MINUTES SENATE FINANCE COMMITTEE April 15, 1993 7:07 p.m. TAPES SFC-93, #56, Side 1 (210-end) SFC-93, #56, Side 2 (end-315) CALL TO ORDER Senator Drue Pearce, Co-chair, convened the meeting at approximately 8:40 p.m. PRESENT In addition to Co-chairs Pearce and Frank, Senators Kelly, Kerttula, Rieger, and Sharp were present. Senator Kerttula was not present. ALSO ATTENDING: Senators Rick Halford and Robin Taylor, Cam Toohey, staff to Senator Sharp, prime sponsor of SB 106 and SB 126; Brent Petrie, Manager/Planning & Project Development, Alaska Energy Authority; Mark Hickey, Contract Lobbyist for the city of King Cove; David P. Hutchens, Alaska Rural Electric Cooperative Association; Dave Tonkovich, Fiscal Analyst, Legislative Finance Division; and aides to committee members. SUMMARY INFORMATION SB 106: An Act authorizing power transmission interties between Anchorage and the Kenai Peninsula, between Healy and Fairbanks, and between the Swan Lake and Tyee Lake hydroelectric projects, and approving the design and construction costs of the interties; and providing for an effective date. The committee had adopted CSSB 106(FIN) work draft and amended it in a prior meeting. Brent Petrie, Manager/Planning & Project Development, AEA, spoke to the bill and the three fiscal notes. CSSB 106(FIN) was REPORTED OUT of committee as amended with a "do pass" with zero fiscal notes for DC&ED component #965 and #373, and a fiscal note in the amount of $447.0 for DC&ED component #1232. Co-chairs Pearce and Frank, Senators Jacko, Kelly, and Sharp signed a "do pass." Senator Rieger signed a "no recommendation." Senator Kerttula was absent from the meeting and did not sign. SB 126: An Act making special appropriations for design and construction of power transmission interties between Anchorage and the Kenai Peninsula, between Healy and Fairbanks, and between the Swan Lake and Tyee Lake hydroelectric projects; and providing for an effective date. The committee adopted CSSB 126 (FIN) work draft "B" and amended it. Testimony was heard by Brent Petrie, Manager /Planning & Project Development, AEA, and Mark Hickey, Contract Lobbyist for the city of King Cove. Discussion was had by Co-chairs Pearce, Frank, and Senators Rieger, and Sharp regarding amendments 1 and 2. CSSB 126(FIN) was REPORTED OUT of committee as amended with a "do pass". Co-chairs Pearce and Frank, Senators Jacko, Kelly, and Sharp signed a "do pass." Senator Rieger signed a "no recommendation." Senator Kerttula was absent from the meeting and did not sign. CSSB 129(STA): An Act relating to state procurement. The committee adopted CSSB 129(FIN) work draft "K" and amended it. CSSB 129(FIN) was REPORTED OUT of committee as amended with a "do pass" with zero fiscal notes for the Department of Administration and the Department of Transportation & Public Facilities. Co-chairs Pearce and Frank, Senators Jacko, Kelly, Rieger, and Sharp signed a "do pass." Senator Kerttula was absent from the meeting and did not sign. SB 163: An Act relating to power cost equalization; and providing for an effective date. The committee adopted CSSB 163(FIN) work draft "J" and amended it to exclude Section 1 and any reference to Palmer, Homer and Seward. Testimony was heard from David P. Hutchens, Alaska Rural Electric Cooperative Association, and Brent Petrie, Manager/Planning & Project Development, Alaska Energy Authority. CSSB 163(FIN) was REPORTED OUT of committee as amended with a "do pass" with a fiscal note for DC&ED in the amount of $600.0. Co-chairs Pearce and Frank, Senators Jacko, Kelly, Rieger, and Sharp signed a "do pass." Senator Kerttula was absent from the meeting and did not sign. These bills were scheduled but not heard: SB 59 - SCHOOL CONSTRUCTION & MAINTENANCE GRANTS SB 60 - APPROP:SCHOOL CONSTRUCTION GRANT FUND SB 76 - CHARITABLE GAMING RESTRICTIONS SB 88 - CAPITAL PROJECT GRANTS SB 135 - APPRO: AK RAILROAD EXTENSION STUDY SB 148 - ALASKA RAILROAD CORPORATION SB 180 - SCHOOL CONSTRUCTION DEBT REIMBURSEMENT SB 181 - SCHOOL CONSTRUCTION GRANTS HB 64 - ANTI-STALKING LAW HB 96 - EXTEND ALCOHOL BEVERAGE CONTROL BOARD SENATE BILL NO. 106: An Act authorizing power transmission interties between Anchorage and the Kenai Peninsula, between Healy and Fairbanks, and between the Swan Lake and Tyee Lake hydroelectric projects, and approving the design and construction costs of the interties; and providing for an effective date. CO-CHAIR DRUE PEARCE announced that the CSSB 106(FIN) had been adopted in a prior meeting, and invited Brent Petrie, Manager /Planning & Project Development, Alaska Energy Authority, to join the committee members at the table to speak to the bill and the three fiscal notes. BRENT PETRIE said that CSSB 106(FIN) was complex and affected three