in the energy package from last year, focusing                 
  particularly on the financial aspect - new funds, old funds,                 
  and current fund balances.  He  introduced Terry Cramer, the                 
  drafter  of  both  bills, and  asked  her  to  speak to  the                 
  SENATOR KERTTULA  said he was  interested in how  the public                 
  purpose is served.   He asked  was the expenditure of  funds                 
  being  done properly  and with the  public interest  in mind                 
  especially  in regard  to the  oversight of those  funds and                 
  contracts.   Co-chair  Pearce also  noted that  Commissioner                 
  Campbell, DOT&PF, and other department personnel were in the                 
  audience to field questions.                                                 
  TERRY   CRAMER,   Attorney,   Legislative   Legal   Counsel,                 
  Legislative Affairs Agency, Division of Legal Services, said                 
  that she had drafted SB 106 (which became Chapter 18) and SB
  126 (which  became Chapter  19).   She read  from a  handout                 
  titled, Sectional Summary  of Chapter  18 dated October  12,                 
  1993  (Attachment  A, copy  on  file).   She  or  department                 
  personnel  fielded the  following questions from  members of                 
  the committee as they came up in her presentation.                           
  Senator Rieger asked if Sec.  42.45.010, subsections (c) and                 
  (d),   paralleled  the   prior   eligibility  standards   in                 
  regulations for AEA.  Ms. Cramer said that she believed that                 
  to be true but  would have to check the statutes  at a break                 
  in  the  meeting.    At  Senator Kerttula's  request,  BRUCE                 
  GERAGHTY,  Deputy Commissioner,  Department  of Community  &                 
  Regional Affairs, said that, at present, DC&RA was operating                 
  under the old regulations.  The adoption of  new regulations                 
  might have minor changes but he had not seen a draft as yet.                 
  In answer to  Senator Kerttula, Mr.  Geraghty said he  would                 
  provide  a list  of the  new regulations  for the  committee                 
  before they were adopted.                                                    
  Senator Kerttula asked if the loan committee set out in Sec.                 
  42.45.060 had been established and  was it functioning.  Mr.                 
  Geraghty  said  that   the  loan  committee  had   not  been                 
  established as yet but would be  in the next 30 days or  so.                 
  The Governor would appoint the public members.                               
  End SFC-94 #17, Side 1                                                       
  Begin SFC-94 #17, Side 2                                                     
  In answer  to Senator  Kerttula, Ms.  Cramer  said that  the                 
  grant process,  Sec. 42.45.180,  was new  and did  not exist                 
  before.    She said  this section  allows the  Department of                 
  Community & Regional Affairs to fund grants for  small power                 
  projects to  reduce the costs  of a utility  (page 5 of  the                 
  handout).  Three percent of the  balance of the fund is  set                 
  aside  for  use as  grants for  small  power projects.   The                 
  eligible utility  is required to secure  financing elsewhere                 
  for at  least 25 percent  of the project.   The  term "small                 
  power project"  is defined as  a modified project  that will                 
  generate, store  or conserve no  more than 1.5  megawatts of                 
  power  and has an estimated cost of  less than $3M.  Senator                 
  Kerttula felt this was one of  the areas where he thought on                 
  site  use  of  resources  should  be encouraged  instead  of                 
  shipping in fuel and subsidizing programs.                                   
  Senator Kerttula asked  for an  explanation of Ms.  Cramer's                 
  statement that Sec. 42.45.410 directs  the department to the                 
  "maximum  extent possible feasible"  to enter into contracts                 
  with appropriate entities in the  private sector in carrying                 
  out  the  duties  under the  Chapter.   She  said  it  was a                 
  direction that the  department should  try to contract  out.                 
  Senator Kerttula asked the department  what it envisioned in                 
  monitoring that sort of delegation.   He went on to say that                 
  government  was  pretty  loose  anyway,  and  he  felt  this                 
  direction provided potential for all  kinds of abuses.   Mr.                 
