Legislature(1993 - 1994)

02/09/1994 09:00 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    SENATE FINANCE COMMITTEE                                   
                        February 9, 1994                                       
                            9:00 a.m.                                          
  SFC-94, #21, Side 1 (000-end)                                                
  SFC-94, #21, Side 2 (end-000)                                                
  SFC-94, #23, Side 1 (000-220)                                                
  CALL TO ORDER                                                                
  Senator  Drue  Pearce,  Co-chair,  convened the  meeting  at                 
  approximately 9:12 a.m.                                                      
  In addition to  Co-chairs Pearce and Frank,  Senators Kelly,                 
  Rieger, Jacko, Sharp, and Kerttula were present.                             
  ALSO  ATTENDING:    Senator  Randy  Phillips;  Senator  Mike                 
  Miller;  Senator   Jim   Duncan;   Senator   Robin   Taylor;                 
  Representative  John  Davies; Representative  Harley Olberg;                 
  Thomas  C.  Williams,  Director,   Permanent  Fund  Dividend                 
  Division, Department  of Revenue;  Paul Fuhs,  Commissioner,                 
  Department of Community  & Regional Affairs;  Robert Harris,                 
  former Director, Linda Thomas, former Deputy Director, Chris                 
  Lethin,   Associate   Deputy   Director,  Energy   Division,                 
  Department  of  Community  &  Regional  Affairs; William  R.                 
  (Riley) Snell, Executive  Director, Dan Beardsley,  Contract                 
  Manager, Alaska  Industrial Development &  Export Authority,                 
  Alaska  Energy Authority;  Jetta Whittaker,  fiscal analyst,                 
  and  Mike  Greany, Director,  Legislative  Finance Division;                 
  aides  to  committee  members  and   other  members  of  the                 
  SUMMARY INFORMATION                                                          
  SB 253:   An  Act  relating to  reapplication  for the  1993                 
            permanent  fund dividend  when  the United  States                 
            Postal Service documents the  loss of mail  during                 
            the 1993 application period; and providing  for an                 
            effective date.                                                    
            Senator Mike Miller, sponsor  of SB 253, testified                 
            in  support  of  the bill.    Thomas  C. Williams,                 
            Director,   Permanent   Fund   Dividend  Division,                 
            Department  of   Revenue,  testified  as   to  the                 
            department's  neutral position on  the bill.   The                 
            committee  questioned   whether  SB   253  was   a                 
            "temporary"  law.    Satisfied  that  it  was   by                 
            Legislative Legal Services,  the bill was REPORTED                 
            OUT  of  committee with  a  "do pass"  and  a zero                 
            fiscal note from the Department of Revenue.                        
  SB 243:   An  Act  relating to  the  four dam  pool transfer                 
            Robert  Harris,  former  Director,  Linda  Thomas,                 
            former   Deputy   Director,   and  Chris   Lethin,                 
            Associate   Deputy   Director,   Energy  Division,                 
            Department  of  Community   &  Regional   Affairs,                 
            testified   before    committee   regarding    the                 
            resignation  of   Mr.  Harris   and  Ms.   Thomas.                 
            Discussion was  held regarding the  particulars of                 
            the  circumstances  leading  to the  resignations.                 
            William R. (Riley) Snell,  Executive Director, and                 
            Dan Beardsley, Contract Manager, Alaska Industrial                 
            Development  &  Export  Authority,  Alaska  Energy                 
            Authority,  presented  the   AIDEA/AEA  transition                 
            plan.  Discussion was held regarding that plan and                 
            specific projects.  SB 243 was HELD in committee.                  
  SENATE BILL NO. 253:                                                         
       An Act relating to reapplication for the 1993 permanent                 
       fund dividend  when the  United  States Postal  Service                 
       documents the loss of mail  during the 1993 application                 
       period; and providing for an effective date.                            
  CO-CHAIR PEARCE announced  that SB 253 was  before committee                 
  and invited Senator Miller, sponsor of the bill, to join the                 
  committee at the table.                                                      
  SENATOR MILLER testified in support of SB 253.  He explained                 
  that on January  8th, 9th, and 11th the  mail from the North                 
  Pole  post  office had  been lost.    This bill  would allow                 
  people that mailed  their PFD applications on  those days to                 
  reapply.  Sworn statements and documentation from the postal                 
  service would be required with  the reapplications.  Senator                 
  Miller confirmed the loss of mail on those days because of a                 
  personal piece of mail that he was missing.                                  
  SENATOR KERTTULA asked Senator Miller what document would be                 
  required from the post office.  Senator Miller said that the                 
  post office has supplied a document for use by residents for                 
  creditors that did not receive payments, etc.                                
  In answer to Co-chair Pearce,  Senator Miller confirmed that                 
  SB 253 was temporary law.                                                    
  Co-chair  Pearce  invited  Thomas   C.  Williams,  Director,                 
  Permanent Fund  Dividend Division, Department  of Revenue to                 
  join the  committee  at  the  table.    THOMAS  C.  WILLIAMS                 
  testified  that the  department in  general  opposes general                 
  reopenings but  because of  the narrow  construction of  the                 
  bill and because it is  a temporary measure, their  position                 
  is neutral.   He  believed that  it would not  have a  large                 
  impact  on the  division and  the number of  people affected                 
  would be forty to  fifty.  Those could be  processed without                 
  an impact on the operation.                                                  
  SENATOR  RIEGER MOVED for  passage of SB  253 from committee                 
  with  individual  recommendations  after clarification  from                 
  legal that  the legislation  is clearly  temporary law.   No                 
  objections  being  raised,  SB  253   was  REPORTED  OUT  of                 
  committee with  a zero  fiscal  note for  the Department  of                 
  Revenue.    Co-chairs  Pearce  and Frank,  Senators  Rieger,                 
  Kelly,  Rieger,  Kerttula,  and Sharp  signed  the committee                 
  report  with  a  "do  pass"  recommendation.    (Immediately                 
  following  the  meeting,  clarification  was  received  from                 
  Legislative  Legal  Services  that SB  253,  as  worded, was                 
  temporary law.)                                                              
  SENATE BILL NO. 243:                                                         
       An Act relating to the four dam pool transfer fund.                     
  Co-chair  Pearce  announced  that SB  243  was  again before                 
  committee and that a companion bill would be read across the                 
  House floor  today.   She reminded  the committee that  Mike                 
  Greany, Director,  Legislative Finance Division, had been in                 
  the midst of  a presentation at  the last meeting of  Senate                 
  Finance.  However, because of a new development, she invited                 
  Robert Harris, former Director, Linda Thomas, former  Deputy                 
  Director,  and  Chris  Lethin,  Associate  Deputy  Director,                 
  Energy  Division, Department of Community & Regional Affairs                 
  to join  the  committee  at  the table  for  statements  and                 
  discussion.  CHRIS LETHIN stated that  he was present at the                 
  table at the request of Senator Jacko.                                       
  (The following testimony is verbatim.)                                       
  The following statement  was made  by ROBERT HARRIS,  former                 
  Director,  Energy   Division,  Department  of   Community  &                 
  Regional Affairs.   As  you know, I  was asked to  submit my                 
  resignation on Monday morning (February 7, 1994).  This came                 
  about, in part, because of a difference of opinion about the                 
  programs  and  the  implications  of  those programs.    The                 
  termination, as I  saw it,  was unjustified.   I thought  we                 
  were in part  of a process of  me presenting my ideas.   The                 
  late afternoon Friday, when  I was here last, I think it was                 
  (February) 4th, I presented my ideas why I needed additional                 
  staff,  I think in large part, to cover some of the concerns                 
  that  have  been  brought before  this  committee  about the                 
  ability of the division to handle its programs.  I know that                 
  there are competing philosophies whether the division should                 
  contract out  everything or,  as legislation says,  contract                 
  out to the maximum extent feasible.  So, I  had presented my                 
  ideas why I thought I  needed more worker-bee engineers  and                 
  those ideas were not well received.  But I think part of the                 
  process is, you present an idea, somebody presents a counter                 
  idea.    It  is  a   compromise-negotiated  position.    And                 
  certainly, in my  case, I had been  on the job for  only two                 
  and  half  months and  prior  to  this, I  had  no political                 
  I have  done quite  well being  anonymous and  I like  being                 
  anonymous.  My background,  as you know, I have  two degrees                 
  from the Massachusetts Institute of Technology, a bachelor's                 
  in economics, a bachelor's in  electrical engineering, and a                 
  master's  in  electrical  engineering and  electrical  power                 
  systems.  I have spent my entire professional life in Alaska                 
  working  in economic  development,  audited management,  and                 
  electrical engineering.   These are not things that  are new                 
  or unfamiliar to me.  I have  seen systems that work, I have                 
  seen systems that  do not work, and it seemed to me that the                 
  notion  that the Division  of Energy would  want to contract                 
  out  everything  was  a  notion  that  would  not  work, and                 
  particularly, during a period of transition.                                 
  During a period of transition, one of my first goals was  to                 
  make sure that the  organization got back on its  feet, that                 
  it was headed in the right direction, that we knew we  had a                 
  common direction and we could work towards that.  There were                 
  certain programs  we had  that mandated  the things  we did.                 
  Being from the private  sector, I am very much  committed to                 
  the notion of  privatizing the things  that the Division  of                 
  Energy does to  the maximum  extent feasible.   I think  the                 
  difference then was  what ultimately we define  as feasible.                 
  To me it seems that feasible means that if we can do some of                 
  the  work for less money and  it comes out better, then that                 
  is  what  we  should do.    And if  feasible  means  that if                 
  somebody else can  do it outside,  and it costs less  money,                 
  than we should contract  it out.  That is not necessarily to                 
  say that a job for $2,000 or $10,000, we would contract out.                 
