Legislature(1993 - 1994)
02/09/1994 09:00 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
February 9, 1994
9:00 a.m.
TAPES
SFC-94, #21, Side 1 (000-end)
SFC-94, #21, Side 2 (end-000)
SFC-94, #23, Side 1 (000-220)
CALL TO ORDER
Senator Drue Pearce, Co-chair, convened the meeting at
approximately 9:12 a.m.
PRESENT
In addition to Co-chairs Pearce and Frank, Senators Kelly,
Rieger, Jacko, Sharp, and Kerttula were present.
ALSO ATTENDING: Senator Randy Phillips; Senator Mike
Miller; Senator Jim Duncan; Senator Robin Taylor;
Representative John Davies; Representative Harley Olberg;
Thomas C. Williams, Director, Permanent Fund Dividend
Division, Department of Revenue; Paul Fuhs, Commissioner,
Department of Community & Regional Affairs; Robert Harris,
former Director, Linda Thomas, former Deputy Director, Chris
Lethin, Associate Deputy Director, Energy Division,
Department of Community & Regional Affairs; William R.
(Riley) Snell, Executive Director, Dan Beardsley, Contract
Manager, Alaska Industrial Development & Export Authority,
Alaska Energy Authority; Jetta Whittaker, fiscal analyst,
and Mike Greany, Director, Legislative Finance Division;
aides to committee members and other members of the
legislature.
SUMMARY INFORMATION
SB 253: An Act relating to reapplication for the 1993
permanent fund dividend when the United States
Postal Service documents the loss of mail during
the 1993 application period; and providing for an
effective date.
Senator Mike Miller, sponsor of SB 253, testified
in support of the bill. Thomas C. Williams,
Director, Permanent Fund Dividend Division,
Department of Revenue, testified as to the
department's neutral position on the bill. The
committee questioned whether SB 253 was a
"temporary" law. Satisfied that it was by
Legislative Legal Services, the bill was REPORTED
OUT of committee with a "do pass" and a zero
fiscal note from the Department of Revenue.
SB 243: An Act relating to the four dam pool transfer
fund.
Robert Harris, former Director, Linda Thomas,
former Deputy Director, and Chris Lethin,
Associate Deputy Director, Energy Division,
Department of Community & Regional Affairs,
testified before committee regarding the
resignation of Mr. Harris and Ms. Thomas.
Discussion was held regarding the particulars of
the circumstances leading to the resignations.
William R. (Riley) Snell, Executive Director, and
Dan Beardsley, Contract Manager, Alaska Industrial
Development & Export Authority, Alaska Energy
Authority, presented the AIDEA/AEA transition
plan. Discussion was held regarding that plan and
specific projects. SB 243 was HELD in committee.
SENATE BILL NO. 253:
An Act relating to reapplication for the 1993 permanent
fund dividend when the United States Postal Service
documents the loss of mail during the 1993 application
period; and providing for an effective date.
CO-CHAIR PEARCE announced that SB 253 was before committee
and invited Senator Miller, sponsor of the bill, to join the
committee at the table.
SENATOR MILLER testified in support of SB 253. He explained
that on January 8th, 9th, and 11th the mail from the North
Pole post office had been lost. This bill would allow
people that mailed their PFD applications on those days to
reapply. Sworn statements and documentation from the postal
service would be required with the reapplications. Senator
Miller confirmed the loss of mail on those days because of a
personal piece of mail that he was missing.
SENATOR KERTTULA asked Senator Miller what document would be
required from the post office. Senator Miller said that the
post office has supplied a document for use by residents for
creditors that did not receive payments, etc.
In answer to Co-chair Pearce, Senator Miller confirmed that
SB 253 was temporary law.
Co-chair Pearce invited Thomas C. Williams, Director,
Permanent Fund Dividend Division, Department of Revenue to
join the committee at the table. THOMAS C. WILLIAMS
testified that the department in general opposes general
reopenings but because of the narrow construction of the
bill and because it is a temporary measure, their position
is neutral. He believed that it would not have a large
impact on the division and the number of people affected
would be forty to fifty. Those could be processed without
an impact on the operation.
SENATOR RIEGER MOVED for passage of SB 253 from committee
with individual recommendations after clarification from
legal that the legislation is clearly temporary law. No
objections being raised, SB 253 was REPORTED OUT of
committee with a zero fiscal note for the Department of
Revenue. Co-chairs Pearce and Frank, Senators Rieger,
Kelly, Rieger, Kerttula, and Sharp signed the committee
report with a "do pass" recommendation. (Immediately
following the meeting, clarification was received from
Legislative Legal Services that SB 253, as worded, was
temporary law.)
SENATE BILL NO. 243:
An Act relating to the four dam pool transfer fund.
Co-chair Pearce announced that SB 243 was again before
committee and that a companion bill would be read across the
House floor today. She reminded the committee that Mike
Greany, Director, Legislative Finance Division, had been in
the midst of a presentation at the last meeting of Senate
Finance. However, because of a new development, she invited
Robert Harris, former Director, Linda Thomas, former Deputy
Director, and Chris Lethin, Associate Deputy Director,
Energy Division, Department of Community & Regional Affairs
to join the committee at the table for statements and
discussion. CHRIS LETHIN stated that he was present at the
table at the request of Senator Jacko.
(The following testimony is verbatim.)
The following statement was made by ROBERT HARRIS, former
Director, Energy Division, Department of Community &
Regional Affairs. As you know, I was asked to submit my
resignation on Monday morning (February 7, 1994). This came
about, in part, because of a difference of opinion about the
programs and the implications of those programs. The
termination, as I saw it, was unjustified. I thought we
were in part of a process of me presenting my ideas. The
late afternoon Friday, when I was here last, I think it was
(February) 4th, I presented my ideas why I needed additional
staff, I think in large part, to cover some of the concerns
that have been brought before this committee about the
ability of the division to handle its programs. I know that
there are competing philosophies whether the division should
contract out everything or, as legislation says, contract
out to the maximum extent feasible. So, I had presented my
ideas why I thought I needed more worker-bee engineers and
those ideas were not well received. But I think part of the
process is, you present an idea, somebody presents a counter
idea. It is a compromise-negotiated position. And
certainly, in my case, I had been on the job for only two
and half months and prior to this, I had no political
experience.
I have done quite well being anonymous and I like being
anonymous. My background, as you know, I have two degrees
from the Massachusetts Institute of Technology, a bachelor's
in economics, a bachelor's in electrical engineering, and a
master's in electrical engineering and electrical power
systems. I have spent my entire professional life in Alaska
working in economic development, audited management, and
electrical engineering. These are not things that are new
or unfamiliar to me. I have seen systems that work, I have
seen systems that do not work, and it seemed to me that the
notion that the Division of Energy would want to contract
out everything was a notion that would not work, and
particularly, during a period of transition.
During a period of transition, one of my first goals was to
make sure that the organization got back on its feet, that
it was headed in the right direction, that we knew we had a
common direction and we could work towards that. There were
certain programs we had that mandated the things we did.
Being from the private sector, I am very much committed to
the notion of privatizing the things that the Division of
Energy does to the maximum extent feasible. I think the
difference then was what ultimately we define as feasible.
To me it seems that feasible means that if we can do some of
the work for less money and it comes out better, then that
is what we should do. And if feasible means that if
somebody else can do it outside, and it costs less money,
than we should contract it out. That is not necessarily to
say that a job for $2,000 or $10,000, we would contract out.
