Legislature(1993 - 1994)
02/04/1994 09:00 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
MINUTES SENATE FINANCE COMMITTEE February 4, 1994 9:10 a.m. TAPES 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. PRESENT 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 fund. 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 committee. 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-house. 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 time. 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 quickly. 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 mid-November. 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 people. 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 concurred. 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 15. 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. ADJOURNMENT The meeting was adjourned at approximately 10:55 a.m.