04/09/2013 08:00 AM House COMMUNITY & REGIONAL AFFAIRS

              HB 166-BULK FUEL REVOLVING LOAN FUND                                                                          
                                                                                                                                
8:41:14 AM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK announced that the  final order of business would                                                               
be  HOUSE  BILL NO.  166,  "An  Act  relating  to the  bulk  fuel                                                               
revolving loan fund."                                                                                                           
                                                                                                                                
8:41:29 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE FOSTER,  speaking as sponsor of  HB 166, explained                                                               
that HB 166  addresses who qualifies for the  bulk fuel revolving                                                               
loan fund.  Currently, the  bulk fuel revolving loan fund applies                                                               
to  communities  with  populations  that fall  below  2,000,  but                                                               
doesn't make  a distinction  between communities  that are  on or                                                               
off   the  road   system.     This   legislation  maintains   the                                                               
aforementioned for communities connected  by the road system, but                                                               
also allows for  communities with populations that  are less than                                                               
4,000 to  qualify as  well.  The  legislation also  increases the                                                               
maximum amount requested [from the  bulk fuel loan] from $750,000                                                               
to $1,500,000.                                                                                                                  
                                                                                                                                
8:42:32 AM                                                                                                                    
                                                                                                                                
PAUL   LABOLLE,  Staff,   Representative  Foster,   Alaska  State                                                               
Legislature, highlighted  that communities  with a  population of                                                               
less than 4,000 only qualify if  the community is located off the                                                               
interconnected state road system  otherwise the population cap of                                                               
2,000  remains.   Therefore, that  expansion in  population would                                                               
capture those living off the Rail Belt.                                                                                         
                                                                                                                                
8:43:01 AM                                                                                                                    
                                                                                                                                
CO-CHAIR LEDOUX  inquired as to what  communities the [expansion]                                                               
would include.                                                                                                                  
                                                                                                                                
MR.  LABOLLE  referred to  the  list  entitled "All  incorporated                                                               
places in  State of Alaska."   The  green highlights in  the list                                                               
are those  communities with  a population  above 2,000  but below                                                               
4,000  [and not  on the  interconnected state  road system]  that                                                               
would be  included were HB  166 to  pass.  Those  communities are                                                               
Cordova,  Dillingham, Kotzebue,  Nome, Petersburg,  and Wrangell-                                                               
Petersburg, Seward, and Wrangell.                                                                                               
                                                                                                                                
REPRESENTATIVE   FOSTER   pointed   out   that   the   population                                                               
specifications are  a policy call.   Representative  Foster noted                                                               
that  although he  may have  considered a  higher population  cap                                                               
that  would  include  Barrow, he  took  into  consideration  that                                                               
Barrow has natural  gas and the bulk fuel  revolving loan program                                                               
is likely not used in Barrow.                                                                                                   
                                                                                                                                
CO-CHAIR NAGEAK acknowledged that is the case for Barrow.                                                                       
                                                                                                                                
REPRESENTATIVE  DRUMMOND inquired  as to  why Seward  is included                                                               
since it is located on the road system.                                                                                         
                                                                                                                                
MR.  LABOLLE clarified  that the  list highlights  per population                                                               
and doesn't take  into consideration whether the  community is on                                                               
the road  system.  He  agreed that  Seward would not  be included                                                               
under the provisions of HB 166.                                                                                                 
                                                                                                                                
8:45:42 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  DRUMMOND requested  an  explanation  of the  bulk                                                               
fuel revolving loan fund.                                                                                                       
                                                                                                                                
MR. LABOLLE  explained that  it's a  capitalized fund  from which                                                               
money  is loaned  to  communities at  a low  interest  rate of  4                                                               
percent for  the purchase  of fuel.   Those communities  pay back                                                               
into  the fund,  and thus  it's a  self-sustaining loan  program;                                                               
it's  very   similar  to  the  various   Alaska  Housing  Finance                                                               
Corporation (AHFC) programs.                                                                                                    
                                                                                                                                