There is a matter of using judgement on a case by case
analysis of when it makes sense to try to contract something
out, when it makes sense to keep something...particular
elements of it, whether it is the design or whether it is
project oversight or project engineering. My experience
tells me when a particular client does not know what they
want, a contractor can come in and maybe they will get what
they want. If you do not have project oversight,
particularly when you are involved in complex systems, the
results usually (are) a more expensive end product that may
or may not work.
Given that I had nine or ten months on this job, depending
upon what the Governor decide(d) to do, I viewed it as key
in my role that I was going to get the organization back on
its feet, getting us moving in a common direction, as
quickly as I could. I was not particularly interested in
trying a new theory or new approach. I would prefer to use
the tried and true, given the time frame I had. But I think
it would be fair to say that my approach (was) that if I had
additional staff, I could move more projects out on the
street. I could put us out of business sooner. I could
accomplish the mission, the goals, that the organization
has, principally, being able to have utilities in rural
Alaska be self-sufficient, independent of the state's
subsidies that they now have, that they could be affiliated
if it made sense, or they could remain independent if it
made sense. But they could work with an entity whether it
was a private contractor, whether it was a private utility,
or a public utility. They could have the opportunity to
have access to the services and capabilities that the former
AEA, and now the Division of Energy, is in the position of
having to provide.
Most utilities, and I think there are some people from the
utility industry in the room today, have their own
engineering staff. They do some work in house. The work
they do in house is the small messy jobs and they do project
oversight. They do that to make sure their systems continue
to work. As I say, my experience has told me when you do
not have project oversight, when you do not have project
engineers on particularly complex programs and projects,
that the result is usually disastrous. You can get the job
done, it just costs you more. So, working from my
experience, I presented a proposal to my management about
why I needed additional staff. I thought it was a sound
proposal based upon discussions with my staff about the
workloads they had.
I had indicated in Friday's meeting that I think the
question had been raised, well, just what are these
workloads? And I said that I had to talk with my management
about it first. I did that afternoon, and now I feel free
to discuss those things and, certainly, given the fact that
I am no longer employed by the division, I certainly feel
more free about it. I would like to say though that I would
like the opportunity to have the job back. It is something
that I feel is well suited to my talents and capabilities.
It is something that I am very interested in but I think
that right now since there is essentially a revolving door
on the Director's office, that it is going to be very
difficult either for the next person to go back in, or if I
went back in, without perhaps some modifications to the
process about how decisions are made within the department.
I think it is going to be very difficult for these programs
to succeed. First of all, there are about 28 people at the
Division of Energy. Those people have skills and
capabilities that are very well regarded by the private
sector. The problem I was facing was that I had no depth in
terms of my engineering staff. If one of my staff decided
they wanted to leave, they could and I would lose the
capability to do a bulk fuel repair or remediation program.
One individual has turned in his resignation. His name is
Brian Gray. This was done actually prior to my termination
on Monday. Without the depth, without someone to back you
up, when one person walks, the whole program stops. The
engineers that are in the division now, as well as some of
the other personnel in the division, are seriously looking
at getting off this roller coaster.
Transition is difficult at best if it is well managed. A
poorly managed transition is even worse. I think then that
depending upon what happens over the next few days, that it
is very likely to see over the course of the next couple of
months, most of the technical staff, formerly AEA and now
the Division of Energy, leaving. That will be a serious
blow to the energy programs, to the state. Certainly, they
will be out there and we can contract with them. We can
certainly privatize their functions, but for those of you
that have been in the consulting field, you know that for
somebody that is an engineer, the typical charge is $85 to
$105 to $120 an hour depending upon the particular technical
level of the person. I think we are going to end up
spending more money to get the same thing we have now. The
problem I have with the privatization notion that everything
gets contracted out is that a small $5 or $6 or $7,000 job,
we will spend $2,000 just contracting it, just the
administrative cost of doing contracts.
Anyway, I was going to discuss briefly what my information
had been with regards to the workloads. I have an
electrical engineer who has experience in small utility
systems, small power houses, the transmission, the
distribution systems within villages. He has almost 6,000
hours of work in front of him that translates into about 3
years worth of work. My solution then would be to add a
couple of engineers to work with him to try to take care of
that workload, to get more work out on the street. I have
one mechanical engineer, a bulk fuel expert, who is planning
to leave. I would have wanted someone to support his
efforts since he has mechanical engineering areas that
Division of Energy works with...bulk fuel repairs, waste
heat systems. No one on staff right now is looking
exclusively at waste heat systems and I think that would,
given that we have some waste heat systems out there, that
we are trying to turn back over to the private sector, that
would be important to keep as a function.
(Questions were raised about the circuit rider program.) As
I stated on last Friday, to the best of my knowledge, the
circuit rider contracts were let in accordance with state
procedures. But, within the Division of Energy, the scope
of work that is required and the ability to respond quickly
and to monitor and to provide project oversight indicated to
me that I needed another person (that right now is temporary
person) to move that position to permanent. I am not
unaware of the budget problems that we have this year. I
had, with Linda Thomas, developed, actually Linda had, I
won't take credit for it, had developed a proposal to pay
for the additional positions I wanted from the division
without coming back and asking for an increase in general
fund moneys. That was done by charging some of the staff we
had to some of the loan programs we administer. I think
that is a fair thing to do and the federal government was
going to pay for one position and simply reorienting parts
of the operating budget to cover the costs. I think it is
important to state that since I came on in mid-November, the
operating budget was submitted prior to my arrival, and, had
I been here prior to the time the operating budget was
submitted and had a few months to get up to speed, I would
have changed the operating budget submission under any
circumstances. That is just a fair statement to make.
There were some other problems that I have noticed within
the division and I do not want to close on a down note but
in moving the former AEA into DC&RA there have been some
difficulties in how the entire system works. I know in
respect to the Governor's efficiency report that came out in
'92 there were statements made that things are more
efficient if a particular program or director has the
responsibility for all the functions that are required to do
the job. And part of that is certainly the administration
portion, keeping track of the money, when bills come in,
when they get paid. For example, I was asked by the general
manager of Alaska Village Electric Coop (AVEC), why I was
late paying him. That was about two or three weeks ago.
Well, I said, Charlie, I don't know. I cannot tell you why I
am late, in fact, I cannot tell you who else I am late on, I
cannot tell you ... I have no information. Getting that
information was very difficult, in this particular instance,
it was a bill for $600,000 that is now 90 days past due.
Now, if we are talking about privatizing, I can tell you
from my experience in the private sector that $5,000 90 days
late can close doors on a business and I think that is
something that we should look at in terms of how this
division functions in order to be able to turn around and do
projects in a very short time frame. That if we have eight
weeks from when the project is conceived to when it is
completed, that kind of thing typically requires the ability
to have some flexibility to move fast and I think the
efficiency report from the Governor's office was right on
target in saying if the director of the Division of Energy
is going to be responsible for those programs, then they
ought to have responsibility for the people they are working
(with) in all aspects of it. I would say this, if I was in
the private sector, as I am now, or would have said it last
Friday when I was a state employee. Hopefully, those issues
will be taken care of. There were some things that I simply
wrote off to the fact that it was a transition period, and
it was not going to be a smooth ride but we could work it
out.
