Legislature(2011 - 2012)BARNES 124

02/14/2012 03:00 PM House ENERGY


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03:11:58 PM Start
03:12:46 PM HB294
04:21:24 PM Presentation: Overview by Cold Climate Housing Research Center
04:51:29 PM Presentation: Progress Report on Lake Chikuminuk Hydropower Project
05:13:07 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 294 POWER COST EQUALIZATION TELECONFERENCED
Heard & Held
+ Overview by Cold Climate Housing Research Center TELECONFERENCED
+ Progress Report on Lake Chikuminuk TELECONFERENCED
Hydropower Project
                 HB 294-POWER COST EQUALIZATION                                                                             
                                                                                                                                
3:12:46 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FOSTER announced that the  first order of business would                                                               
be  HOUSE BILL  NO.  294,  "An Act  relating  to  the power  cost                                                               
equalization program."                                                                                                          
                                                                                                                                
3:13:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LYNN  moved  to  adopt  HB  294  as  the  working                                                               
document.  There  being  no  objection, HB  294  was  before  the                                                               
committee.                                                                                                                      
                                                                                                                                
3:14:31 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LYNN moved to adopt  the two fiscal notes attached                                                               
to HB 294,  one of which was  identified as HB294-DCCED-AIDEA-02-                                                               
10-12.  There being no objection, the fiscal notes were adopted.                                                                
                                                                                                                                
3:15:12 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  BRYCE  EDGMON,  Alaska State  Legislature,  prime                                                               
sponsor  of HB  294,  introduced  the bill,  saying  that HB  294                                                               
proposes to return  the power cost equalization  (PCE) program to                                                               
its pre-1999 form.   At that time, the  program offered subsidies                                                               
to all users  in rural communities with the  exception of federal                                                               
facilities.    Today,  the  PCE  program  provides  subsidies  to                                                               
consumers up to  the level of 500 kilowatt (kW)  hours of use per                                                               
month, and  is largely limited  to residential users  in eligible                                                               
communities.   The bill  will expand  the monthly  cap to  700 kW                                                               
hours and will  also return more non-residential  users back into                                                               
the program.  Although discussion about  HB 294 will focus on the                                                               
PCE program,  Representative Edgmon expressed his  intent to also                                                               
discuss the immediate  issue of the high cost of  energy in rural                                                               
communities that  rely on  diesel fuel  for almost  any activity.                                                               
Representative Edgmon  observed that  the PCE program  is already                                                               
in  place and,  with  expansion, could  provide immediate  relief                                                               
from the  high cost of energy  to rural Alaska.   He acknowledged                                                               
that the  bill has supporters  and detractors and  testimony will                                                               
cover  the fiscal  impact  and  weaknesses of  the  program -  he                                                               
welcomed the debate.   The legislature has taken a  lot of action                                                               
regarding energy issues  recently because of the  increase in oil                                                               
prices; in  fact, the  state has spent  a considerable  amount of                                                               
money  for weatherization,  home energy  rebate, low-income  home                                                               
heating assistance,  and community revenue sharing  programs, and                                                               
$400 million has  been directed to the PCE endowment,  yet it has                                                               
not  had  much  effect  on  the utility  bills  in  rural  areas.                                                               
Representative  Edgmon urged  for  a vigorous  discussion of  the                                                               
bill, and a focus on the rising costs of energy in rural Alaska.                                                                
                                                                                                                                
3:20:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  PETERSEN  asked   whether  grocery  stores  would                                                               
qualify for PCE with the changes  to the program authorized by HB
294.                                                                                                                            
                                                                                                                                
REPRESENTATIVE  EDGMON indicated  yes, and  pointed out  that the                                                               
increase  from 500  kW hours  to 700  kW hours  would not  make a                                                               
difference in Dillingham  or Bethel, but would  make a difference                                                               
in  the energy  costs  of  a business  in  a  small village,  and                                                               
thereby in the overall cost structure of rural Alaska.                                                                          
                                                                                                                                