  Geraghty  said  that  this Section  was  important  in their                 
  approach for organizing the new division.  He said they were                 
  examining processes  that AEA used internally  for providing                 
  the services that were transferred to  the division and were                 
  attempting to  find methods  that would  protect the  public                 
  dollars at use and utilize the private sector to the maximum                 
  extent possible.  He felt there  were major concerns in this                 
  area  because of  the  technical nature  of  the work  which                 
  required   maintaining   technical   expertise  within   the                 
  division.  He  believed projects in work  needed inspections                 
  and the  public deserved assurance  that the work  was being                 
  performed to the specifications of  the contract.  In answer                 
  to Senator Kerttula,  Mr. Geraghty said that  the department                 
  was  examining  all  the functions  within  the  division to                 
  comply  with this section where appropriate.  He assured the                 
  committee that  if public  funds and  purposes could not  be                 
  protected by utilizing  the public sector, it  would be done                 
  In answer  to Senator Kerttula,  Mr. Geraghty said  the only                 
  entirely  privatized program was  the circuit rider program.                 
  Senator Kerttula commented  he was  aware of  that fact  and                 
  feared the department was not meeting all the  conditions in                 
  regard to  that  program.   Senator  Kerttula asked  if  the                 
  department needed statutory  change in  order to insure  the                 
  protection of the public interest and reiterated his concern                 
  that the criteria  set out  would not be  met or  monitored.                 
  Mr. Geraghty assured the committee that the department would                 
  not  privatize  any  function without  assurances  that  the                 
  public interest would  be protected.  Senator  Kerttula said                 
  that  a system needed  to be devised  to insure  this in the                 
  future as well.  He felt that there were too many loose ends                 
  and  that he heard rumors of things being done that were not                 
  in the best interest  of the state.  Senator  Kerttula asked                 
  if Mr. Geraghty had  statutory authority to set up  a system                 
  that would work  and under  what time frame.   Mr.  Geraghty                 
  said he believed he did but it was going  to take additional                 
  time to  identify programs  that could  be  privatized.   If                 
  certain programs, in the department's  opinion, could not be                 
  privatized,  it  would  not  be  done.   He  said  that  the                 
  department would be back at the  legislature if they had any                 
  problems.   He  admitted that  this  section had  very broad                 
  coverage  over the  division's activities  and each  program                 
  must be analyzed.   Senator  Kerttula said he  did not  have                 
  much confidence that the public interest would  be served in                 
  the short run.  In the long  run he felt it would eventually                 
  happen but he  would like  to see  it done  right the  first                 
  Senator Jacko  said that there was not a system in place for                 
  monitoring privatization, and wanted to know how the circuit                 
  rider program contract  was being  monitored.  Mr.  Geraghty                 
  said the circuit rider program was  the only system in which                 
  they  did  have a  monitoring system  in  place.   The other                 
  programs formally done  by AEA,  now within the  department,                 
  are  being   examined,  workloads   designed,  and   program                 
  operations identified so when contracted  out to the private                 
  sector, appropriate oversight  and controls would be  put in                 
  place.  He said if the division cannot accomplish  this in a                 
  particular area, it  would be retained within  the division.                 