One thing I want to address is that I was asked about
putting together a strategic energy plan for the state of
Alaska and had been working on that. I know that the
Governor's directive as communicated to me by the
Commissioner (Blatchford) was that nothing would be done
that would hurt rural Alaska and I believe the Governor is
firmly committed to that. I believe that the Commissioner
is firmly committed to that in terms of putting together a
strategic energy plan that was implementable, namely that
was not "pie in the sky" as some of the former energy plans
had been when they were called out by statute. I wanted
something that would be a workable document, a working
document, something that when we walked in the morning we
could see a little placard on the wall that told us why we
were there and what we were going to do and how we were
going to accomplish it. I know I had certain staff needs
about one particular individual, Dennis Miners, here in
Juneau, who had been involved in the organization from early
July of last year. I would have wanted to (have him) help
me with that and I know that the folks in the Commissioner's
office were sensitive to the issue of cost of travel and so
forth. From my private sector experience, particularly in
construction, my attitude in private experience, was do what
you had to do get the job done. If it is a particular
important document that is being produced, in my case, a
$2,000 strategic energy plan, as opposed to a $200,000
strategic energy plan, then, if you have to move fast, you
work quickly to get done what you need to have done and
certainly I felt a little hampered in terms of not being
able to call upon people who I was paying for (I was paying
for this particular individual) to come up and assist me or
work with me.
And I think that in talking about that strategic energy plan
it addresses a basic problem and that is that with respect
to how the department has approached it, I was told to do
what I thought was best. That is OK, I can do that. I like
those particular sorts of challenges and so I looked at the
programs we had, the money we had, and tried to make
reasonable assessments and presented that to my management.
But I think that one question that ought to come up is how
particular projects are selected and I would advocate the
best way to select a project is to select what makes sense
to the overall mission of the organization and the strategic
energy plan. I am disappointed that I will not be further
involved in that. That, at least, it is not going to be
done, it is not going to be done by me or at least with my
input in it. One thing, let me close with this in terms of
things I want to say. I had developed a mission statement
based upon what I saw the organization needs doing and I
think I discussed this in an overview some time ago with a
similar committee. The mission of the Division of Energy is
to assist in the development of safe, reliable, and
efficient energy systems throughout Alaska that promote
economic development, are financial viable and independent
of state subsidies, and are environmentally sound. And
based on my discussions from last week, I wanted to add one
last thing and that is that the Division of Energy will
accomplish its mission within 5 years. I think that is
doable. I do not think the state should be in the energy
business forever. Let's pick out the job we want to do, do
it and have these utilities in rural Alaska, the 80 small
utilities that serve less 200 customers, let's have them be
able to stand on their feet within 5 years. I think that is
an attainable goal. That is certainly what I was working
for. I appreciate the opportunity to speak today and, madam
chair, answer any questions.
Co-chair Pearce invited Linda Thomas, former Deputy
Director, Energy Division, Department of Community &
Regional Affairs to make a statement.
(The following testimony is also verbatim.)
(The following statement was made by LINDA THOMAS, former
Deputy Director, Energy Division, Department of Community &
Regional Affairs.) I was hired as the Deputy Director on
November 29, (1994), and I submitted my letter of
resignation at 5:00 p.m. February 7, (1994). My background
is that I am a certified public accountant. I was an audit
manager for Deloitte and Touche since 1987 prior to coming
to this position. I have spent a number of years in private
industry prior to that as a supervisor of electrical trust
funds. I only wanted to speak to one issue and that was
regarding my resignation. I fully support Robert (Harris),
and he is definitely technically competent. He has a high
sense of integrity, he was objective and as I said in my
letter of resignation to Commissioner Blatchford, I was
uncomfortable with the process that led to the resignation
of Robert. As far as I knew, there was no process. We had
a meeting on Friday (February 4) and we were discussing our
work plans and we were told by Commissioner Blatchford that
we would continue the meeting on Monday (February 7).
Monday morning Robert was called down to Commissioner
Blatchford's office and according to Robert, was asked to
resign. I was called down immediately afterwards, and asked
to continue on, and was told that it was in no way a
reflection on me. That there was just a personality
difference, and that was it. I felt very uncomfortable with
that and that is essentially what I have to say.
(This following continues to be verbatim)
SENATOR SHARP asked Mr. Harris if he had experienced a
hands-on distribution operations engineer that was familiar
with rural systems who could go out with the contractor and
familiarize the contractor with the individual systems and
how to safely operate the systems and work it through
gradually. Mr. Harris replied that, yes, there were people
who have feet on the ground, dirt under their fingernails,
grease in their hair, type people. They know how to walk in
with their eyes closed and could rebuild a powerhouse. You
just don't throw that kind of capability away. I have work
experience. I worked on the north slope. Like I said, have
experience both as a electrical contractor (and) in the
engineering area. Certainly, in the job I had, I didn't
have the opportunity to do those things but I know that the
engineering staff we had and the technician staff we had,
could do that. It brings a point up where by having that
kind of capability on-site saying I want you to do exactly
this, this and this, and not mess with these other things,
and don't come to me with any of those code questions
because I don't want you to work on those things. I just
want you to work on this. And if there is a code question,
it can be answered. It saves time and it saves money. The
question I posed was - do we want to spend $40,000 or
$400,000 to fix a problem? Every powerhouse can look the
same, and it would cost us multi-millions. For the amount
of money I've got, that the division had, it makes more
sense to replace, to take care of the problems, and bring
the systems up to at least the minimum standards and more,
is obviously better. That is just cheaper and easier to do
if you have the people on staff that we do now and, as I was
advocating, have a few more. That can provide quick answers
(having) knowledgeable personnel about electrical systems,
which are some of the most complex systems that we run into
in our daily life. When they don't work, it is a real
problem. I know on my flight back from Juneau on Saturday,
I sat next to a woman from Kotlik. I started talking to her
and told her I was the Director of the Division of Energy.
She said that was great. She said, you know when we start
cooking at six in the evening, something that (should) take
us 20 minutes to cook, takes us an hour because everyone is
trying to cook at the same time. All of us face hardships
in our daily life and some of them we get through.
Electricity is a part of our modern life. It is a shame to
see the systems in rural Alaska be third world systems. I
would like to see that changed.
Senator Rieger referred to Mr. Harris' comment about the
$40,000 and the $400,000. He asked if in the dispute in how
to approach the field work, was it an issue of whether to do
it in-house or whether to contract it, or was it an issue of
management of the contracts or whether the Energy Division
has the in-house expertise to supervise the contracts versus
having to contract that out as well. Mr. Harris looked at
that as an integrated question. There comes an economic
cutoff point at which contracting everything out is just no
longer economically feasible. Spend more money to contract
out a $5,000 job than if we just had the capabilities to do
it in-house. By virtue of the fact that we have to have the
capability in-house to be able to tell a contractor what to
do, then it makes sense to supplement that so that we have
the capability to handle the small projects where it makes
sense and farm out the big projects where we can just turn
over a set of specs with precisely what we want and where
the specs don't call out for what we want then there is a
person on staff that can answer that particular question in
a timely fashion. There were really two issues at hand.
The idea that we would contract everything, I think, runs
into the problem that the legislation specifies that we will
contract out to the maximum extent feasible. And as I would
define feasible, if we can do it in-house more cheaply,
great, let's do it. The object is not to spend money, the
object is to get the job done.
Senator Kerttula stated that a man of great integrity
preceded Mr. Harris, maybe a director or two before. This
former director had R.W. Beck & Associates, well known and
well thought of industrial consultant, set up a staffing
pattern based on their interpretation of the legislative
mandate. This report confirmed the need for "x" number of
people to properly monitor contracts, properly design them,
and to insure the public interest was at all times a matter
of record. Senator Kerttula asked Mr. Harris if he had any
comment about why the Beck report was completely ignored.
