Legislature(2011 - 2012)BARNES 124
03/20/2012 03:00 PM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB294 | |
| Presentation: Ruralcap Energy Wise Program | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 294 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
HB 294-POWER COST EQUALIZATION
CO-CHAIR PRUITT announced that the first order of business would
be HOUSE BILL NO. 294, "An Act relating to the power cost
equalization program."
3:09:45 PM
ADAM BERG, Staff to Representative Bryce Edgmon, Alaska State
Legislature, prime sponsor, speaking on behalf of Representative
Edgmon, reviewed the changes in the committee substitute (CS),
identified as Version 27-LS1108\B, for HB 294. Mr. Berg said
the first change increases the residential kilowatt hours, to
which power cost equalization (PCE) can be applied, from 500
hours to 600 hours. The second change allows PCE to be applied
to small businesses up to 600 kilowatt hours per month, although
to qualify as a small business, the business may not exceed the
ceiling of 2,400 kilowatt hours per month. The CS also removes
schools and larger commercial consumers from the list of
eligible recipients.
3:10:58 PM
CO-CHAIR PRUITT agreed with the intent of HB 294, but asked for
clarification about the endowment; for example, whether the
endowment can withstand the increases in cost to the program,
and its effect on the $400 million appropriated last year.
3:11:49 PM
MR. BERG deferred questions on the endowment to the Alaska
Energy Authority (AEA).
CO-CHAIR FOSTER asked for a description of the original program
and why it was changed.
MR. BERG recalled, prior to 1998, the PCE program had a 700
kilowatt hour maximum for residences, and schools were also
eligible. A blue ribbon commission report issued at that time
recommended reductions to the program, because PCE was viewed as
a subsidy to rural Alaska, and was "under fire from the
legislature."
3:14:13 PM
CO-CHAIR FOSTER understood that at that time the price of oil
had dropped to around $9 per barrel; the point is that now the
state is flush with surplus, and the price of oil is about $120
per barrel.
CO-CHAIR PRUITT added that there was no endowment at that time
and the program was funded from general funds (GF).
MR. BERG said yes.
REPRESENTATIVE SADDLER asked whether the bill contains
provisions requiring those who receive PCE to be more efficient
and conserve energy.
MR. BERG said no.
3:15:52 PM
REPRESENTATIVE SADDLER then asked whether the sponsor of the
bill considered linking the increased amount of PCE per month
with improved efficiency.
MR. BERG said many provisions were discussed, including whether
the conservation community would support increasing the amount
of kilowatt hours that residents can use. As a matter of fact,
residents living in areas of high energy costs are not coming
close to using the 500 kilowatt hours per month, at least in
summer. He said an increase of 100 kilowatt hours per month
would not cause residents to burn more power, because they are
already in a conservation mode due to high costs, even with PCE.
Mr. Berg noted that the weatherization program works great, but
can be slow to reach some areas of the state. He asked, "Why
penalize somebody? If they're waiting for work on their house,
they're already paying high power bills. If their house is
inefficient ... they're paying the price ...."
3:17:42 PM
CO-CHAIR FOSTER asked for the general qualifications that make a
community eligible for PCE.
MR. BERG explained that the base price is determined by power
costs in Fairbanks, Anchorage, and Juneau. He deferred to AEA
for clarification.
3:18:42 PM
SARA FISHER-GOAD, Executive Director, AEA, Department of
Commerce, Community & Economic Development, advised the
qualification for a community to be eligible for PCE is based on
whether its utility was using a certain percentage of diesel
fuel to generate power in 1985. Utilities that were excluded
from eligibility are the Railbelt utilities, the Four Dam Pool
communities, and some small "road" communities served by Golden
Valley Electric Association and Copper Valley Electric
Association. Although Cordova is generating with hydroelectric
now, in the '80s it was generating with diesel, and is eligible
for PCE. In response to Co-Chair Pruitt, she said Cordova does
take advantage of its PCE eligibility.
MS. FISHER-GOAD further explained that if a utility chooses not
to use its eligibility, there is a provision for residents to
petition the utility to take advantage of the program. She then
noted that another way a community is not eligible is if its
costs are below the "floor," which is currently 13 cents to 13
and one-half cents per kilowatt hour.
3:20:28 PM
CO-CHAIR PRUITT restated his earlier question on whether the
endowment fund can "handle this," and how the appropriation of
$400 million from last year is affected.