3:22:06 PM                                                                                                                    
                                                                                                                                
SARA  FISHER-GOAD, Executive  Director,  Alaska Energy  Authority                                                               
(AEA),  discussed the  fiscal  impact of  the  legislation.   She                                                               
directed attention to the fiscal  note identified as HB294-DCCED-                                                               
AEA-02-10-12, and said the estimated  increase in the cost of the                                                               
program is  approximately $33,126,000.   On page 2 of  the fiscal                                                               
note the  estimate is divided  into three sections:   $15,140,000                                                               
represents the  40 percent  increase in  customers' reimbursement                                                               
from 500 to  700 kW hours per  month - this estimate  is based on                                                               
the assumption  that all customers will  use 700 kW hours  for 12                                                               
months, although  this may not  be true;   $17,900,000 represents                                                               
the  annual   cost  to  include  commercial   and  public  school                                                               
customers  as eligible  customers -  this estimate  was based  on                                                               
1999 statistics  for commercial customers  and two  public school                                                               
buildings  per  community;  and   $86,000  represents  an  annual                                                               
increase of  one additional PCE  clerk to manage the  program and                                                               
verify eligibility.   Ms. Fisher-Goad said page  3 indicated out-                                                               
year  estimates broken  down to  the PCE  endowment fund  and the                                                               
$400,000,000  coming to  the program  in future  years.   The PCE                                                               
endowment is based on a  three-year average market value so AEA's                                                               
projections are  for earnings to  7 percent of the  market value.                                                               
She advised  that the second  fiscal note reflects the  new clerk                                                               
position at  the Alaska Industrial Development  and Export Agency                                                               
(AIDEA),  because AIDEA  has  the positions  that  carry out  AEA                                                               
programs.                                                                                                                       
                                                                                                                                
3:26:27 PM                                                                                                                    
                                                                                                                                
MEERA  KOHLER,  President  and Chief  Executive  Officer,  Alaska                                                               
Village  Electric Cooperative  (AVEC), said  AVEC is  a nonprofit                                                               
member-owned utility  serving 54 villages.   She advised  AVEC is                                                               
showing a  decline in population  for the first time  since 1968,                                                               
which is a reflection of the  exodus from the villages that began                                                               
in 2008.   She expressed AVEC's  support of HB 294,  and recalled                                                               
that  PCE  was   established  in  1984  to  bring   the  cost  of                                                               
electricity in  rural Alaska to  a level  equal to that  of urban                                                               
Alaskans.  At the time of inception,  the benefit of up to 700 kW                                                               
hours was extended  to all nongovernment consumers.   The program                                                               
has been  trimmed back  several times in  different ways  and the                                                               
result is that eligible kW hours have been reduced by about one-                                                                
half.   The bill seeks  to restore additional eligible  hours and                                                               
eligibility  to  commercial customers.    Ms.  Kohler opined  the                                                               
restoration  of  eligibility  is  a meaningful  benefit  for  the                                                               
thousands of Alaskans who are  commercial customers.  The members                                                               
of AVEC account  for about one-third of the  state's PCE benefits                                                               
- $11.3  million - and restoring  the benefits as directed  by HB
294 will  result in  an additional $4,280,000  in PCE  credits to                                                               
its  members.    Further,  adding  school  facilities  in  AVEC's                                                               
villages  adds $227,000,  and brings  the total  to a  40 percent                                                               
increase.   Ms. Kohler acknowledged  these numbers  are different                                                               
than what  was presented  by AEA,  because AEA  assumed customers                                                               
would  claim 700  kW  hours  for 12  months.    Also, the  actual                                                               
average  consumption of  PCE-eligible electricity  by residential                                                               
consumers  is  currently  284  -  not  -  500,  kW  hours.    Her                                                               
organization  estimates that  its customers'  average consumption                                                               
would go up from  380 to about 600 kW hours,  or less.  According                                                               
to  AEA's  report,  FY  10  total  cost  of  electricity  in  PCE                                                               
communities was  about $157,600,000,  and PCE provided  less than                                                               
20  percent.   She  concluded that  restoring  the benefits  will                                                               
result in an increase of program  cost to about 27 percent of the                                                               
cost of delivering electricity in  rural Alaska, and she strongly                                                               
encouraged the committee to support the bill.                                                                                   
                                                                                                                                