(The following testimony is verbatim.) I (Mr. Harris) had
enough problems on my hands just getting the organization up
and running from when I took over. I did not have a whole
lot of time to go back and look at histories. I was
familiar, I took the time to become familiar with the R.W.
Beck study that was released in September of 1993 and was
familiar with its recommendations. Senator Kerttula asked
if the recommendation seemed logical. I (Mr. Harris) think
that there were sound recommendations in that report. I
took a slightly different approach. I went through and
talked to my engineers about their workloads, and what kinds
of things they were working on. I was concerned that I did
not have depth in terms of my engineers if one walked
tomorrow. I did not like the idea that I would be left high
and dry and so I took a completely different approach than
the R.W. Beck study did which was formulated based upon an
interpretation of the legislative statutes and then what
kind of staffing patterns someone thought. I went in and
talked to my people and I came up with a number that would
have represented approximately 50 people as opposed to the
R.W. Beck study which said 55. I thought that was being
fiscally conservative but the point is that I used a method
and they used a different method and we came to roughly the
same number.
Senator Kerttula said that he had other questions for Mr.
Harris. Senator Kerttula said it was his understanding that
the Commissioner's office was not acting alone when there
were decisions made concerning Mr. Harris's position,
concerning allocation of certain employees and so on.
Senator Kerttula asked Mr. Harris if he had knowledge of
undue contractor influence or certainly contractors' making
strong (the next word is not understandable on the tape
because of outside noise). (The following testimony is
verbatim.) I (Mr. Harris) know that there were people who
were very concerned about it who depending upon how the
pendulum swings, do quite well, financially. I don't
personally know, maybe, Linda, you would like to respond.
Senator Kerttula said that he had a series of questions for
Linda Thomas. He asked Ms. Thomas how many contacts she had
with contractors since she worked with the Division of
Energy and what were the subjects discussed during these
contacts. Ms. Thomas said that she had only two contacts
with private contractors while at the Division of Energy and
that was with Scott Thompson of Alaska Power Systems. She
said the first one was a phone contact where he had
introduced himself and the second one was on the date when
Robert had been asked for his resignation. (The following
testimony is verbatim.) Scott Thompson and Louisa Quinlin
came in and visited Robert, Chris Lethin and I. Senator
Kerttula inquired as to the nature of that subsequent
contact. Ms. Thomas said the first telephone contact was
made right before Christmas and Mr. Thompson was introducing
himself and informing me about the status of the circuit
rider contracts. He had responded to an emergency situation
in Venetie and he was informing me that he was helping the
state out on that. Ms. Thomas said she didn't really
understand what that meant so I asked our engineers what he
meant by helping the state out. He also talked about...I
don't remember everything, but I did write it down in my
notes. I asked him as far as the Venetie contract, wasn't
that part of their contract to respond to emergency
services. Mr. Thompson said yes, but they wanted to get the
community away from state funds and he went on about the
hydro plants he has worked on and how they have benefited
the communities and we closed the conversation by his saying
he wanted to get together with us and I said well, I was
hired by Commissioner Blatchford to supposedly bring a sense
of ethics and financially accountability to the
organization. I told Scott that we were attempting to
depoliticize the agency but he said that I either need to
play ball or get creamed. That was my first contact with
Scott Thompson. My second contact was on Monday (February
7, 1994). He was invited to our office and at about 11:30
a.m. Robert, Clarice, Chris and I were in the office and Mr.
Thompson went on about how his impression that the Energy
Authority, he had problems with the Energy Authority and
working together with us in the past. He had mentioned some
specific projects that he had straightened out in different
villages, Atmautluak and Chalkyitsik. The conversation went
on for about 10 or 15 minutes. Robert got a phone call and
left the office. Chris Lethin, Clarice and I were in there,
and Scott started going off by saying, you guys don't need
more staff. I don't understand why you need more engineers.
You have plenty, you have good engineers here now. Mr.
Thompson said then that Bruce Geraghty (Deputy Commissioner,
DC&RA) and he had sat down and handwritten the
organizational chart together leaving the staff that is here
today. Someone said that wipes out middle management and
Mr. Thompson said, so, we don't need them. Ms. Thomas said
she was just stunned and said, Scott, you should not be
telling me this. Mr. Thompson said, he did not care, it
does not matter, everyone knows anyway. Those have been my
two contacts with Scott Thompson, Alaska Power Systems.
Senator Kerttula asked Ms. Thomas if she suspected or did
she know if Mr. Thompson was instrumental in having people
fired or directing any type of contract awards with
individual companies. Ms. Thomas answered that she was not
aware of that directly.
Senator Kerttula asked what Ms. Thomas knew about the
procedures used to award the circuit rider contracts.
Senator Kerttula understood that it was a low bid. Ms.
Thomas said she had spoken to their grants contract
administrator about that and the person that works very
closely with the circuit rider contract and they are very
comfortable in the procedures that were used to award that
contract.
Senator Kerttula asked Ms. Thomas why she decided to resign.
(The following testimony is verbatim.) Ms. Thomas said that
she decided to resign because Robert had been asked for his
resignation and the process, well, there was no process for
it. We were in a meeting for one to two hours on Friday
afternoon. We were told by Commissioner Blatchford we were
going to continue the meeting on Monday and make some
decisions because our budget amendments were due on Tuesday.
We left the meeting with the understanding that, and I think
it was also brought up here, that we were supposed to have a
division director's meeting on procurement issues Monday
morning. Robert showed up to the meeting and was asked to
resign. I was not aware that there were any conflicts
during our Friday meeting. I thought it was just a
discussion. I would like to say that there was no arguing
to any extent. I just thought it was a normal, we're trying
to talk to management about what we think we need and trying
to get some input into what they were looking for a
strategic plan for our work plans for the next year.
Senator Kerttula said that he had some questions for Bruce
Geraghty.
Senator Jacko said that he had understood that recently
Scott Thompson had sent some sort of letter with regards to
requesting change orders on contracts that he had and Mr.
Harris had denied those change orders. Senator Jacko asked
Mr. Harris if there was a letter to that effect. (The
following testimony is verbatim.) I (Mr. Harris) thought I
had indicated here on Friday that there was some. With any
normal contracting procedure, they have their view of what
the contract says and we have ours. Within that, I read the
contract and it said that this particular group, Alaska
Power Systems would go out for their 8 hours to a particular
community under a work order. They would go through a list
of forms that have been passed out with the RFP. That they
would go through, fill those forms out, do everything that
is required, fill out the paperwork and send it back to us.
The contract language was pretty clear. I wrote him (Mr.
Thompson) and said, you will do that. My first and,
actually only, meeting with Mr. Thompson and Ms. Quinlen, it
was the first week I was there. I brought up the issue that
because Mr. Thompson operates a vertical integrated company,
he also sells and services particular lines of equipment,
that I wanted to make it very clear to him that when he was
out on the state's dollar, I did not want his people selling
their equipment. That is not the purpose. I want him to go
out and do the work, straight up, heads up, by the book,
let's just go by the numbers. He had some real problems
with that. I think he misinterpreted what I was saying in
saying that he couldn't be in business to sell equipment or
this or that. I tried to make it very clear, that no, my
intent was that if the state was paying his way out to these
communities to do the work, that it's just that. Just go
out, do the work, and come on back. I don't want to hear
reports from communities that his techs had been trying to
sell equipment. I think that was pretty fairly understood
after about 20 minutes of intense conversation. So, in this
letter that you are referring to Senator Jacko, the other
issue that was raised was, if I can't coordinate with these
communities to do repair work that we see as obviously needs
to be done, how am I going to make sure this works gets
done. The contract language was pretty specific. It said
that the contractor would provide coordination with the
community and make sure the equipment was on site, parts and
supplies were on site, that needed to be there so that when
they got there they got the job done. I wrote him (Mr.