MS. FISHER-GOAD said the power cost equalization endowment fund
is a percent of market value (POMV) fund that is invested to
earn 7 percent over time and - on an annual basis - 7 percent
can be used for the PCE program. This is based upon a three-
year, monthly, average market value, so the $400 million
appropriated as of 6/30/11, does not calculate for the PCE cost
for fiscal year 2013 (FY 13). The fund balance is based on the
three years prior, for FY 12, FY 11, and FY 10. Therefore, one-
third of the fund can be incorporated into FY 14, two-thirds by
FY 15, and the full $400 million would be utilized by FY 16.
She advised that is the reason there is a delay. Further, she
opined the program, without the changes proposed by HB 294,
would only need to use 5 percent of the fund, instead of 7
percent. In fact, part of the 7 percent is invested in
equities, and she said there were concerns that 7 percent is a
very aggressive investment rate in these times.
3:22:34 PM
CO-CHAIR PRUITT asked for the amount of the principal.
MS. FISHER-GOAD estimated the principal is a little over $700
million. She pointed out that with the changes to the program
in HB 294, Version B, even though there could be $51 million
available from the endowment in FY 16, the fund would still
require $7.3 million from the GF for the total cost of the
program, which is estimated at $58.3 million. The fiscal note
indicated a $21.1 million increment this year would have to be
covered by the GF, in addition to what is already in the
governor's FY 13 budget.
CO-CHAIR PRUITT concluded that even after the $400 million is
fully utilized in three years, the program would still need $7
million from the GF to support the changes in HB 294.
3:24:08 PM
MS. FISHER-GOAD acknowledged it is very difficult to estimate
the cost of the PCE program because AEA must predict costs one
and one-half years ahead. Also, the floor of the program is
unknown because it is based on the cost of fuel for the prior
year, after the cost is averaged between Fairbanks, Anchorage,
and Juneau. To determine rough cost estimates on commercial
facilities, AEA assumed 25 percent of the commercial customers
in eligible communities would qualify, bringing the estimate to
about $12.5 million. The additional 100 eligible kilowatt hours
added by the bill is estimated to increase the cost to the
program by $7.5 million. Ms. Fisher-Goad closed, saying her
expectation is that there would continue to be a need for GF
support, depending on the market performance of the fund, and on
other factors, such as fuel costs.
3:25:38 PM
CO-CHAIR PRUITT estimated an appropriation of $100 million to
$150 million would be required to prevent the need to pull
monies from the GF in FY 16.
MS. FISHER-GOAD offered to provide the committee with additional
analysis on this matter.
3:26:33 PM
REPRESENTATIVE SADDLER recalled the intent of the PCE endowment
was to "take a big lump-sum of money, put it aside and have the
spin-off from that - the proceeds - pay for PCE so we don't come
back for annual GF appropriations. That's not happening in this
case." He surmised the additional hours have affected this
calculation. Representative Saddler then asked, "Does raising
the amount ... of kilowatt hours per month and increasing those
who receive it, [does] that put ... the fundamental structure of
PCE at risk again?"
MS. FISHER-GOAD responded that is a "policy call" with respect
to the endowment as a funding source for the program. She
explained the GF dollars have been made available at 100 percent
of the formula cost, thus it really depends on whether the
intent is for the endowment to fully sustain the program. In
2001, the estimate for full funding of the program was $15.7
million per year, which is significantly less than now, because
fuel prices were lower then.
3:29:03 PM
REPRESENTATIVE SADDLER asked whether the PCE endowment was ever
envisioned as the one, sole source of funding.
MS. FISHER-GOAD said at one time it was necessary to prorate the
program for the appropriation. She advised, "There's a couple
different ways that you can get there and the legislature has
chosen, and ... the governor's budget includes, the assumption
[that] the goal is to pay PCE at 100 percent."
REPRESENTATIVE PETERSEN referred to renewable energy projects
coming online, and the weatherization and energy rebate
programs. He asked whether these programs would reduce the
demand for PCE.
MS. FISHER-GOAD expressed her belief that renewable projects
leading to significant reductions in PCE is a far-reaching goal;
however, there have been reductions in costs where projects have
been completed, but some projects - such as wind generation - do
not displace all of the diesel fuel needed for a community to
run its utilities.
CO-CHAIR PRUITT opened public testimony.