components of the budget. He said the PCE administration component would be reduced by about $4M over a twenty-year period by the bill, and the PCE grant line from the general fund reduced allocations by $272M over the same twenty year period. He explained that funding sources would be changed from the general fund to the new revolving fund. The third component is the agency operations component and in FY 94, the agency would need an appropriation of $447.0 to start the interty work. That money would come back to the agency to initiate the negotiation with the utilities for design, construction, and financing for the projects. Senator Sharp MOVED for passage of CSSB 106(FIN) from committee with individual recommendations. No objections being heard, CSSB 106(FIN) was REPORTED OUT of committee with a "do pass," and with three fiscal notes for the Department of Commerce & Economic Development - two zero and one for $447.0. Co-chairs Pearce and Frank, Senators Kelly, Sharp, and Jacko signed "do pass." Senator Rieger signed "no recommendation." Senator Kerttula was absent from the meeting and did not sign. SENATE BILL NO. 126: An Act making special appropriations for design and construction of power transmission interties between Anchorage and the Kenai Peninsula, between Healy and Fairbanks, and between the Swan Lake and Tyee Lake hydroelectric projects; and providing for an effective date. Co-chair Pearce announced that CSSB 126(FIN) "B" work draft was before the committee. Senator Sharp MOVED for adoption of the "B" version of CSSB 126(FIN). Hearing no objections, IT WAS SO ORDERED. Senator Sharp MOVED for adoption of amendment 1 deleting Sec. 8 (copy on file). Co-chair Pearce OBJECTED for discussion purposes. Senator Sharp said that the CSSB 126(FIN) assumed an additional $9,300.0 was needed to fund the new revolving fund so that it could accomplish the intent of $1.1 that stated as far as the financing over the twenty year period. That appropriation from the general fund is no longer required. Co-chair Pearce REMOVED her objection. Hearing no other objections, amendment 1 was ADOPTED. Senator Sharp spoke to each of the sections of CSSB 126(FIN). Co-chair Pearce announced that amendment 2 (copy on file) was before the committee and invited Cam Toohey, staff to Senator Sharp, prime sponsor of SB 126 and Brent Petrie, Manager/Planning & Project Development, Alaska Energy Authority to join the committee at the table to speak to amendment 2. Co-chair Pearce spoke to amendment 2 and said that the amount that was in the Governor's request to the legislature had been reduced by about 40 percent. Senator Kelly OBJECTED, and asked for an explanation of the last two sections on page of 2 of amendment 2. BRENT PETRIE said that the requests in the last two sections of amendment 2 were prior requests made under the normal budget process and had been approved by the Governor's office and were to be requested by AEA as program receipt authority. In the case of the first section, AEA has received monies from utilities and other parties over time to blend with other monies that have been appropriated for AEA to complete a project. He explained that sometimes it is necessary to cost-share a project. The way the revolving fund legislation is written if money came into the fund, AEA can receive it but the legislature must authorize AEA to expend it. This section gives the authority to expend such funds. In answer to Co-chair Pearce, Mr. Petrie said that it was standard practice that every couple of years, this authority was requested from the legislature. Senator Rieger asked if the $4.3M was appropriated from the general fund. He also asked if the numbers were in the Governor's capital budget request. Co-chair Pearce answered affirmatively that higher numbers were in the Governor's capital request. Senator Rieger asked if those requests were appropriated to the Alaska Energy Revolving fund in the Governor's request. Mr. Petrie said that the original capital budget requested a significant amount of those funds come from the power development revolving loan fund which was reporting of quote receipts. With CSSB 126, it was felt that about $2.1M could come from the revolving fund and the other amounts although worthy projects, would have to come from the general fund as a supplement to the revolving fund. Senator Rieger said that a lot of money was put into the energy authority and it looked as if even more funds were going into the energy equation. Mr. Petrie agreed that these amounts would be general funds going into the revolving fund. Mr. Petrie said that he and Ron Garzini, Executive Director, AEA, were trying to come up with some kind of transitional effort during the first year if this legislation