Thompson) and I said that is what the contract says and if
you don't do that I won't pay you. And maybe that is a hard
line for a state official to take but from my experience in
the private sector, if you don't perform, you don't get
paid. I don't have a problem with that. So, I think he may
have misinterpreted my earlier comments about what I
considered sales activity versus the activity of
coordinating to making sure the job got done. I thought I
made it very clear both in my conversations and in my letter
to him how I interpreted the contract.
End SFC-93 #21, Side 1
Begin SFC-93 #21, Side 2
Senator Jacko pointed out that Mr. Harris had some
experience in this area and asked him if Scott Thompson
maybe "low-balled" these contracts. Senator Jacko asked Mr.
Harris for his impression. (The following testimony is
verbatim.) I (Mr. Harris) thought that he very
competitively bid these contracts, yes, and I think in a
process like that, knowing from the private sector, a lot of
times the scenario is, you bid the job, you get your foot in
the door, and then, if perhaps the contract documents don't
precisely spell out what needs to be done, then you say, oh,
I have got to have a change order. Which is one of things,
he (Mr. Thompson) was doing, saying, no, the eight hour work
order did not include him (Mr. Thompson) filling out
paperwork. I need you to pay me a couple of more hours for
every village I go to so I can get this done. Senator Jacko
stated that if that worked out and he got his change order,
he could have got his profit margin out of the change
orders. Mr. Harris agreed that was a reasonable strategy.
Senator Jacko said he did not know how much Mr. Harris knew
about Scott Thompson's operation but Senator Jacko was
concerned about it because that is apparently how the
services are going to be provided into the communities out
there. It was Senator Jacko's understanding that Scott
Thompson apparently owns, in the Unalaska and Akutan
situation, a portion of the utility out there now. Senator
Jacko asked Mr. Harris if he knew that to be true. Mr.
Harris said that he had heard that but had seen no
documentation to that effect. It was his understanding but
felt there were people in the audience that could give more
information on that. (The following testimony is verbatim.)
That was a project that was a combined hydro-diesel project
partially funded through ASTF. It apparently had some
merit, and I believe that what I heard is that Mr. Thompson
is 50 percent owner in that. He did not want to speculate.
Senator Jacko said that would be a pretty good deal if he
went and got 50 percent of the utility and then got money
from the Science & Technology Foundation funded from the
Division of Energy to upgrade the utility, his equity
position would be in a much better situation, wouldn't it.
If he did that with all the villages out there he would have
a pretty good deal going. Mr. Harris agreed that it would
be a great deal.
Mr. Harris said that in respect to Mr. Thompson, I have
treated Mr. Thompson as I would treat any other potential
contractor. I believe I have treated him fairly, openly,
and honestly. You know, if someone from Mars came in and
said I have a great plan for taking care of utilities in
rural Alaska and they showed me they had the depth and
credibility and capabilities to do that, I would say, boy,
this is great. Let's have more Martians. So, whether it is
a particular individual or a public utility, that's not a
matter, not a concern to me. Just that the job gets done
and the people in rural Alaska are well served with their
electric utility interests.
Senator Jacko asked Chris Lethin to confirm that he was in
the meeting Ms. Thomas's story referenced. CHRIS LETHIN
answered affirmatively. Senator Jacko said his basic
concern with regards to the Division of Energy is that
services continue to be provided in rural Alaska without
interruption and voiced more concern now that Robert Harris
had been fired. Senator Jacko said he was worried because
he had read an article in the Tundra Times on Friday
researched by Jeff Richardson. One of the things pointed
out in the article is that Don Harris resigned because he
had a mission to continue to provide rural energy services
but could not carry through with that mission because of
interruption from management, and the organization he agreed
to work with changed as the Division was going through the
process. The article also said Don Harris was basically
receiving a lot of pressure to lay off too many people to
the extent that he would not be able to carry out his
mission. Senator Jacko felt that Robert Harris was under a
similar situation, and if that is the case, there are never
going to be enough people to actually do the job. He asked
Mr. Harris to confirm his concerns. Mr. Harris answered
affirmatively. (The following testimony is verbatim.) My
predecessor, no relation to myself, was on the end where he
was trying to shrink down an organization. Now that is a
tough task and I would have approached it by looking at the
mission, goals, programs and the amount of money and said
how many people do I need. I had gone and done the similar
process and said I need some more. It would have brought us
back to about the same level that the former Director, Mr.
Harris had indicated. Just to relate a professional
experience within the Division of Energy, we, Linda Thomas
and myself, were trying to get a project accountant on
board. We called everybody we knew to try to get somebody,
so when invoices came in we (could keep) track of them and
made sure our people were paid and not 90 days late for
$600,000. Mr. Thomas and I had trouble recruiting people.
They would say DC&RA and kind of laugh and we'd say we're a
solid team, we're going to be here for a long time. I think
now with what's happened that when the bulk fuel expert
leaves, good luck getting anybody to come back in. When the
other engineers leave, good luck finding anybody who will
walk back in this place. This is, to paraphrase a remark I
heard yesterday, this is like jumping into the biggest fire
you can find.
Senator Jacko said that last week he had asked some
questions of Mr. Harris with regards to being sure that
there were proper oversight of the contractors and
apparently Mr. Harris since last Friday had attempted to
secure some more engineers to provide that oversight.
Senator Jacko asked Mr. Harris if he felt that there was
some interference from the contractor involved that possibly
did not want this oversight, if that might have had
something to do with him being fired. Mr. Harris said that
he did not know if there was interference. (The following
testimony is verbatim.) I had heard from one of my staff
that a particular contractor, namely the Alaska Power
Systems, knew I was going to be fired before I knew it. Now
that doesn't mean that they interfered. It simply means
that they get information before I do.
Senator Jacko asked Mr. Harris if he felt the contractors
deliver the same level of trusting responsibility as
provided by the civil servants that were there under the
previous system. Mr. Harris felt that was a question of
whether it was the car or the driver. (The following
testimony is verbatim.) I think we could all point out
examples where the vehicle does not work and point examples
where it is a great vehicle and the driver is not working.
I think some of my perception of some of the problems with
the former AEA was that the response was not what people
thought it ought to be and some changes were required. I
know from the people I have talked with that they are one of
the finest group of people that I have ever worked with.
They are dedicated, they care deeply about the mission of
providing services to rural Alaska and, I think, whether it
is for a public utility or the state, typically people that
make it their life choice to work in public service do it
for reasons other than simply money. I think the people
sitting at this table would agree to that, obviously.
Senator Jacko asked, in reference to the circuit rider
program contracts, if those contracts provide for oversight
of the distribution systems as well as the power plants.
Mr. Harris answered negatively. He said that he believed it
was simply the power houses, operations and maintenance of
the power houses. (The following testimony is verbatim.) I
believe there were provisions that if the contractor
recognized an emergency situation exists, they communicate
that information back to us, and we make some sort of
determination about the next thing to do.