  There is  a  matter of  using judgement  on a  case by  case                 
  analysis of when it makes sense to try to contract something                 
  out,  when  it makes  sense  to  keep something...particular                 
  elements of it,  whether it is the  design or whether  it is                 
  project oversight  or  project engineering.   My  experience                 
  tells me when  a particular client  does not know what  they                 
  want, a contractor can come in and maybe they  will get what                 
  they  want.     If  you  do  not   have  project  oversight,                 
  particularly when you  are involved in complex  systems, the                 
  results usually (are) a more expensive end product that  may                 
  or may not work.                                                             
  Given that  I had nine or ten  months on this job, depending                 
  upon what the Governor  decide(d) to do, I viewed  it as key                 
  in my role that I was going to get the organization  back on                 
  its feet,  getting  us  moving in  a  common  direction,  as                 
  quickly as I  could.  I  was not particularly interested  in                 
  trying a new theory or new approach.  I would prefer  to use                 
  the tried and true, given the time frame I had.  But I think                 
  it would be fair to say that my approach (was) that if I had                 
  additional  staff, I  could move  more projects  out on  the                 
  street.  I  could put us  out of business  sooner.  I  could                 
  accomplish  the mission,  the goals,  that  the organization                 
  has,  principally,  being able  to  have utilities  in rural                 
  Alaska  be  self-sufficient,  independent   of  the  state's                 
  subsidies that they now have,  that they could be affiliated                 
  if it made  sense, or  they could remain  independent if  it                 
  made  sense.  But they could  work with an entity whether it                 
  was a  private contractor, whether it was a private utility,                 
  or a public  utility.   They could have  the opportunity  to                 
  have access to the services and capabilities that the former                 
  AEA, and now  the Division of Energy, is in  the position of                 
  having to provide.                                                           
  Most utilities, and I  think there are some people  from the                 
  utility  industry  in   the  room  today,  have   their  own                 
  engineering staff.   They do some  work in house.   The work                 
  they do in house is the small messy jobs and they do project                 
  oversight.  They do that to make sure their systems continue                 
  to  work.  As I  say, my experience has  told me when you do                 
  not have  project oversight, when  you do  not have  project                 
  engineers  on particularly  complex  programs and  projects,                 
  that the result is usually disastrous.   You can get the job                 
  done,  it  just  costs  you  more.    So,  working  from  my                 
  experience, I presented  a proposal  to my management  about                 
  why I  needed additional staff.   I thought  it was a  sound                 
  proposal  based  upon discussions  with  my staff  about the                 
  workloads they had.                                                          
  I  had  indicated  in  Friday's  meeting  that  I think  the                 
  question  had  been  raised,  well,   just  what  are  these                 
  workloads?  And I said that I had to talk with my management                 
  about it first.  I did  that afternoon, and now I feel  free                 
  to discuss those things and, certainly, given  the fact that                 
  I am no  longer employed by  the division, I certainly  feel                 
  more free about it.  I would like to say though that I would                 
  like  the opportunity to have the job back.  It is something                 
  that I feel is  well suited to my talents  and capabilities.                 
  It is  something that I  am very  interested in but  I think                 
  that right now  since there is essentially a  revolving door                 
  on  the  Director's office,  that  it  is going  to  be very                 
  difficult either for  the next person to go back in, or if I                 
  went  back  in, without  perhaps  some modifications  to the                 
  process about how decisions are  made within the department.                 
  I think it is going to  be very difficult for these programs                 
  to succeed.  First of all, there are about 28 people  at the                 
  Division  of  Energy.     Those   people  have  skills   and                 
  capabilities  that  are very  well  regarded by  the private                 
  sector.  The problem I was facing was that I had no depth in                 
  terms of my engineering  staff.  If one of my  staff decided                 
  they  wanted  to leave,  they  could  and I  would  lose the                 
  capability to do a bulk fuel repair  or remediation program.                 
  One individual has turned  in his resignation.  His  name is                 
  Brian Gray.  This was done  actually prior to my termination                 
  on Monday.  Without  the depth, without someone to  back you                 
  up, when one  person walks,  the whole program  stops.   The                 
  engineers that  are in the division now,  as well as some of                 
  the other personnel  in the division, are  seriously looking                 
  at getting off this roller coaster.                                          
  Transition is difficult  at best if it  is well managed.   A                 
  poorly managed transition is even worse.   I think then that                 
  depending upon what happens over the  next few days, that it                 
  is very likely to see over the course of the next  couple of                 
  months, most of  the technical staff,  formerly AEA and  now                 
  the Division of  Energy, leaving.   That will  be a  serious                 
  blow to the energy programs, to  the state.  Certainly, they                 
  will be out  there and we  can contract with  them.  We  can                 
  certainly privatize their  functions, but  for those of  you                 
  that have been  in the consulting  field, you know that  for                 
  somebody that is an  engineer, the typical charge is  $85 to                 
  $105 to $120 an hour depending upon the particular technical                 
  level of  the  person.   I  think we  are  going to  end  up                 
  spending more money to get the same  thing we have now.  The                 
  problem I have with the privatization notion that everything                 
  gets contracted out is that a small $5 or $6 or  $7,000 job,                 
  we  will  spend   $2,000  just  contracting  it,   just  the                 
  administrative cost of doing contracts.                                      
  Anyway, I  was going to discuss briefly  what my information                 
  had  been  with  regards  to  the  workloads.    I  have  an                 
  electrical  engineer who  has  experience  in small  utility                 
  systems,   small   power  houses,   the   transmission,  the                 
  distribution systems within  villages.  He has  almost 6,000                 
  hours of work  in front of him that  translates into about 3                 
  years worth of  work.  My  solution then would  be to add  a                 
  couple of engineers  to work with him to try to take care of                 
  that workload,  to get more work out on  the street.  I have                 
  one mechanical engineer, a bulk fuel expert, who is planning                 
  to  leave.   I  would  have  wanted someone  to  support his                 
  efforts  since  he  has  mechanical engineering  areas  that                 
  Division  of Energy  works with...bulk  fuel  repairs, waste                 
  heat  systems.    No  one  on  staff right  now  is  looking                 
  exclusively  at waste heat  systems and I  think that would,                 
  given that we have  some waste heat systems out  there, that                 
  we are trying to turn back over to the private sector,  that                 
  would be important to keep as a function.                                    
  (Questions were raised about the circuit rider program.)  As                 
  I  stated on last  Friday, to the best  of my knowledge, the                 
  circuit rider contracts  were let  in accordance with  state                 
  procedures.   But, within the Division  of Energy, the scope                 
  of work that is required and  the ability to respond quickly                 
  and to monitor and to provide project oversight indicated to                 
  me that I needed another person (that right now is temporary                 
  person)  to  move that  position  to  permanent.   I  am not                 
  unaware of  the budget problems that  we have this  year.  I                 
  had, with  Linda Thomas,  developed, actually  Linda had,  I                 
  won't take credit  for it, had  developed a proposal to  pay                 
  for  the  additional positions  I  wanted from  the division                 
  without coming  back and asking  for an increase  in general                 
  fund moneys.  That was done by charging some of the staff we                 
  had to  some of  the loan programs  we administer.   I think                 
  that is  a fair thing to  do and the federal  government was                 
  going to pay for one  position and simply reorienting  parts                 
  of the operating budget  to cover the costs.  I  think it is                 
  important to state that since I came on in mid-November, the                 
  operating budget was submitted prior to my arrival, and, had                 
  I  been  here prior  to the  time  the operating  budget was                 
  submitted and had a few months  to get up to speed, I  would                 
  have  changed  the  operating  budget  submission  under any                 
  circumstances.  That is just a fair statement to make.                       
  There  were some other  problems that I  have noticed within                 
  the division and I do not  want to close on a down note  but                 
  in moving the  former AEA  into DC&RA there  have been  some                 
  difficulties in  how the  entire system  works.   I know  in                 
  respect to the Governor's efficiency report that came out in                 
  '92  there  were  statements  made   that  things  are  more                 
  efficient  if  a  particular  program  or director  has  the                 
  responsibility for all the functions that are required to do                 
  the job.  And  part of that is certainly  the administration                 
  portion,  keeping track of  the money,  when bills  come in,                 
  when they get paid.  For example, I was asked by the general                 
  manager of  Alaska Village Electric  Coop (AVEC), why  I was                 
  late paying  him.  That  was about  two or three  weeks ago.                 
  Well, I said, Charlie, I don't know. I cannot tell you why I                 
  am late, in fact, I cannot tell you who else I am late on, I                 
  cannot tell you  ... I  have no information.   Getting  that                 
  information was very difficult, in this particular instance,                 
  it was  a bill for  $600,000 that is  now 90 days  past due.                 
