03/14/2023 09:00 AM Senate FINANCE

SENATE BILL NO. 98                                                                                                            
                                                                                                                                
     "An  Act  relating  to   the  power  cost  equalization                                                                    
     endowment fund;  and relating  to the  Alaska Permanent                                                                    
     Fund Corporation."                                                                                                         
                                                                                                                                
10:17:08 AM                                                                                                                   
                                                                                                                                
KEN  ALPER,  STAFF,  SENATOR   DONNY  OLSON,  discussed  the                                                                    
presentation, "Senate  Bill 98 Power Cost  Equalization Fund                                                                    
Management"  (copy on  file). He  discussed  slide 2,  "What                                                                    
Does SB98 Do?"                                                                                                                  
                                                                                                                                
     The Power  Cost Equalization  Endowment Fund  has about                                                                    
     $1 billion  Currently, it is managed  by the Department                                                                    
     of  Revenue  SB98  would  transfer  management  to  the                                                                    
     Alaska Permanent Fund Corporation                                                                                          
                                                                                                                                
          •The APFC would manage the money alongside their                                                                      
          own assets.                                                                                                           
          •The PCE would be exactly as diversified as the                                                                       
          Permanent Fund                                                                                                        
          •(This is what they currently do for the Mental                                                                       
          Health Trust fund)                                                                                                    
          •Regular reporting to the legislature regarding                                                                       
          asset value and income                                                                                                
                                                                                                                                
Mr. Alper addressed slide 3, "Why change it?                                                                                    
                                                                                                                                
     • More  diversity: the Dept. of  Revenue's managers can                                                                    
     only invest  in stocks and  bonds, and not  the various                                                                    
    alternative investments used by the Permanent Fund                                                                          
                                                                                                                                
     •  More  stability:  the  PCE   fund  has  changed  its                                                                    
     earnings  goals  and  investment  allocation  at  least                                                                    
     three times in the last four years.                                                                                        
          o Fund lost close to $200 million in FY2022 (                                                                         
                                                                                                                                
     • Less liquidity:  managers moved much of  the fund out                                                                    
     of equities  in early FY2021 expecting  there would not                                                                    
     be a "reverse sweep" at the end of that year, and                                                                          
     missed big market gains.                                                                                                   
          o PCE fund made 14 percent in FY21, while the                                                                         
          Permanent Fund made 29 percent. That premature                                                                        
          liquidation may have cost the fund $150 million.                                                                      
          o Courts later determined fund wasn't sweepable.                                                                      
                                                                                                                                
10:21:26 AM                                                                                                                   
                                                                                                                                
Co-Chair Olson  wondered whether  there was  history related                                                                    
to the issue of liquidation of funds.                                                                                           
                                                                                                                                
Mr. Alper replied that he could not recall.                                                                                     
                                                                                                                                
Co-Chair  Olson  wondered how  the  bill  would rectify  the                                                                    
large losses.                                                                                                                   
                                                                                                                                
Mr. Alper replied  that the fund had a number  of assets. He                                                                    
stated  that  the  bill  would  allow  for  the  Power  Cost                                                                    
Equalization  Fund (PCE)  to have  similar diversity  to the                                                                    
Permanent Fund.                                                                                                                 
                                                                                                                                
Co-Chair Olson OPENED public testimony.                                                                                         
                                                                                                                                
10:23:28 AM                                                                                                                   
                                                                                                                                
HERMAN MORGAN,  SELF, ANIAK, spoke  to the  civics education                                                                    
bill.                                                                                                                           
                                                                                                                                
Co-Chair Olson asked what bill Mr. Morgan was referencing.                                                                      
                                                                                                                                
Mr. Morgan explained  that that he was supposed  to speak on                                                                    
the civics education bill.                                                                                                      
                                                                                                                                
Co-Chair Olson stated that he could not speak on that bill.                                                                     
                                                                                                                                
10:25:15 AM                                                                                                                   
                                                                                                                                
Mr. Morgan argued  that the staff person did not  put him in                                                                    
for the correct bill.                                                                                                           
                                                                                                                                