Senator Jacko referred to Mr. Harris' remark about
feasibility. He asked if there were any decisions made in
management about what would determine feasibility. Was
there a threshold level, was it $5,000, $2,000? Did someone
tell you, or who was to decide that? Mr. Harris said that
he was told to do what he thought was best, handle it,
essentially. (The following testimony is verbatim.) So I
came up with a common sense definition that if we could do
it for less in-house, than sending it out of house was not
feasible. If it was something that was nice and clean and
we could send it out and hand it to a design/construction
management firm, they would do the design, oversee the
project, and everybody is happy. I would be happy. I used
to work in firms like that. Senator Jacko asked if the plan
by management was to retain some contracting ability within
the division or was it going... Mr. Harris said his
understanding of their plan was that we would contract out
everything, period. Senator Jacko clarified Mr. Harris'
remark by saying, whether or not it was feasible, it would
all be contracted out. Mr. Harris said that was how he
would describe it. (The following testimony is verbatim.)
It was, put the blinders on, and the mission was not
contracting out to the maximum to the extent feasible, the
mission was contract out everything. That is, at least,
what I heard what they were telling me. I imagine they have
a different story about what they were telling me. It may
be very likely that what I heard them say is not what they
thought they said. So, but their intent, if possible, was
to contract out everything and for us not to have
contracting authority, not for us to have procurement
capabilities. Where on a construction job that takes eight
weeks from start to finish, including the design, getting
parts, getting on the job, and getting the thing built and
done, without some way of either having trustee accounts so
that we could have some project oversight or the ability to
have some level of procurement. Fast turnaround is a very
significant problem and on a job that involves people out in
the field, I think as you are aware, the cost is not the
part, the cost is having people tied up and waiting for a
part to arrive.
Senator Jacko asked Mr. Harris if under the present system,
with the number of people employed, are there disasters out
there in rural Alaska waiting to happen in some of these
utility systems. Senator Jacko pointed out back in the 70s,
when utilities were started, there were a lot of fires and
emergencies and that was why the present systems have been
developed. Mr. Harris said he thought it was safe to say
that there is a skeleton crew in place that could respond to
emergency problems. (The following testimony is verbatim.)
It is a question of how many firemen do you want in your
community. If you only have one fire you don't need a lot
of firemen. But that doesn't give you any backup or any
capability in case people walk. I think I would
characterize it that we have very limited capabilities to
deal with emergency problems and I am not convinced from
only being on the job for two and half months that there
aren't emergencies out there that could happen. I think if
we go with the scheme of contracting out everything, and
simply have a bunch of contract administrators, then you are
going to see more power systems burn down. To your earlier
question about whether someone is in the private sector or
public service, one thing's for certain. If as a private
contractor, I don't do my job, you can sue me. That will
take six to eight months, thousands of dollars. If I am in
the public sector and you don't like what I do, I am sure
that by 5:00 that afternoon I will hear about it from the
person that is representing those interests.
Senator Jacko asked Mr. Harris to confirm that Bruce
Geraghty was his primary supervisor. Mr. Harris answered
affirmatively. Senator Jacko asked who did most of the
interacting with the contractor, who made most of the
decisions. Mr. Harris confirmed that Senator Jacko had
referred to the Division of Energy, and then he answered
Linda Thomas, and contracts grants administrator would make
negotiate the contracts. Senator Jacko referred to Ms.
Thomas comment regarding Scott and Bruce writing the
organizational chart together. Mr. Harris said he was not
aware of any of those meetings. Ms. Thomas said that she
was not aware of any of those meetings either, except what
she was told by Scott Thompson.
Senator Kerttula stated that it was his understanding from
Don Harris that the commissioner hired him to put together
the organization, make it effective, and as cost effective
as possible and keep the public purpose. He referred again
to the Beck study. Senator Kerttula said that he believed
that was what the commissioner wanted, and he believed the
commissioner has been pressured by either the Governor's
office or someone else to perform differently than that. He
asked Mr. Harris if he was hired in a similar circumstance,
that is you were to put together an organization, to be
quasi-independent just as long as you run it effectively and
efficiently. Mr. Harris answered that by the time he came
on board, he thought the philosophy was that this was an
integrated part of DC&RA. (The following testimony is
verbatim.) When I signed on it made a lot of sense. DC&RA
has many elements and programs in place that deal with the
issues of rural Alaska. But as far as the direction I was
given, I was told to do what was best. So that was exactly
what I did. Senator Kerttula commented that the
Commissioner must be under some immense pressure because he
has always been very much attuned to rural Alaska needs. He
felt there was some problem that was on and that it might
take an audit to understand.
Co-chair Pearce spoke to Mr. Harris' concern in terms of
having enough engineers and his five-year goal of working
with all the energy problems throughout the state and trying
to take care of them. She asked what the present system is
and as far as he knew, what past practices were in terms of
how projects in rural Alaska have been prioritized. She was
aware that there are a lot of needs there. She asked how
had the authority previously, and how had Mr. Harris, set up
the division to decide which ones were being attacked this
year versus what might happen next year or the fifth year.
Mr. Harris felt that was a good question. (The following
testimony is verbatim.) When I arrived there was no
procedure. There were within particular grant programs or
loan programs, guidelines if a community had to participate
with 25 percent, or 75 or 60 percent of the money, but there
was no clear structure. That was one of the first things I
was working on. It would have been something I was
incorporating in a strategic plan or work plan about how the
programs that we are dealing with make sense so that we can
take care of these problems and we are out of the business.
But, no, to answer your question, it was first come, first
serve. The squeaky wheel gets the grease, I think might
have been a good characterization of it. One of the first
things I told my staff was if I'm going to be able to
depoliticize this organization so that we look at these
needs on the basis of where the greatest need is, address
those first, and do it within the context of some attainable
goal, we have to establish those priorities, a priority
ranking system so we can tell what we have to work on first.
From my experience in rural Alaska, and my own experience as
an engineer, above all the other things prioritizing,
reducing line losses, making more efficient generators,
above all that, the first and foremost responsibility is
that we make sure we have safe electrical systems out there.
I would feel very, very badly if I woke up one morning and
heard about a child being electrocuted or a particular
person in a village being electrocuted. That would be, I
think, a very difficult day. Those safety issues, I think,
they are our first priority. For folks that have been in
rural Alaska and seen those systems, some of them are
nothing more than electrical lines strung up on broom
handles, or whatever is out there, trees. You know, it is
just a rich great state and the people that live here
deserve the basic necessities of a modern world.
Co-chair Pearce asked Mr. Harris if, to his knowledge, there
was somewhere within the division, department, or in the
files, any sort of breakout over the past few years where
completed projects are located in the state so we can see if
there is a regional equitability. (The following testimony
is verbatim.) I (Mr. Harris) had been asked last week to
put together a summary of how much money has been spent in
the urban areas, in the railbelt if you will, or urban areas
and rural areas. I think there is a list and it would be
worthwhile to put that together to tell where the money has
gone. I know I was faced with a situation in the two and
half months that I had the job where a particular village,
we had given them a generator. They had neglected to take
care of it, it had failed, and they wanted another one. I
said, this does not sound good, I don't want to give these
folks another one. We gave them one two years ago. I would
need to do more research. Since then I have heard
conflicting stories about what exactly we gave them. But I
would need, I think, if we had an understanding somewhere,
where this information is available to us, give us an
understanding of what we have done in the past and what
ought to be done in the future. Frankly though, if I or the
Division of Energy or the former Alaska Energy Authority had
sent out a generator a couple years ago and it failed
because of lack of maintenance, due to lack of maintenance
on the part of the people who got it, I would be real
hesitant to give them another one. I have got other
communities that would be able to take care of it. I think
that would have been one of my prioritization schemes. If
the community could take care of what is there, great, if
they can't, have them work with an affiliate, with a public
utility or private entity, whatever. I hope that answered
your question.