  Now, if we  are talking  about privatizing, I  can tell  you                 
  from my experience in the private sector that $5,000 90 days                 
  late can  close doors  on  a business  and I  think that  is                 
  something  that  we should  look  at  in terms  of  how this                 
  division functions in order to be able to turn around and do                 
  projects in a  very short time frame.  That if we have eight                 
  weeks  from  when the  project is  conceived  to when  it is                 
  completed, that kind of thing typically requires the ability                 
  to  have  some flexibility  to  move  fast and  I  think the                 
  efficiency report from  the Governor's  office was right  on                 
  target in saying if  the director of the Division  of Energy                 
  is  going to  be responsible  for those programs,  then they                 
  ought to have responsibility for the people they are working                 
  (with) in all aspects of it.   I would say this, if I was in                 
  the private sector,  as I am now, or would have said it last                 
  Friday when I was a state employee.  Hopefully, those issues                 
  will be taken care of.  There were some things that I simply                 
  wrote  off to the fact that  it was a transition period, and                 
  it was not  going to be a smooth  ride but we could  work it                 
  One  thing I  want  to address  is that  I  was asked  about                 
  putting together a  strategic energy plan  for the state  of                 
  Alaska  and  had been  working  on that.    I know  that the                 
  Governor's  directive   as   communicated  to   me  by   the                 
  Commissioner  (Blatchford) was  that nothing  would be  done                 
  that would hurt rural  Alaska and I believe the  Governor is                 
  firmly committed to that.   I believe that the  Commissioner                 
  is firmly committed to  that in terms of putting  together a                 
  strategic energy plan  that was  implementable, namely  that                 
  was not "pie in the sky" as some of the former  energy plans                 
  had been when  they were  called out by  statute.  I  wanted                 
  something  that  would  be a  workable  document,  a working                 
  document,  something that when  we walked in  the morning we                 
  could see a little  placard on the wall that told  us why we                 
  were  there and  what we were  going to  do and how  we were                 
  going to accomplish  it.  I know  I had certain  staff needs                 
  about  one  particular  individual, Dennis  Miners,  here in                 
  Juneau, who had been involved in the organization from early                 
  July of  last year.  I would have  wanted to (have him) help                 
  me with that and I know that the folks in the Commissioner's                 
  office were  sensitive to the issue of cost of travel and so                 
  forth.  From  my private sector experience,  particularly in                 
  construction, my attitude in private experience, was do what                 
  you had  to do  get the job  done.   If it  is a  particular                 
  important  document that is  being produced,  in my  case, a                 
  $2,000  strategic  energy  plan, as  opposed  to  a $200,000                 
  strategic energy plan, then,  if you have to move  fast, you                 
  work quickly  to get  done what  you need  to have  done and                 
  certainly I felt  a little  hampered in terms  of not  being                 
  able to call  upon people who I was paying for (I was paying                 
  for this particular individual) to come  up and assist me or                 
  work with me.                                                                
  And I think that in talking about that strategic energy plan                 
  it addresses a basic  problem and that is that  with respect                 
  to how the  department has approached  it, I was told  to do                 
  what I thought was best.  That is OK, I can do that.  I like                 
  those particular sorts of challenges and  so I looked at the                 
  programs  we  had,  the money  we  had,  and  tried to  make                 
  reasonable assessments and presented  that to my management.                 
  But I think that  one question that ought to come  up is how                 
  particular projects are  selected and  I would advocate  the                 
  best way to select a  project is to select what  makes sense                 
  to the overall mission of the organization and the strategic                 
  energy plan.   I am disappointed that I will  not be further                 
  involved  in that. That,  at least,  it is  not going  to be                 
  done, it is not  going to be done by me or  at least with my                 
  input in  it.  One thing, let me close with this in terms of                 
  things I want to say.   I had developed a mission  statement                 
  based upon what  I saw  the organization needs  doing and  I                 
  think  I discussed this in an  overview some time ago with a                 
  similar committee.  The mission of the Division of Energy is                 
  to  assist  in  the  development   of  safe,  reliable,  and                 
  efficient energy  systems  throughout  Alaska  that  promote                 
  economic development,  are financial viable  and independent                 
  of  state  subsidies, and  are  environmentally sound.   And                 
  based on my discussions from last week, I wanted to  add one                 
  last thing  and that  is that  the Division  of Energy  will                 
  accomplish its  mission within  5 years.   I  think that  is                 
  doable.  I  do not think the  state should be in  the energy                 
  business forever.  Let's pick out the job we want to  do, do                 
  it and have  these utilities in  rural Alaska, the 80  small                 
  utilities that  serve less 200 customers, let's have them be                 
  able to stand on their feet within 5 years.  I think that is                 
  an attainable goal.   That is  certainly what I was  working                 
  for.  I appreciate the opportunity to speak today and, madam                 
  chair, answer any questions.                                                 
  Co-chair  Pearce   invited  Linda   Thomas,  former   Deputy                 
  Director,  Energy   Division,  Department  of   Community  &                 
  Regional Affairs to make a statement.                                        
  (The following testimony is also verbatim.)                                  
  (The following statement  was made  by LINDA THOMAS,  former                 
  Deputy  Director, Energy Division, Department of Community &                 
  Regional Affairs.)   I was hired  as the Deputy Director  on                 
  November  29,  (1994),   and  I   submitted  my  letter   of                 
  resignation at 5:00 p.m. February 7, (1994).   My background                 
  is that I am a certified public  accountant.  I was an audit                 
  manager for Deloitte and  Touche since 1987 prior to  coming                 
  to this position.  I have spent a number of years in private                 
  industry prior to that  as a supervisor of  electrical trust                 
  funds.   I only wanted  to speak to  one issue and  that was                 
  regarding my resignation.  I  fully support Robert (Harris),                 
  and he is definitely  technically competent.  He has  a high                 
  sense of integrity,  he was  objective and as  I said in  my                 
  letter  of resignation  to  Commissioner Blatchford,  I  was                 
  uncomfortable with the  process that led to  the resignation                 
  of Robert.  As  far as I knew, there was no process.  We had                 
  a meeting on Friday (February 4)  and we were discussing our                 
  work plans and we were told  by Commissioner Blatchford that                 
  we  would  continue  the  meeting  on Monday  (February  7).                 
  Monday  morning  Robert  was  called  down  to  Commissioner                 
  Blatchford's office and  according to  Robert, was asked  to                 
  resign.  I was called down immediately afterwards, and asked                 
  to continue  on,  and was  told  that it  was  in no  way  a                 
  reflection  on  me.    That  there  was  just  a personality                 
  difference, and that was it.  I felt very uncomfortable with                 
  that and that is essentially what I have to say.                             
  (This following continues to be verbatim)                                    
  SENATOR  SHARP  asked Mr.  Harris  if he  had  experienced a                 
  hands-on distribution operations engineer that was  familiar                 
  with rural systems who could go  out with the contractor and                 
  familiarize the  contractor with the  individual systems and                 
  how  to  safely  operate the  systems  and  work  it through                 
  gradually.  Mr. Harris replied  that, yes, there were people                 
  who have feet on  the ground, dirt under  their fingernails,                 
  grease in their hair, type people.  They know how to walk in                 
  with their eyes closed and could  rebuild a powerhouse.  You                 
  just don't throw  that kind of capability away.  I have work                 
  experience.  I worked on the north slope.  Like I said, have                 
  experience  both  as a  electrical  contractor (and)  in the                 
  engineering area.   Certainly, in  the job I  had, I  didn't                 
  have the opportunity to do those things but I know that  the                 
  engineering staff  we had and  the technician staff  we had,                 
  could do that.   It brings a  point up where by  having that                 
  kind of capability on-site  saying I want you to  do exactly                 
  this, this and this,  and not mess with these  other things,                 
  and  don't  come to  me  with  any of  those  code questions                 
  because I don't  want you to work  on those things.   I just                 
  want you to work on this.  And if there is  a code question,                 
  it can be  answered.  It saves time and it saves money.  The                 
  question  I  posed was  -  do we  want to  spend  $40,000 or                 
  $400,000 to fix  a problem?   Every powerhouse can look  the                 
  same, and it would  cost us multi-millions.  For  the amount                 
  of money  I've got,  that the  division had,  it makes  more                 
  sense to replace,  to take care  of the problems, and  bring                 
  the systems up to  at least the minimum standards  and more,                 
  is obviously better.  That is just cheaper  and easier to do                 
  if you have the people on staff that we do now and, as I was                 
  advocating, have a few more.  That can provide quick answers                 
  (having) knowledgeable personnel  about electrical  systems,                 
  which are some of the most  complex systems that we run into                 
  in our  daily life.   When  they don't  work, it  is a  real                 
  problem.  I know on my flight back from  Juneau on Saturday,                 
  I sat next to a woman from Kotlik.  I started talking to her                 
  and told her I was  the Director of the Division  of Energy.                 
  She said that was great.   She said, you know when we  start                 
  cooking at six in the evening, something  that (should) take                 
  us 20 minutes to cook, takes us an  hour because everyone is                 
  trying to cook at the same  time.  All of us face  hardships                 
  in  our  daily  life  and  some  of  them  we  get  through.                 
  Electricity is a part  of our modern life.  It is a shame to                 
  see the systems  in rural Alaska be third world  systems.  I                 
  would like to see that changed.                                              
  Senator Rieger  referred to  Mr. Harris'  comment about  the                 
  $40,000 and the $400,000.  He asked if in the dispute in how                 
  to approach the field work, was it an issue of whether to do                 
  it in-house or whether to contract it, or was it an issue of                 
  management of the  contracts or whether the  Energy Division                 
  has the in-house expertise to supervise the contracts versus                 
  having to contract that  out as well.  Mr.  Harris looked at                 
  that as  an integrated  question.  There  comes an  economic                 
  cutoff point at  which contracting everything out is just no                 
  longer economically feasible.  Spend  more money to contract                 
  out a $5,000 job than if we just had the capabilities  to do                 
  it in-house.  By virtue of the fact that we have to have the                 
  capability in-house to be able to  tell a contractor what to                 
  do, then it  makes sense to supplement that so  that we have                 
  the capability to handle  the small projects where  it makes                 
  sense and  farm out the big projects  where we can just turn                 
  over  a set of specs  with precisely what  we want and where                 
  the specs don't  call out for what  we want then there  is a                 
  person on staff that can  answer that particular question in                 
  a timely fashion.   There  were really two  issues at  hand.                 
  The idea that  we would contract  everything, I think,  runs                 
  into the problem that the legislation specifies that we will                 
  contract out to the maximum extent feasible.  And as I would                 
  define  feasible,  if we  can do  it in-house  more cheaply,                 
  great, let's do it.  The  object is not to spend money,  the                 
  object is to get the job done.                                               
  Senator  Kerttula  stated  that  a  man of  great  integrity                 
  preceded Mr. Harris, maybe  a director or two before.   This                 
  former director  had R.W. Beck & Associates,  well known and                 
  well thought  of industrial  consultant, set  up a  staffing                 
  pattern  based on  their interpretation  of the  legislative                 
  mandate.  This report  confirmed the need for "x"  number of                 
  people to properly monitor  contracts, properly design them,                 
  and to insure the  public interest was at all times a matter                 
  of record.  Senator Kerttula asked  Mr. Harris if he had any                 
  comment about why  the Beck  report was completely  ignored.                 
