02/23/2012 01:30 PM Senate LABOR & COMMERCE

            SB  25-AIDEA SUSTAINABLE ENERGY PROGRAM                                                                         
                                                                                                                                
2:15:50 PM                                                                                                                    
CHAIR EGAN announced consideration of SB 25.                                                                                    
                                                                                                                                
2:16:02 PM                                                                                                                    
SENATOR  PASKVAN  moved  to  bring  CSSSSB  25(  ),  version  27-                                                               
LS0290\E, before the committee for  purposes of discussion. There                                                               
were no objections and it was so ordered.                                                                                       
                                                                                                                                
MIKE  PAWLOWSKI, staff  to  Senator McGuire,  sponsor  of SB  25,                                                               
explained the  committee substitute (CS).  He said that  the bill                                                               
is about  empowering and  creating a new  fund within  the Alaska                                                               
Industrial and  Development and Export Authority  (AIDEA) to take                                                               
a  portion of  Alaska's savings  and put  it to  work within  the                                                               
state,  financing  the  construction and  development  of  energy                                                               
projects.                                                                                                                       
                                                                                                                                
In the  previous committee hearing,  he said that Mr.  Davis from                                                               
AIDEA  testified that  some technical  amendments were  needed to                                                               
ensure  the ability  to bond  and  to clarify  the definition  of                                                               
energy in the interest rate provisions.                                                                                         
                                                                                                                                
MR. PAWLOWSKI reviewed  the CS starting with Section 8  on page 6                                                               
where language in  section 10 amended AS 44.88.159  that sets the                                                               
interest rates for AIDEA. He  noted multiple different sources of                                                               
revenue that finance  projects were also within  that statute. So                                                               
AIDEA suggested clarifying that the  new interest rate is applied                                                               
only to the new fund being created.  So, sections 8, 9, 11 and 12                                                               
all amend different  portions of AS 44.88.159 to  ensure that the                                                               
interest  rates   are  consistent  with  current   practice.  The                                                               
important thing about  that is to ensure that  AIDEA isn't giving                                                               
away  money,  but rather  collecting  an  interest rate,  earning                                                               
money  on the  investment  that it  makes. This  is  not a  grant                                                               
program and is not designed to  be one. Further, it also conforms                                                               
with  the  private  sector  so  it  doesn't  crowd  out  Alaska's                                                               
financial  institutions  from  the  work  they  do  in  providing                                                               
capital.                                                                                                                        
                                                                                                                                
2:18:42 PM                                                                                                                    
The next  substantive change was  on page 10,  line 14, in  a new                                                               
subsection  within the  powers and  duties of  the Authority.  He                                                               
explained  that AS  44.88.090  allows AIDEA  to  issue bonds  and                                                               
borrow  against  the  proceeds  from the  projects  that  it  has                                                               
invested  in.  This  section  applies to  that  chapter.  It  was                                                               
originally the sponsor's thought that  since this new section was                                                               
within the chapter,  that power would apply to  AIDEA in carrying                                                               
out  the duties  of this  fund. AIDEA  believed that  making that                                                               
explicit  strengthened  the  bill.  So a  new  section  makes  it                                                               
extremely  clear that  AIDEA does  have the  ability to  leverage                                                               
capital markets against the assets that it has loaned.                                                                          
                                                                                                                                
MR.  PAWLOWSKI said  the other  material change  was on  page 10,                                                               
line 4. In  the previous version, language was left  in that said                                                               
"subject  to lender  approval defer  principal payments"  in that                                                               
AIDEA  under  this program  is  the  lender. This  was  redundant                                                               
language that legal said could be taken out.                                                                                    
                                                                                                                                
The final  change was on  page 11, line  4, in the  definition of                                                               
"energy  project." In  the  previous  version the  "transmission,                                                               
generation,  storage  or  distribution of  electricity"  was  the                                                               
description.  And in  working with  more energy  groups over  the                                                               
Interim  since  the previous  hearing,  it  was brought  up  that                                                               
several energy  projects might not actually  generate electricity                                                               
but could be  used for heat, biomass being the  most important of                                                               
those, and the  goal was not to preclude AIDEA  from helping that                                                               
type of energy project.                                                                                                         
                                                                                                                                
2:20:38 PM                                                                                                                    
SENATOR   MENARD  said   she  appreciated   the  format   of  his                                                               
presentation.                                                                                                                   
                                                                                                                                
MR. PAWLOWSKI  then pointed out a  mistake on page 1,  section 5,                                                               
and  said this  bill in  no way  deals with  sport fishing  guide                                                               
licenses and that would get fixed.                                                                                              
                                                                                                                                
2:21:29 PM                                                                                                                    
SENATOR  PASKVAN   asked  the  AIDEA  director   to  explain  the                                                               
leveraging component on page 10, line 14.                                                                                       
                                                                                                                                
MARK DAVIS,  Director, Alaska  Industrial Development  and Export                                                               
Authority (AIDEA),  responded that one  of the concerns  they had                                                               
with the original  bill was that although the  chapter says AIDEA                                                               
could  issue   bonds  and  borrow  money,   the  language  didn't                                                               
explicitly apply to the new fund.  Bankers and lawyers tend to be                                                               
very careful, and  in looking for a guarantee  of leveraging they                                                               
want explicit statutory authority. The  way it would work is that                                                               
now  AIDEA could  issue a  bond  to raise  money for  a loan  or,                                                               
assuming there is  some appropriation with this  bill which there                                                               
is not,  it could use those  monies, or it could  use its current                                                               
reserves. So,  it gives  AIDEA the flexibility  to pick  the best                                                               
pot of  money to get  the project  going with the  least possible                                                               
cost. This  bill suggests that AIDEA  put no more than  one third                                                               
into a loan, which is already internal policy.                                                                                  
                                                                                                                                
SENATOR PASKVAN asked if AIDEA  would fund a $250 million project                                                               
with $80 million as the first step.                                                                                             
                                                                                                                                
MR. DAVIS replied yes.                                                                                                          
                                                                                                                                
SENATOR PASKVAN  asked if there  is more leveraging once  the $80                                                               
million is locked in.                                                                                                           
                                                                                                                                
MR. DAVIS replied that depends on  how the deal is structured and                                                               
every transaction is different.                                                                                                 
                                                                                                                                
SENATOR PASKVAN asked at what  point further legislative approval                                                               
enters into the process.                                                                                                        
                                                                                                                                
MR. DAVIS  replied at the  appropriation level, but  even without                                                               
an  appropriation, should  this bill  pass, AIDEA  could issue  a                                                               
bond to raise money for an energy loan.                                                                                         
                                                                                                                                
SENATOR  MENARD  asked  if  there  is  a  good  reason  the  word                                                               
"leverage" is not part of the language.                                                                                         
                                                                                                                                
MR. DAVIS  replied that "leverage" is  a term of art  for putting                                                               
together financial packages, but it's  not language that would be                                                               
put into a statute.                                                                                                             
                                                                                                                                
2:25:49 PM                                                                                                                    
MR. PAWLOWSKI  pointed out  language on page  8, line  28 through                                                               
page  10, line  22,  requires legislative  approval for  projects                                                               
over $20 million.                                                                                                               
                                                                                                                                
2:27:10 PM                                                                                                                    
SENATOR  PASKVAN moved  to report  CSSSSB 25(L&C)  from committee                                                               
with individual  recommendations and attached fiscal  note. There                                                               
were no objections and it was so ordered.