8:46:30 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DRUMMOND  surmised then  that communities  use the                                                               
bulk  fuel revolving  loan fund  to  purchase fuel  and over  the                                                               
winter as [residents] use the fuel  and pay for it, the community                                                               
pays back the loan.                                                                                                             
                                                                                                                                
MR.  LABOLLE  replied yes,  adding  that  most rural  communities                                                               
purchase fuel  prior to  freeze up because  flying in  fuel after                                                               
the freeze is cost prohibitive.                                                                                                 
                                                                                                                                
8:47:41 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD  inquired as to the  current discount and                                                               
what a standard loan would be at this time.                                                                                     
                                                                                                                                
8:47:59 AM                                                                                                                    
                                                                                                                                
SCOTT RUBY,  Director, Division of Community  & Regional Affairs,                                                               
answered that  it would  be what  commercial banks  would charge.                                                               
Because  many of  these communities  are in  a unique  situation,                                                               
they have  to purchase large  amounts of  fuel.  He  related that                                                               
with many of  these loan programs, the  smaller communities don't                                                               
have the ability to  go to a bank and capitalize  a large loan of                                                               
$600,000-$750,000.   Under  the previous  iteration of  [the bulk                                                               
fuel revolving loan  fund] AEA charged a market  rate that varied                                                               
between  4-6 percent.   Last  year, when  reviewing the  interest                                                               
rate,  it   was  determined  not  to   penalize  communities  for                                                               
borrowing  to provide  fuel for  their residents.   Therefore,  4                                                               
percent was  determined to be  a rate that  was low enough  to be                                                               
sustainable while still paying all the costs of the program.                                                                    
                                                                                                                                
8:49:57 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  inquired  as to  what  the  communities                                                               
would pay if they sought a loan from a bank.                                                                                    
                                                                                                                                
MR.  RUBY responded  that he  didn't  know, but  did recall  that                                                               
Akiachuk did  borrow from  a bank  in past  years and  offered to                                                               
provide that information to the committee.                                                                                      
                                                                                                                                
REPRESENTATIVE REINBOLD asked if  the division is well-funded and                                                               
would be able to cover this legislation were it to pass.                                                                        
                                                                                                                                
MR. RUBY, referring  to the document entitled "Effects  of HB 166                                                               
on  Bulk  Fuel  Loan  Accounts,"   informed  the  committee  that                                                               
although six new  communities would qualify for  loans under [the                                                               
bulk fuel  loan account  or the bulk  fuel bridge  loan account],                                                               
it's likely that three of them  wouldn't seek loans from the loan                                                               
fund because they can receive  large amounts of fuel periodically                                                               
delivered  by barge.   The  three that  might participate  in the                                                               
[bulk  fuel  loan program]  would  be  Dillingham, Kotzebue,  and                                                               
Nome.  He then informed the  committee that if all the loans were                                                               
funded it could potentially amount  to $10 million more needed to                                                               
capitalize the fund, which would  cover the cost of the potential                                                               
loans as well as provide a  buffer to avoid running out of funds.                                                               
Without  the  aforementioned  capitalization, the  division  will                                                               
have to  scrutinize applicants such  that those that can  fund it                                                               
would  either be  denied or  reduce  the amount  that they  could                                                               
borrow in order to ensure that  the funds are available for those                                                               
with the most necessity.                                                                                                        
                                                                                                                                
8:52:18 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE REINBOLD asked whether  this legislation will have                                                               
any impact  on power  cost equalization (PCE)  or the  Low Income                                                               
Home Energy Assistance Program (LIHEAP).                                                                                        
                                                                                                                                
MR. RUBY replied yes because it  subsidizes the cost of the fuel.                                                               
He  pointed out  that one  of the  primary borrowers  of this  is                                                               
electric  utilities.   If [the  proposal in  HB 166]  reduces the                                                               
cost  of  the fuel  [for  communities  that  used the  bulk  fuel                                                               
revolving loan] over other possibilities,  it would have a direct                                                               
relationship  on   PCEs  because  one   of  the  pieces   of  the                                                               
calculation is the cost of fuel.                                                                                                
                                                                                                                                
