Legislature(1995 - 1996)
03/06/1996 03:40 PM Senate RES
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 284 FOUR DAM POOL & POWER DEVELOPMENT FUND
SENATOR LEMAN announced SB 284 to be up for consideration.
TAPE 96-25, SIDE A
Number 001
RANDY SIMMONS, Development Finance Manager for Alaska Industrial
Development Export Authority, said that the Four Dam Pool is made
up of four hydroelectric projects and the State currently owns
these facilities and they are operated through a long term power
sales agreement by the utilities. Under the agreement the
State(AEA) has obligations for uninsured facility failures and for
substandard facility performance. Under that same agreement the
utilities have the obligations to operate the hydro-projects and to
also pay an annual debt service that is roughly $8 - $11 million
per year. That debt service is allocated by AS42.45.050 three
different ways.
Forty percent of it goes to PCE and the rural electrification
funds; forty percent goes to the Southeast intertie grant program;
and twenty percent to DCRA's power project fund. The bill
addresses specific State responsibilities for repairs to two of the
projects. Those projects are the Tyee Project and the Terror Lake
Project. Right now their best estimate for the Tyee repairs to the
transmission line is $17 million. It is imperative that the Tyee
transmission line be repaired as soon as possible. There have been
three occasions when that line has been out of operation. This
bill also addresses approximately $3.5 million worth of repairs
that are needed to the Terror Lake tunnel.
They are now in engineering to come up with the final numbers and
that should be completed within the next several months. Last
session they understood they had these obligations and worked out
an agreement with the utilities where they would use their self
help right under the power sales agreement to withhold some of that
$8 - $11 million to start the repairs. That agreement fell through
in the last days of the session and the utilities sued the State
for full self help. They were able to reach agreement with the
utilities to withhold $4 million out of the amount of money that
comes into the debt service to start the engineering on the
repairs. Their proposal is that AEA will issue up to $25 million
worth of bonds to make the repairs. The bond term could be no more
than 25 years and the debt service payments must begin by July 1,
1998. They don't know what the length of the bonds would be or
whether they would defer the full two years.
To float those bonds, AEA has two requirements that need to be met.
The first requirement is that the utilities had to waive their self
help rights for the amount of debt service that has to be paid on
these bonds. Their self help rights come from the power sales
agreement that basically allows them to withhold their debt service
to the State if the State is not fulfilling its obligations.
The first agreement is in place.
SENATOR HALFORD asked what was the legal case to withhold the
money. MR. SIMMONS answered that it was provision 5(d) of the
power sales agreement.
SENATOR HALFORD asked if the State contracted away its authority to
collect the money which is required by statute? MR. SIMMONS
replied that the State contracted away, if they didn't uphold their
obligations that they were signing to under the agreement, that the
utilities could withhold that debt service to fulfill the State's
obligations. SENATOR HALFORD commented that wasn't a part of the
statute and he wanted to know what was the legal trail of that
obligation.
MR. SIMMONS said that the State had fulfilled its first
requirement. They have reached agreement with the utilities to
limit their self help rights. Under that agreement they have
agreed with the utilities that they would not bond for any longer
than 25 years and that the amount will not be more than $25
million. They have also agreed that before the State makes a
decision as to the final length or term of the bonds, they would
consult with them. The bill before them today takes care of the
second requirement by making a revenue stream available to pay for
the debt service on the bonds. The bill also clarifies that AEA
may use the money in the power development fund for repairing the
projects.
The benefits they see for floating the bonds is that the State will
meet its obligations on the power sales agreement; and if the bonds
are issued this year and payments aren't made until July 1, 1998,
that's basically a two year deferral which will allow the State to
come up with a long term solution to financing the projects without
affecting PCE or the Southeast intertie or the power development
fund in that two year period.
If the State has to start making payments, MR. SIMMONS said, on
July 1, 1998 depending on what the length and size of the bond is,
the payments could run anywhere from $3 - $5 million. If the
payments are $3 million, the amount of money that will be withheld
from PCE and the Southeast intertie will be roughly $1.2 million
per year each and about $600,000 from the power project fund.
The reason the Administration is introducing this bill is they
figure there are three alternatives to financing these repairs: one
is a general fund appropriation which they don't think is a great
idea; two is floating bonds; and three is letting the utilities
come in for their full self help rights and try to withhold the
full $11 million payment this year and next year which would
basically withhold close to $9 million in those two years from the
Southeast intertie and PCE.