  He pointed out that this  will have an impact on  the amount                 
  of work that the division provides.                                          
  Mr. Geraghty said at the time of the transition, the circuit                 
  rider program was already in the process of being contracted                 
  out  to the private sector.  Much of the background work had                 
  been done, it continued, was  implemented, and also expanded                 
  to  include  about  30%  more  communities in  the  delivery                 
  service program.                                                             
  Senator Jacko said his concern was the number of people that                 
  had been  laid  off that  serviced the  rural programs,  the                 
  engineers, the maintenance  workers, etc. and the  oversight                 
  of the contracts.   He wanted  to know the current  workload                 
  and  if  the  remaining  employees  could   accomplish  that                 
  workload.   Senator Kerttula  reiterated that  had been  the                 
  same  concerns  of  former  Director  Don Harris.    Senator                 
  Kerttula  requested information  regarding the  workload and                 
  projections regarding the number of people needed to support                 
  that workload.                                                               
  Mr.  Geraghty said  that at the  present time  personnel and                 
  workload  had  not  been   totally  defined.    It  was   an                 
  evolutionary process.   He  explained that  the way  AEA was                 
  structured,  a  good  portion  of  the  engineers  had  been                 
  assigned to  the Bradley  Lake project  and those  positions                 
  went  over to AEA.  Several positions were lost in the rural                 
  programs.    He said  the  number  established  for  a  core                 
  organization  was   based   on   discussions   between   the                 
  Commissioner, the former Director, and himself.  On December                 
  15,  the department  received a budget  document and  made a                 
  "best"  judgement  call  in  regard  to  the  organizational                 
  structure.  The department's concern in regard to the number                 
  of  engineers  still  exist.    Senator Kerttula  felt  that                 
  presently  there were about half the  people necessary to do                 
  the job.  He felt a  combination of political influences and                 
  special interest kept  moving in  and directing the  process                 
  and that Don  Harris could give the true story.  He felt the                 
  present system  would  not be  able  to solve  any  problems                 
  because it was without competence  and the necessary bodies.                 
  He said the  magic number 12  kept coming  up for the  whole                 
  division.  He felt the whole situation was a mess, and would                 
  not be solved  until someone within  the system stood up  to                 
  the  pressures  that  exist   from  legislative  groups  and                 
  individuals with self-interest.                                              
  Senator  Jacko  felt his  question  had gone  unanswered and                 
  again  asked  Mr.   Geraghty  to   speak  to  manhours   and                 
  projections the division might be using.  Mr. Geraghty  said                 
  the Director had been working on those issues but it had not                 
  been reviewed  by management.   Mr.  Geraghty said  that the                 
  systems in  work in  rural Alaska  are to  a certain  degree                 
  susceptible to standardization  and, in doing that,  much of                 
  the engineering work could be  boilerplated.  Those internal                 
  processes were  not in place at  the present time.   He felt                 
  that the division did  not have to go into each community on                 
  an individual  basis  and re-invent  the wheel.   There  are                 
  other communities  in close  proximity to  each other  where                 
  other processes can be applied, and low-cost energy could be                 
  centralized.  These types of  applications for achieving low                 
  cost energy in rural  Alaska are the things the  division is                 
  trying  to   matrix  into   the  authority   given  by   the                 
  legislation.  There is a concern  about the workload and the                 
  capabilities of the technical staff  to monitor and regulate                 
  the privatization  of various  services while,  at the  same                 
  time, moving toward the implementation of legislation passed                 
  last year.  He  did not feel that  it would be  accomplished                 
  for  at least  6 months to  a year  but the majority  of the                 
  systems would be in place by then.                                           
  Senator Jacko said that did not  alleviate his concerns.  He                 
  said he wanted to  know if the department had  enough people                 
  to  accomplish  its   goals.    He  felt  the  division  was                 
  understaffed  and  was  uncomfortable  with  Mr.  Geraghty's                 
  comment "it not being defined as  yet" in regard to workload                 
  and projections.   He was concerned  about service to  rural                 
  Alaska and  he felt the  outcome probably would  not surface                 
  until the legislature adjourned.  Mr. Geraghty said that the                 
  structure in place would accomplish what was intended by the                 
  legislation.  If it  did not the department would  return to                 
  the legislature to  request increased staff.   Senator Jacko                 
  asked if those  requests would  occur after the  legislature                 
  adjourned.  Mr. Geraghty  said it might be sooner.   Senator                 
  Kerttula said it  might take  four or five  scandals but  he                 
  hoped that would not happen.                                                 
  Senator  Jacko requested  that Director  Robert  Harris come                 
  before  the  committee  and  testify  as to  the  division's                 
  progress and if any consultants had been used.  Mr. Geraghty                 
  said that  no consultants had been used.   He went on to say                 
  that the department had been trying to work with experienced                 
  staff  within  the  agency  who  knew  the  parameters,  the                 
  previous  systems,  and the  new  system was  moving forward                 
  required by law.  Senator Jacko  asked if someone had looked                 
  at both  systems and proposed a plan comparing manhours from                 
  one   system   to   the  next.      Mr.   Geraghty  answered                 
  affirmatively.  He said that he  had not seen the completion                 
  of  that work  and did  not even  know  if it  was complete.                 
