Legislature(2005 - 2006)SENATE FINANCE 532

02/13/2006 09:00 AM FINANCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 188 BULK FUEL REVOLVING LOAN FUND CAP TELECONFERENCED
Heard & Held
+= HB 243 SWAN LAKE-TYEE LAKE INTERTIE TELECONFERENCED
Heard & Held
+ SB 207 AK AEROSPACE DEVEL. CORP BD MEMBERSHIP TELECONFERENCED
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
                              MINUTES                                                                                         
                     SENATE FINANCE COMMITTEE                                                                                 
                         February 13, 2006                                                                                    
                             9:05 a.m.                                                                                        
                                                                                                                                
                                                                                                                              
CALL TO ORDER                                                                                                               
                                                                                                                                
Co-Chair Lyda  Green convened the  meeting at approximately  9:05:48                                                          
AM.                                                                                                                           
                                                                                                                                
PRESENT                                                                                                                     
                                                                                                                                
Senator Lyda Green, Co-Chair                                                                                                    
Senator Gary Wilken, Co-Chair                                                                                                   
Senator Con Bunde, Vice-Chair                                                                                                   
Senator Fred Dyson                                                                                                              
Senator Bert Stedman                                                                                                            
Senator Donny Olson                                                                                                             
Senator Lyman Hoffman                                                                                                           
                                                                                                                                
Also Attending:  DOUG LETCH,  Staff to Senator  Gary Stevens;  SALLY                                                          
SADDLER, Legislative Liaison,  Department of Commerce, Community and                                                            
Economic Development                                                                                                            
                                                                                                                                
Attending via  Teleconference: From Anchorage: JIM  MCMILLAN, Deputy                                                          
Director, Credit,  Alaska Industrial Development &  Export Authority                                                            
and Alaska  Energy Authority;  SARA FISHER-GOUD,  Alaska  Industrial                                                            
Development  & Export  Authority and  Alaska  Energy Authority;  RON                                                            
MILLER, Executive  Director, Alaska Industrial Development  & Export                                                            
Authority  and Alaska  Energy Authority;  BRIAN  BJORKQUIST,  Senior                                                            
Assistant Attorney  General, Labor and State Affairs  Section, Civil                                                            
Division   (Anchorage),    Department   of   Law;   DAVE    CARLSON,                                                            
Representative,  Four Dam  Pool Power Agency;  From an Offnet  Site:                                                            
MARK  HAMILTON,  Chair,  Alaska Aerospace  Development  Corporation                                                             
Board  and President,  University  of  Alaska; JON  BOLLING,  Chair,                                                            
Energy Committee, Southeast Conference                                                                                          
                                                                                                                                
SUMMARY INFORMATION                                                                                                         
                                                                                                                                
SB 188-BULK FUEL REVOLVING LOAN FUND CAP                                                                                        
                                                                                                                                
The Committee  heard from the bill's sponsor, the  Alaska Industrial                                                            
Development  &  Export   Authority  and  Alaska  Energy   Authority,                                                            
Department of Commerce,  Community and Economic Development, and the                                                            
Department  of  Law.   A  committee  substitute  was   adopted.  Two                                                            
amendments  were offered  with one  failing adoption  and one  being                                                            
withdrawn from consideration. The bill was held in Committee.                                                                   
                                                                                                                                
HB 243-SWAN LAKE-TYEE LAKE INTERTIE                                                                                             
                                                                                                                                
The Committee heard from  the Alaska Industrial Development & Export                                                            
Authority  and  Alaska Energy  Authority,  Department  of  Commerce,                                                            
Community and Economic  Development, the Department of Law, the Four                                                            
Dam Pool  Power Agency,  and the Southeast  Conference. A  committee                                                            
substitute was adopted and the bill was held in Committee.                                                                      
                                                                                                                                
SB 207-AK AEROSPACE DEVEL. CORP BD MEMBERSHIP                                                                                   
                                                                                                                                
The Committee  heard from the bill's  sponsor, the Alaska  Aerospace                                                            
Development  Corporation  Board,  and the  Department  of  Commerce,                                                            
Community and Economic  Development. The bill was held in Committee.                                                            
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 188(CRA)                                                                                            
     "An Act increasing the maximum amount of loans from the bulk                                                               
     fuel revolving loan fund to one borrower."                                                                                 
                                                                                                                                
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
Senator Donny Olson, the  bill's sponsor, stated that the Governor's                                                            
Rural Energy Action Council's  (GREAC) recommendations regarding how                                                            
to  improve  the Bulk  Fuel  Revolving  Loan  Fund  (BFRLF)  program                                                            
prompted him  to introduce this bill.  The BFRLF was established  in                                                            
1980 to aid communities  experiencing financial difficulties  due to                                                            
expenses associated  with annual or biannual shipments  of petroleum                                                            
products. Over  time the original  $50,000 loan limit was  raised to                                                            
$300,000 to address price  "escalations" and increasing consumption.                                                            
GREAC also  developed incentives  to encourage  "larger cooperative                                                             
organizations"  to combine  their purchases  in order to earn  price                                                            
concessions.                                                                                                                    
                                                                                                                                
Senator Olson  stated that  in order to further  the success  of the                                                            
BFRLF  program,  this  bill  would  increase  the  loan  limit  from                                                            
$300,000  to $400,000.  It  would  also expand  that  limit were  an                                                            
entity developed  to purchase fuel  for more than one community.  In                                                            
that  case, the  loan limit  would be  the lesser  of $1,500,000  or                                                            
$400,000 multiplied  by the number  of communities participating  in                                                            
the cooperative effort.  "This would encourage larger fuel purchases                                                            
by those organizations to obtain the economy of scale."                                                                         
                                                                                                                                
Senator Olson  noted that two amendments, developed  by GREAC, would                                                            
be forthcoming.                                                                                                                 
                                                                                                                                
9:09:53 AM                                                                                                                    
                                                                                                                                
Senator  Olson  moved to  adopt  committee  substitute  Version  24-                                                            
LS0952\S as the working document.                                                                                               
                                                                                                                                
Co-Chair Green objected for discussion.                                                                                         
                                                                                                                                
In  response to  a  question  from Co-Chair  Wilken,  Senator  Olson                                                            
clarified  that Version  "S"  contained two  changes:  one being  to                                                            
increase  the individual loan  limit from  $300,000 to $400,000  and                                                            
the other to allow a single  entity to coordinate a cooperative loan                                                            
amounting  to the lesser  of $400,000  multiplied  by the number  of                                                            
communities involved in that cooperative effort or $1,500,000.                                                                  
                                                                                                                                
9:11:43 AM                                                                                                                    
                                                                                                                                
Co-Chair  Wilken  asked  whether   the language   pertaining  to  "a                                                            
cooperative  corporation"  as depicted  in  Section  1(e)(1) page  1                                                            
lines 7 and 8 was new.                                                                                                          
                                                                                                                                
Senator  Olson affirmed  that while  there "have  been attempts  to"                                                            
organize  cooperative organizations,  no provisions  in that  regard                                                            
have ever been incorporated into the Bulk Fuel program.                                                                         
                                                                                                                                
9:12:22 AM                                                                                                                    
                                                                                                                                
Co-Chair  Wilken asked  whether those  were the  lone changes  being                                                            
proposed.                                                                                                                       
                                                                                                                                
9:12:46 AM                                                                                                                    
                                                                                                                                
Senator Olson confirmed those as being the only changes.                                                                        
                                                                                                                                
Co-Chair Green  informed the Committee that further  information has                                                            
been provided  in the "Blue Book"  titled "Bulk Fuel Revolving  Loan                                                            
Fund History, Status, Projections"  [copy on file], dated August 25,                                                            
2005. To that  point, she read the following section  as depicted on                                                            
page 3.                                                                                                                         
                                                                                                                                
     Current  law  allows  individual  loans  to finance  bulk  fuel                                                            
     acquisition for use  in multiple communities, provided that the                                                            
     governing   body   of  each   community  issues   its   written                                                            
     endorsement.   For  example,   an  electric  cooperative   with                                                            
     membership  extending to more  than one community can  obtain a                                                            
     single BFRLF loan  to finance its bulk fuel purchase as long as                                                            
     each  participating community  has less  than 2,000  population                                                            
     and  provides AEA [Alaska  Energy Authority]  with its  written                                                            
     endorsement.  Under current  law, however,  the cooperative  in                                                            
     this  example can  borrow  no more  than $300,000  in a  single                                                            
     fiscal year - the same as any other borrower.                                                                              
                                                                                                                                
Co-Chair Green  stated that the proposed language  in the bill would                                                            
allow  the amount  that  could  be borrowed  in  this  manner to  be                                                            
$400,000  multiplied by the  number of participants  "not to  exceed                                                            
$1,500,000".  "The  pooling" allowed  in this  manner  is "the  most                                                            
substantial" change.                                                                                                            
                                                                                                                                