Number 160
DENNIS LEWIS, Power and Light Superintendent in Petersburg,
Chairman of the Four Dam Pool Project Management Committee, and
Commissioner on the Thomas Bay Power Authority (Tyee Project), said
he was here on behalf of all the purchasing utilities of the Four
Dam Pool. On January 25, 1996 they signed an agreement with the
State supporting their efforts in this bonding which would take
care of the immediate repairs for the Tyee and the Terror Lake
Project.
Number 199
DICK OLSON, President, Thomas Bay Power Authority, said they have
an obligation to make sure this facility continues to operate. He
said it is evident that there will be a catastrophic failure in the
not too distant future. They support the concept AIDA presented to
the Committee.
SENATOR TAYLOR asked when the Thomas Bay Power Authority start
requesting the State to do repairs to the Tyee line. MR. OLSON
answered about 10 years ago.
SENATOR TAYLOR asked how much money the Four Dam Pool had
collectively paid back to the State since they signed the power
sales agreement. MR. OLSON replied $100 million. SENATOR TAYLOR
noted that they now needed $30 million and he asked what had
happened to the $100 million that should have gone for repairs.
MR. OLSON said he couldn't answer that.
SENATOR TAYLOR said it got squandered away on the Alaska Energy
Authority that have 50 some employees at very high rates of pay, on
PCE costs to the bush; it was used for general fund obligations and
a whole lot of things, but not for their obligation which the State
signed up with you to take on, and they had to exercise self help
last year to even get their attention. MR. OLSON replied that was
correct.
SENATOR TAYLOR asked why 25 years for a bond reimbursement was
considered short term. MR. SIMMONS replied there is nothing in the
agreement saying the bond term will be 25 years; it says up to 25
years. There is also a provision that will consult with the
utilities prior to issuing any bonds. The 25 year period was to
give maximum flexibility to the State because they don't know what
the final amount of dollars is going to be. At that point in time
they were in divestiture discussions with the utilities.
SENATOR TAYLOR asked if they had any veto power over the length of
term they came up with. MR. SIMMONS replied that the money they
are using isn't their money. It comes to the State first and then
gets appropriated back out. If the utilities were not to accept
these bonds long term, the cost would be a little bit higher. The
only affect to the utilities is that their self help rights are
limited for a little bit longer for the additional cost of
financing.
SENATOR TAYLOR noted if they exercise self help, they could cash
the entire repair projects out in a little over three years. He
asked what the cost to the subscribers was going to be if the
payment time were stretched out. MR. SIMMONS replied that they
don't pay a penny more, because this is a payment they have already
made and it comes into the State treasury. The only thing that
happens is that the utilities limit their self help right. They
can't use the portion of their self help right that's going to pay
for these bonds to use after this other repair. If the legislature
fails to make the statutory change and they cannot come up with
another way to make the repairs, at that point in time they will
have a self help right that they can exercise.
SENATOR LEMAN said his counsel would be to bond for considerably
fewer than 25 years.
SENATOR TAYLOR said from the State's general fund perspective or
from the cost to the subscribers in the utilities, since they would
not be receiving back 40/40/20, it will be diminished by the cost
of that indebtedness. MR. SIMMONS agreed and said the real effect
would be the longer the bond, the higher the cost will be and it's
that differential that will affect it. He said now they have no
intent to bond for 25 years.
SENATOR TAYLOR noted that even with 6% bonds that would double the
amount of the indebtedness every twelve years. That's close to $50
million that will have to be paid for $25 million worth of repairs
that are necessary today. That's to say nothing of the repair bill
that might accrue during the next 12 years. Why should we want to
do that when we can cash these people out by utilizing that income
stream in a little over two years.
SENATOR TAYLOR wanted to know what happened in divestiture. MR.
SIMMONS replied that they came to the critical point where they
were going to talk about price. They had jointly funded a risk
assessment by HARSA who gave them their information a month ago.
The State proposed a price the utilities thought was very
excessive. The utilities threw out some numbers the State thought
was way too low. They mutually agreed to step away from the table
and to hopefully reconvene later, but no time was set.
SENATOR TAYLOR asked if the agreement was premised on the fact that
there would be good faith negotiations toward divestiture? MR.
SIMMONS replied yes and he thought there were good faith
negotiations, but there wasn't agreement on the value of the
projects.
Number 334
SENATOR HOFFMAN followed up with a question about paying it off
early from the revenue stream asking if there would basically be
fewer dollars in allocation under the formula. MR. SIMMONS replied
that was correct. In the short term they are hurt quicker, in the
long term they are hurt more.
SENATOR TAYLOR asked when they could expect their next meeting on
divestiture. MR. SIMMONS replied that they didn't have plans for
the near future.
Number 359
MR. LEWIS noted that he had given a letter from all the purchasers
to their offices and hoped they would review that to understand
this issue better.
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