  Senator Jacko asked  if Director  Robert Harris would  know.                 
  At this time Co-chair Pearce invited  Mr. Harris to join the                 
  committee at the table and speak to those issues.                            
  DIRECTOR ROBERT  HARRIS asked  Senator Jacko  to repeat  his                 
  question.    Senator Jacko  said he  had  been asking  for a                 
  better  definition  of  the  number  of manhours  needed  to                 
  accomplish the monitoring  of oversight.  He  reiterated his                 
  concern regarding the  layoff of  engineers and  maintenance                 
  workers and wanted  to know if the division  was going to be                 
  able  to  continue to  provide  adequate services.   Senator                 
  Kerttula added "efficiently and in the best interests of the                 
  state".  Mr. Harris  said that he had done  some preliminary                 
  work with project manhours but he  had not discussed it with                 
  management as yet.  He said there were more positions in the                 
  old AEA  org  chart  than there  was  now but  most  of  the                 
  programs were functioning  that existed during pre-AEA.   He                 
  admitted  the organization was small now,  and the tasks had                 
  not changed  appreciably so  not as  much could  be done  as                 
  Senator Jacko asked who was  monitoring the contracts.   Mr.                 
  Harris  said  that  in  terms  of  working  with  particular                 
  contracts,  over  the  course  of  the  transition,  project                 
  engineers  or  project  managers  were  responsible for  the                 
  appropriate expenditure of  funds.   He predicted fewer  and                 
  slower paced projects.  Rather than saying that oversight on                 
  these projects is  not being done properly, he  would rather                 
  say  that  at this  point not  as  many projects  were being                 
  pushed out the  door.  Also, it is winter, and the slow time                 
  of  the  construction season,  so there  were  not a  lot of                 
  projects expected to be  going on.  Senator Jacko  asked for                 
  his projection  of how  many engineers  would  be needed  to                 
  continue the workload.  Mr. Harris said that he would rather                 
  talk to management before  he talked to the  committee about                 
  his projections.                                                             
  Senator Kerttula said that was the  point.  The division was                 
  supposed  to be  a semi-autonomous  agency and  now a  whole                 
  system  had to be  accessed before  decisions could  be made                 
  that technical competence  thought important.  He  stated it                 
  was a very  difficult way to get things  done.  Mr. Geraghty                 
  agreed  with  the  committee's concerns.    Senator Kerttula                 
  blamed the legislature for this problem.                                     
  Mr.  Geraghty  said there  was a  bulk  fuel problem  in the                 
  amount of  $200M that had been identified.   He said that if                 
  the legislature wanted  to appropriate  $200M to solve  that                 
  problem,  the department could  get it  done.   Mr. Geraghty                 
  went on  to say  appropriations that  only cover  part of  a                 
  problem on an annual basis was like dealing with pieces of a                 
  puzzle.   The department  had approached  the problems  in a                 
  step  by  step,  logical fashion  with  the  staff employed.                 
  Senator Kerttula said that monitoring, line repair, some new                 
  construction, and all that had been taken place needed to be                 
  continued  with  some reasonable  level  of  good government                 
  oversight.  Senator  Kerttula felt that it  was obvious with                 
  the cutbacks suggested, it could not  continue.  At least at                 
  a minimum, Senator Kerttula wanted what  was done to be well                 
  done and with the public interest.  He said that he was sure                 
  the bush wanted their programs  to continue and be monitored                 
  properly and kept alive.  He reiterated his concern that the                 
  department did not have enough employees.  He said Americans                 
  were great at  abusing programs and great programs  could be                 
  written if less money was needed to monitor them.                            