9:13:31 AM                                                                                                                    
                                                                                                                                
Senator  Dyson   asked  whether  an   estimate  of  the   number  of                                                            
cooperative agreements that might be formed has been determined.                                                                
                                                                                                                                
Senator Olson  deferred to  the Alaska Energy  Authority (AEA).  His                                                            
"general  sense" was that  the inclusion of  this language  would be                                                            
important, as  it would allow for such cooperative  agreements to be                                                            
explored. While  the Yukon-Kuskokwim  (YK) area had considered  this                                                            
approach,  action was  curtailed,  as it  was not  authorized  under                                                            
Statute.                                                                                                                        
                                                                                                                                
Senator Dyson  asked whether  data on the  history of loan  defaults                                                            
was available.                                                                                                                  
                                                                                                                                
Senator Olson affirmed that data was available.                                                                                 
                                                                                                                                
Senator Dyson stated that the information would be appreciated.                                                                 
                                                                                                                                
9:15:04 AM                                                                                                                    
                                                                                                                                
Senator Olson  clarified that  the data focused  on loans that  were                                                            
delinquent rather that loans that were in default.                                                                              
                                                                                                                                
JIM   MCMILLAN,   Deputy   Director,   Credit,   Alaska   Industrial                                                            
Development  &  Export   Authority  and  Alaska  Energy   Authority,                                                            
testified  via  teleconference   from  Anchorage  and  informed  the                                                            
Committee  that "over the  past few years,  the delinquency  rate on                                                            
the Bulk Fuel  Revolving Loan Fund  has been averaging between  five                                                            
and ten percent. Delinquency  is defined as any loan where a payment                                                            
is 90 days or more past due."                                                                                                   
                                                                                                                                
Senator Dyson asked the total amount in delinquency status.                                                                     
                                                                                                                                
Mr. McMillan stated that  as of December 31, 2005, $297,000 out of a                                                            
total $4.3  million loan balance was  delinquent. This would  equate                                                            
to 6.91 percent of the outstanding loan balance total.                                                                          
                                                                                                                                
9:16:53 AM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  asked whether a cooperative  or a community  with a                                                            
delinquent standing would be able to acquire another loan.                                                                      
                                                                                                                                
Senator Olson understood that delinquent entities could not re-                                                                 
apply for another  loan. However, other programs would  be available                                                            
through which an entity could address its outstanding balance.                                                                  
                                                                                                                                
9:17:31 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  stated that  in order  for a loan  to be approved,  an                                                            
applicant must  meet "certain credit standards" which  would include                                                            
their credit history.  Thus, delinquency on an existing  loan "would                                                            
be adverse issue". In addition,  State Statutes also limit an entity                                                            
to receive  one loan per fiscal year.  Therefore, an entity  with an                                                            
outstanding loan would not qualify to receive another loan.                                                                     
                                                                                                                                
Co-Chair Wilken  asked whether the $200,000 depicted  in the "Write-                                                            
Downs and  Recoveries"  column of  Table 1, Section  1 "History  and                                                            
Status of the  Bulk Fuel Revolving Loan Fund" on page  4 of the Blue                                                            
Book was the delinquent amount Mr. McMillan had referred to.                                                                    
                                                                                                                                
Mr.  McMillan  responded  that it  was  not.  While AEA  does  track                                                            
delinquencies,  the information in the Blue Book does  not reference                                                            
that. There is  a difference between delinquencies  and Write-Downs.                                                            
                                                                                                                                
Co-Chair Wilken  asked for further  information about the  effect of                                                            
incorporating  the language "cooperative  corporation" as  specified                                                            
in Section 1(e)(1) page 1 lines 7 and 8.                                                                                        
                                                                                                                                
9:19:46 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  explained that under  current Statutes, a cooperative                                                             
of five communities,  for example,  that endeavored to combine  fuel                                                            
purchases  to  maximize  price  breaks  could borrow  a  maximum  of                                                            
$300,000. This  proposed language would expand the  cooperative loan                                                            
capacity  to the lesser of  $1.5 million  or $400,000 multiplied  by                                                            
the  number of  communities  in the  cooperative.  The $1.5  million                                                            
amount  was specified  in  order to  prevent  the BFRLF  from  being                                                            
depleted.                                                                                                                       
                                                                                                                                
Co-Chair Wilken acknowledged.                                                                                                   
                                                                                                                                
Co-Chair  Green desired that  representatives  of AEA provide  their                                                            
testimony  prior  to  Senator  Olson  offering  the  aforementioned                                                             
amendments.                                                                                                                     
                                                                                                                                
9:21:19 AM                                                                                                                    
                                                                                                                                
Mr. McMillan stated that  the BFRLF was established to provide funds                                                            
to communities with populations  smaller that 2,000 that annually or                                                            
semiannually   purchased   bulk   fuel.   "Typical   borrowers   are                                                            
communities,  utilities  that provide  power in  the community,  and                                                            
fuel retailers in the community.  The fund would provide money up to                                                            
90 percent  of the wholesale price  landed of bulk fuel purchased".                                                             
The current loan limit is $300,000.                                                                                             
                                                                                                                                
Mr. McMillan  stated that  the changes proposed  in this bill  would                                                            
increase  the individual loan  limit from  $300,000 to $400,000.  In                                                            
addition, it would  allow a cooperative organization  or an electric                                                            
cooperative  "to borrow  the lesser  of $400,000  multiplied by  the                                                            
number of communities or $1,500,000."                                                                                           
                                                                                                                                
Mr. McMillan stated  that the Middle Kuskokwim Electric  Cooperative                                                            
is a cooperative  of five communities  that currently borrows  money                                                            
in this fashion.                                                                                                                
                                                                                                                                
Mr. McMillan  stated  that the  legislation would  also expand  "the                                                            
definition  of eligible borrower to  a person maintaining  community                                                            
facilities  for  infrastructure".  In  addition,  AEA  could  "adopt                                                            
regulations to establish  standards for the allocation of loan funds                                                            
to eligible borrowers."                                                                                                         
                                                                                                                                
Co-Chair   Green  as  whether   Mr.  McMillan's   remarks   included                                                            
references to language in the forthcoming amendments.                                                                           
                                                                                                                                
Mr. McMillan  affirmed. Continuing,  he informed the Committee  that                                                            
the changes  being proposed to current  regulations were  the result                                                            
of the fact that,  in recent years, AEA has experienced  an increase                                                            
in the  number  of borrowers  as well  as  an increase  in the  loan                                                            
amounts being  requested.  The increases are  the result of  "higher                                                            
prices  for delivered  bulk fuel,  a decline in  vendors wanting  to                                                            
finance  the  purchase  of  bulk fuel,  and  to  a  certain  extent,                                                            
increased  volumes of  bulk fuel  as a  result of  AEA's efforts  to                                                            
upgrade bulk fuel tank farms in Rural Alaska."                                                                                  
                                                                                                                                
Mr.  McMillan  shared   that  increased  fuel  prices   have  forced                                                            
communities   once  able   to  finance  their   purchases   to  seek                                                            
assistance.  In  FY  2003,  39  loans  totaling  $3.4  million  were                                                            
requested.  Six of those  requested the maximum  loan limit  at that                                                            
time, which was  $200,000. In FY 04, 53 borrowers  requested a total                                                            
of $4.9 million.  The maximum loan limit that year  was $300,000. In                                                            
FY 05,  54 borrowers requested  loans amounting  to a total  of $6.7                                                            
million. 27 borrowers  have requested $4.2 million  though the first                                                            
half of FY  06.  The average loan  amount increased 53 percent  from                                                            
FY 03 through FY 05.                                                                                                            
                                                                                                                                
Mr. McMillan  informed the  Committee that  GREAC has endeavored  to                                                            
further the creation of  fuel cooperatives in hopes that such volume                                                            
ordering  might  generate  "price  breaks"  for  Rural  Alaska.  The                                                            
existing single loan limit  "might defeat" that effort. The proposal                                                            
to  base a  cooperative's  loan  limit  on the  lesser  of  $400,000                                                            
multiplied  by  the  number  of  entities   in  the  cooperative  or                                                            
$1,500,0000  "to  preclude depleting  the  fund" would  assist  this                                                            
endeavor.                                                                                                                       
                                                                                                                                
9:26:55 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  stated that AEA recently  received a request  "to lend                                                            
bulk fuel  money to the  Rural Utilities Services  (RUS), an  arm of                                                            
the  Yukon-Kuskokwim  Health  Corporation  who  had entered  into  a                                                            
written  agreement with  the City  of Chevak to  manage and  operate                                                            
their  sewer and  water system  which  included purchasing  fuel  to                                                            
operate the system".  Current Statutes designate eligible  borrowers                                                            
to  include  the  community,  the  utility   providing  power  in  a                                                            
community, and  fuel retailers in the community. Thus  lending funds                                                            
to a third party, such  as RUS, that a community had contracted with                                                            
to oversee the operation of its utilities is prohibited.                                                                        
                                                                                                                                
