SB 34-PCE ENDOWMENT FUND INVESTMENT  2:23:25 PM CHAIR COSTELLO announced the consideration of SB 34. "An Act relating to investment of the power cost equalization endowment fund; and providing for an effective date." 2:23:41 PM PAM LEARY, Director, Division of Treasury, Department of Revenue (DOR) explained that the fund purpose is to annually fund the power cost equalization endowment fund and the rural electric capitalization fund, and to reimburse the cost of managing the fund. The amount that can be appropriated is seven percent of the monthly average of the fund for the previous three fiscal years. The annual appropriation is used to fund the cost of energy in areas that are experiencing high energy costs. The fund was established in 2000 with a $100 million appropriation from the Constitutional Budget Reserve. It received an additional $89.6 million in 2002 from the proceeds of the Four Dam Pool project. There were two additional appropriations: one in 2007 for $182.7 million and the second in 2012 for $400 million. On January 31, 2015 the fund had a balance of $950.7 million. SB 34 removes the 7 percent stated nominal return target from statute and allows the revenue commissioner to invest the fund at potentially a lower rate while still meeting the objectives of the program. The bill has a zero fiscal note and additional funds will not be required to continue to manage the fund. 2:23:45 PM GARY BADER, Chief Investment Officer, Trusts and Portfolio Management, Department of Revenue (DOR) advised that the goal is to achieve the highest rate of return with the lowest risk possible. Current law directs the revenue commissioner to achieve a specific return without regard to risk. He directed attention to the page in the packet titled 2015 Capital Market Expectations from Callan Associates that estimates what is likely to be achieved over the next ten years in the capital market. It demonstrates that in order to achieve a 7 percent return, the commissioner of revenue would have to adopt an asset allocation that is almost entirely equities. The projected risk or standard deviation means it could drop 20 percent to 30 percent in one year. That is very risky and no way to run an investment program, he said. He summarized that SB 34 would allow the commissioner to meet the goals of the program without having to try to achieve a 7 percent nominal return. 2:30:49 PM SENATOR STEVENS asked if the fund has achieved 7 percent in recent history. MR. BADER answered yes; the fund has done very well. He offered to follow up with the numbers. CHAIR COSTELLO asked the genesis of the legislation. MR. BADER replied this legislation has been proposed before and supported by previous commissioners. 2:32:03 PM CHAIR COSTELLO announced she would hold SB 34 in committee.