3:31:26 PM                                                                                                                    
                                                                                                                                
BRAD REEVE, General Manager,  Kotzebue Electric Association, said                                                               
his company  is in  favor of  reexamining the  program to  seek a                                                               
reduction in the high cost of  power in rural areas.  The average                                                               
usage  in Kotzebue  is  about 560  kW hours  per  month, and  the                                                               
winter  seasonal  use  is  the most  difficult  for  families  to                                                               
manage.   He acknowledged there  has been past opposition  to the                                                               
"government paying  government for  relief," as addressed  by the                                                               
bill; however,  the benefits to  schools and businesses  in small                                                               
villages  could  "make  or  break" them.    Mr.  Reeve  suggested                                                               
continuing conservation  and taking a  close look at  the details                                                               
of the program.  He expressed  his wish for a similar program for                                                               
heating fuel due to the very  high prices for diesel in Kotzebue.                                                               
Mr. Reeve closed, saying any assistance is appreciated.                                                                         
                                                                                                                                
3:34:47 PM                                                                                                                    
                                                                                                                                
JODI MITCHELL,  Chief Executive Officer, Inside  Passage Electric                                                               
Cooperative (IPEC),  informed the committee IPEC  is a regulated,                                                               
member-owned,  nonprofit, electric  cooperative that  serves five                                                               
rural service areas in  Southeast with primarily diesel-generated                                                               
power.  She spoke in support  of the bill, and opined that energy                                                               
costs are a  quality-of-life issue.  Ms.  Mitchell cautioned that                                                               
the 500 kW  hours limit in the winter causes  the utility to have                                                               
a higher  rate because  of lesser economies  of scale.   Further,                                                               
she had  heard from  her members that  businesses are  failing in                                                               
the face  of uncertain  energy costs,  and because  customers are                                                               
devoid of  disposable income.   Members  of her  cooperative have                                                               
also seen  out-migration, especially  in Kake,  and this  is very                                                               
disturbing because of the potential loss of its culture.                                                                        
                                                                                                                                
3:39:13 PM                                                                                                                    
                                                                                                                                
JOHN  HANDELAND,  General  Manager, Nome  Joint  Utility  System,                                                               
advised that the  City of Nome has been interested  in changes to                                                               
the program  for a number  of years.   Nome is  also experiencing                                                               
record-breaking  cold and  an increased  cost of  fuel, thus  the                                                               
city council and  utility board have made energy  issues a higher                                                               
priority.   He said the  increase to  700 kW hours  is beneficial                                                               
and  the addition  of businesses  and  commercial customers  will                                                               
provide assistance  to small businesses.   Mr.  Handeland pointed                                                               
out that  the 70 kW  per month eligible for  community facilities                                                               
in each residential  community is the limit at  least since 1999,                                                               
but there have been changes...                                                                                                  
                                                                                                                                
3:41:43 PM                                                                                                                    
                                                                                                                                
Due  to technical  difficulties,  the committee  took an  at-ease                                                               
from 3:41 p.m. to 3:46 p.m.                                                                                                     
                                                                                                                                
3:46:30 PM                                                                                                                    
                                                                                                                                
MR. HANDELAND continued to say  that the number of kilowatts that                                                               
are  available for  local community  facilities is  an area  that                                                               
should be  reviewed as  the legislature  works on  the bill.   He                                                               
disagreed that  the change  in the  PCE eligibility  rate impacts                                                               
residents' efforts  toward conservation;  in fact,  customers are                                                               
fully  aware of  the  level at  which PCE  is  available and  use                                                               
electricity  out of  necessity,  not out  of  luxury.   Regarding                                                               
AEA's assumption  on the use  of electricity to compute  the cost                                                               
of  the  program, he  pointed  out  that people  need  assistance                                                               
during the winter,  and suggested kilowatts could  be banked like                                                               
"roll-over  minutes," against  the  need for  higher  use in  the                                                               
winter for  supplemental heat.   This would  not be  difficult to                                                               
monitor  using  modern  day accounting  systems.    Finally,  Mr.                                                               
Handeland stated  that the City  of Nome, because of  the extreme                                                               
cold,  is   seeing  a  substantial   increase  in   its  accounts                                                               
receivable, and  is recommending  that the  effective date  of HB
294 be retroactive to the start  of the current state fiscal year                                                               
- 7/1/11 - for the benefit of consumers who need help.                                                                          
                                                                                                                                