Mr. McMillan specified  that one of the forthcoming amendments would                                                            
allow AEA to adopt regulations  pertaining to the program and to set                                                            
standards  for  the  allocation  of  the  Fund  money  "to  eligible                                                            
borrowers when  the demand on the  fund exceeds the amount  of money                                                            
available to lend".  While this has not been an issue  since FY 2002                                                            
when additional capitalization  of five million dollars was received                                                            
in the  form of  a United  States  Department of  Agriculture  Rural                                                            
Utilities  Service  (USDA RUS)  grant,  the action  being  requested                                                            
would allow AEA  to take action in the future were  there increasing                                                            
demand on the Fund and an absence of additional capitalization.                                                                 
                                                                                                                                
Co-Chair Green reminded  the Committee that Mr. McMillan's testimony                                                            
included  explanations  of both  the bill  and the  two forthcoming                                                             
amendments.                                                                                                                     
                                                                                                                                
9:28:54 AM                                                                                                                    
                                                                                                                                
Senator Stedman asked regarding  the proposal to increase the amount                                                            
of  money  that could  be  lent  to  cooperatives,  specifically  in                                                            
regards to the  language on page "v" of the Blue Book  that reads as                                                            
follows.                                                                                                                        
                                                                                                                                
     For these organizations, the current language of the bill                                                                  
     would  raise the annual  limit to "$300,000  multiplied  by the                                                            
     number  of communities on whose  behalf the bulk fuel  is to be                                                            
     purchased,  or $1,000,000 whichever is greater."  This language                                                            
     means  that, for  an  electric cooperative  such  as AVED  that                                                            
     serves 50 communities,  the annual borrowing limit would be $15                                                            
     million.  However,   if  the  intent  was  to  set  the  annual                                                            
     borrowing limit at  "whichever is less" of the two alternative,                                                            
     then AVEC's  borrowing limit  under an amended bill  would $1.0                                                            
     million rather than $15 million.                                                                                           
                                                                                                                                
     Only  5 existing organizations  were  identified that  would be                                                            
     directly  affected by the proposed  legislation. None  of these                                                            
     are currently  BFRLF borrowers and none expect  to become BFRLF                                                            
     borrowers  in  the  foreseeable   future  whether  or  not  the                                                            
     legislation  is enacted.  However, it  is possible that  one or                                                            
     more may  access the BFRLF regardless of current  expectations.                                                            
     Naknek   Electric   Association   reported   that   it   needed                                                            
     supplemental  financing  this past  year from  the Cooperative                                                             
     Finance  Corporation (CFC) in  an amount exceeding $300,000  to                                                            
     help finance  its bulk fuel acquisition  because the  utility's                                                            
     cash reserves  were inadequate  to pay the entire bill.  Should                                                            
     this happen again  and if the BFRLF borrower limit were raised,                                                            
     Naknek   Electric   could   find  it   preferable   to   obtain                                                            
      supplemental financing from the BFRLF rather than CFC.                                                                    
                                                                                                                                
Senator Stedman  noted that  the maximum  cooperative loan  limit in                                                            
this language  differs from  the $1.5 million  specified in  Version                                                            
"S". In addition,  the statement on  page "v" that none of  the five                                                            
identified  organizations would utilize  the funds differs  from the                                                            
argument in support of cooperative borrowing.                                                                                   
                                                                                                                                
9:30:10 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  responded  that the amendment  regarding cooperatives                                                             
and  the amount  that  they  could borrow  from  the Fund  could  be                                                            
characterized  as a "proactive measure."  The desire of REAC  is "to                                                            
encourage  the  formation  of  bulk  fuel  cooperatives".   Electric                                                            
cooperatives such as the  Alaska Village Electric Cooperative (AVEC)                                                            
that is comprised  of approximately 50 communities  currently exist.                                                            
Due to  its size, AVEC  has been able to  negotiate reasonable  fuel                                                            
prices  with   vendors,  without   the  assistance  of  the   BFRLF.                                                            
Furthermore, were  AVEC to require BFRLF assistance,  it could "bust                                                            
the fund."                                                                                                                      
                                                                                                                                
Mr. McMillan  reiterated that the  purpose of the proposal  would be                                                            
to encourage the formation of additional bulk fuel cooperatives.                                                                
                                                                                                                                
9:31:33 AM                                                                                                                    
                                                                                                                                
Senator Stedman  interpreted this answer to indicate  that there "is                                                            
there is no current demand"  from cooperatives. While AEA appears to                                                            
anticipate  that there  could be demand  in the  future, the  report                                                            
would appear to indicate that there would not be.                                                                               
                                                                                                                                
Senator Stedman also asked  about Section V as depicted on page "iv"                                                            
of the Blue  Book, specifically as  he understood it to "insinuate"                                                             
that there  might be other  avenues through  which to achieve  lower                                                            
fuel prices.                                                                                                                    
                                                                                                                                
     V.  There is  an extensive  history of  efforts to consolidate                                                             
     bulk  fuel  purchasing   in  rural  Alaska  with  the  goal  of                                                            
     achieving  price  savings.  Attempts  to  create  and  maintain                                                            
     formal   bulk   fuel   purchasing   cooperatives    have   been                                                            
     unsuccessful  although some efforts  at informal consolidation                                                             
     have  worked  out and  have been  sustained  over  a period  of                                                            
     years.  Interviews suggest that,  while volume discounts  might                                                            
     be achieved  for consolidated purchasers within  a certain size                                                            
     range,  more  significant  savings are  likely  to be  achieved                                                            
     through  strategies that assure  fuel distributors of  full and                                                            
     timely payment.                                                                                                            
                                                                                                                                
9:32:30 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  communicated that the  review of previous attempts  to                                                            
establish   bulk  fuel   cooperatives   would   indicate  that   the                                                            
cooperatives  have failed  to achieve the  primary goal of  reducing                                                            
fuel costs  "through large volume  purchases". Numerous factors  may                                                            
have contributed  to that failure including the member's  obligation                                                            
to fund the cooperative's  overhead and the issue  of the fuel being                                                            
delivered   to  multiple   locations.  Vendors   have  stated   that                                                            
delivering fuel to multiple  locations is a primary driver of costs.                                                            
This  issue could  be diminished  were  there one  central  delivery                                                            
location.  Senator Stedman  is correct that  history would  indicate                                                            
that there has been little success with bulk fuel cooperatives.                                                                 
                                                                                                                                
9:34:07 AM                                                                                                                    
                                                                                                                                
Senator Olson referred  the Committee to the chart on page 20 of the                                                            
Blue Book.  He asked for  verification that  the community  of Aniak                                                            
with a population  of 539 paid $1.80 per gallon of  fuel whereas the                                                            
community  of Tuluksak  with  a population  of  461  paid $3.27  per                                                            
gallon.                                                                                                                         
                                                                                                                                
9:34:39 AM                                                                                                                    
                                                                                                                                
Mr.  McMillan stated  that  AEA contracted  with  a  third party  to                                                            
conduct the study  and gather the information presented  in the Blue                                                            
Book. Therefore, he could only accept the information as stated.                                                                
                                                                                                                                
9:35:02 AM                                                                                                                    
                                                                                                                                
Senator  Olson asked  how  the loan  defaults being  experienced  by                                                            
BFRLF  would   compare  to  other   commercial  default/delinquency                                                             
percentages.                                                                                                                    
                                                                                                                                
Mr. McMillan,  drawing  on his 25  years as a  commercial banker  in                                                            
Alaska, stated that bankers  would view a delinquency rate exceeding                                                            
two  percent of  their  portfolio, as  being  excessive.  Continuing                                                            
however, he characterized  these loans as "higher risk loans" due to                                                            
the nature of the borrowers.  In 2001 and 2002, AEA was experiencing                                                            
delinquency   rates  as  high   as  25  to   30  percent.   "Prudent                                                            
underwriting   and  strong  follow-up  on  collections"   have  been                                                            
successful in reducing the delinquency rates.                                                                                   
                                                                                                                                
9:36:24 AM                                                                                                                    
                                                                                                                                
Senator Stedman declared  that as this discussion has continued, the                                                            
issue has become  more confusing.  While the financing component  of                                                            
the program  might have  been successful,  the "report infers"  that                                                            
the effort to  reduce fuel prices has been unsuccessful.  The report                                                            
also  indicates that  many communities  have  opted not  to use  the                                                            
program. To  that point, he pondered  whether that might  be because                                                            
there are State  energy assistance programs. The programs  should be                                                            
reviewed;  some  might not  be  required  and perhaps  others  could                                                            
either be consolidated or changed.                                                                                              
                                                                                                                                
9:37:26 AM                                                                                                                    
                                                                                                                                
Senator   Stedman   reiterated   the   fact   that   five   existing                                                            
organizations  would not be anticipated  to use the BFRLF.  Thus the                                                            
question  is  to how  this  program  would mesh  with  other  energy                                                            
assistance programs that are available.                                                                                         
                                                                                                                                