  In  answer  to  Co-chair  Frank,  Randy  Welker, Legislative                 
  Auditor,  Legislative  Audit  Division,  said  there  was  a                 
  pending audit request before the Budget & Audit Committee to                 
  look at  the Alaska Energy  Authority.  It  would be up  for                 
  consideration on Friday, February 11,  1994.  Co-chair Frank                 
  said that  he felt that audit  should be approved.   He felt                 
  that the legislature  was lacking information and  the audit                 
  could answer some questions.                                                 
  Senator  Rieger  was concerned  about  the process  that had                 
  taken place in making the organizational changes.  It seemed                 
  the reorganization  was done very precipitously and somewhat                 
  arbitrarily.  He wanted to know if there was any legislative                 
  interference in  the process.   He  had received  complaints                 
  this summer from constituents in Anchorage who had been laid                 
  off and he had requested a response from the department.                     
  COMMISSIONER  EDGAR BLATCHFORD,  Department  of Community  &                 
  Regional Affairs (DC&RA) said the department had acted as an                 
  observer  over  the reorganization  of  the division.   Once                 
  legislation   was   signed   into   law,   it   became   the                 
  responsibility of the department to follow the intent of the                 
  legislature.  He said there had been considerable resistance                 
  within the old Alaska Energy  Authority but the department's                 
  obligation  was to fulfill the intent of the legislature and                 
  that was what the department had tried  to do.  From July 1,                 
  and  into  the fall,  his  instructions  were simple  -  the                 
  department  was to follow  the intent of  the legislation in                 
  the  best interest of the people  and the division was to do                 
  nothing that  would adversely affect rural Alaska.  He again                 
  said there  was resistance within the old AEA.  He said that                 
  he was to  down-size the Energy  Authority into a  division,                 
  there  were  costs  that needed  to  be  looked  at, and  he                 
  believed that some savings had been accomplished.                            
  Senator Kerttula stated that there  were eyewitnesses to the                 
  fact that legislative  and subcontractor pressures had  been                 
  applied to his agency.  Mr.  Blatchford said that it was his                 
  obligation to fulfill the  intent of the legislation and  if                 
  he  needed clarification  as  to the  intent,  he would  not                 
  hesitate to listen to those legislators that respond to that                 
  legislation.   Mr. Blatchford said  he had not  received any                 
  political pressure  by any  contractors.   Senator  Kerttula                 
  asked if any of his subordinates had received pressure.  Mr.                 
  Blatchford said that he did not know about that.                             
  Senator Rieger asked  Mr. Blatchford  if, when he  consulted                 
  with legislators  in regard  to intent,  did  he consult  on                 
  questions of who to hire and who to let go.   Mr. Blatchford                 
  said he did not consult anyone about who should be hired and                 
  who should be let go.   Co-chair Pearce asked Mr. Blatchford                 
  if  he  had listened  to any  legislators  in regard  to who                 
  should  be kept  and who should  be let go.   Mr. Blatchford                 
  said  he  always  listened  to   the  legislature  but  when                 
  questioned again by Co-chair Pearce, said he  did not listen                 
  to any legislators  in regard to  the final organization  of                 
  the division.  Co-chair Pearce requested a chart that showed                 
  the training of  individuals, their titles (without  names),                 
  and length of  service at the  old Alaska Energy  Authority.                 
  She asked him to also list employees who were transferred to                 
  AIDEA, the new division, into what positions they had moved,                 
  their responsibilities, and what training or experience  the                 
  individuals  had  for  the positions  into  which  they were                 
  transferred.    Mr. Blatchford  said  he would  provide that                 
  information as soon as possible.                                             
  Senator  Sharp said  that the  department had  more or  less                 
  inherited a function that in many  instances was not working                 
  well as it was.  To move it over and  expect it to come into                 
  balance immediately was a  difficult task at best.   He felt                 
  anytime a  long-standing, well funded section is eliminated,                 
  there   will  be  some   entrenched  territorial  values  of                 
  employees and others.  This division  touched a lot of lives                 
  throughout  the state  and a lot  of work is  needed for any                 
  merger or down-sizing.   It requires an elimination of  some                 
  jobs, and combining of responsibilities, hopefully making it                 
  more efficient. He  felt this  was probably  just the  first                 
  step the legislature was  making in down-sizing  government.                 