  (The following testimony is verbatim.)   I (Mr. Harris)  had                 
  enough problems on my hands just getting the organization up                 
  and running from when  I took over.  I did not  have a whole                 
  lot of  time  to go  back  and look  at  histories.   I  was                 
  familiar, I took the  time to become familiar with  the R.W.                 
  Beck study that  was released in  September of 1993 and  was                 
  familiar with its recommendations.   Senator Kerttula  asked                 
  if the recommendation  seemed logical.  I (Mr. Harris) think                 
  that there  were sound  recommendations in  that report.   I                 
  took a  slightly  different approach.   I  went through  and                 
  talked to my engineers about their workloads, and what kinds                 
  of things they  were working on.  I was concerned that I did                 
  not  have  depth in  terms  of  my engineers  if  one walked                 
  tomorrow.  I did not like the idea that I would be left high                 
  and dry and so  I took a completely different  approach than                 
  the R.W. Beck study  did which was formulated based  upon an                 
  interpretation  of the  legislative  statutes and  then what                 
  kind of staffing  patterns someone thought.   I went in  and                 
  talked to  my people and I came up  with a number that would                 
  have represented approximately  50 people as opposed  to the                 
  R.W. Beck  study which said  55.   I thought that  was being                 
  fiscally conservative but the point is  that I used a method                 
  and they used a different method and we came to  roughly the                 
  same number.                                                                 
  Senator Kerttula said  that he had  other questions for  Mr.                 
  Harris.  Senator Kerttula said it was his understanding that                 
  the Commissioner's office  was not  acting alone when  there                 
  were  decisions  made  concerning   Mr.  Harris's  position,                 
  concerning  allocation  of  certain  employees  and  so  on.                 
  Senator Kerttula  asked Mr.  Harris if  he had  knowledge of                 
  undue contractor influence or  certainly contractors' making                 
  strong  (the next  word  is not  understandable on  the tape                 
  because  of  outside noise).    (The following  testimony is                 
  verbatim.)  I (Mr.  Harris) know that there were  people who                 
  were  very concerned  about it  who depending  upon how  the                 
  pendulum  swings,  do  quite  well,  financially.   I  don't                 
  personally know, maybe, Linda, you would like to respond.                    
  Senator Kerttula said that he had  a series of questions for                 
  Linda Thomas.  He asked Ms. Thomas how many contacts she had                 
  with  contractors  since  she worked  with  the  Division of                 
  Energy and  what were  the subjects  discussed during  these                 
  contacts.  Ms.  Thomas said that  she had only two  contacts                 
  with private contractors while at the Division of Energy and                 
  that was with Scott  Thompson of Alaska Power Systems.   She                 
  said  the  first  one  was  a  phone contact  where  he  had                 
  introduced himself and the  second one was on the  date when                 
  Robert had been  asked for  his resignation. (The  following                 
  testimony is verbatim.)   Scott Thompson and  Louisa Quinlin                 
  came in and  visited Robert,  Chris Lethin and  I.   Senator                 
  Kerttula  inquired  as  to  the  nature of  that  subsequent                 
  contact.  Ms.  Thomas said the  first telephone contact  was                 
  made right before Christmas and Mr. Thompson was introducing                 
  himself  and informing me  about the  status of  the circuit                 
  rider contracts.  He had responded to an emergency situation                 
  in Venetie and he was informing  me that he was helping  the                 
  state  out  on that.    Ms.  Thomas said  she  didn't really                 
  understand what that meant so I  asked our engineers what he                 
  meant by helping  the state out.   He also talked  about...I                 
  don't remember everything,  but I  did write it  down in  my                 
  notes.  I asked him  as far as the Venetie  contract, wasn't                 
  that  part  of  their  contract   to  respond  to  emergency                 
  services.  Mr. Thompson said yes, but they wanted to get the                 
  community away from  state funds  and he went  on about  the                 
  hydro plants he  has worked on  and how they have  benefited                 
  the communities and we closed the conversation by his saying                 
  he wanted to  get together with  us and I  said well, I  was                 
  hired by Commissioner Blatchford to supposedly bring a sense                 
  of   ethics   and    financially   accountability   to   the                 
  organization.    I told  Scott  that we  were  attempting to                 
  depoliticize the agency  but he said  that I either need  to                 
  play ball  or get creamed.   That was my  first contact with                 
  Scott Thompson.   My second contact was  on Monday (February                 
  7, 1994).  He was invited  to our office and at about  11:30                 
  a.m. Robert, Clarice, Chris and I were in the office and Mr.                 
  Thompson went on  about how his  impression that the  Energy                 
  Authority, he  had problems  with the  Energy Authority  and                 
  working together with us in the past.  He had mentioned some                 
  specific projects that he had  straightened out in different                 
  villages, Atmautluak and Chalkyitsik.  The conversation went                 
  on for about 10 or 15 minutes.  Robert got a phone  call and                 
  left the office.  Chris Lethin, Clarice and I were in there,                 
  and Scott started going  off by saying, you guys  don't need                 
  more staff.  I don't understand why you need more engineers.                 
  You have  plenty, you  have good  engineers here  now.   Mr.                 
  Thompson said then that Bruce Geraghty (Deputy Commissioner,                 
  DC&RA)   and   he   had  sat   down   and   handwritten  the                 
  organizational chart together leaving the staff that is here                 
  today.   Someone said that  wipes out middle  management and                 
  Mr. Thompson said, so, we don't need  them.  Ms. Thomas said                 
  she was  just stunned  and said,  Scott, you  should not  be                 
  telling  me this.   Mr. Thompson said,  he did not  care, it                 
  does not matter, everyone knows anyway.   Those have been my                 
  two contacts with Scott Thompson, Alaska Power Systems.                      
  Senator  Kerttula asked Ms.  Thomas if she  suspected or did                 
  she  know if Mr. Thompson  was instrumental in having people                 
  fired  or  directing  any  type   of  contract  awards  with                 
  individual companies.  Ms. Thomas answered that  she was not                 
  aware of that directly.                                                      
  Senator  Kerttula  asked  what  Ms.  Thomas knew  about  the                 
  procedures  used  to  award  the  circuit  rider  contracts.                 
  Senator Kerttula  understood that  it was  a low  bid.   Ms.                 
  Thomas  said  she  had  spoken   to  their  grants  contract                 
  administrator  about  that and  the  person that  works very                 
  closely with  the circuit rider  contract and they  are very                 
  comfortable in the procedures that  were used to award  that                 
  Senator Kerttula asked Ms. Thomas why she decided to resign.                 
  (The following testimony is verbatim.)  Ms. Thomas said that                 
  she decided to resign because Robert  had been asked for his                 
  resignation  and the process, well, there was no process for                 
  it.   We were in  a meeting for  one to two  hours on Friday                 
  afternoon.  We were told  by Commissioner Blatchford we were                 
  going  to  continue  the  meeting on  Monday  and  make some                 
  decisions because our budget amendments were due on Tuesday.                 
  We left the meeting with the understanding that, and I think                 
  it was also brought up here, that we were supposed to have a                 
  division  director's  meeting on  procurement  issues Monday                 
  morning.  Robert  showed up to the meeting and  was asked to                 
  resign.    I was  not aware  that  there were  any conflicts                 
  during  our  Friday  meeting.    I  thought it  was  just  a                 
  discussion.  I  would like to say that  there was no arguing                 
  to any extent.  I just thought it was a normal, we're trying                 
  to talk to management about what we think we need and trying                 
  to  get  some  input  into  what  they were  looking  for  a                 
  strategic plan for our work plans for the next year.                         
  Senator  Kerttula said that he had  some questions for Bruce                 
  Senator  Jacko  said that  he  had understood  that recently                 
  Scott Thompson had sent some sort  of letter with regards to                 
  requesting change orders  on contracts that  he had and  Mr.                 
  Harris had  denied those change orders.  Senator Jacko asked                 
  Mr.  Harris if  there was  a letter  to that  effect.   (The                 
  following testimony is verbatim.)  I  (Mr. Harris) thought I                 
  had indicated here on Friday that there was some.   With any                 
  normal contracting procedure,  they have their view  of what                 
  the contract says and we have ours.  Within that, I read the                 
  contract  and  it said  that  this particular  group, Alaska                 
  Power Systems would go out for their 8 hours to a particular                 
  community under a work order.  They would go  through a list                 
  of forms that  have been passed out with the RFP.  That they                 
  would go through,  fill those forms out,  do everything that                 
  is required, fill out  the paperwork and send it back to us.                 
  The contract language  was pretty clear.   I wrote him  (Mr.                 
  Thompson)  and  said,  you will  do  that.    My first  and,                 
  actually only, meeting with Mr. Thompson and Ms. Quinlen, it                 
  was the first week I was there.  I brought up the issue that                 
  because Mr. Thompson operates a vertical integrated company,                 
  he also sells  and services  particular lines of  equipment,                 
  that I wanted to make it very clear  to him that when he was                 
  out on the state's dollar, I did not want his people selling                 
  their equipment.  That is not the purpose.  I want him to go                 
  out  and do  the work, straight  up, heads up,  by the book,                 
  let's just go  by the  numbers.  He  had some real  problems                 
  with that.   I think he misinterpreted what I  was saying in                 
  saying that he couldn't be in  business to sell equipment or                 
  this or that.   I tried to make  it very clear, that no,  my                 
  intent was that if the state was paying his way out to these                 
  communities to do  the work, that it's  just that.   Just go                 
  out, do the  work, and come on  back.  I don't  want to hear                 
  reports from communities that  his techs had been  trying to                 
  sell  equipment.  I think that  was pretty fairly understood                 
  after about 20 minutes of intense conversation.  So, in this                 
  letter that you  are referring to  Senator Jacko, the  other                 
  issue that was raised was, if  I can't coordinate with these                 
  communities to do repair work that we see as obviously needs                 
  to be done,  how am  I going  to make sure  this works  gets                 
  done.  The contract  language was pretty specific.   It said                 
  that  the  contractor would  provide  coordination  with the                 
  community and make sure the equipment was on site, parts and                 
  supplies were on site, that needed  to be there so that when                 
  they got  there they  got the job  done.   I wrote  him (Mr.                 