9:38:06 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  clarified  that  rather than  "to lower  the price  of                                                            
fuel", the  BFRLF was established  to enable communities  to finance                                                            
large annual or  semi-annual purchases of fuel. There  are a limited                                                            
number  of lenders  that would  allow communities  to  pay for  such                                                            
"purchases up  front and pay back the loan over a  seasonal period".                                                            
                                                                                                                                
Mr. McMillan continued  that the experience is that  as the price of                                                            
fuel has increased,  more communities  have been borrowing  from the                                                            
Fund. It  should be noted  that there is a  movement to create  bulk                                                            
fuel  cooperatives.  He  communicated   that  the  Northwest  Arctic                                                            
Borough  has been experimenting  with a  semi-cooperative model  for                                                            
approximately  one year. However,  he was unaware of the  results of                                                            
that endeavor.  Nonetheless,  the high  price of  fuel has  prompted                                                            
more  people  to further  efforts  to  achieve  lower  fuel  prices.                                                            
Cooperatives might be one of numerous efforts in that respect.                                                                  
                                                                                                                                
9:40:14 AM                                                                                                                    
                                                                                                                                
Senator Stedman  understood that a  first time BFRLF borrower  would                                                            
be issued  a zero  interest rate.  A second time  borrower would  be                                                            
issued  a five  percent interest  rate,  and a third  time  borrower                                                            
would be issued  a rate tied to long-term  municipal revenue  bonds.                                                            
He asked  that the  interest rate  determinations  be elaborated  to                                                            
include  how  the  BFRLF  interest  rates compared   to those  of  a                                                            
commercial lender.                                                                                                              
                                                                                                                                
9:41:09 AM                                                                                                                    
                                                                                                                                
Mr.  McMillan  responded  that  Senator   Stedman  is  correct:  the                                                            
interest rate  for the first loan  is zero; the second loan  rate is                                                            
five percent; and the third  loan would be "an average of some index                                                            
of municipal bonds".                                                                                                            
                                                                                                                                
Mr. McMillan expressed  that commercial lenders' rates would vary as                                                            
they would  be based on the  lender's cost  of funds as well  as the                                                            
risk associated  with the loan. Based  on the fact that the  current                                                            
prime rate is  7.25 percent and Treasury Bonds are  at five percent,                                                            
he would anticipate  the rate being  charged by a commercial  lender                                                            
to be 8.5 percent. Therefore  there would be "a savings to borrowers                                                            
who utilize the BFRLF".                                                                                                         
                                                                                                                                
9:42:33 AM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  asked whether the BFRLF program was  similar to the                                                            
Denali Commission's bulk fuel program.                                                                                          
                                                                                                                                
9:42:54 AM                                                                                                                    
                                                                                                                                
Mr.  McMillan stated  that  the BFRLF  would refer  applicants  that                                                            
might not qualify for its  program to the Denali Commissions' Bridge                                                            
Bulk  Fuel  Loan   Fund.  The  intent  of  that  program   could  be                                                            
characterized  as "a  temporary  measure until  such  time that  the                                                            
community would qualify for the BFRLF".                                                                                         
                                                                                                                                
9:43:45 AM                                                                                                                    
                                                                                                                                
SARA FISHER-GOUD,  Alaska Industrial Development &  Export Authority                                                            
and Alaska  Energy  Authority and  RON MILLER,  Executive  Director,                                                            
Alaska Industrial  Development & Export Authority  and Alaska Energy                                                            
Authority testified  via teleconference from Anchorage  and informed                                                            
the Committee that they were available to answer questions.                                                                     
                                                                                                                                
9:44:00 AM                                                                                                                    
                                                                                                                                
Co-Chair Green removed her objection to adopting Version "S".                                                                   
                                                                                                                                
There  being   no  other  objection,   the  Version  "S"   committee                                                            
substitute was ADOPTED as the working document.                                                                                 
                                                                                                                                
Amendment #1: This amendment  inserts "; and authorizing regulations                                                            
to establish standards  for the allocation of money  in that fund to                                                            
eligible  borrowers."  into  the bill's  title  following  the  word                                                            
"year" on page 1 line 2.                                                                                                        
                                                                                                                                
In addition,  the amendment inserts  a new section into the  bill on                                                            
page two, following line one as follows.                                                                                        
                                                                                                                                
     Sec. 2. AS 42.45.250(j) is amended to read:                                                                                
                (j) The authority may adopt regulations necessary                                                               
          to carry out the provisions of this section, including                                                                
          regulations to establish                                                                                              
                     (1) reasonable fees for services provided and                                                            
          charges for collecting the fees; and                                                                                
                     (2) standards for the allocation of bulk fuel                                                            
          revolving loan fund money to eligible borrowers."                                                                   
                                                                                                                                
          New Text Underlined                                                                                                 
                                                                                                                                
Senator Olson moved for the adoption of Amendment #1.                                                                           
                                                                                                                                
Co-Chair Green objected.                                                                                                        
                                                                                                                                
9:44:48 AM                                                                                                                    
                                                                                                                                
Senator   Olson  explained   that  the   State's  Attorney   General                                                            
recommended  this amendment. The purpose  of the Amendment  would be                                                            
to  provide  a process  through  which  the BFRLF  could  limit  its                                                            
allocations  to eligible borrowers  to prevent the money  that is in                                                            
the  Fund  from  being  depleted.  He  noted   that  Mr.  McMillan's                                                            
testimony had addressed this amendment.                                                                                         
                                                                                                                                
Co-Chair Green asked whether  the amendment is being offered because                                                            
no language currently exists through which to protect the Fund.                                                                 
                                                                                                                                
Senator Olson  deferred to  Mr. McMillan.  It was his understanding                                                             
that the language  would be required  in order to prevent  the funds                                                            
from being depleted.                                                                                                            
                                                                                                                                
9:46:08 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  stated that  prior to a five  million dollar  USDA RUS                                                            
grant received  in 2002, the BFRLF experienced cycles,  typically at                                                            
the times  of Fall or Spring  fuel delivery,  during which  the Fund                                                            
received more  applications for dollar amounts than  there was money                                                            
in the  Fund.  While no  process is  specified in  regulations,  the                                                            
BFRLF  established a  system  that awarded  funds on  "a first  come                                                            
first serve basis". Due  to the fact that "the payback period on the                                                            
loans is nine  months", there is "a  constant cycle of cash  running                                                            
through" the Fund,  and, as payments were made, funds  were provided                                                            
to the applicants  waitlisted. While there has not  been a cash flow                                                            
issue since the  USDA RUS grant was received, this  past year at the                                                            
peak of the  application request period,  the Fund had a  balance of                                                            
approximately $1.5 million.  This amendment would allow the BFRLF to                                                            
adopt the  first come first  serve system  or another standard.  The                                                            
amendment would  provide the Fund the ability "to  adopt regulations                                                            
to set standards".                                                                                                              
                                                                                                                                
Co-Chair  Green  asked for  confirmation  that  the Fund  could  not                                                            
establish such standards without this language.                                                                                 
                                                                                                                                
9:47:49 AM                                                                                                                    
                                                                                                                                
Mr. McMillan deferred to the Department of Law.                                                                                 
                                                                                                                                
9:48:46 AM                                                                                                                    
                                                                                                                                
BRIAN  BJORKQUIST,  Senior  Assistant Attorney  General,  Labor  and                                                            
State Affairs  Section,  Civil Division  (Anchorage), Department  of                                                            
Law testified  via  teleconference  from Anchorage  and stated  that                                                            
while  the adoption  of  this  amendment  "might not  be  absolutely                                                            
necessary, having this  type of language authorizing the adoption of                                                            
regulations  is useful  and recommended  because  it will avoid  the                                                            
risk of litigation"  were a system  other than the first  come first                                                            
serve process adopted in the future.                                                                                            
                                                                                                                                
9:48:57 AM                                                                                                                    
                                                                                                                                
Co-Chair  Green  asked  therefore,   whether  the  language  in  the                                                            
amendment  would be  sufficient or  whether more  detailed  language                                                            
would be required.                                                                                                              
                                                                                                                                
9:49:07 AM                                                                                                                    
                                                                                                                                
Mr. McMillan responded  that, other than the first  come first serve                                                            
process  that has  been  utilized,  no standards  have  of yet  been                                                            
established. This language  would be required in the event where the                                                            
Fund to  determine that  standards should  be implemented.  It would                                                            
provide a process  through which public hearings could  be conducted                                                            
and regulations  could  be established  to the  benefit of  eligible                                                            
borrowers. This amendment would provide for that process.                                                                       
                                                                                                                                
Mr. Bjorkquist added that,  "this language is broad enough" to allow                                                            
the agency  the "discretion to adopt  the allocation system  that it                                                            
would  believe  to  be  best  suited  for   the  program  under  the                                                            
circumstances as they would arise in the future."                                                                               
                                                                                                                                