3:32:23 PM
RAE BELLE WHITCOMB, Director, Workforce Development, Bristol Bay
Native Association (BBNA), informed the committee she was
speaking on behalf of BBNA and as a small business owner. She
said BBNA manages a low-income heating assistance program and is
finding that PCE is a significant benefit for rural families
towards paying for their household heating needs. Further,
because many communities are running out of fuel, and residents
are using electric heat, the cost of electricity per kilowatt is
increasing; in fact, households are facing electric bills of
$500 to $700 per month and higher. Ms. Whitcomb confirmed that
the weatherization program has not reached all of the
communities of her region, and some homes may be on a waiting
list for years. As a small business owner, she advised having
PCE would make a big difference to rural businesses, and may
enable a business in a small community to hire a local employee
and provide local supplies at a reasonable cost. Ms. Whitcomb
expressed her support for the additional kilowatt hours, and
said from the perspective of workforce development, the benefit
of PCE to businesses will spur economic business development.
3:35:18 PM
CO-CHAIR FOSTER observed the Institute of the North recently
reported that rural Alaska households are paying 47 percent of
their household income for heating and electricity. He asked
what the kilowatt rate per hour is - before and after PCE - in
Dillingham.
MS. WHITCOMB said the rate in Dillingham is 48 cents, but the
rate is closer to one dollar per kilowatt in villages along the
river.
CO-CHAIR PRUITT asked whether Ms. Whitcomb could determine what
percentage of the cost of milk in Dillingham is attributed to
energy.
MS. WHITCOMB gave the example of a small grocery store that pays
between $30,000 and $40,000 per month for the electricity to run
freezers and coolers. This expense is passed along to the
customer. Small businesses of all kinds are greatly affected by
the cost of power.
3:38:11 PM
DAVID PELUNIS-MESSIER disclosed that he works for the Yukon
River Inter-Tribal Watershed Council and was speaking on his own
behalf. Mr. Pelunis-Messier cited his experience working on
energy projects in rural Alaska for three years, and expressed
his concern that extending the amount of PCE credits to rural
businesses will act as a disincentive for businesses to make
energy efficient modifications. For example, in certain
buildings in PCE communities, there is no incentive to change to
high efficiency lighting because with PCE credits, the heat
produced by inefficient lighting sources is cheaper than the
extra fuel oil burned to make up the heat in the building.
However, creating electricity from fuel with village generators
is about 30 percent efficient, and creating heat from fuel oil
is 80 percent to 90 percent efficient. Also, an Alaska entity
was unwilling to spend American Recovery and Reinvestment Act
(ARRA) funds on a lighting retrofit, because PCE credits
lengthened the payback period on the project to 10 years. Mr.
Pelunis-Messier said he supported solutions to the energy crisis
in Alaska through the renewable energy grant fund and the
emerging energy technology fund, and proposed using a matching
grant program for businesses, rather than PCE credits. He
provided a personal example of the energy savings for a business
in Anaktuvuk Pass, and said he supports the state's efforts to
make living in rural Alaska more affordable, and more
sustainable, by rewarding innovation, rather than enabling
inefficiency.
CO-CHAIR FOSTER stressed the importance of looking at a problem
from multiple angles, noting that PCE was intended to be a
"bridge" and not to be relied on in the long-term.
3:42:11 PM
CHUCK WHEELER stated he is a life-long resident of Nome, and
uses heating fuel. Mr. Wheeler said he supported the intent of
the bill, but the bill does not take care of the problems of the
coastal villages, which need to utilize alternate fuels. In the
coastal villages, PCE covers the fuel surcharge and nothing
more. He urged that the amount of electricity eligible for PCE
should be raised to 700 or 800 kilowatt hours, because residents
have no choice but to run electric heaters. Power assistance
programs are available in other parts of the state, but a
northern energy fund is needed for the coastal villages and for
the Interior. Mr. Wheeler opined the cost of the PCE program is
low when compared to what is spent for other energy projects.