REPRESENTATIVE REINBOLD  inquired then as to  whether there could                                                               
be cost shifting.                                                                                                               
                                                                                                                                
MR. LABOLLE characterized it more  as saving shifting rather than                                                               
cost  sharing   because  while   the  fund   would  need   to  be                                                               
capitalized, it would be a  separate appropriation.  Furthermore,                                                               
it's a  self-sustaining fund  into which  a community  pays back.                                                               
Therefore, if a new community uses  the fund and reduces its fuel                                                               
costs, when the  utility starts to burn fuel  to make electricity                                                               
it's burning  cheaper fuel.   Although the  consumer won't  see a                                                               
lower electric  rate, the  PCE subsidy  would decrease  and would                                                               
save funds.   For  example, if  the cost  of generating  power is                                                               
$.30 and  PCE rates were  $.20 to the  consumer, PCE would  be in                                                               
place at  a 10  percent subsidy.   In fuel  savings, if  $.25 per                                                               
Kilowatt hour  (KWh) power can  be generated, they will  pay $.20                                                               
and PCE will only have to pay $.05.                                                                                             
                                                                                                                                
8:54:47 AM                                                                                                                    
                                                                                                                                
CO-CHAIR LEDOUX asked what the interest rate is.                                                                                
                                                                                                                                
MR.  RUBY specified  that  for  loans under  the  bulk fuel  loan                                                               
account,  the  interest rate  is  4  percent for  the  first-time                                                               
borrowers who  are in  good standing.   There  is the  option for                                                               
those in good  standing in the second year to  receive a discount                                                               
such that  the interest  rate is  reduced to 3  percent.   If the                                                               
borrower continues  to be  in good standing  there is  a discount                                                               
such that the interest rate is reduced to 2 percent.                                                                            
                                                                                                                                
8:55:21 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  LEDOUX   inquired  as   to  whether  it's   common  for                                                               
[communities] using the bulk fuel loan account to default.                                                                      
                                                                                                                                
MR. RUBY answered that it isn't  common.  He pointed out that all                                                               
of these  loans are  intended to  be paid back  in less  than one                                                               
year.  There  have been a couple of entities  that have [applied]                                                               
for financial  hardship and paid  back the loans over  the course                                                               
of more than one year or  via a payment plan.  Technically, there                                                               
haven't been  any defaults and  all loans have been  repaid, save                                                               
those that are on multi-year re-payment schedules.                                                                              
                                                                                                                                
CO-CHAIR LEDOUX asked  whether the division would  provide a loan                                                               
to an entity that is in default [for a prior year's loan].                                                                      
                                                                                                                                
MR. RUBY  said that in certain  cases under the bulk  fuel bridge                                                               
loan program, the division has loaned  funds to an entity that is                                                               
in  default  the prior  year  in  order  to avoid  the  community                                                               
turning off  its electric  utility.  However,  that has  not been                                                               
the case for [loans] for  residential heating as it has primarily                                                               
been  the  case  for  electric   generation  to  keep  the  plant                                                               
operating and to protect public facilities.                                                                                     
                                                                                                                                
8:56:47 AM                                                                                                                    
                                                                                                                                
MR. LABOLLE  explained that  the increase  from $750,000  to $1.5                                                               
million  directly corresponds  with the  increase in  the maximum                                                               
population  of  the  possible  community  on  the  system,  which                                                               
maintains  it  at  $370  per  person.   He  reiterated  that  the                                                               
numbers, both  the population and  the loan amount,  are starting                                                               
points for which the committee's  input would be appreciated.  In                                                               
response to Co-Chair Nageak, Mr.  LaBolle said [changes] could be                                                               
accomplished through the  amendment process or the  adoption of a                                                               
committee substitute.                                                                                                           
                                                                                                                                
8:57:59 AM                                                                                                                    
                                                                                                                                
CO-CHAIR LEDOUX  inquired as  to how the  sponsor decided  on the                                                               
$1.5 million.                                                                                                                   
                                                                                                                                