  Thompson)  and I said that is  what the contract says and if                 
  you don't do that I won't pay you.  And maybe that is a hard                 
  line for  a state official to take but from my experience in                 
  the private  sector, if  you  don't perform,  you don't  get                 
  paid.  I don't have a problem with that.  So, I think he may                 
  have  misinterpreted  my  earlier  comments  about   what  I                 
  considered   sales   activity   versus   the   activity   of                 
  coordinating to making sure  the job got done.   I thought I                 
  made it very clear both in my conversations and in my letter                 
  to him how I interpreted the contract.                                       
  End SFC-93 #21, Side 1                                                       
  Begin SFC-93 #21, Side 2                                                     
  Senator  Jacko  pointed   out  that  Mr.  Harris   had  some                 
  experience  in  this area  and asked  him if  Scott Thompson                 
  maybe "low-balled" these contracts.  Senator Jacko asked Mr.                 
  Harris  for  his impression.    (The following  testimony is                 
  verbatim.)      I  (Mr.   Harris)   thought  that   he  very                 
  competitively bid  these contracts,  yes, and  I think  in a                 
  process like that, knowing from the private sector, a lot of                 
  times the scenario is, you bid the job, you get your foot in                 
  the door,  and then, if perhaps the contract documents don't                 
  precisely spell out what needs to be done, then you say, oh,                 
  I have got to have a change order.  Which is one  of things,                 
  he (Mr. Thompson) was doing, saying, no, the eight hour work                 
  order  did  not  include  him  (Mr.  Thompson)  filling  out                 
  paperwork.   I need you to pay me a couple of more hours for                 
  every village I go to so I can get this done.  Senator Jacko                 
  stated that if  that worked out and he got his change order,                 
  he  could  have got  his  profit  margin out  of  the change                 
  orders.  Mr. Harris agreed that was a reasonable strategy.                   
  Senator Jacko said he did not know how much Mr. Harris  knew                 
  about  Scott  Thompson's  operation but  Senator  Jacko  was                 
  concerned  about  it  because  that  is apparently  how  the                 
  services  are going to be  provided into the communities out                 
  there.    It was  Senator  Jacko's understanding  that Scott                 
  Thompson  apparently  owns,  in  the  Unalaska   and  Akutan                 
  situation, a portion of the utility  out there now.  Senator                 
  Jacko  asked Mr.  Harris if he  knew that  to be true.   Mr.                 
  Harris  said  that  he  had  heard  that  but  had  seen  no                 
  documentation to that effect.  It  was his understanding but                 
  felt there were people in the  audience that could give more                 
  information on that.  (The following testimony is verbatim.)                 
  That was a  project that was a combined hydro-diesel project                 
  partially  funded  through  ASTF.   It  apparently  had some                 
  merit, and I believe that what  I heard is that Mr. Thompson                 
  is 50 percent owner in that.   He did not want to speculate.                 
  Senator Jacko said  that would be  a pretty good deal  if he                 
  went  and got 50 percent  of the utility  and then got money                 
  from the  Science &  Technology Foundation  funded from  the                 
  Division  of  Energy  to  upgrade  the utility,  his  equity                 
  position would be  in a much better situation,  wouldn't it.                 
  If he did that with all the villages out there he would have                 
  a pretty good  deal going.  Mr. Harris  agreed that it would                 
  be a great deal.                                                             
  Mr. Harris  said that  in respect  to Mr.  Thompson, I  have                 
  treated Mr.  Thompson as I  would treat any  other potential                 
  contractor.  I  believe I have  treated him fairly,  openly,                 
  and  honestly.  You know,  if someone from  Mars came in and                 
  said I  have a  great plan for  taking care of  utilities in                 
  rural  Alaska  and they  showed me  they  had the  depth and                 
  credibility and capabilities  to do that, I  would say, boy,                 
   this is great.  Let's have more Martians.  So, whether it is                
  a particular individual  or a public  utility, that's not  a                 
  matter, not a  concern to me.   Just that the job  gets done                 
  and the people  in rural Alaska  are well served with  their                 
  electric utility interests.                                                  
  Senator Jacko asked Chris  Lethin to confirm that he  was in                 
  the meeting  Ms. Thomas's  story referenced.   CHRIS  LETHIN                 
  answered  affirmatively.    Senator  Jacko  said  his  basic                 
  concern with  regards  to the  Division  of Energy  is  that                 
  services continue  to be  provided in  rural Alaska  without                 
  interruption and voiced more concern  now that Robert Harris                 
  had been fired.   Senator Jacko said he was  worried because                 
  he  had  read  an article  in  the  Tundra  Times on  Friday                 
  researched by  Jeff Richardson.   One of the  things pointed                 
  out in the  article is that  Don Harris resigned because  he                 
  had  a mission to continue  to provide rural energy services                 
  but could  not carry  through with  that mission  because of                 
  interruption from management, and the organization he agreed                 
  to work with changed  as the Division was going  through the                 
  process.   The  article also  said Don Harris  was basically                 
  receiving a  lot of pressure  to lay off too  many people to                 
  the extent  that  he would  not  be able  to  carry out  his                 
  mission.  Senator Jacko felt that  Robert Harris was under a                 
  similar situation, and if that is  the case, there are never                 
  going to be enough people to actually  do the job.  He asked                 
  Mr. Harris  to confirm  his concerns.   Mr.  Harris answered                 
  affirmatively.  (The  following testimony is verbatim.)   My                 
  predecessor, no relation to myself, was  on the end where he                 
  was trying to  shrink down an organization.   Now that  is a                 
  tough task and I would have  approached it by looking at the                 
  mission, goals, programs  and the amount  of money and  said                 
  how many people  do I need.  I had gone and done the similar                 
  process and said I need some more.  It would have brought us                 
  back to about the  same level that the former  Director, Mr.                 
  Harris  had  indicated.    Just  to  relate  a  professional                 
  experience within the  Division of Energy, we,  Linda Thomas                 
  and  myself,  were trying  to  get a  project  accountant on                 
  board.  We called everybody we knew to try to  get somebody,                 
  so when invoices came  in we (could keep) track  of them and                 
  made  sure our  people were  paid and  not 90 days  late for                 
  $600,000.   Mr. Thomas and I  had trouble recruiting people.                 
  They would say DC&RA and kind of laugh and we'd say  we're a                 
  solid team, we're going to be here for a long time.  I think                 
  now  with what's  happened that  when the  bulk fuel  expert                 
  leaves, good luck getting anybody to come back in.  When the                 
  other engineers leave,  good luck  finding anybody who  will                 
  walk back in  this place.  This is, to paraphrase a remark I                 
  heard yesterday, this is like  jumping into the biggest fire                 
  you can find.                                                                
  Senator  Jacko  said  that  last  week  he  had  asked  some                 
  questions  of Mr.  Harris with  regards to  being  sure that                 
  there   were  proper  oversight   of  the   contractors  and                 
  apparently Mr.  Harris since  last Friday  had attempted  to                 
  secure  some  more  engineers  to  provide  that  oversight.                 
  Senator Jacko asked  Mr. Harris  if he felt  that there  was                 
  some interference from the contractor involved that possibly                 
  did  not  want  this  oversight,  if  that  might  have  had                 
  something to do with him being fired.  Mr. Harris  said that                 
  he did not know  if there was interference.   (The following                 
  testimony is verbatim.)   I had heard  from one of  my staff                 
  that  a  particular  contractor,  namely  the  Alaska  Power                 
  Systems, knew I was going to be fired before I knew it.  Now                 
  that  doesn't mean  that they interfered.   It  simply means                 
  that they get information before I do.                                       
  Senator Jacko asked  Mr. Harris if  he felt the  contractors                 
  deliver  the  same  level   of  trusting  responsibility  as                 
  provided by  the civil  servants that were  there under  the                 
  previous system.   Mr. Harris  felt that was  a question  of                 
  whether  it  was the  car  or  the driver.    (The following                 
  testimony is  verbatim.)   I think  we could  all point  out                 
  examples where the vehicle does not work and point  examples                 
  where it is a  great vehicle and the driver is  not working.                 
  I  think some of my perception  of some of the problems with                 
  the former AEA  was that  the response was  not what  people                 
  thought it  ought to be and  some changes were  required.  I                 
  know from the people I have talked with that they are one of                 
  the finest group  of people  that I have  ever worked  with.                 
  They are  dedicated, they care  deeply about the  mission of                 
  providing services to rural Alaska and, I  think, whether it                 
  is for a public utility or  the state, typically people that                 
  make it their  life choice to work  in public service  do it                 
  for reasons other  than simply  money.  I  think the  people                 
  sitting at this table would agree to that, obviously.                        
  Senator  Jacko  asked,  in reference  to  the  circuit rider                 
  program contracts, if those contracts provide  for oversight                 
  of the  distribution systems  as well  as the  power plants.                 
  Mr. Harris answered negatively.  He said that he believed it                 
  was simply the  power houses, operations and  maintenance of                 
  the power houses.  (The following testimony is verbatim.)  I                 
  believe  there  were  provisions  that   if  the  contractor                 
  recognized an emergency  situation exists, they  communicate                 
  that  information  back to  us,  and  we make  some  sort of                 
  determination about the next thing to do.                                    