  He  hoped LB&A would find out what steps had been missed and                 
  then be able to use their  findings as a constructive device                 
  to help in the transition.   That audit, unfortunately, will                 
  take at  least 2-3  months even  if it  is a  priority.   He                 
  considered electricity a vital necessity  and hoped that the                 
  functions  would  be  maintained.   He  felt  if electricity                 
  became unaffordable, it was the  same as the power generator                 
  going  off.    He  wanted  the audit  to  address  economies                 
  including  fuel  consumption  on  certain  units  and  other                 
  technical concerns.                                                          
  Senator  Jacko  said  his  concern   was  not  so  much  the                 
  entrenched or territorial activities that  were taking place                 
  but that service  be continued to rural Alaska.   He said if                 
  that could be done with less staff  that was good because of                 
  the budget reduction.  Senator Jacko asked for a copy of any                 
  organizational chart  that was available  and any projection                 
  of manhours that had been made  to insure the monitoring and                 
  continuation of rural programs.   He did not want  to micro-                 
  manage, he just wanted to be assured of those services.                      
  Senator Jacko asked how many contracts  had been let out and                 
  if one  individual had  more  contracts than  another.   Mr.                 
  Harris  said that  the  circuit rider  contract  maintenance                 
  program  started  about   6  years   ago  to  assist   rural                 
  communities in operation and maintenance of their powerhouse                 
  and  distribution  systems.    This  summer,   participating                 
  communities increased from  approximately 45 to 60.   No one                 
  responded to bids  sent out to potential contractors for the                 
  Northslope  Borough.    They  take  care of  it  themselves.                 
  Alaska  Power  and  Telephone  covers  the  southeast  area.                 
  Kotzebue Electric services  the area  around Kotzebue.   The                 
  other seven areas went  to a contractor based in  Anchorage,                 
  Alaska  Power Systems.    In answer  to  Senator Jacko,  Mr.                 
  Harris said he  did not know who owned it but Scott Thompson                 
  and  Ms.   Quinlen  were   principals.     To  Mr.   Harris'                 
  understanding, the proper bidding process had taken place in                 
  the  contracting  procedure.   Mr.  Harris said  that Alaska                 
  Power Systems received  those contracts before he  was hired                 
  Mr. Blatchford said that  he felt amiss and would  try again                 
  to answer Senator  Rieger's question.   He said he had  been                 
  through two major  reorganizations in  the department.   The                 
  first was  the excising of  the Rural  Housing program  from                 
  DC&RA.  That  took about 50 people out of the department and                 
  placed them in Alaska Housing Finance Corp.   He said it was                 
  a difficult period for  the employees.  He felt  that unless                 
  additional  revenues  are  found to  fund  these  government                 
  operations, there will be more transitions.                                  
  End SFC-94 #17, Side 2                                                       
  Begin SFC-94 #19, Side 1                                                     
  Senator Kelly asked how many people were laid off to date in                 
  the AEA  reorganization.   Mr. Harris  said that  of the  42                 
  employees  brought into  DC&RA,  approximately 23  were laid                 
  off.  In answer to Senator  Kerttula, Mr. Blatchford did not                 
  anticipate any more changes unless there was a change in the                 
  budget.   Senator Kelly  said that he  felt it did  not make                 
  sense to  combine departments  and keep  the same  number of                 
  Senator Rieger asked, of the 41  people that moved to DC&RA,                 
  were some people  laid off and  new ones hired.   Mr. Harris                 
  said that he was  new and so were the  two Deputy Directors.                 
  He knew of  one person who had been reassigned but there had                 
  not been any  new hires  since he  had been on  board.   Mr.                 
  Blatchford said  that last summer was very traumatic for the                 
  employees since  rumors were rampant  regarding down-sizing.                 