3:53:03 PM                                                                                                                    
                                                                                                                                
GENE STRONG,  Board Member, IPEC,  said he supports  the increase                                                               
to 700  kW hours  as this  will help  rural communities  and stop                                                               
out-migration  to  urban  areas.   He  also  encouraged  seasonal                                                               
billing,  instead of  monthly billing,  because by  the time  PCE                                                               
papers arrive the oil bills are  past due.  Mr. Strong noted that                                                               
the   economies  of   the  small   communities  are   tight,  and                                                               
nonexistent in winter.   His utility covers a large  area of five                                                               
communities  that  are not  connected,  although  there are  some                                                               
hydroelectric projects that  will be underway in  the future with                                                               
legislative support.                                                                                                            
                                                                                                                                
3:56:18 PM                                                                                                                    
                                                                                                                                
PETER  ANDREW,  President of  the  Board  of Directors,  Nushagak                                                               
Electric & Telephone Cooperative,  Inc., expressed his support of                                                               
HB  294.   Nushagak is  in the  Bristol Bay  region and  provides                                                               
electricity,  telephone, cable  TV,  and internet  service.   Mr.                                                               
Andrew explained  that like Nome,  Dillingham serves as a  hub to                                                               
provide for many smaller communities,  and restoring the increase                                                               
in kW hours will enhance  economic growth and will help Alaskans.                                                               
His area has also suffered from  record cold and he urged support                                                               
for the bill.                                                                                                                   
                                                                                                                                
3:57:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  EDGMON  asked how  the  aftermath  from the  cold                                                               
winter  will  impact the  Bristol  Bay  region and  IPEC  utility                                                               
customers.                                                                                                                      
                                                                                                                                
3:58:28 PM                                                                                                                    
                                                                                                                                
MR.  ANDREW said  he has  seen Alaskans  buying heating  oil five                                                               
gallons at a  time.  This bill  "frees them up a  little bit more                                                               
to buy  a little  more fuel."  In addition,  Dillingham residents                                                               
have been using wood for  heat and the weatherization program has                                                               
helped rural Alaskans stretch their dollars.                                                                                    
                                                                                                                                
4:00:01 PM                                                                                                                    
                                                                                                                                
ANDREW  GUY,  President  and  Chief  Executive  Officer,  Calista                                                               
Corporation, spoke  in support  of HB  294, specifically  for the                                                               
provision to  include commercial  businesses.  The  Alaska Native                                                               
Claims Settlement  Act (ANCSA) corporations were  formed 40 years                                                               
ago  to  benefit shareholders  and  descendants,  and to  improve                                                               
socioeconomic standards.   One of the  best ways to do that is to                                                               
start new businesses that provide  jobs; however, it is very hard                                                               
to start  and operate a business  in rural Alaska because  of the                                                               
cost of electricity.   In his travels around his  region, he sees                                                               
people going to  Bethel and Anchorage to shop, due  to the higher                                                               
cost  of local  goods.   Mr.  Guy said  this is  wrong and  stops                                                               
growth in  the local economy.   He urged consideration of  HB 294                                                               
as it  will help village  corporations grow by lowering  the cost                                                               
of  doing  business.     He  expressed  his   belief  that  urban                                                               
businesses have  benefited from energy programs  in the Railbelt,                                                               
and rural Alaska deserves parity.                                                                                               
                                                                                                                                
4:03:46 PM                                                                                                                    
                                                                                                                                
HENRICH KADAKE SR,  Mayor, City of Kake,  said he whole-heartedly                                                               
supports the  bill because the  population in Kake  has decreased                                                               
almost  45  percent -  from  over  900  residents  to 510.    The                                                               
decrease in  population is  due to the  small businesses  in Kake                                                               
that  cannot  operate  because they  cannot  afford  energy,  and                                                               
because  houses  are  not  kept  warm.   Ninety  percent  of  the                                                               
population  lives  on  a  fixed   income,  and  even  the  tribal                                                               
corporations  cannot stay  in  business.   Mr.  Kadake urged  the                                                               
committee to support the bill saying,  "it's a good thing for the                                                               
people in the rural communities and Southeast too."                                                                             
                                                                                                                                