3:44:15 PM
MEERA KOHLER, President and CEO, Alaska Village Electric
Cooperative, Inc., (AVEC), stated AVEC serves 54 villages across
the state. She stated her support for HB 294, saying the bill
is quite significant, primarily because of the addition of
commercial customers to those eligible for PCE. In 2011, AVEC
reported the average PCE consumption for a residential user was
about 250 kilowatt hours per month. As the average electricity
usage was about 400 kilowatt hours per month, only about 60
percent of the residential electricity usage receives PCE
benefits. She expected that an increase to 600 eligible
kilowatt hours would result in the maximum of a 20 percent to 25
percent increase for residential users. However, the addition
of 600 eligible kilowatt hours for commercial users is fairly
significant. Ms. Kohler recalled the original PCE legislation
included 700 eligible kilowatt hours per month for all users,
including commercial consumers. She pointed out that one of the
original requirements for a community to be eligible for PCE was
that the residential kilowatt per hour sales had to be equal to
- or less than - seven and one-half million kilowatt hours, thus
all of the larger communities were excluded. Also, 75 percent
of the electricity generated in the community in 1984 had to
come from diesel fuel. Ms. Kohler advised AVEC and other
utilities in rural Alaska are installing renewable energy
projects - primarily funded by the Denali Commission and the
Rural Utility Services, Rural Development, U.S. Department of
Agriculture - resulting in the cost of the fuel for electricity
decreasing by five or more cents per kilowatt hour. This
reduces the PCE rate, thereby saving the state money. Ms.
Kohler opined raising the amount of eligible kilowatt hours to
600 will result in a net PCE cost to the state that will not
exceed the 7 percent "spin off" from the existing endowment
fund.
3:48:47 PM
CO-CHAIR FOSTER asked Ms. Kohler to provide to the committee
copies of the report issued by Commonwealth of the North
entitled, "Energy for a Sustainable Alaska The Rural Conundrum,"
dated February 2012. He then asked her to respond to Mr.
Pelunis-Messier's comments on the effects of PCE on businesses.
MS. KOHLER offered to present the aforementioned report to the
committee. In response to Mr. Pelunis-Messier, she said his
position that commercial establishments are reluctant to change
from incandescent to more energy efficient lighting - because
PCE pays for part of the electricity - is part of the conundrum.
She acknowledged that would be true in a facility receiving PCE
for all of its electricity, such as a community facility that is
already receiving PCE in an amount up to 70 kilowatt hours per
resident; however, most community facilities are below the
maximum, and it is her experience that most community buildings
are using fluorescent tubes. Ms. Kohler opined the bill would
not have an impact on conservation measures.
3:53:32 PM
CO-CHAIR PRUITT asked whether incandescent lighting will still
be available in two years.
MS. KOHLER advised incandescent 100 watt bulbs are slated to
"vanish" in 2014, followed by those of lower wattages, but she
cautioned that they are being hoarded by some. She recalled
that compact fluorescent (CFL) bulbs were met with resistance
originally, but are now available at a reasonable cost. Her
utility informs its members about savings in energy from the use
of CFL bulbs. In further response to Co-Chair Pruitt, she noted
that the collection of CFL bulbs for recycling is taking place
at city offices and landfills. Recycling bulbs is a minor issue
that can be addressed locally.
CO-CHAIR PRUITT encouraged the proper handling of a hazardous
product.
3:57:43 PM
MARY ERICKSON said she was speaking as a business owner in
Hoonah. She, along with the previous testifiers, was concerned
about the high cost of diesel fuel needed to generate
electricity, which is causing a severe hardship on those with
fixed incomes. Ms. Erickson said her main concern was for local
businesses. She noted the cost to weatherize her business by
changing lighting, removing fans, and turning off machinery.
Ms. Erickson encouraged the use of PCE for businesses, in
addition to long-term solutions such as the intertie and
hydroelectric power. Hoonah has jobs available, but residents
cannot afford to live there due to the cost of energy. She
stated her strong support of HB 294 and long-range solutions.
In response to Co-Chair Pruitt, she said her business is The
Office Bar.
4:02:19 PM
ELMER SEETOT JR said he is an AVEC delegate in Brevig Mission.
Mr. Seetot relayed that the cost of fuel is determined on the
day the fuel is loaded on the barge, and local businesses have
to choose whether to pay for the fuel in full, or make
installments. In communities, customers pay a high price for
groceries and retail items due to shipping costs. In Brevig
Mission, fuel prices are not as high as those on the river
system where the water level is low. There has been a radical
shift in rural Alaska to a dependency on electricity, except
during subsistence seasons. Mr. Seetot pointed out there is
only seasonal employment, and more young people depend on
commercial goods instead of a subsistence lifestyle. He stated
his support of HB 294.
4:05:59 PM
REPRESENTATIVE SADDLER asked whether one questions if the shift
to electricity is good.