Co-Chair Olson urged Mr. Morgan to speak to the bill.                                                                           
                                                                                                                                
Mr. Morgan discussed  PCE, and remarked that  PCE was needed                                                                    
in the state.                                                                                                                   
                                                                                                                                
10:27:32 AM                                                                                                                   
AT EASE                                                                                                                         
                                                                                                                                
10:27:56 AM                                                                                                                   
RECONVENED                                                                                                                      
                                                                                                                                
10:28:07 AM                                                                                                                   
                                                                                                                                
Mr. Alper pointed to slide 4, "How would it change the PCE                                                                      
fund and program?"                                                                                                              
                                                                                                                                
     It wouldn't.                                                                                                               
     • The same  5 percent of fund value  would be available                                                                    
    each year to fund the programs described in statute                                                                         
    • The same "waterfall" of priority would be funded:                                                                         
          1. The PCE program itself                                                                                             
          2. Costs of managing the fund                                                                                         
          3. If the previous year's earnings are more than                                                                      
          what is needed for 1 and 2, 70 percent of the                                                                         
          remaining earnings may be used for:                                                                                   
               1. Community Assistance (up to $30 million)                                                                      
               2. Renewable Energy Grant Fund, Bulk Fuel                                                                        
               Revolving Loan Fund, or Rural Power system                                                                       
               upgrades                                                                                                         
                                                                                                                                
Mr. Alper addressed slide 5, "Sectional Analysis":                                                                              
                                                                                                                                
     Sec. 1.                                                                                                                    
     Adds a new  section to the Permanent  Fund statutes, AS                                                                    
     37.13.  The Alaska  Permanent  Fund  Corporation is  to                                                                    
     manage the  Power Cost  Equalization Fund,  and publish                                                                    
     and  distribute  various  reports. Clarifies  that  PCE                                                                    
     earnings  shall be  kept separate  from Permanent  Fund                                                                    
     earnings and not used in the POMV calculation.                                                                             
                                                                                                                                
     Sec. 2                                                                                                                     
     Moves the PCE  fund from a separate fund  of the Alaska                                                                    
     Energy Authority  to a separate  fund of  the Permanent                                                                    
     Fund Corporation.                                                                                                          
                                                                                                                                
     Sec. 3                                                                                                                     
     Changes the PCE statute so  that the fund is managed by                                                                    
     the  Corporation   rather  than  the   Commissioner  of                                                                    
     Revenue.   Adopts  the   Permanent  Fund's   investment                                                                    
     guidelines  in place  of the  current Prudent  Investor                                                                    
     Rule.                                                                                                                      
                                                                                                                                
     Sec. 4                                                                                                                     
     Conforming language so that the 5 percent of fund                                                                          
     value is determined by the Corporation rather than the                                                                     
     Department.                                                                                                                
                                                                                                                                
     Sec. 5                                                                                                                     
     Adds a definition to clarify that "corporation" in                                                                         
     this bill means the Alaska Permanent Fund Corporation.                                                                     
                                                                                                                                
10:30:53 AM                                                                                                                   
                                                                                                                                
Senator Kiehl asked about whether the Permanent Fund wanted                                                                     
to add the PCE fund to their portfolio.                                                                                         
                                                                                                                                
Mr. Alper replied that the Permanent Fund was "more or less                                                                     
comfortable" with it.                                                                                                           
                                                                                                                                
Senator Kiehl asked whether there was an examination                                                                            
alternatives.                                                                                                                   
                                                                                                                                
Mr. Alper replied that he did not believe that there had                                                                        
been an examination of other funds.                                                                                             
                                                                                                                                
Co-Chair Olson CLOSED public testimony.                                                                                         
                                                                                                                                
Mr. Alper stated that there would be language suggestions                                                                       
from the Permanent Fund Corporation.                                                                                            
                                                                                                                                
Co-Chair Olson discussed housekeeping.                                                                                          
                                                                                                                                
SB 98 was HEARD and HELD in committee for further                                                                               
consideration.