Senator Jacko asked Mr. Harris what his understanding was of
the timeline for accomplishing this transition. He asked if
the goal was a year, and did it happen a lot faster, and if
so, why? Mr. Harris said that he was hired in mid-November,
and understood that certain elements were to be done by the
end of December. He wanted to get the organization back on
its feet, bring morale back, have people feel there was a
sense of purpose and a mission to what they were doing. He
was willing to wait to handle some things, like whether or
not a project accountant was needed. There were some things
he was willing to admit would take a year to resolve. Other
things though, he felt, needed to be done right away.
Senator Jacko asked Mr. Harris what it took to get rid of a
contractor, what sort of termination clause he had. Mr.
Harris said that if Senator Jacko was referring to the
circuit rider contract, it had one of the best termination
clauses in that contract he had ever seen. (The following
testimony is verbatim.) We could fire him because...anyway,
it is a great termination clause. Generally the things that
you are safe in terminating somebody are non-performance, or
those sorts of things. An attorney would be better at
answering that. Senator Jacko asked who would do that. Mr.
Harris said that initially he would have answered that it
would be the Division Director based upon recommendations
from staff, or clear evidence that something is not being
done properly. As of how that department would have seen
that decision-making process going on, he could not answer
that. Senator Jacko said that Mr. Harris did not seem to
have any oversight and that he was not really sure how he
would get rid of a contractor and asked if he agreed. Mr.
Harris said that at the present time, there was oversight.
The proposal that he had heard, and the way he interpreted
it, was that most of this contracting would be done in such
a fashion that there would be no oversight.
Senator Sharp stated that he had been paid a courtesy call
by Mr. Harris' predecessor, Don Harris. While on a trip
down south, Senator Sharp heard that Robert Harris was going
to replace him, and voiced his concern about how the
Division was going at that time (December). Senator Sharp
asked Mr. Harris how he had come to be considered for the
job. Mr. Harris said he had heard about the job through a
friend, Mr. Heinze, who works at the division. Prior to
that he did not know anybody at the division. He was
surprised that Mr. Heinze was back at the division. Mr.
Heinze had told him that this job was open and that he would
be great for it. Mr. Harris said that it sounded like
something he would like to do. At the time he had his own
consulting firm and was doing some subcontract work in
electrical engineering and economic development, so it
seemed like a good fit. His contracts were winding up, so
he called the Commissioner, sent him a copy of his resume.
He said he had never met the Commissioner prior to sending
him his resume. He thought one of the telling questions
that stuck in his mind in the interview process was he was
asked who did he know politically. He said nobody and made
a good living through the years by being apolitical and
being anonymous. He liked that.
Senator Sharp said his concern was if any legislators had
contacted any of the prospective candidates. Mr. Harris
said he had not been contacted.
Co-chair Pearce indicated that Senate Finance had paid to
fly Mr. Harris and Ms. Thomas to Juneau. She said that it
would preferable to ask any questions of them while they
were here.
Co-chair Pearce invited William R. (Riley) Snell, Executive
Director, and Dan Beardsley, Contract Manager, Alaska
Industrial Development & Export Authority (AIDEA), Alaska
Energy Authority to join the committee at the table. She
stated legislation (SB 106 and SB 126) passed last year
moved part of the energy authority's responsibilities to
AIDEA. She said that the committee was attempting to figure
out what the legislation did and would appreciate an
overview about how the transition was going.
WILLIAM R. (RILEY) SNELL said that he had provided a copy of
the AIDEA January newsletter (copy on file) that was
intended to help customers and constituency understand the
split, and the roles and responsibilities under the new
legislation. In addition, a handout was provided that
covered the overall transition of AIDEA's portion of the
spinoff (copy on file). He noted as a highlight in the
transition, in the presentation of this year's budget, there
had been a reduction in staffing of about 67 percent. These
employees had been responsible for performing maintenance
and operating responsibilities in general services to those
projects and responsibilities that are now under the
oversight of AIDEA. That translates from 18 direct, full
time permanent positions into 6 permanent full time
positions. In dollars, that would equate to a savings of
approximately $400-500,000. However, some of the escalating
costs, including higher insurance premiums, and higher costs
in some of the contractual services offset those dollars.
As of the 14 of February, all operating and maintenance
responsibilities will be transferred to Homer Electric to
manage the Bradley Lake project. That will be a further
reduction in the number of employees that we are required to
have as AEA or AIDEA. Most of remaining responsibility that
the Authority has at Bradley Lake will be fiduciary
responsibilities as related to the bond requirements as well
as ownership type requirements based on legal review that
would be inappropriate to transfer to the utilities. We
continue to look at those opportunities where further
delegation of responsibilities can be transferred. On the
four dam pool, negotiations have been entered and further
transfer of responsibilities to those utilities are
scheduled to be completed by March or April (1994).
Negotiations are ongoing with the intertie group between
Anchorage and Fairbanks for further transfer of
responsibilities with those utilities as well. We have also
had discussions with Larsen Bay (a project transferred to
the Authority under the new legislation) on how to give them
more responsibilities. Those negotiations are on-going as
well. Although it is the responsibility of AIDEA,
negotiations have been successful during the interim period
on the state's behalf for a transfer of the new intertie
money to the utilities that will be participating in both
the northern and southern intertie.
Organizationally, all services have been pulled, program
responsibilities, and managerial responsibilities that were
involved in the transfer, and now are fully incorporated
into the AIDEA organization, including the accounting
systems. Revised regulations are now being published as
required by law regarding the changes in some of the
programs that were inherited from the old AEA. We have also
sought the assistance of Commissioner Fuhs's administrative
staff in the closeout of existing capital improvement
projects. The Bradley Lake project has recently returned
$11.5M in surplus funds back to the state general fund.
This concluded his overview. He added, that due to a great
commitment of staff, much had been achieved in what had been
envisioned by the legislation, that is that the AIDEA
programs to be put out to the maximum possible to the
utilities to provide services for maintenance and
operations. We felt it had been accomplished post-haste and
felt that good progress and cooperation had been
experienced.
In answer to Senator Jacko, Mr. Williams said that
Unalaska's geothermal project was inherited from the old
AEA, and feasibility numbers were available. Currently,
requirements contract with the local fish processors are in
progress. My understanding is that the city and two fish
processors have executed their portion of an intent to enter
into a requirements contract. We are waiting for the third
fish processor to indicate its intentions. Once we have
that, we will be in a position to determine whether the
economics of that project would warrant us to proceed with
the requested legislation for the project. Again, in answer
to Senator Jacko, regarding his confidence in the project,
Mr. Williams said that there are conditions out there that
still need to be looked at. The biggest risk from a
development standpoint is the field itself and who takes the
risk to develop that field. Once the field is developed,
then normal routine construction risks would be at stake at
that point in time. He said he is impressed that progress
has been made to the extent that it has since becoming
involved in it. Mr. Williams said it would provide 10-12
megawatts of geothermal power. In answer to Senator Jacko,
he said it would not be enough to supply the whole
community, but in light of the fact that they have
significant psd problems with all the independent generating
sources, it goes a long way in reducing some of their
regulatory problems with the independent power producers.
It also maintains a stable power base for new developments
like the Carrs store which is going into the community and
must provide its own power source.
In answer to Senator Rieger, Mr. Williams said he could
provide the committee with the amount of assets in the
enterprise development account from the annual report. Even
in rough numbers, he was not able to estimate but it was
over $100M. He said he would provide information that
afternoon to Senator Rieger's office.