9:50:15 AM                                                                                                                    
                                                                                                                                
Senator  Stedman, observing  that the BFRLF  received $9,000,000  in                                                            
loan requests and disbursed  $5,300,000 in FY 2005, asked the reason                                                            
that only 60 percent of  the requests were granted. This information                                                            
is depicted on page "i" of the Blue Book.                                                                                       
                                                                                                                                
9:50:47 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  responded that there  is some confusion in  regards to                                                            
the  figures  presented  in  the  report.   He  explained  that  the                                                            
commitment  date is the date  that the BFRLF  actually approved  the                                                            
loan. While  requests are  oftentimes submitted  up to two  or three                                                            
months  before  a  barge  order  is due,  the  funds  might  not  be                                                            
disbursed until  up to four months  after that commitment.  "It is a                                                            
timing  issue" …  and the  funds "might  cross fiscal  years."  This                                                            
could be confusing.                                                                                                             
                                                                                                                                
There being  no further  discussion, Co-Chair  Green noted  that she                                                            
would  maintain  her objection  to  the adoption  of  Amendment  #1.                                                            
Continuing,  she stated  that the  bill would be  held in  Committee                                                            
and, were the  amendment to fail,  "more acceptable" language  could                                                            
be developed for reconsideration.                                                                                               
                                                                                                                                
Senator Olson  asked whether the failure of such an  amendment would                                                            
affect the Fund.                                                                                                                
                                                                                                                                
9:52:10 AM                                                                                                                    
                                                                                                                                
Mr. McMillan  responded that  based on recent  experience,  the non-                                                            
adoption  of the  amendment would  not pose  a problem  in the  near                                                            
future.  He reiterated  that  at the  most  recent "peak"  the  fund                                                            
maintained  a level  of approximately  $1.5 million.  However,  were                                                            
both the price  of fuel to continue  to increase and the  loan limit                                                            
to increase, further  pressure might be experienced.  "It is hard to                                                            
look in  a crystal  ball" and determine  "at what  point this  might                                                            
become an issue".                                                                                                               
                                                                                                                                
A roll call was taken on the motion.                                                                                            
                                                                                                                                
IN FAVOR: Senator Hoffman, Senator Olson, and Senator Dyson                                                                     
                                                                                                                                
OPPOSED: Senator Stedman, Co-Chair Wilken, and Co-Chair Green                                                                   
                                                                                                                                
ABSENT: Senator Bunde                                                                                                           
                                                                                                                                
The motion FAILED (3-3-1)                                                                                                       
                                                                                                                                
Amendment #1 FAILED to be ADOPTED.                                                                                              
                                                                                                                                
Senator Stedman requested  that additional information regarding the                                                            
loan request and  loan disbursement table depicted  in the Executive                                                            
Summary on  page "i" be  provided, as the  information presented  is                                                            
"distorted".                                                                                                                    
                                                                                                                                
Co-Chair  Green suggested  that Senator Stedman  confer with  AEA in                                                            
this regard.                                                                                                                    
                                                                                                                                
Amendment #2:  This Amendment inserts  "relating to the purposes  of                                                            
and eligibility  for loans from the  bulk fuel revolving  loan fund;                                                            
and" following "An Act" in the bill's title on page 1 line 1.                                                                   
                                                                                                                                
In addition,  a new  bill section  is inserted  on page 1  following                                                            
line 3 as follows.                                                                                                              
                                                                                                                                
     Section 1. AS 42.45.250(a) is amended to read:                                                                             
          (a) The bulk fuel revolving loan fund is established in                                                               
     the authority to assist  communities, utilities providing power                                                            
     in   communities,  and   fuel  retailers   in  communities   in                                                            
     purchasing  bulk fuel  to maintain community  facilities  or to                                                          
     generate  power  or supply  the  public with  fuel  for use  in                                                            
     communities.  A  community,  or a  person generating  power  or                                                            
     selling  fuel  in  a  community  or  maintaining   a  community                                                          
     facility  who has written endorsement  from the governing  body                                                          
     of each community  for which a loan from the fund is sought, is                                                            
     eligible for a loan  from the bulk fuel revolving loan fund for                                                            
     a purchase  of an emergency  supply or  a semiannual or  annual                                                            
     supply of bulk fuel to be used in the community."                                                                          
                                                                                                                                
     New Text Underlined.                                                                                                     
                                                                                                                                
This amendment also inserts a new bill section on page 2,                                                                       
following line 1 as follows.                                                                                                    
                                                                                                                                
     Sec. 3.  AS 42.45.250(l) is amended  by adding a new  paragraph                                                          
     to read:                                                                                                                   
        (3) "community facility" means a public building or                                                                     
     public work open to, or used by or for the benefit of, the                                                                 
     public and owned by a community, a governmental entity, or a                                                               
     nonprofit organization; in this paragraph, "public building                                                                
     or public work" includes educational and health facilities,                                                                
     water and sewer facilities, roads, and docks.                                                                              
                                                                                                                                
Senator Olson moved to adopt Amendment #2.                                                                                      
                                                                                                                                
Co-Chair Green objected.                                                                                                        
                                                                                                                                
9:54:25 AM                                                                                                                    
                                                                                                                                
Senator  Olson  explained  that  this  amendment  would  expand  the                                                            
entities to  which BFRLF loans could  be provided.  Currently  BFRLF                                                            
loans  are  limited  to  communities,  utility  operators  and  fuel                                                            
retailers. He noted that  due to the current restriction, RUS, which                                                            
is a subsidiary  of the  YK Health Corporation,  has been unable  to                                                            
acquire BFRLF loans. This amendment was requested by the GREAC.                                                                 
                                                                                                                                
Co-Chair Green stated that the language is very broad.                                                                          
                                                                                                                                
9:55:45 AM                                                                                                                    
                                                                                                                                
Co-Chair Wilken  agreed with Co-Chair  Green. He recalled  that when                                                            
community  facilities  were added  to  the Power  Cost Equalization                                                             
program,  the community  facilities  line item  increased more  than                                                            
five times  the rate depicted on the  personal facilities  line. The                                                            
community facilities portion  might surpass the residential portion.                                                            
The purpose  of the  BFLRF is to  purchase fuel  at a lower  rate in                                                            
order to  assist residents.  "This may squeeze  out the residential                                                             
benefit  to   the  benefit  of  community   facilities."   Community                                                            
facilities  have the  option to borrow  at the  eight percent  level                                                            
instead of the seven percent level.                                                                                             
                                                                                                                                
9:56:42 AM                                                                                                                    
                                                                                                                                
Senator  Olson  suggested  that  rather  than community   facilities                                                            
surpassing  the residential  usage, the perspective  should  be that                                                            
community facilities  are finally  catching up the community  needs.                                                            
In other words,  "what started out  as a deficit is now catching  up                                                            
with the community's needs".                                                                                                    
                                                                                                                                
Senator Olson asked Mr. McMillan to speak to the amendment.                                                                     
                                                                                                                                
9:57:13 AM                                                                                                                    
                                                                                                                                
Mr. McMillan noted  that it would be important for  the Committee to                                                            
understand that this amendment  would pertain to a third party that,                                                            
by agreement,  "would be  taking over … the  affairs of community."                                                             
Currently a  community could borrow  from the BFRLF. That  bulk fuel                                                            
could  be used for  multiple  purposes including  heating  community                                                            
owned facilities. That  usage would not be new. This amendment would                                                            
expand  who  could  borrow  the  funds  rather  than  how  the  fuel                                                            
purchased by the funds could be used.                                                                                           
                                                                                                                                
Mr. McMillan  continued  that  a third  party on  contract with  the                                                            
community might, as part  of the contract, be authorized to purchase                                                            
fuel, to receive  revenues, or to bill and collect  on the behalf of                                                            
the community.  This amendment  would allow  that third party,  with                                                            
consent of the  community, "to be the borrower under  the Statutes".                                                            
                                                                                                                                
9:59:09 AM                                                                                                                    
                                                                                                                                
Senator Hoffman  stated that an example of this situation  would the                                                            
YK  Health  Corporation,   which  is  an  organization   with  sound                                                            
financial  management.   That  corporation  could   assist  a  small                                                            
community  experiencing  financial  difficulty,  such  as the  small                                                            
community of  Chevak. This amendment  would allow an entity  such as                                                            
the YK Health  Corporation to "accept  the BFRLF bulk fuel  loan and                                                            
be more responsible  to make sure  that it will pay back  the loan."                                                            
Chevak for instance, has  had a very bad track record in the regard.                                                            
The program would  be more solvent in this case, were  the YK Health                                                            
Corporation to be responsible for the loan.                                                                                     
                                                                                                                                