MR. SEETOT said some community members have discussed that
issue. In further response to Representative Saddler, he said
he lives an outdoor lifestyle and does not need the Internet or
a computer.
CO-CHAIR FOSTER asked how much electricity costs per kilowatt
hour.
MR. SEETOT said 30 cents to 35 cents.
4:07:53 PM
ED PHILLIPS said he owns the Icy Strait Lodge in Hoonah and
expressed his strong support of HB 294. His business experience
indicates that the residents of Hoonah have little discretionary
income due to the high cost of electric heat. He opined more
attention should be paid to educating residents on energy
efficiency. There are also many homes with defective electrical
systems that could be corrected by a program similar to the
weatherization program, but that analyzes electric consumption.
Mr. Phillips stressed that diesel-electric communities are
slowly dying because the high cost of living is causing a loss
of businesses and jobs, which are necessary for a healthy
society. Mr. Phillips said in the past 12 years, the high cost
of energy in Hoonah has caused an increase in the cost of
freight and a loss of school population that is eroding the
community. As noted in other communities, the high cost makes
purchasing groceries at local stores a "last resort." He
pointed out that most of the economy left in communities is
based on government projects instead of business. Mr. Phillips
suggested the mechanism of HB 294 could track electrical
consumption and quickly determine the cost of the program. He
urged for an understanding of the severity of the problem. Mr.
Phillips closed, pointing out that using the consumption of
2,400 kilowatts to determine a small business is not a relevant
number.
4:15:55 PM
BRIAN HIRSCH, Alaska Representative, National Renewable Energy
Laboratory, U.S. Department of Energy, commissioned a study by
the University of Alaska Anchorage (UAA), Institute for Social
and Economic Research (ISER), to look at various aspects of PCE.
Some of the conclusions from the study indicate that increasing
the amount of eligible kilowatt hours monthly increases the
state's liability, yet he agreed with Ms. Kohler that many
recipients of PCE do not exceed or reach the limit. He proposed
that a solution would be "a seasonal fixed payment," meaning
that in summer and winter rates would be a different amount;
however, if consumption is reduced, the resident would "keep the
difference" as an incentive. Mr. Hirsch agreed there would be
an increased cost to extend PCE to commercial customers,
although there is a clear need and benefit that would come from
supporting businesses. He offered to provide further
information on his suggestion.
4:19:53 PM
INGEMAR MATHIASSON, Energy Coordinator, Northwest Arctic
Borough, said his region has the highest cost of energy in the
state and the borough has taken steps to raise awareness, such
as installing smart energy meters that tell residents when they
reach the PCE limit. In addition, the energy meters provide
useful data. He said the borough strongly supports HB 294, as
households and businesses have reached their limits, and
communities must have jobs and businesses. Mr. Mathiasson then
pointed out that AEA grants do not benefit communities that have
no recognized renewable resources. He expressed his support of
Mr. Hirsch's proposal.
CO-CHAIR PRUITT observed that the bill sponsors looked at many
options - some with varying amounts - that were deemed too
complex.
4:24:02 PM
CO-CHAIR FOSTER related that affordable energy is a concern of
all Alaskans, and is becoming more of a problem in Fairbanks and
Anchorage. Alaska is an energy-rich state which may build a $5
billion dam in the Railbelt and a $7 billion to $8 billion gas
line from the North Slope to Southcentral. In addition,
Southeast has hydroelectric to expand via an intertie system.
For rural Alaska, PCE was meant to be a bridge to the day when
all residents have fully benefitted from all of the energy
programs, and perhaps from consolidating utilities.
Representative Foster agreed with the governor that the focus
should be on the development of sources of energy on a regional
level, such as biomass in the Interior and Copper River basin,
natural gas in Kotzebue, shipping propane to Western Alaska, and
geothermal in Nome and the Bering Strait region. The PCE
program is one of many programs across the state.
4:27:15 PM
CO-CHAIR PRUITT closed public testimony.
4:27:36 PM
REPRESENTATIVE SADDLER acknowledged that the PCE program is
important and urged for a portion of the funds to be dedicated
to increased fuel efficiency, energy efficiency, and
weatherization.
4:28:13 PM
REPRESENTATIVE SADDLER moved to report the proposed committee
substitute (CS) for HB 294, Version 27-LS1108\B, Nauman,
3/12/12, out of committee with individual recommendations and
the accompanying fiscal notes. There being no objection, CSHB
294(ENE) was reported from the House Special Committee on
Energy.