passes. Senator Rieger said that there had not been enough time to sort through what the AEA has done with their own money. Senator Rieger questioned the wisdom of transferring a funding source to the general fund when the general fund is already under so much pressure for capital. It would seem to put more burden on the general fund. Senator Sharp felt that in future years everyone would be funded out of the new account that is being set up and these amounts requested by AEA was originally $12M. The amount had now been reduced to $4M for the transition. Mr. Petrie said that in an earlier version of SB 126, an estimated $10M from the general fund might be required to make the revolving fund work. This is substantially less than that amount. Discussion followed between Senator Kelly and Co-chair Pearce regarding the additional projects added to SB 126. Senator Kelly asked who was going to do the bulk fuel system upgrade -- the Coast Guard, DEC, or DC&RA. He asked if it was an AEA project. Mr. Petrie said that about two years ago regulations mandated that fuel deliveries could not be made to a number of rural communities and a bulk fuel assessment was initiated through the Energy Authority for many rural communities. Since last year funds were appropriated for AEA to do repairs and upgrades for these systems, a part of small diesel systems in villages. It is not something new that AEA is doing but felt that it should be elevated in importance. DEC is involved in the regulatory because of the statutory arrangement - they regulate the larger tanks. The Coast Guard is involved in regulating any fuel facility where fuel deliveries come by vessel. The AEA has no regulatory authority but they have some technical abilities to make the corrections that are necessary. Senator Rieger asked if the $4.3M would be appropriated into the Alaska Energy Revolving Fund and appropriated back out to the projects as outlined, basically capital appropriations except that the funding source has changed. Mr. Petrie said that the money would be allocated and money would drawn from those funds for those projects up to the maximum limit authorized by the legislation. The Governor's budget there were over $3.5M in general fund requests for capital projects for the AEA. Co-chair Pearce invited Mark Hickey, Contract Lobbyist for the city of King Cove, to join the committee at the table. Mark Hickey said that $250.0 was not adequate to complete the King Cove hydroelectric project, and that $500.0 was needed to complete the budget which would bring the state's contribution to $3M, half of which was funded last year. That amount is being matched by approximately the same amount, $2.7M (a loan of $2M, $250.0 cash contributions from the Aleutians East Borough and $450.0 cash contribution from the city of King Cove). $500,000 is the remaining amount needed. He said that $3M was the amount that the state expected to spend when the study was first done for this facility. Co-chair Pearce announced that CSSB 126(FIN) would be held and brought up again later in the meeting. Note: The following section for CSSB 126(FIN) was moved so that the minutes for CSSB 126(FIN) are in the one place. Senator Sharp MOVED to amend amendment 2 by reducing (1) Rural Power Systems Upgrade to $650,000, (6) Alternative and Applied Energy Technology Development to $350,000, and increase (7) King Cove Hydroelectric Project to $500,000. Senator Kelly withdrew his objection to the amended amendment. No other objections being heard, amendment 2 was ADOPTED. Senator Sharp MOVED for passage of CSSB 126(FIN) as amended from committee with individual recommendations. No objections being heard, CSSB 126(FIN) was REPORTED OUT of committee with a "do pass". Co-chairs Pearce and Frank, Senators Kelly, Sharp, and Jacko signed "do pass." Senator Rieger signed "no recommendation." Senator Kerttula was not present at the meeting and did not sign. CS FOR SENATE BILL NO. 129(STA): An Act relating to state procurement. Co-chair Pearce announced that CSSB 129(FIN) work draft "K" was before the committee. Senator Frank MOVED for adoption of the "K" version of CSSB 129(FIN). Hearing no objections, IT WAS SO ORDERED. Co-chair Frank MOVED for adoption of amendment 3 revised (copy on file). No objections being raised, amendment 3 revised was ADOPTED. Co-chair Frank MOVED for passage of CSSB 129(FIN) as amended from committee with individual recommendations. No objections being heard, CSSB 129(FIN) was REPORTED OUT of committee with a "do pass," and two zero fiscal notes for the Department of Administration and the Department of Transportation and Public Facilities. Co-chairs Pearce and Frank, Senators Kelly, Sharp, Rieger, and Jacko signed "do pass." Senator Kerttula