10:00:20 AM                                                                                                                   
                                                                                                                                
Senator Dyson  appreciated Co-Chair Green's comment.  While its been                                                            
several years  since he had visited Western Alaska,  he recalled one                                                            
community that had three  separate government entity buildings, each                                                            
having "contempt"  for both  of the other  buildings and the  people                                                            
working  there.  The three  levels  of  government  "bothered"  him;                                                            
therefore, he would be  more comfortable with this amendment were it                                                            
to  discourage  overlapping  governments.  Continuing,  he  recalled                                                            
that, in a separate  situation, one village split  into two villages                                                            
with separate  power plants because of an internal  disagreement. To                                                            
that point,  he would  discourage  the imposition  of any  incentive                                                            
that might promote further inefficiencies.                                                                                      
                                                                                                                                
Senator  Stedman supported  Senator Hoffman's  comments that  having                                                            
well-managed  entities  involved  in this  program  would assist  in                                                            
lowering   default  rates.   "That  would   better  serve   all  the                                                            
participants  in the BFRLF" and the  State, in general. However,  he                                                            
voiced  being  uncomfortable  with  the language  as  presented.  He                                                            
suggested that the language be reworked.                                                                                        
                                                                                                                                
10:04:09 AM                                                                                                                   
                                                                                                                                
Mr. McMillan  stated  "this amendment  is  really a  tool to  assist                                                            
communities  in  maintaining  their  infrastructure."  A  tremendous                                                            
amount of capital  has been invested in the infrastructure  in these                                                            
communities.  Unfortunately, some  communities are "dysfunctional".                                                             
This amendment would allow  for an entity, "other than those parties                                                            
already  in  the   community  that  are  not  functioning,"   to  be                                                            
responsible  for   that  infrastructure.  "It   is  not  a  case  of                                                            
overlapping  government; this  comes about when  there is a  lack of                                                            
government."                                                                                                                    
                                                                                                                                
Co-Chair  Green, noting  that she  would maintain  her objection  to                                                            
Amendment  #2,  communicated  that  she  might be  able  to  suggest                                                            
alternate language through which to address the concern.                                                                        
                                                                                                                                
Senator  Olson  responded  to  Senator  Dyson's  "contempt"  of  the                                                            
overlapping governments  by stating that governmental  agencies have                                                            
different  functions  in communities.  To  that point,  however,  he                                                            
noted that  efforts to  consolidate such  entities have occurred  in                                                            
order to improve efficiency.                                                                                                    
                                                                                                                                
Senator Olson  offered to withdraw Amendment #2 in  order to develop                                                            
more acceptable language.                                                                                                       
                                                                                                                                
There being no objection, Amendment #2 was WITHDRAWN.                                                                           
                                                                                                                                
Senator Dyson  clarified that rather  than himself feeling  contempt                                                            
for the overlapping  governmental  situation, he was simply  sharing                                                            
an observation  of the community's feelings in that  regard. To that                                                            
point,  he  voiced appreciation  for  the  fact  that consolidation                                                             
efforts have  been undertaken in order  to promote more cooperation                                                             
and efficiency.                                                                                                                 
                                                                                                                                
Senator Olson acknowledged.                                                                                                     
                                                                                                                                
Co-Chair Green ordered  the bill HELD in Committee for further work.                                                            
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE BILL NO. 243(FIN)                                                                                             
     "An Act relating to the financial plan for the intertie                                                                    
     between the Swan Lake and Tyee Lake hydroelectric projects;                                                                
     and providing for an effective date."                                                                                      
                                                                                                                                
                                                                                                                                
This was  the second  hearing for  this bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
AT EASE 10:08:05 AM / 10:08:38 AM                                                                                           
                                                                                                                                
Co-Chair Green  ordered the bill SET  ASIDE as the bill's  presenter                                                            
was unavailable at the moment.                                                                                                  
                                                                                                                                
[NOTE: This  bill was re-addressed  later in  the meeting.  See Time                                                            
Stamp 10:35:18 AM.]                                                                                                             
                                                                                                                                
                                                                                                                                
     CS FOR SENATE BILL NO. 207(L&C)                                                                                            
     "An Act relating to the membership on the board of directors                                                               
     of the Alaska Aerospace Development Corporation."                                                                          
                                                                                                                                
                                                                                                                                
AT EASE 10:09:10 AM / 10:10:00 AM                                                                                           
                                                                                                                                
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Committee.                                                                                                                      
                                                                                                                                
DOUG  LETCH, Staff  to Senator  Gary  Stevens, the  bill's  sponsor,                                                            
explained  that  this  bill  would  increase  the  Alaska  Aerospace                                                            
Development  Corporation (AADC) Board  of Directors membership  from                                                            
nine to 11 members. In  addition, it would specify that three of the                                                            
11 members must reside  on Kodiak Island, which is the area in which                                                            
AADC launch activities occur.                                                                                                   
                                                                                                                                
Mr. Letch informed the  Committee that the current nine member Board                                                            
is comprised  of three  State residents "who  have significant  high                                                            
level  experience  in  private  business  sector,   specializing  in                                                            
finance,   economic  development   or  marketing".   Current   Board                                                            
membership also  includes the University of Alaska  President or his                                                            
designee, the  University of Alaska  Geophysical Institute  director                                                            
or his designee, the Department  of Commerce, Community and Economic                                                            
Development  Commissioner  or his  designee, "two  members who  have                                                            
held or currently hold  a position in the aerospace industry or have                                                            
special experience  with federal regulatory  procedures or  policies                                                            
involving  space or  operational experience",  and  a public  school                                                            
educator or public member.                                                                                                      
                                                                                                                                
Mr. Letch stated that the  fact that none of the seats are currently                                                            
dedicated to a Kodiak Island  Borough resident is one of the reasons                                                            
that this bill was introduced.                                                                                                  
                                                                                                                                
Mr. Letch  noted that  AADC has  conducted "numerous  rocket  launch                                                            
construction  projects and  other activities"  at its Kodiak  Launch                                                            
Complex  (KLC) since  the late  1990s. The activities  impact  local                                                            
government activities,  businesses, recreational activities, as well                                                            
as the economy.  KLC is also an integral  component of the  nation's                                                            
missile defense system.                                                                                                         
                                                                                                                                
Mr.  Letch remarked  that  the bill's  sponsor has  determined  that                                                            
local  representation   on  the  AADC   Board  is  important.   This                                                            
legislation  is  supported by  the  City of  Kodiak  and the  Kodiak                                                            
Island  Borough, which  has developed  a Resolution  [copy on  file]                                                            
reflecting their support.                                                                                                       
                                                                                                                                
10:12:37 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green  asked  the  history  of  Kodiak  Island  residents'                                                            
participation on the Board.                                                                                                     
                                                                                                                                
Mr. Letch noted  that up until the previous year,  two Kodiak Island                                                            
residents  were on  the Board;  currently  there is  only one.  That                                                            
person  is Dave Woodruff,  a successful  fish  cannery operator  and                                                            
member  of  the  City Council.  The  other  individual  was  also  a                                                            
successful businessman  who resigned for personal  reasons. A person                                                            
who did not reside in Kodiak replaced him.                                                                                      
                                                                                                                                
10:13:23 AM                                                                                                                   
                                                                                                                                
Senator   Stedman   supported   "the   concept   of   having   local                                                            
representation"  on  such  Boards;  however,  he asked  whether  the                                                            
requirement  that  a Board  member  must possess  "a  high level  of                                                            
experience"  might  pose  a  problem;  in  other  words,  a  limited                                                            
qualified  applicant pool might  be available  for a vacant  seat on                                                            
the Board.                                                                                                                      
                                                                                                                                
10:14:09 AM                                                                                                                   
                                                                                                                                
Mr. Letch  pointed  out that  a person  from Kodiak  could hold  the                                                            
Board seat specified  for either a member of the public  or a public                                                            
school educator.  Island  inhabitants would  attest that there  "are                                                            
plenty  of qualified people  there,  and that it  would never  be an                                                            
issue."                                                                                                                         
                                                                                                                                
Co-Chair  Green  asked  whether  the  public   educator  seat  being                                                            
referenced  is the seat  designated  in Section  1(a)(6) on page  2,                                                            
line 9.                                                                                                                         
                                                                                                                                
Mr. Letch affirmed.  A Kodiak Island resident could  be appointed to                                                            
the  public school  educator  or public  member seat  designated  in                                                            
Section 1(a)(6).                                                                                                                
                                                                                                                                
Co-Chair  Green countered  that  the  three Kodiak  Island  resident                                                            
memberships  being  proposed  would appear  to  be included  in  the                                                            
language  in CS SB  207(L&C)  Version 24-LS1208\Y,  Section  1(a)(1)                                                            
page 1, line 8 through 12. This language reads as follows.                                                                      
                                                                                                                                