  He had  created various proposed  organizational charts  for                 
  different scenarios.                                                         
  Senator Kerttula stated that the  former Director Don Harris                 
  had  tremendous  pressure  put  on him  to  downsize  to  12                 
  employees.  Mr. Blatchford said that he had a lot of respect                 
  for the legislative  body and would  not cast aspersions  on                 
  the character or integrity of any legislator.  He said there                 
  certainly had  been discussions about  what the size  of the                 
  Division should be and he had  taken all proposals seriously                 
  that come from  the legislature.  Senator  Kerttula admitted                 
  the  Commissioner was in  a tough position.   Mr. Blatchford                 
  said  that  his instructions  from  the Governor  was  to do                 
  nothing  that  would adversely  impact  rural Alaska  and to                 
  prepare an energy strategy that would faithfully lead Alaska                 
  to energy efficiency in the 21st century.   He felt that the                 
  state has  come close to  addressing the rural  energy needs                 
  for the highway system and for southeast Alaska, but the big                 
  gap was in rural Alaska.                                                     
  At this time,  Ms. Cramer continued her presentation  of the                 
  handout on pages 6 and 7, explaining definitions.                            
  Senator Rieger asked  for confirmation that Section  25 said                 
  that AIDEA could basically do whatever  it wants in order to                 
  build a power transmission intertie.  Mr. Cramer agreed that                 
  it said "whatever  it wants"  if considered appropriate  and                 
  prudent  in  order to  own  the  project or  to  finance it.                 
  Senator Rieger felt that statement gave AIDEA a  blank check                 
  in building  an  intertie and  felt  that an  amendment  was                 
  appropriate.  He said restrictions should apply to interties                 
  as  well  as  other  capital  projects.    Senator  Kerttula                 
  Senator Rieger stated that in regard to bonds the other bill                 
  had language  which referred  to the  ability to  waive debt                 
  repayment provisions.  He asked if  that applied to Sections                 
  29 through  32.  Ms. Cramer asked  if that could be answered                 
  when  she got to that section.  Later in the meeting Senator                 
  Rieger said he  found the section he was referring to and it                 
  had referred  only to  feasibility studies  so it  would not                 
  apply to bond authorizations.                                                
  In regard  to Section  35, Senator  Jacko asked  if the  PCN                 
  numbers had  been removed from  the division.   Mr. Geraghty                 
  said that some PCNs  might be vacant but  they had all  been                 
  transferred  to the  new  division.   There were  some minor                 
  changes being made  now because there were some  errors made                 
  in the transfer between AIDEA and DC&RA.  He reiterated that                 
  the PCNs had not been deleted.                                               
  In  answer to  Senator  Jacko,  Ms.  Cramer said  that  rate                 
  setting remained with the  PUC and would not be  transferred                 
  to  the division.    She said  the  intent was  to keep  the                 
  existing structure of  PCE intact  and substitute DC&RA  for                 
  those functions that AEA had filled.  An error had been made                 
  in drafting the bill  where it continued to refer to the AEA                 
  when it should have said department (DC&RA).  The intent was                 
  to substitute DC&RA for AEA and leave the functions with the                 
  PUC that they originally had.                                                
  At this time Mr. Greany  introduced Virginia Stonkus, fiscal                 
  analyst,  Legislative  Finance  Division, and  informed  the                 
  committee she  had prepared  the handout  titled Summary  of                 
  Energy Program Operations  - FY94  Enacted to FY95  Governor                 
  (Attachment C, copy  on file).  He then  asked Ms. Cramer to                 
  continue with her second handout  to the committee Sectional                 
  Summary of Chapter 19 SLA 1993 (Attachment B, copy on file).                 