  Senator  Jacko   referred  to   Mr.  Harris'   remark  about                 
  feasibility.  He asked  if there were any decisions  made in                 
  management  about  what would  determine  feasibility.   Was                 
  there a threshold level, was it $5,000, $2,000?  Did someone                 
  tell you,  or who was to decide that?   Mr. Harris said that                 
  he was  told to  do  what he  thought was  best, handle  it,                 
  essentially.   (The following testimony is  verbatim.)  So I                 
  came up with a common sense  definition that if we could  do                 
  it for less in-house,  than sending it out of house  was not                 
  feasible.   If it was something  that was nice and clean and                 
  we could send  it out and  hand it to a  design/construction                 
  management  firm,  they  would do  the  design,  oversee the                 
  project, and everybody  is happy.  I would be happy.  I used                 
  to work in firms like that.  Senator Jacko asked if the plan                 
  by management was to retain  some contracting ability within                 
  the  division  or  was it  going...    Mr.  Harris said  his                 
  understanding of their  plan was that we would  contract out                 
  everything,  period.   Senator Jacko  clarified Mr.  Harris'                 
  remark by saying, whether  or not it was feasible,  it would                 
  all be contracted  out.   Mr. Harris  said that  was how  he                 
  would describe it.   (The following testimony  is verbatim.)                 
  It  was,  put  the blinders  on,  and  the  mission was  not                 
  contracting out to  the maximum to the  extent feasible, the                 
  mission was contract  out everything.   That  is, at  least,                 
  what I heard what they were telling me.  I imagine they have                 
  a different story about what  they were telling me.  It  may                 
  be very likely that  what I heard them say is  not what they                 
  thought they said.   So, but their intent, if  possible, was                 
  to  contract  out  everything  and   for  us  not  to   have                 
  contracting  authority,  not  for  us  to  have  procurement                 
  capabilities.   Where on a construction job that takes eight                 
  weeks from start  to finish,  including the design,  getting                 
  parts, getting on the  job, and getting the thing  built and                 
  done, without some way of either having trustee  accounts so                 
  that we could have some project  oversight or the ability to                 
  have some level of  procurement.  Fast turnaround is  a very                 
  significant problem and on a job that involves people out in                 
  the  field, I think  as you are  aware, the cost  is not the                 
  part,  the cost is having  people tied up  and waiting for a                 
  part to arrive.                                                              
  Senator Jacko asked Mr. Harris if  under the present system,                 
  with the number of people employed, are there  disasters out                 
  there in rural  Alaska waiting  to happen in  some of  these                 
  utility systems.  Senator Jacko pointed out back in the 70s,                 
  when utilities were started,  there were a lot of  fires and                 
  emergencies and that was why  the present systems have  been                 
  developed.   Mr. Harris  said he thought it  was safe to say                 
  that there is a skeleton crew in place that could respond to                 
  emergency problems.  (The following  testimony is verbatim.)                 
  It is a  question of how  many firemen do  you want in  your                 
  community.  If you only have  one fire you don't need a  lot                 
  of firemen.   But that doesn't  give you  any backup or  any                 
  capability  in  case   people  walk.     I  think  I   would                 
  characterize it that  we have  very limited capabilities  to                 
  deal  with emergency problems  and I  am not  convinced from                 
  only being on  the job  for two and  half months that  there                 
  aren't emergencies out there that could  happen.  I think if                 
  we go  with the  scheme of  contracting out  everything, and                 
  simply have a bunch of contract administrators, then you are                 
  going  to see more power systems burn down.  To your earlier                 
  question about whether  someone is in the private  sector or                 
  public service, one  thing's for certain.   If as a  private                 
  contractor, I don't  do my job, you  can sue me.   That will                 
  take six to eight months, thousands of dollars.  If I  am in                 
  the public sector  and you don't like  what I do, I  am sure                 
  that by 5:00 that  afternoon I will hear  about it from  the                 
  person that is representing those interests.                                 
  Senator  Jacko  asked  Mr.  Harris  to  confirm  that  Bruce                 
  Geraghty was his  primary supervisor.   Mr. Harris  answered                 
  affirmatively.   Senator  Jacko asked  who did  most  of the                 
  interacting  with  the  contractor,  who  made most  of  the                 
  decisions.    Mr. Harris  confirmed  that Senator  Jacko had                 
  referred  to the  Division of Energy,  and then  he answered                 
  Linda Thomas, and contracts grants  administrator would make                 
  negotiate  the  contracts.   Senator  Jacko referred  to Ms.                 
  Thomas  comment  regarding  Scott  and  Bruce   writing  the                 
  organizational  chart together.  Mr. Harris  said he was not                 
  aware  of any of  those meetings.  Ms.  Thomas said that she                 
  was not aware of  any of those meetings either,  except what                 
  she was told by Scott Thompson.                                              
  Senator Kerttula stated  that it was his  understanding from                 
  Don Harris that the  commissioner hired him to put  together                 
  the organization, make  it effective, and as  cost effective                 
  as possible and keep the public  purpose.  He referred again                 
  to the Beck study.   Senator Kerttula said that  he believed                 
  that was what  the commissioner wanted, and he  believed the                 
  commissioner  has  been pressured  by either  the Governor's                 
  office or someone else to perform differently than that.  He                 
  asked Mr. Harris if he was  hired in a similar circumstance,                 
  that is  you were  to put  together an  organization, to  be                 
  quasi-independent just as long as you run it effectively and                 
  efficiently.  Mr. Harris  answered that by the time  he came                 
  on board, he  thought the  philosophy was that  this was  an                 
  integrated  part  of  DC&RA.   (The  following  testimony is                 
  verbatim.)  When I signed on it made  a lot of sense.  DC&RA                 
  has many elements and  programs in place that deal  with the                 
  issues of rural Alaska.  But  as far as the direction I  was                 
  given, I was told to do what was best.   So that was exactly                 
  what  I   did.     Senator  Kerttula   commented  that   the                 
  Commissioner must be under some  immense pressure because he                 
  has always been very much attuned to rural Alaska needs.  He                 
  felt there was  some problem that was  on and that  it might                 
  take an audit to understand.                                                 
  Co-chair Pearce  spoke to  Mr. Harris'  concern in terms  of                 
  having enough engineers  and his  five-year goal of  working                 
  with all the energy problems throughout the state and trying                 
  to take care of them.  She  asked what the present system is                 
  and as far  as he knew, what past practices were in terms of                 
  how projects in rural Alaska have been prioritized.  She was                 
  aware that there  are a lot of  needs there.  She  asked how                 
  had the authority previously, and how had Mr. Harris, set up                 
  the division to  decide which ones were being  attacked this                 
  year versus what might  happen next year or the  fifth year.                 
  Mr. Harris felt  that was a  good question.  (The  following                 
  testimony  is  verbatim.)    When  I  arrived there  was  no                 
  procedure.  There  were within particular grant  programs or                 
  loan programs, guidelines if a  community had to participate                 
  with 25 percent, or 75 or 60 percent of the money, but there                 
  was no clear structure.  That was  one of the first things I                 
  was  working  on.    It  would  have been  something  I  was                 
  incorporating in a strategic plan or work plan about how the                 
  programs that we  are dealing with make sense so that we can                 
  take care of these problems and  we are out of the business.                 
  But, no, to answer  your question, it was first  come, first                 
  serve.  The  squeaky wheel  gets the grease,  I think  might                 
  have been a  good characterization of it.   One of the first                 
  things  I told  my staff  was  if I'm  going to  be  able to                 
  depoliticize  this  organization so  that  we look  at these                 
  needs on the  basis of where  the greatest need is,  address                 
  those first, and do it within the context of some attainable                 
  goal,  we  have to  establish  those priorities,  a priority                 
  ranking system so we can tell what we have to work on first.                 
  From my experience in rural Alaska, and my own experience as                 
  an  engineer,  above  all  the  other  things  prioritizing,                 
  reducing line  losses,  making  more  efficient  generators,                 
  above all  that, the  first and  foremost responsibility  is                 
  that we make sure we have safe electrical systems out there.                 
  I would feel very, very badly  if I woke up one morning  and                 
  heard  about  a  child being  electrocuted  or  a particular                 
  person in a  village being electrocuted.   That would be,  I                 
  think, a very difficult day.   Those safety issues, I think,                 
  they are our  first priority.   For folks that have  been in                 
  rural  Alaska and  seen  those  systems,  some of  them  are                 
  nothing  more  than  electrical  lines  strung up  on  broom                 
  handles, or whatever  is out there, trees.  You  know, it is                 
  just  a  rich great  state  and  the people  that  live here                 
  deserve the basic necessities of a modern world.                             
  Co-chair Pearce asked Mr. Harris if, to his knowledge, there                 
  was somewhere  within the  division, department,  or in  the                 
  files, any sort  of breakout over  the past few years  where                 
  completed projects are located in the state so we can see if                 
  there is a regional equitability.   (The following testimony                 
  is  verbatim.)  I (Mr.  Harris) had been  asked last week to                 
  put together a summary of how  much money has been spent  in                 
  the urban areas, in the railbelt if you will, or urban areas                 
  and  rural areas.  I  think there is a list  and it would be                 
  worthwhile to put that together to  tell where the money has                 
  gone.   I know I was faced  with a situation in  the two and                 
  half months that I  had the job where a  particular village,                 
  we  had given them a generator.   They had neglected to take                 
  care of it, it had failed,  and they wanted another one.   I                 
  said, this does not sound  good, I don't want to give  these                 
  folks another one.  We gave them one two years ago.  I would                 
  need  to  do  more research.      Since  then I  have  heard                 
  conflicting stories about what exactly we  gave them.  But I                 
  would  need, I think, if  we had an understanding somewhere,                 
  where  this  information is  available  to  us, give  us  an                 
  understanding of  what we  have done  in the  past and  what                 
  ought to be done in the future.  Frankly though, if I or the                 
  Division of Energy or the former Alaska Energy Authority had                 
  sent  out  a generator  a  couple  years ago  and  it failed                 
  because of lack of  maintenance, due to lack  of maintenance                 
  on the  part  of the  people who  got it,  I  would be  real                 
  hesitant  to  give  them another  one.    I  have got  other                 
  communities that would be able to take  care of it.  I think                 
  that would have been  one of my prioritization schemes.   If                 
  the community could  take care of  what is there, great,  if                 
  they can't, have them work with  an affiliate, with a public                 
  utility or private entity,  whatever.  I hope that  answered                 
  your question.                                                               
  Senator Jacko asked Mr. Harris what his understanding was of                 
  the timeline for accomplishing this transition.  He asked if                 
  the  goal was a year, and did it happen a lot faster, and if                 
  so, why?  Mr. Harris said that he was hired in mid-November,                 
  and understood that certain elements were  to be done by the                 
  end of December.  He wanted  to get the organization back on                 
  its feet, bring  morale back, have  people feel there was  a                 
  sense of purpose and a mission to what they were doing.   He                 
  was willing to wait  to handle some things, like  whether or                 
  not a project accountant was needed.  There were some things                 
  he was willing to admit would take a year to resolve.  Other                 
  things though, he felt, needed to be done right away.                        