          (1) five [THREE] state residents who have a significant                                                             
     high  level  of experience  in  the  private  business  sector,                                                            
     specializing   in   financing   or  economic   development   or                                                            
     marketing;  three of the state  residents appointed  under this                                                          
     paragraph  shall be residents  of the borough where  the launch                                                          
     activities of the corporation occur;                                                                                     
                                                                                                                                
     New Text Underlined [DELETED TEXT BRACKETED]                                                                             
                                                                                                                                
Co-Chair Green  suggested that the  Board member designations  could                                                            
be  specified  and  then  language  allowing   three  Kodiak  Island                                                            
residents to qualify for any of the seats could be included.                                                                    
                                                                                                                                
Mr.  Letch voiced  his  approval of  that  suggestion.  It would  be                                                            
further reviewed.                                                                                                               
                                                                                                                                
Senator Dyson understood  that, at times, the Kodiak Launch site has                                                            
been utilized  by the federal Department  of Defense (DoD).  To that                                                            
point, he  asked whether  the AADC Board  has authority specific  to                                                            
management decisions about  how the facility could be used and which                                                            
clients could use it.                                                                                                           
                                                                                                                                
Mr. Letch, while deferring  to the Department of Commerce, Community                                                            
and  Economic  Development,  stated  that  the Board  "serves  in  a                                                            
variety of capacities  as a standard board with advisory  capacities                                                            
and also decision making capacities".                                                                                           
                                                                                                                                
10:19:09 AM                                                                                                                   
                                                                                                                                
Senator  Dyson  worried that  the  Board  might desire  to  preclude                                                            
clients such as  the DoD who might use the site "for  very strategic                                                            
national defense issues".                                                                                                       
                                                                                                                                
SALLY  SADDLER,   Legislative  Liaison,   Department  of   Commerce,                                                            
Community  and  Economic  Development  replied  that she  could  not                                                            
adequately  respond  to  the concern  until  she  conducted  further                                                            
research.                                                                                                                       
                                                                                                                                
Co-Chair  Green noted  that  Mark Hamilton,  AADC  Board Member  and                                                            
President  of the  University of  Alaska was  on teleconference  and                                                            
might be able to answer Senator Dyson's question.                                                                               
                                                                                                                                
10:20:25 AM                                                                                                                   
                                                                                                                                
MARK  HAMILTON,  Chair,  Alaska Aerospace  Development  Corporation                                                             
Board   and  President,   University   of  Alaska,   testified   via                                                            
teleconference   from   an  offnet   site.   "The   Board  has   the                                                            
responsibility  of  discovering   the  qualifications  of  a  launch                                                            
partner, and they  are very specifically technical,  and there's, as                                                            
you might expect, a very  very extensive contract drawn up with each                                                            
customer.  No  one has  dibs  on the  range,  no  one is  a  certain                                                            
customer until considered by the Board."                                                                                        
                                                                                                                                
10:21:16 AM                                                                                                                   
                                                                                                                                
Senator Dyson  stated that  the response  "raises questions",  as it                                                            
could be  interpreted to  mean that the Board  could decide  to deny                                                            
DoD from utilizing "the facility for national defense purposes".                                                                
                                                                                                                                
President  Hamilton  responded that  such  a decision  would be  "an                                                            
extraordinary circumstance".                                                                                                    
                                                                                                                                
President  Hamilton   communicated  that  the  current  contractual                                                             
agreement would  require DoD to provide  the Board "a very  specific                                                            
timeline if they  had a project which required a specific  reaction,                                                            
there would be  contractual obligations on their part."  Continuing,                                                            
he noted that  were "commercial customers to suddenly  appear in the                                                            
numbers that,  frankly, were envisioned  12 years ago where  you had                                                            
the potential of an Iridium  Corporation launching and refreshing as                                                            
many  as  600 satellites,"   the Board  might  make  the  "difficult                                                            
corporate decision"  to deny a DoD request that did  not pertain "to                                                            
a  dire  national  need." The  Board  would  desire  to accommodate                                                             
commercial  opportunities "rather  than holding  the range  open for                                                            
whenever" DoD decided to use it.                                                                                                
                                                                                                                                
Senator  Dyson  assumed  that  the  Board's  mission  would  include                                                            
consideration  of regional  environmental  concerns,  the impact  of                                                            
activities  on both offshore  and onshore areas,  the safety  of the                                                            
local residents,  and the  financial stability  of the Corporation.                                                             
However,  he was  concerned  that "a  philosophical  anti-war  anti-                                                            
national bent of the Board could restrict U.S. defense efforts."                                                                
                                                                                                                                
10:22:13 AM                                                                                                                   
                                                                                                                                
President Hamilton responded  that were the Board "prudently staffed                                                            
with people who have that  kind of a bias, that that would certainly                                                            
be a risk."  He opined that  that "is not  the case of the  existing                                                            
Board or any  Board membership that  I have been associated  with to                                                            
date".  The  concerns   about  the  site's  impact   on  Kodiak  are                                                            
absolutely  paramount with the Board,  as substantiated by  the fact                                                            
that  just about  "every single  thing that  is done  out there"  is                                                            
scrutinized.  The position of the  people who live on Kodiak  Island                                                            
has been  a known  factor as  a result  of the fact  that there  has                                                            
traditionally  been voting  Island representation  on the Board.  In                                                            
addition,  non-voting elected  officials, including  members  of the                                                            
Legislature,  have  represented  the  interests  of the  Island.  In                                                            
addition,  the majority  of the Board  meetings  are held in  public                                                            
forums. The Board conducts a great deal of effort on issues.                                                                    
                                                                                                                                
Senator Dyson acknowledged.                                                                                                     
                                                                                                                                
10:23:39 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken  voiced   appreciation  for  President   Hamilton's                                                            
comments  about Legislative  participation on  the Board, as  he has                                                            
served for  several years  on the Board as  a representative  of the                                                            
Senate.                                                                                                                         
                                                                                                                                
Co-Chair  Wilken   assured  the  Committee  that,  historically,   a                                                            
Legislator representing  the Kodiak Island District  has been a non-                                                            
voting member of the Board.                                                                                                     
                                                                                                                                
Co-Chair Wilken  asked whether there  is "a sense that the  voice of                                                            
Kodiak  has been squelched  and therefore  we need  to increase  the                                                            
membership."                                                                                                                    
                                                                                                                                
10:24:56 AM                                                                                                                   
                                                                                                                                
Mr. Letch declared that  Co-Chair Wilken's comments "hit the nail on                                                            
the  head."  While   Legislators  representing  the   District  have                                                            
continued to serve  in "an ex officio capacity" on  the Board, there                                                            
have historically been  two Kodiak Island resident voting members on                                                            
the  Board. It  is unknown  as to  "whether  this was  by design  or                                                            
happenstances".  The AADC facility  has become "a lightning  rod" to                                                            
the community  in that people  watch "every  move that AADC  makes."                                                            
Some people  oppose the decisions  made by  AADC and others  support                                                            
them.  The site  has  become an  important  economic  factor on  the                                                            
Island.                                                                                                                         
                                                                                                                                
10:25:52 AM                                                                                                                   
                                                                                                                                
Mr. Letch  stated  that the  decisions made  by AADC  do affect  the                                                            
community,  and the people in Kodiak  "feel that" incorporating  the                                                            
two voting Board  membership requirement would best  represent their                                                            
interests.                                                                                                                      
                                                                                                                                
10:26:26 AM                                                                                                                   
                                                                                                                                
Co-Chair  Wilken voiced concern  that adoption  of this legislation                                                             
might result in  there being requests for geographic  representation                                                            
on other boards.  No other board currently  has such specification.                                                             
Adoption of  this legislation would  also specify that more  than 25                                                            
percent of  the Board would  be representing  one area. His  concern                                                            
could  be likened  to that  professed earlier  by  Senator Dyson  in                                                            
that,  while this  might be  acceptable  today, in  the future  this                                                            
action  "may  lessen the  use  of  that rocket  range  for  whatever                                                            
reason."                                                                                                                        
                                                                                                                                
Co-Chair Wilken  voiced concern about "the precedent"  that might be                                                            
established. As  a result of this legislation, "there  could be four                                                            
people at the table speaking  on behalf of Kodiak." He believed that                                                            
"Kodiak is  well-represented  … the people  of Kodiak have  not been                                                            
ignored at all;  to the contrary, I suggest that they've  been heard                                                            
and reheard."  While some  people might not  support the  activities                                                            
that occur  at the  site, "the vast  majority  would agree that  the                                                            
rocket  range is  a benefit"  both  to the  area and  to Alaska.  In                                                            
summary, he  could not support the  legislation as it might  lead to                                                            
geographical representation  as opposed to qualifications  dictating                                                            
board membership. "If it isn't broke don't fix it."                                                                             
                                                                                                                                
10:28:30 AM                                                                                                                   
                                                                                                                                
Senator  Dyson spoke  in support  of Co-Chair  Wilken comments.  The                                                            
Kodiak Launch site is a  major launch site that is "very strategic …                                                            
to our national interests."                                                                                                     
                                                                                                                                