MR.  LABOLLE explained  that  first the  sponsor  decided on  the                                                               
population  of 4,000  as  a  place holder  and  then divided  the                                                               
current fund  of $750,000 by  the 2,000, which amounted  to about                                                               
$370 per person.   That per person amount was  then multiplied by                                                               
the  [population  number  of]  4,000,   which  amounted  to  $1.5                                                               
million.                                                                                                                        
                                                                                                                                
REPRESENTATIVE FOSTER  said simply stated the  population and the                                                               
loan  eligibility were  doubled.   Using Nome  as an  example, he                                                               
offered  that  the company  that  does  most of  the  residential                                                               
heating  has storage  capacity of  about 4  million gallons.   If                                                               
those tanks  are filled  twice, that's 8  million gallons  and if                                                               
the  fuel  costs $3.00  per  gallon  that  amounts to  about  $24                                                               
million.   Therefore,  the increase  to $1.5  million would  be a                                                               
small  portion  of  what  the community  uses  and  doesn't  even                                                               
include the  utilities.   Still, Representative  Foster expressed                                                               
the need  to periodically review  the bulk fuel loan  program and                                                               
make adjustments  to it more often  than every 10 years  in order                                                               
to avoid large adjustments.                                                                                                     
                                                                                                                                
9:00:46 AM                                                                                                                    
                                                                                                                                
MR.  LABOLLE  pointed out  that  on  the document  entitled  "All                                                               
incorporated places  in the State  of Alaska" it  only considered                                                               
communities under 5,000.  He  noted that Bethel isn't included on                                                               
the  list  because  it  has  a  population  of  6,219,  and  thus                                                               
Representative  Herron  may  be   interested  in  the  population                                                               
factor.                                                                                                                         
                                                                                                                                
9:01:28 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  said  she   would  like  to  hear  from                                                               
Representative Herron on the matter.                                                                                            
                                                                                                                                
9:01:49 AM                                                                                                                    
                                                                                                                                
The committee took a brief at-ease.                                                                                             
                                                                                                                                
9:02:20 AM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK announced that HB 166 would be held over.                                                                       
                                                                                                                                
9:02:42 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FOSTER  related  his understanding  that  because                                                               
this  legislation  may have  financial  implications,  it may  be                                                               
referred  to the  House Finance  Committee.   However, the  House                                                               
Finance Committee won't take up  HB 166 this session.  Therefore,                                                               
he  offered to  consult  with Representative  Herron and  revisit                                                               
this legislation next session.                                                                                                  
                                                                                                                                
9:03:13 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE DRUMMOND  questioned then whether in  the meantime                                                               
there will be a handful of  communities that won't have access to                                                               
the revolving loan  fund or will have access at  a higher rate or                                                               
to commercial loans.                                                                                                            
                                                                                                                                
MR. LABOLLE stated  that all communities on the  list have access                                                               
through commercial loan funds.                                                                                                  
                                                                                                                                
9:03:45 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FOSTER noted  that  if all  the communities  took                                                               
advantage  of the  loan,  $10  million would  be  necessary.   He                                                               
expressed  the  need  to  avoid  a situation  in  which  a  well-                                                               
organized  community  such  as   Nome  or  Kotzebue  files  their                                                               
application first  and then there  are no funds left  for smaller                                                               
communities,  such as  Teller, that  really need  the assistance.                                                               
The  aforementioned is  another component  that will  be reviewed                                                               
over the interim.                                                                                                               
                                                                                                                                
MR.  LABOLLE  interjected  that  independent  of  the  population                                                               
parameters, there has been discussion  regarding whether the $370                                                               
per person is realistic.                                                                                                        
                                                                                                                                
9:05:05 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  REINBOLD  suggested  that a  committee  visit  to                                                               
[Nome] should  also include further education  regarding the fuel                                                               
and energy situation in the area.                                                                                               
                                                                                                                                
REPRESENTATIVE FOSTER said he would like to do so.                                                                              
                                                                                                                                
9:05:52 AM                                                                                                                    
                                                                                                                                
CO-CHAIR NAGEAK restated that HB 166 would be held over.