In answer to Senator Kerttula Mr. Williams confirmed that
the state retained ownership in the hydro projects. Senator
Kerttula asked Mr. Williams if it was a fair
characterization that the state has again socialized the
losses and potential losses, and privatized the profits.
Mr. Williams said he was not comfortable in agreeing with
that characterization. If that in fact is what has
happened, it happened at the front end of the development of
the project. What we are doing is taking the operating cost
of these projects and moving them out of the state general
fund budget and putting them directly onto the utilities to
perform. Under Bradley Lake, the utilities are responsible
for paying for those costs themselves. On that particular
project, I think it is not a proper characterization.
Senator Kerttula asked him to make the same comment on the
four dam pool. Mr. Williams said as he understood it, the
projects were operated on behalf of the state and removed
their operating costs as part of the expenses before they
remit what is required in their contracts to the state. He
did not see that there was any change in profits or the
overall revenue stream coming into the state as per the
original contracts.
In answer to Senator Sharp, Mr. Williams explained that the
Project Management Committee (PMC) was created by the
utilities to help oversee the operations of the projects.
Mr. Williams listed the four dam pool, Bradley Lake, Larsen
Bay...as a few that had been transferred to his
responsibility. He confirmed that Larsen Bay was Kodiak and
not Terror Lake.
Senator Rieger asked if there were any plans to use a
capital reserve fund for any intertie project. Mr. Williams
said no project was far enough along to know what debt if
any would be required for the new interties. He believed
that the legislation adopted last session does give AIDEA
the ability, the moral pledge of the state, should it have a
debt financing component. As of yet, the feasibility on
those projects and their costs are not sufficiently along to
know whether or not one would be required or what shape the
actual financing would take.
In answer to Senator Rieger, Mr. Williams agreed that during
a feasibility study, grants or subsidized loans from the
state were ignored, and only original capital costs were
regarded.
Senator Kerttula referred to the transmission line that
seems the most controversial, the one from Sutton to
Glennallen. He asked if anyone had suggested power
production or looked at the potential of gas production,
gas-fired generation rather than building the line. Mr.
Williams said that under legislation, the feasibility
analysis for that project remained with the Department of
Community & Regional Affairs, Division of Energy. He said
they had been given a debt component and were awaiting the
feasibility analysis before it would be reviewed for
financial feasibility for any debt issuance. No discussions
have been held as to alternates viewed in the feasibility
study.
Co-chair Pearce asked the status of each of the major
intertie projects that were included in SB 126, the
appropriation bill, in terms of signed contracts and actual
expenditure of the appropriated funds. Mr. Williams said
the only funds that they had direct involvement to date were
the new interties for the northern/southern railbelt. They
were asked to lead in the negotiations of putting the grant
for the state funds in place with the utilities. That has
been done. Contracts have been signed with the utilities
and grant administration agreements allowed the utilities to
go forward and start selecting contracts for purposes of
design, permitting, etc. With the new interties, monies are
obligated under the grant agreement and that work has
commenced as far as the reconnaissance design and permitting
activities. In the northern route, contracts have already
been awarded, and in the southern route, scoping documents
are now necessary to go forward with retaining a&e type
services. He agreed that the appropriation was in the grant
administrator's fund.
Mr. Williams said that it was an important point that under
the legislation and again on legal review, while using AIDEA
staff and the AIDEA board of directors, for legal and
financial purposes, they be treated totally as separate
corporations. It is important to maintain that segregation
based upon legal advice and not to commingle the
responsibilities.
Mr. Williams agreed with Senator Sharp that there was
another little transmission line around Seward. Mr.
Williams added that several had been listed but he reminded
the committee that if there is a debt component, because the
Division of Energy cannot issue debt, a project feasibility
analysis needs to be completed, before they have a feasible
project. At this point, they will get involved looking at
the potential of the project to meet its debt service and
make a determination as to whether it can be debt financed.
Senator Sharp stated that it was the full amount needed to
de-bottle neck something and Mr. Williams concurred.
Senator Kerttula asked if some of the projects become
"fringy", would it lessen the ability to supply the needed
capital for other worthy programs. Mr. Williams confirmed
the need to make sure that there are two separate
corporations and to insure debt is not commingled, but as
currently structured, the answer is negative.
Senator Kerttula stated that Mr. Williams had great
integrity and had done very well at his job. He hoped that
Mr. Williams would boilerplate for the future each and every
step so that to the maximum extent, the state is safeguarded
against people that may follow him that are inadequate at
the task.
Co-chair Pearce asked Mr. Williams if AIDEA was going to
need any bonding authorization from the legislature. He
answered that for AEA there was a question whether there was
a need to modify who the receiving agency is for the state
on the Snettisham project. He felt it might be satisfied
under federal legislation and would not need state
legislation. There also may be a small technical issue with
AEA legislation in relation to feasibility studies. The
past legislation said that they had lost the ability to do
project feasibilities. He was concerned that AEA would also
lose the ability to do financial feasibilities which were
needed to arrive at conclusions regarding debt financing.
He said the Attorney General's office was addressing this
concern for this legislative session. As far as the AIDEA
program goes, he suspected that legislation would be needed
for the Sitka pulp mill pending the outcome of the
feasibility analysis to convert the plant to medium density
fiberboard. He thought other projects, such as Unalaska,
will progress to where legislation will need to be
introduced.
In answer to Senator Kelly, Mr. Williams said that the Sitka
pulp mill would retain ownership by the Alaska Pulp
Corporation. He said that AIDEA and the state were
participating in a feasibility analysis regarding the
conversion of the plant. Ownership would remain the same
due to environmental concerns. He explained that AIDEA
would look at participating in a loan between $40-60
million, the dollar amount still to be determined, to
convert the machinery part of the plant. He said it would
be an interest bearing account, at today's market between 8
and 9.5 percent, since it would not qualify as a tax exempt
loan. The state would not participate in the total amount,
only equity participation of at least 20 percent.
In answer to Senator Jacko, Mr. Williams said that he
believed the total number of the geothermal projects was
$100M. Again, in answer to Senator Jacko, Mr. Williams said
that the details would have to be worked out, as to where
additional equity, or contributions would come from to get
the project into the financial feasibility range of
doability.
In answer to Co-chair Pearce, Mr. Williams said that the
structural steel for the maintenance facility airport
project came out of the fabricator's shop in Iowa with an
approximate 60 percent defects in the welds. AIDEA
inspectors found the defects, the contractor had the control
of quality control and assurance, and failed miserably at
the responsibility. An attempt was made to repair the welds
in the field and was determined that it was not financial
feasible. New materials are in the process of being secured
from a new fabricator. The project will come on line
approximately 3-4 months late. The budget, the way the
contract with Federal Express works is, whatever the cost of
the project, the responsibilities is with Federal Express.
It is passed directly to them, they in return pay the
Authority through their 20-year lease for the rights and
privileges of using the facility. AIDEA is advancing the
funds for the additional costs, however, Federal Express is
on the hook for reimbursement of costs. In answer to
Senator Kelly, Mr. Williams said the original subcontractor
who made the steel is out of the project. It is the
responsibility of the fabricator to dispose of the steel.
The subcontractor received a partial payment on shipment,
about 30-40 percent for materials. He said that there is
recourse for recovering that money through performance and
payment bonds that were required to be in place in the
contract. It was probably a month into construction before
the project was halted because of the bad welds.
ADJOURNMENT
The meeting was adjourned at approximately 11:00 a.m
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