Legislature(2005 - 2006)SENATE FINANCE 532
02/13/2006 09:00 AM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB188 | |
| HB243 | |
| SB207 | |
| HB243 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 188 | TELECONFERENCED | |
| += | HB 243 | TELECONFERENCED | |
| + | SB 207 | TELECONFERENCED | |
| + | 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withdrawn from consideration.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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