  Senator Jacko asked Mr. Harris what it took to get rid  of a                 
  contractor,  what sort  of termination clause  he had.   Mr.                 
  Harris  said that  if  Senator Jacko  was  referring to  the                 
  circuit rider contract,  it had one of  the best termination                 
  clauses in that contract  he had ever seen.   (The following                 
  testimony is verbatim.)  We could fire him because...anyway,                 
  it is a great termination clause.  Generally the things that                 
  you are safe in terminating somebody are non-performance, or                 
  those  sorts  of things.   An  attorney  would be  better at                 
  answering that.  Senator Jacko asked who would do that.  Mr.                 
  Harris said that  initially he would  have answered that  it                 
  would  be the  Division Director based  upon recommendations                 
  from staff,  or clear evidence  that something is  not being                 
  done properly.   As of how  that department would have  seen                 
  that decision-making process  going on, he could  not answer                 
  that.  Senator  Jacko said that Mr.  Harris did not seem  to                 
  have any  oversight and that  he was not really  sure how he                 
  would get rid of a contractor  and asked if he agreed.   Mr.                 
  Harris said that at the  present time, there was  oversight.                 
  The proposal that he  had heard, and the way  he interpreted                 
  it, was that most of this  contracting would be done in such                 
  a fashion that there would be no oversight.                                  
  Senator Sharp stated that  he had been paid a  courtesy call                 
  by Mr. Harris'  predecessor, Don  Harris.  While  on a  trip                 
  down south, Senator Sharp heard that Robert Harris was going                 
  to  replace  him,  and  voiced his  concern  about  how  the                 
  Division was going at that  time (December).  Senator  Sharp                 
  asked Mr.  Harris how he had  come to be  considered for the                 
  job.  Mr. Harris said he  had heard about the job through  a                 
  friend, Mr. Heinze,  who works  at the division.   Prior  to                 
  that he  did  not know  anybody  at the  division.   He  was                 
  surprised that Mr.  Heinze was  back at the  division.   Mr.                 
  Heinze had told him that this job was open and that he would                 
  be great  for it.   Mr.  Harris said  that  it sounded  like                 
  something he would  like to do.  At the time  he had his own                 
  consulting  firm  and  was doing  some  subcontract  work in                 
  electrical  engineering  and  economic  development,  so  it                 
  seemed like a  good fit.  His contracts  were winding up, so                 
  he called the Commissioner,  sent him a copy of  his resume.                 
  He said he had  never met the Commissioner prior  to sending                 
  him his resume.   He  thought one of  the telling  questions                 
  that stuck in his mind  in the interview process was he  was                 
  asked who did he know politically.  He said nobody  and made                 
  a  good living  through the  years by  being apolitical  and                 
  being anonymous.  He liked that.                                             
  Senator Sharp  said his concern  was if any  legislators had                 
  contacted any  of the  prospective candidates.   Mr.  Harris                 
  said he had not been contacted.                                              
  Co-chair Pearce indicated  that Senate  Finance had paid  to                 
  fly Mr. Harris and  Ms. Thomas to Juneau.  She  said that it                 
  would preferable  to ask  any questions  of them  while they                 
  were here.                                                                   
  Co-chair Pearce invited William R. (Riley) Snell,  Executive                 
  Director,  and  Dan   Beardsley,  Contract  Manager,  Alaska                 
  Industrial Development  & Export  Authority (AIDEA),  Alaska                 
  Energy Authority to  join the committee  at the table.   She                 
  stated  legislation (SB  106 and  SB  126) passed  last year                 
  moved part  of  the energy  authority's responsibilities  to                 
  AIDEA.  She said that the committee was attempting to figure                 
  out  what  the  legislation  did  and  would  appreciate  an                 
  overview about how the transition was going.                                 
  WILLIAM R. (RILEY) SNELL said that he had provided a copy of                 
  the  AIDEA  January  newsletter  (copy  on  file)  that  was                 
  intended  to help customers  and constituency understand the                 
  split,  and  the roles  and  responsibilities under  the new                 
  legislation.    In  addition, a  handout  was  provided that                 
  covered the  overall transition  of AIDEA's  portion of  the                 
  spinoff (copy  on file).   He  noted as a  highlight in  the                 
  transition, in the presentation of this year's budget, there                 
  had been a reduction in staffing of about 67 percent.  These                 
  employees  had been  responsible for  performing maintenance                 
  and operating responsibilities in  general services to those                 
  projects  and  responsibilities  that  are  now  under   the                 
  oversight  of AIDEA.   That translates from  18 direct, full                 
  time  permanent  positions  into   6  permanent  full   time                 
  positions.  In  dollars, that would  equate to a savings  of                 
  approximately $400-500,000.  However, some of the escalating                 
  costs, including higher insurance premiums, and higher costs                 
  in some of the contractual services offset those dollars.                    
  As  of  the 14  of February,  all operating  and maintenance                 
  responsibilities will  be transferred  to Homer Electric  to                 
  manage the Bradley  Lake project.   That will  be a  further                 
  reduction in the number of employees that we are required to                 
  have as AEA or AIDEA.  Most of remaining responsibility that                 
  the  Authority  has  at  Bradley   Lake  will  be  fiduciary                 
  responsibilities as related to the bond requirements as well                 
  as ownership type  requirements based  on legal review  that                 
  would be  inappropriate to  transfer to  the utilities.   We                 
  continue  to  look  at  those  opportunities  where  further                 
  delegation of responsibilities  can be transferred.   On the                 
  four dam pool,  negotiations have  been entered and  further                 
  transfer  of   responsibilities  to   those  utilities   are                 
  scheduled  to  be  completed  by   March  or  April  (1994).                 
  Negotiations  are  ongoing with  the intertie  group between                 
  Anchorage   and   Fairbanks   for    further   transfer   of                 
  responsibilities with those utilities as well.  We have also                 
  had discussions with  Larsen Bay  (a project transferred  to                 
  the Authority under the new legislation) on how to give them                 
  more responsibilities.   Those negotiations are  on-going as                 
  well.    Although   it  is  the  responsibility   of  AIDEA,                 
  negotiations have been successful during  the interim period                 
  on the state's  behalf for  a transfer of  the new  intertie                 
  money  to the utilities  that will be  participating in both                 
  the northern and southern intertie.                                          
  Organizationally,  all services  have  been pulled,  program                 
  responsibilities, and managerial responsibilities  that were                 
  involved in  the transfer,  and now  are fully  incorporated                 
  into  the  AIDEA   organization,  including  the  accounting                 
  systems.   Revised regulations  are now  being published  as                 
  required  by  law  regarding  the changes  in  some  of  the                 
  programs that were inherited from the old AEA.  We have also                 
  sought the assistance of  Commissioner Fuhs's administrative                 
  staff  in  the  closeout  of  existing  capital  improvement                 
  projects.  The  Bradley Lake  project has recently  returned                 
  $11.5M in surplus funds back to the state general fund.                      
  This concluded his overview.  He added,  that due to a great                 
  commitment of staff, much had been achieved in what had been                 
  envisioned  by  the  legislation,  that  is that  the  AIDEA                 
  programs  to  be put  out  to  the maximum  possible  to the                 
  utilities   to   provide   services   for  maintenance   and                 
  operations.  We felt it had been accomplished post-haste and                 
  felt  that   good   progress  and   cooperation   had   been                 
  In  answer  to   Senator  Jacko,  Mr.  Williams   said  that                 
  Unalaska's  geothermal project  was inherited  from  the old                 
  AEA, and  feasibility  numbers were  available.   Currently,                 
  requirements contract with the local  fish processors are in                 
  progress.  My  understanding is that  the city and two  fish                 
  processors have executed their portion of an intent to enter                 
  into a requirements contract.  We  are waiting for the third                 
  fish processor to  indicate its  intentions.   Once we  have                 
  that, we  will be  in a  position to  determine whether  the                 
  economics of that  project would warrant us to  proceed with                 
  the requested legislation for the project.  Again, in answer                 
  to Senator Jacko,  regarding his confidence in  the project,                 
  Mr. Williams said that there  are conditions out there  that                 
  still  need to  be  looked at.    The  biggest risk  from  a                 
  development standpoint is the field itself and who takes the                 
  risk to develop  that field.   Once the field is  developed,                 
  then normal routine construction risks would  be at stake at                 
  that point in  time.  He said he is  impressed that progress                 
  has  been  made to  the extent  that  it has  since becoming                 
  involved in it.   Mr. Williams  said it would provide  10-12                 
  megawatts of geothermal power.   In answer to Senator Jacko,                 
  he  said  it  would  not  be  enough  to  supply  the  whole                 
  community,  but  in  light  of  the  fact  that  they   have                 
  significant psd problems with all the independent generating                 
  sources,  it  goes a  long  way  in reducing  some  of their                 
  regulatory problems  with the  independent power  producers.                 
  It  also maintains a stable power  base for new developments                 
  like the Carrs store  which is going into the  community and                 
  must provide its own power source.                                           
  In answer  to  Senator Rieger,  Mr. Williams  said he  could                 
  provide  the  committee with  the  amount of  assets  in the                 
  enterprise development account from the annual report.  Even                 
  in rough  numbers, he was  not able  to estimate but  it was                 
  over  $100M.   He  said  he would  provide  information that                 
  afternoon to Senator Rieger's office.                                        
  In answer to  Senator Kerttula  Mr. Williams confirmed  that                 
  the state retained ownership in the hydro projects.  Senator                 
  Kerttula   asked   Mr.   Williams   if   it   was   a   fair                 
  characterization  that the  state has  again socialized  the                 
  losses and  potential losses,  and  privatized the  profits.                 