10:29:31 AM                                                                                                                   
                                                                                                                                
Senator Olson  asked whether some controversial issue  of importance                                                            
to Kodiak  Island residents  was defeated  at some  point, due  to a                                                            
lack of votes on behalf of the local people.                                                                                    
                                                                                                                                
10:29:50 AM                                                                                                                   
                                                                                                                                
Mr. Letch was unaware of "any specific instance."                                                                               
                                                                                                                                
10:30:01 AM                                                                                                                   
                                                                                                                                
President  Hamilton  stated  that the  membership  of  the Board  as                                                            
currently  designated is  appropriate,  and he did  not support  the                                                            
proposed  changes.   The  Legislators   who  have  represented   the                                                            
interests of Kodiak on  the Board have done a good job. The Board is                                                            
also aware of  its responsibilities. The individual  from Kodiak who                                                            
resigned  from the  Board did  so because  his business  "was  being                                                            
boycotted".  The involvement  of  politics with  private  activities                                                            
could explain  the failure of governmental  corporations.  The Board                                                            
has discussed  a variety of membership  issues including  whether or                                                            
not the  University  President or  the Director  of the Geophysical                                                             
Institute  of  the University  should  be  on  the Board.  While  he                                                            
understood the  reason those entities were designated  when the AADC                                                            
Board  was initially  developed 12  years prior,  changes that  have                                                            
occurred over  time might dictate that there should  be fewer rather                                                            
than  more  specific  Board  member  designations.  The  reason  for                                                            
including the Commissioner  of Department of Commerce, Community and                                                            
Economic  Development  and  someone who  understands  the  aerospace                                                            
industry on the  Board could be substantiated; however,  it would be                                                            
difficult for  him to substantiate the reason "at  this stage of the                                                            
game" for  requiring that  the University of  Alaska President  or a                                                            
representative  of the  Geophysical  Institute to  be on the  Board.                                                            
"This ought to be a commercial  board" comprised of people who could                                                            
move a corporation forward.                                                                                                     
                                                                                                                                
10:33:38 AM                                                                                                                   
                                                                                                                                
Senator Hoffman inquired  as to how often and where the Board meets.                                                            
                                                                                                                                
Mr. Hamilton replied that  while the Board primarily meets quarterly                                                            
in Anchorage, there would be a meeting in Kodiak in June 2006.                                                                  
                                                                                                                                
Co-Chair Green ordered the bill HELD in Committee.                                                                              
                                                                                                                                
                                                                                                                                
     CS FOR HOUSE BILL NO. 243(FIN)                                                                                             
     "An Act relating to the financial plan for the intertie                                                                    
     between the Swan Lake and Tyee Lake hydroelectric projects;                                                                
     and providing for an effective date."                                                                                      
                                                                                                                                
                                                                                                                                
10:35:18 AM                                                                                                                   
                                                                                                                                
Co-Chair  Green ordered  the bill  back before  the Committee.  [See                                                            
Time Stamp 10:08:05 AM  for previous Committee action on this bill.]                                                            
                                                                                                                                
RON MILLER,  Executive  Director,  Alaska Industrial  Development  &                                                            
Export  Authority   and  Alaska  Energy  Authority,   testified  via                                                            
teleconference  from Anchorage  and noted  that Dave Carlson,  Chief                                                            
Executive Officer,  Four Dam Pool Power Agency (FDPPA)  had provided                                                            
his  testimony on  the  bill during  its  first hearing  before  the                                                            
Committee.                                                                                                                      
                                                                                                                                
Mr. Miller  stated  that the prior  Legislative  Session, the  House                                                            
Finance committee  substitute for this bill had been  transmitted to                                                            
this Committee.  That  bill, CS HB  243(FIN), extended  the date  by                                                            
which  the  FDPPA  must provide  a  financing  plan  to  the  Alaska                                                            
Industrial Development & Export Authority (AIDEA) for approval.                                                                 
                                                                                                                                
Mr. Miller  reminded the  Committee that  the initial agreement  for                                                            
the  sale and  purchase  of the  Four  Dam Pool  was  outlined in  a                                                            
Memorandum  of Understanding  (MOU)  that  specified  a $73  million                                                            
purchase price  and a five million  dollar credit that was  based on                                                            
certain  contingencies  being met.  One of those  contingencies  was                                                            
that the FDPPA  present to AIDEA, by April 11, 2005,  a finance plan                                                            
that demonstrated  committed funds sufficient to complete  the power                                                            
line  intertie system  between  Swan Lake  and Tyee  Lake. The  plan                                                            
FDPPA  provided to  AIDEA  in 2005  was based  on  "the request  and                                                            
receipt"  of federal  and State  grants. AIDEA  determined that  the                                                            
plan did not demonstrate  "committed funds necessary to complete the                                                            
Project",  and,  as a  result, they  notified  FDPPA  that the  five                                                            
million  dollar  credit  was  due to  the  Power  Cost Equalization                                                             
Endowment.                                                                                                                      
                                                                                                                                
Mr. Miller  stated that  during the Legislative  Interim, FDPPA  and                                                            
the Alaska Energy Authority  (AEA) reached an agreement to amend the                                                            
original credit  provisions of the Four Dam Pool Power  Project. AEA                                                            
agreed  to  allow  FDPPA  to place  five  million  dollars  into  an                                                            
interest  bearing escrow  account  and to provide  FDPPA  additional                                                            
time in  which to secure  funds to complete  the Swan Lake  and Tyee                                                            
Lake intertie  project. Were that project not completed,  that money                                                            
and the interest  would be released  to the Power Cost Equalization                                                             
Endowment.                                                                                                                      
                                                                                                                                
Mr.  Miller  stated that  in  order  to proceed,  that  August  2005                                                            
agreement  to extend  the date and  revise the  five million  dollar                                                            
credit conditions  must receive Legislative approval.  These amended                                                            
provisions  are  specified  in  committee  substitute,  Version  24-                                                            
GH1138\X that  is being offered to the Committee for  consideration.                                                            
                                                                                                                                
AT EASE 10:38:16 AM / 10:38:38 AM                                                                                           
                                                                                                                                
Co-Chair Wilken  moved the adopt committee  substitute, Version  24-                                                            
GH1138\X, as the working document.                                                                                              
                                                                                                                                
There being no  objection, the Version "X" committee  substitute was                                                            
ADOPTED as the working document.                                                                                                
                                                                                                                                
10:39:06 AM                                                                                                                   
                                                                                                                                
Senator Stedman  spoke to the importance  of the Swan Lake  and Tyee                                                            
Lake intertie  project,  which is  the issue pertinent  to the  five                                                            
million  dollar escrow  agreement. The  FDPPA is  in the process  of                                                            
updating their  power load study analysis  that would assist  in the                                                            
completion of  that project. The study should be completed  in March                                                            
2006. "There  is more than  a reasonable  chance" that that  project                                                            
would be completed.                                                                                                             
                                                                                                                                
10:39:55 AM                                                                                                                   
                                                                                                                                
BRIAN  BJORKQUIST,  Senior  Assistant Attorney  General,  Labor  and                                                            
State Affairs  Section,  Civil Division  (Anchorage), Department  of                                                            
Law, testified  via teleconference  from Anchorage and informed  the                                                            
Committee that he would be available to answer questions.                                                                       
                                                                                                                                
SARA FISHER-GOUD,  Alaska Energy Authority, Department  of Commerce,                                                            
Community  and Economic  Development  testified  via teleconference                                                             
from Anchorage and noted  that she also would be available to answer                                                            
questions.                                                                                                                      
                                                                                                                                
10:40:29 AM                                                                                                                   
                                                                                                                                
DAVE CARLSON,  Chief Executive Officer, Four Dam Pool  Power Agency,                                                            
testified  via  teleconference   from  Anchorage  and  informed  the                                                            
Committee that  the FDPPA is in support  of this legislation.  FDPPA                                                            
has worked  diligently with  AEA on this effort.  The Swan  Lake and                                                            
Tyee  Lake   intertie  would   provide  a   "vital  link  of   major                                                            
infrastructure"  to the  power grid  of southern  Southeast  Alaska.                                                            
This bill would allow that project to continue to move forward.                                                                 
                                                                                                                                
JON  BOLLING,   Chair,   Energy  Committee,   Southeast   Conference                                                            
testified via  teleconference from offnet site and  stated that this                                                            
intertie project is "strongly  supported" by the Conference. He also                                                            
acknowledged  the efforts conducted  by FDPPA and AEA. He  urged the                                                            
Committee to support the legislation.                                                                                           
                                                                                                                                
Co-Chair Green ordered the bill HELD in Committee.                                                                              
                                                                                                                                
                                                                                                                                
ADJOURNMENT                                                                                                                 
                                                                                                                                
Co-Chair Lyda Green adjourned the meeting at 10:42:14 AM.                                                                     
                                                                                                                                

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