  In Section 4, Senator Rieger  said that he had read a  draft                 
  feasibility plan  which shows  a  hydro-electric project  as                 
  being a preferable  alternative to the intertie  in the case                 
  of serving power to the Glenallen region.  He wanted to know                 
  if the department was considering that feasibility study and                 
  would ask for redirection  of the loan or whether  they were                 
  going to push ahead with the intertie project.  Mr. Geraghty                 
  said  the  feasibility  study has  just  been  completed and                 
  distributed.   After a  30-day comment period  a final draft                 
  would be issued sometime in early March and the Commissioner                 
  would make a decision at that  time.  He said the study  had                 
  been made by R.W. Beck & Associates and was funded by Copper                 
  Valley  Electric  Assoc.   The  department  had  located the                 
  contractor and did the RFP process.  Senator Rieger asked if                 
  the department felt  it worked well  for the utility to  pay                 
  for the study when its money was contingent on the result of                 
  the study.   Mr.  Geraghty said  that having  a intermediary                 
  does protect the process.   Mr. Harris said that  the Copper                 
  River Valley  Assoc. did  reimburse the  department for  the                 
  study.  As  it started  out under the  old AEA, the  project                 
  manager had experience  in these  areas and he  felt it  was                 
  going  to  be  a fair  and  impartial  feasibility analysis.                 
  Senator Rieger asked if  Mr. Harris felt there was  a reason                 
  to doubt  the results of the study.   Mr. Harris said he did                 
  not  know if  he understood  the question.    Senator Rieger                 
  asked  if  there might  be  any  reason the  study  would be                 
  overruled and some other  course taken.  Mr. Harris  said he                 
  was  not  aware  of  any  reason.   His  charge  within  the                 
  department was to  have a  fair, impartial, and  independent                 
  study.   Mr.  Harris  refused to  offer  an opinion  whether                 
  another  hydro-electric project would  be funded  from money                 
  that was set aside for an intertie.                                          
  REPRESENTATIVE OLBERG said  he was  familiar with the  study                 
  and  stated  there were  seven  scenarios proposed  for this                 
  power  source and the  intertie is the  preferable choice in                 
  five out of seven.  There were also two fundamental flaws in                 
  the study  that if  corrected would  make  the intertie  the                 
  preferable choice in seven out of seven scenarios.                           
  Senator Rieger said he  was reading from the summary  of the                 
  study  and it said that high growth load scenarios indicated                 
  a preference for  an intertie and  medium-low or low  growth                 
  indicate preference for other cases.   It said a lot has  to                 
  do with  how big the refinery would have  to be and there is                 
  some question  about that.  Senator Sharp  commented that if                 
  Senator Rieger  was reading  from the  newspaper article  he                 
  thought he was, he should take it for what it was worth.                     
  Senator Kerttula  said that it  had been long  reported that                 
  Union oil has a large gas reserve in the Glennallen area and                 
  on  site  generation  there  with  a   shorter  transmission                 
  facility could have potential.                                               
  Ms. Cramer  continued with  her explanation  through Section                 
  Mr. Greany at this time turned  the committee's attention to                 
  his  handout Summary of Provisions, Chapters  18 and 19, SLA                 
  1993 (Attachment D, copy  on file) and asked Ms.  Stonkus to                 
  speak to the handout.                                                        
  VIRGINIA  STONKUS,  fiscal   analyst,  Legislative   Finance                 
  Divsion, outlined Attachment D for the committee.  She  said                 
  that the prime  source of funding  under Chapter 19 was  the                 
  Railbelt   Intertie  Reserve,  the   balance  of  which  was                 
  approximtely  $118M,  and  started   the  whole  legislative                 
  process.   She  then  outlined the  various  sections.   She                 
  referred  to  the  handout  titled  "FY  94  Enacted  Energy                 
  Legislation"  (Attachment  E)  as   a  reference  for   fund                 
  balances.  The intent  of the presentation was to  show what                 
  monies went into which funds.  She was prepared to speak  to                 
  available balances of those funds but reminded the committee                 
  that  "available balance"  still  involved negotiations  and                 
  processes that could influence those balances.                               
  At this point  the committee  convened to go  to the  floor.                 
  The presentation by Legislative Finance  Division was put on                 
  hold until such time as it could be rescheduled.                             
  The meeting was adjourned at approximately 10:55 a.m.                        

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