Legislature(1995 - 1996)
1996-02-09 House Journal
Full Journal pdf1996-02-09 House Journal Page 2695 HB 492 HOUSE BILL NO. 492 by the House Rules Committee by request of the Governor, entitled: An Act relating to the four dam pool transfer fund and the power development fund. was read the first time and referred to the Community & Regional Affairs, Labor & Commerce, Resources and Finance Committees. The following fiscal notes apply: Fiscal notes (3), Dept. of Community & Regional Affairs, 2/9/96 Zero fiscal note, Dept. of Commerce & Economic Development, 2/9/96 1996-02-09 House Journal Page 2696 HB 492 The Governor's transmittal letter, dated February 9, 1996, appears below: Dear Speaker Phillips: Under the authority of art. III, sec. 18, of the Alaska Constitution, I am transmitting a bill modifying the distribution of money from the four dam pool transfer fund and making necessary changes to the power development fund. These changes are needed to allow the Alaska Energy Authority (AEA) to issue bonds for needed repairs to the four dam pool projects. The Tyee transmission line links the communities of Wrangell and Petersburg to the Tyee Lake hydroelectric project. The transmission line has been out of operation on three occasions over the last several years because of significant deficiencies in the line. Repairs are immediately needed to ensure that the line can operate without a catastrophic failure. In addition, repairs are required to the Terror Lake hydroelectric project power tunnel. Due, at least in part, to design deficiencies, the Terror Lake power tunnel has not performed in accordance with reasonable standards. Under the long-term power sales agreement between the AEA and the purchasing utilities of the four dam pool, the required repairs to the Tyee transmission line and some of the repairs to the Terror Lake power tunnel are obligations of the AEA. Under the agreement, the utilities make annual debt service payments to the state. Over the past several years, these payments have amounted to between $8 million and $11 million annually. The utilities may reduce or withhold this payment, however, if the AEA lacks sufficient money to fulfill its obligations under the agreement. The ability to withhold payment is generally referred to as the utilities self-help right. Since the Tyee transmission line repairs and some of the Terror Lake tunnel repairs are obligations of the AEA, the purchasing utilities could withhold the annual debt service payment to provide money for these repairs. In fact, under a settlement agreement with AEA, the purchasing utilities invoked their self-help right last fiscal year and withheld $4 million to conduct engineering for the required repairs. 1996-02-09 House Journal Page 2697 HB 492 The debt service payment made by the utilities is deposited into the four dam pool transfer fund. Under current law, subject to appropriation, 40 percent of the balance in the four dam pool transfer fund is transferred to the power cost equalization and rural electric capitalization fund; 40 percent goes to the Southeast energy fund; and 20 percent goes to the power project fund. AEA intends to issue up to $25 million of bonds to finance the immediately needed Tyee transmission line repairs and the obligations of the AEA with respect to the Terror Lake power tunnel for these repairs. That would prevent the utilities from withholding their debt service payments. Under existing law, AEA has the authority to issue these bonds and they may carry the moral obligation of the state. The bonds will have a term of no more than 25 years. Annual payments are estimated at between $3 million and $5 million and will begin no later than July 1, 1998. The purpose of the deferral of bond payments to July 1, 1998, is to give the AEA time to develop a long-term plan for the four dam pool facilities. The AEA is currently negotiating to sell the dams to the utilities. If the sales take place, the bonds will be paid off before any debt service payments are due. In order to make the proposed bonds marketable, bond investors must be assured that a secure revenue source is available for the debt service on the bonds. There are two critical elements to ensure this secure revenue source. First, the utilities must limit the self-help right under the power sales agreement to guarantee that a sufficient payment is made to the AEA to cover the debt service. In that regard, the four dam pool project management committee and the AEA entered into an agreement whereby the utilities will limit their self-help right. The second critical element is to ensure that the first call on the payments made by the utilities is for the debt service related to the bond issue. This bill accomplishes that second critical element. Section 1 of the bill modifies current law so that, subject to appropriation, an amount necessary to cover the debt service on the loans or bonds will be transferred from the four dam pool fund to the AEA power development fund. Section 2 of the bill clarifies that 1996-02-09 House Journal Page 2698 HB 492 money in the AEA power development fund can also be used for repairing and improving power projects constructed or acquired before August11, 1993. This bill will allow the immediately needed repairs on the four dam pool facilities to go forward. Meanwhile, discussions will continue with the utilities to develop a long-term solution to the financing and economic needs of the projects. I urge your passage of this bill. Sincerely, /s/ Tony Knowles Governor