  Mr. Williams  said he was  not comfortable in  agreeing with                 
  that  characterization.    If  that  in  fact  is  what  has                 
  happened, it happened at the front end of the development of                 
  the project.  What we are doing is taking the operating cost                 
  of these projects and  moving them out of the  state general                 
  fund budget and putting them  directly onto the utilities to                 
  perform.  Under Bradley Lake,  the utilities are responsible                 
  for paying  for those costs themselves.   On that particular                 
  project,  I  think  it  is  not a  proper  characterization.                 
  Senator Kerttula asked him  to make the same comment  on the                 
  four dam  pool.  Mr. Williams said  as he understood it, the                 
  projects were  operated on behalf  of the state  and removed                 
  their  operating costs as  part of the  expenses before they                 
  remit what is required in their contracts  to the state.  He                 
  did not  see that there  was any  change in  profits or  the                 
  overall revenue  stream  coming into  the state  as per  the                 
  original contracts.                                                          
  In answer to Senator Sharp,  Mr. Williams explained that the                 
  Project  Management  Committee  (PMC)  was  created  by  the                 
  utilities to help  oversee the  operations of the  projects.                 
  Mr.  Williams listed the four dam pool, Bradley Lake, Larsen                 
  Bay...as   a   few  that   had   been  transferred   to  his                 
  responsibility.  He confirmed that Larsen Bay was Kodiak and                 
  not Terror Lake.                                                             
  Senator  Rieger  asked if  there  were  any plans  to  use a                 
  capital reserve fund for any intertie project.  Mr. Williams                 
  said no project was  far enough along to  know what debt  if                 
  any would be  required for the  new interties.  He  believed                 
  that the legislation  adopted last  session does give  AIDEA                 
  the ability, the moral pledge of the state, should it have a                 
  debt financing  component.   As of  yet, the  feasibility on                 
  those projects and their costs are not sufficiently along to                 
  know whether or not one would  be required or what shape the                 
  actual financing would take.                                                 
  In answer to Senator Rieger, Mr. Williams agreed that during                 
  a feasibility  study, grants  or subsidized  loans from  the                 
  state were  ignored, and  only original  capital costs  were                 
  Senator Kerttula  referred  to the  transmission  line  that                 
  seems  the  most  controversial,  the  one  from  Sutton  to                 
  Glennallen.    He  asked  if   anyone  had  suggested  power                 
  production or  looked at  the potential  of gas  production,                 
  gas-fired generation  rather than  building the  line.   Mr.                 
  Williams  said  that  under  legislation,  the   feasibility                 
  analysis for that  project remained  with the Department  of                 
  Community  & Regional Affairs, Division  of Energy.  He said                 
  they had been given  a debt component and were  awaiting the                 
  feasibility  analysis  before  it  would  be  reviewed   for                 
  financial feasibility for any debt issuance.  No discussions                 
  have been  held as to  alternates viewed in  the feasibility                 
  Co-chair Pearce  asked  the  status  of each  of  the  major                 
  intertie  projects  that  were  included   in  SB  126,  the                 
  appropriation bill, in terms of  signed contracts and actual                 
  expenditure of the  appropriated funds.   Mr. Williams  said                 
  the only funds that they had direct involvement to date were                 
  the new interties for the  northern/southern railbelt.  They                 
  were asked to lead in the  negotiations of putting the grant                 
  for the state funds in  place with the utilities.  That  has                 
  been done.   Contracts have been  signed with the  utilities                 
  and grant administration agreements allowed the utilities to                 
  go forward  and start  selecting contracts  for purposes  of                 
  design, permitting, etc.  With the new interties, monies are                 
  obligated  under  the  grant  agreement  and that  work  has                 
  commenced as far as the reconnaissance design and permitting                 
  activities.  In  the northern route, contracts  have already                 
  been awarded, and  in the southern route,  scoping documents                 
  are  now necessary  to go  forward with  retaining a&e  type                 
  services.  He agreed that the appropriation was in the grant                 
  administrator's fund.                                                        
  Mr. Williams said that it was  an important point that under                 
  the legislation and again on legal review, while using AIDEA                 
  staff  and  the  AIDEA  board of  directors,  for  legal and                 
  financial  purposes,  they be  treated  totally as  separate                 
  corporations.  It is important  to maintain that segregation                 
  based  upon   legal  advice   and  not   to  commingle   the                 
  Mr.  Williams  agreed  with  Senator  Sharp that  there  was                 
  another  little  transmission  line   around  Seward.    Mr.                 
  Williams added that several had  been listed but he reminded                 
  the committee that if there is a debt component, because the                 
  Division of Energy cannot issue  debt, a project feasibility                 
  analysis needs  to be completed, before they have a feasible                 
  project.  At this  point, they will get involved  looking at                 
  the potential of  the project to  meet its debt service  and                 
  make a determination as to whether  it can be debt financed.                 
  Senator Sharp stated that  it was the full amount  needed to                 
  de-bottle neck something and Mr. Williams concurred.                         
  Senator  Kerttula  asked  if  some  of the  projects  become                 
  "fringy", would  it lessen the ability to  supply the needed                 
  capital for other  worthy programs.  Mr.  Williams confirmed                 
  the  need  to   make  sure  that  there   are  two  separate                 
  corporations and to  insure debt is  not commingled, but  as                 
  currently structured, the answer is negative.                                
  Senator   Kerttula  stated  that   Mr.  Williams  had  great                 
  integrity and had  done very well at his job.  He hoped that                 
  Mr. Williams would boilerplate for the future each and every                 
  step so that to the maximum extent, the state is safeguarded                 
  against people  that may follow  him that are  inadequate at                 
  the task.                                                                    
  Co-chair Pearce  asked Mr. Williams  if AIDEA  was going  to                 
  need any  bonding authorization  from the  legislature.   He                 
  answered that for AEA there was a question whether there was                 
  a need to  modify who the receiving agency  is for the state                 
  on the Snettisham  project.  He  felt it might be  satisfied                 
  under  federal  legislation   and  would   not  need   state                 
  legislation.  There also may be a small technical issue with                 
  AEA legislation  in relation  to feasibility  studies.   The                 
  past legislation said that  they had lost the ability  to do                 
  project feasibilities.  He was concerned that AEA would also                 
  lose the ability  to do  financial feasibilities which  were                 
  needed to  arrive at  conclusions regarding debt  financing.                 
  He said the  Attorney General's  office was addressing  this                 
  concern for this legislative  session.  As far as  the AIDEA                 
  program goes, he suspected that  legislation would be needed                 
  for  the   Sitka  pulp  mill  pending  the  outcome  of  the                 
  feasibility analysis to convert the  plant to medium density                 
  fiberboard.  He  thought other  projects, such as  Unalaska,                 
  will  progress  to   where  legislation  will  need   to  be                 
  In answer to Senator Kelly, Mr. Williams said that the Sitka                 
  pulp  mill  would  retain  ownership   by  the  Alaska  Pulp                 
  Corporation.    He  said  that  AIDEA  and  the  state  were                 
  participating  in  a  feasibility  analysis  regarding   the                 
  conversion of  the plant.   Ownership would remain  the same                 
  due  to  environmental concerns.    He explained  that AIDEA                 
  would  look  at  participating  in  a  loan  between  $40-60                 
  million,  the  dollar  amount  still  to be  determined,  to                 
  convert the  machinery part of the plant.   He said it would                 
  be an interest bearing account,  at today's market between 8                 
  and 9.5 percent,  since it would not qualify as a tax exempt                 
  loan.  The state would not  participate in the total amount,                 
  only equity participation of at least 20 percent.                            
  In  answer  to  Senator Jacko,  Mr.  Williams  said that  he                 
  believed the  total number  of the  geothermal projects  was                 
  $100M.  Again, in answer to Senator Jacko, Mr. Williams said                 
  that the  details would have to  be worked out, as  to where                 
  additional equity, or  contributions would come from  to get                 
  the   project  into  the   financial  feasibility  range  of                 
  In answer  to Co-chair  Pearce, Mr.  Williams said  that the                 
  structural  steel  for  the   maintenance  facility  airport                 
  project came out  of the fabricator's  shop in Iowa with  an                 
  approximate  60  percent  defects  in   the  welds.    AIDEA                 
  inspectors found the defects, the contractor had the control                 
  of quality control  and assurance,  and failed miserably  at                 
  the responsibility.  An attempt was made to repair the welds                 
  in the field  and was determined  that it was not  financial                 
  feasible.  New materials are in the process of being secured                 
  from  a  new fabricator.    The  project will  come  on line                 
  approximately  3-4  months late.   The  budget, the  way the                 
  contract with Federal Express works is, whatever the cost of                 
  the project,  the responsibilities is with  Federal Express.                 
  It  is  passed directly  to  them,  they in  return  pay the                 
  Authority through  their 20-year  lease for  the rights  and                 
  privileges  of using the  facility.  AIDEA  is advancing the                 
  funds for the additional costs,  however, Federal Express is                 
  on  the  hook for  reimbursement  of  costs.   In  answer to                 
  Senator Kelly, Mr. Williams said the  original subcontractor                 
  who  made  the steel  is  out of  the  project.   It  is the                 
  responsibility of the  fabricator to  dispose of the  steel.                 
  The subcontractor  received a  partial payment  on shipment,                 
  about 30-40 percent  for materials.   He said that there  is                 
  recourse  for recovering that  money through performance and                 
  payment  bonds  that were  required to  be  in place  in the                 
  contract.  It was probably a month into construction  before                 
  the project was halted because of the bad welds.                             
  The meeting was adjourned at approximately 11:00 a.m                         

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