was not present at the meeting and did not sign. Recess 7:40pm Reconvene 8:00pm Note: The part of this meeting that took place at this time is incorporated under CSSB 126(FIN) above. SENATE BILL NO. 163: An Act relating to power cost equalization; and providing for an effective date. Co-chair Pearce announced that CSSB 163(FIN) work draft "J" was before the committee. She said that there were proposed amendments to SB 163 that had been added to CSSB 163(FIN). Section 1 adds Palmer, Homer and Seward. She invited Brent Petrie, Manager /Planning & Project Development, Alaska Energy Authority, to join the members at the table and speak to the bill. BRENT PETRIE said that Section 1 added Palmer, Homer and Seward, three additional utilities to the method in which the base calculation is made for the power cost equalization program. These utilities represent about 30 percent of the energy sales in the railbelt. Those utilities that would be added for the purpose of making a calculation will probably be Matanuska Electric Assoc., Homer Electric Assoc., and Seward Electric System. End SFC-93 #56, Side 1 Begin SFC-93 #56, Side 2 Co-chair Pearce said public schools would be exempt, and still receive the PCE, but, referring the committee to page 2, line 6 and 7, pointed out that state and federal offices do not receive a PCE under this legislation. Senator Kelly asked the net result of adding Palmer, Homer, and Seward to the bill. Mr. Petrie said that he did not know the exact amount of the net result but it would raise the base on which the PCE was calculated because all those utilities have higher rates than the other utilities in the railbelt, approximately 11 cents a kilowatt-hour. He felt it would raise the PCE to about 10 cents per kilowatt-hour. He recommended that the base remain at 9.82 cents per kilowatt-hour for this year because he was aware that the Golden Valley Assoc. had lowered their rates. Senator Jacko asked why these utilities had been added to the legislation. Senator Rieger asked for an explanation of the last phrase on page 2, lines 13 through 16, "less than 52.5 cents per kilowatt-hour." Mr. Petrie said a utility would not be reimbursed over 52.5 cents per kilowatt-hour, and would be reimbursed 95 percent of the eligible costs between 9.82 cents and 52.5 cents per kilowatt-hour. In answer to Senator Kelly, Co-chair Pearce said that AEA had requested the addition of Palmer, Homer and Seward utilities to the legislation. Mr. Petrie answered for the record that AEA had not requested the addition of those utilities to the legislation. DAVID P. HUTCHENS, Alaska Rural Electric Cooperative Association, said that adding Palmer, Homer and Seward would have the affect of increasing the average cost for that base slightly the first year to about 10 cents per kilowatt-hour based on 1991 year end calculations. He agreed with Mr. Petrie's recommendation to leave the rate at 9.82 cents the first year because the following year's calculation would be very close to the 9.82 cents (since Golden Valley Assoc. had lowered their rates). In answer to Senator Jacko, Mr. Hutchens' said that he had not recommended that the three utilities be added to the legislation. Mr. Petrie said that when HB 216, Power Cost Equalization, was dealt with a week ago, a question had been raised regarding the calculation of the PCE rate. He said he gave out information regarding the five utilities, including Anchorage, Fairbanks, and Juneau, that were involved in that calculation. He said someone had asked him if Palmer was in the calculation and as a result he gave out the names of the utilities that were not included, including Palmer, Homer and Seward. He said that the addition of these three utilities may have resulted from a misunderstanding from that discussion but that AEA did not recommend adding those three communities to the calculation. Discussion was had by Senator Jacko, Mr. Petrie, Co-chair Pearce and Senator Kelly regarding the addition of Palmer, Homer and Seward utilities to the legislation. Senator Jacko MOVED that CSSB 163(FIN) be amended by deleting Section 1 on page 1, and deleting the words "Palmer, Homer, and Seward" from page 2, line 20. No objections being heard, the amendment was ADOPTED. Senator Kelly MOVED for passage of CSSB 163(FIN) as amended from committee with individual recommendations. No objections being heard, CSSB 163(FIN) was REPORTED OUT of committee with a "do pass," and a fiscal note for the Department of Commerce & Economic Development in the amount of $600.0. Co-chairs Pearce and Frank, Senators Kelly, Sharp, Rieger, and Jacko signed "do pass." Senator Kerttula was absent from the meeting and did not sign. ADJOURNMENT The meeting was adjourned at approximately 9:25 p.m.