4:05:28 PM                                                                                                                    
                                                                                                                                
ANDY  VARNER,  Executive  Director,  Southwest  Alaska  Municipal                                                               
Conference   (SWAMC),  said   SWAMC   is   the  Alaska   Regional                                                               
Development Organization Region  (ARDOR) representing Bristol Bay                                                               
Borough,  Lake &  Peninsula Borough,  Kodiak Island  Borough, and                                                               
the  Aleutian  and  the  Pribilof  Islands.    He  expressed  his                                                               
appreciation  to   Representative  Edgmon  for   introducing  the                                                               
legislation.    One  of  the  major objectives  of  SWAMC  is  to                                                               
increase  economic  and  business   development  in  its  region;                                                               
however, rural  Alaska is a  challenging environment in  which to                                                               
operate a  business.  The  high costs of  energy, infrastructure,                                                               
and  long  distances  to  markets   combine  to  stifle  economic                                                               
development, particularly when the full  cost of energy is passed                                                               
on to consumers in a vicious  cycle.  Mr. Varner agreed that many                                                               
businesses are  on the  verge of closing  because of  fuel costs,                                                               
and  observed  that   schools  need  to  put   their  money  into                                                               
curricula.  In times of high  oil prices, the state "rides on the                                                               
back of residents and businesses," and  HB 294 is a good start to                                                               
a  conversation on  the goal  of  keeping people  in business  in                                                               
rural Alaska.  He advised that  PCE is critical to rural Alaskans                                                               
-  as  are  the  other  programs  supporting  energy  efficiency,                                                               
renewable energy, and weatherization -  but HB 294 would directly                                                               
impact businesses.                                                                                                              
                                                                                                                                
4:09:32 PM                                                                                                                    
                                                                                                                                
ROBERT  VENABLES,   Energy  Coordinator,   Southeast  Conference,                                                               
stated  that   Southeast  Conference  is  the   state's  regional                                                               
development organization for Southeast  Alaska, and the federally                                                               
recognized  economic district.   He  thanked the  legislature for                                                               
its efforts  to bring about  the long-term improvements  that are                                                               
needed to  develop regional and  renewable energy  resources that                                                               
will  diminish and  displace the  dependency on  diesel fuel,  as                                                               
well as  the need for  PCE.   At this time,  however, communities                                                               
have  devastated   economies  and   businesses  are   hurting  in                                                               
communities  like Hoonah,  and disappearing  in communities  like                                                               
Angoon and  Kake.   In Southeast, the  cost of  operating schools                                                               
continues to  increase although  federal support  has diminished.                                                               
The bill does  not seek to establish a new  program, but restores                                                               
the original intent of PCE,  and gives rural businesses a future.                                                               
Mr. Venables  said that  HB 294  can help  as everyone  works for                                                               
better long-term solutions.                                                                                                     
                                                                                                                                
4:12:24 PM                                                                                                                    
                                                                                                                                
TARA  BOURDUKOFSY, Director,  Human  Services, Aleutian  Pribilof                                                               
Islands Association, Inc. (APIA), said  APIA represents 13 of the                                                               
federally  recognized  tribes in  its  region.   Ms.  Bourdukofsy                                                               
supervises the  federal Head  Start, Administration  for Children                                                               
and Families,  Department of Health  and Human  Services programs                                                               
in  Sand  Point, St.  Paul,  Unalaska,  and  King Cove,  and  she                                                               
introduced the  Head Start  coordinator.  She  said APIA  is very                                                               
encouraged by the bill and urged that it be moved forward.                                                                      
                                                                                                                                
4:14:19 PM                                                                                                                    
                                                                                                                                
MARK  WASIERSKI,  Coordinator,  Head Start,  APIA,  informed  the                                                               
committee of the  importance of including Head  Start programs as                                                               
part of  the school system in  Alaska so PCE can  be available to                                                               
rural programs  whether they  are housed  alone, within  a school                                                               
district, or are in another  facility, such as a tribal community                                                               
building.    Rapidly  increasing  power  costs  have  drastically                                                               
impacted the  Head Start program's  ability to provide  the basic                                                               
program  needs  of  health,  safety  oversight,  and  nutritional                                                               
services, as  money is diverted to  pay for power costs  of up to                                                               
$2,000 per month.  The inclusion  of Head Start programs into PCE                                                               
will  free  money  to  more  adequately  provide  for  the  basic                                                               
required  services  that Head  Start  provides  to Alaska's  most                                                               
needy children.  Mr. Wasierski  expressed his full support of the                                                               
bill and a return to the "1998 levels."                                                                                         
                                                                                                                                
4:15:49 PM                                                                                                                    
                                                                                                                                
ANGELA MORGAN, Executive Director,  Middle River, Interior Rivers                                                               
Resource  Conservation  &  Development  Council,  Inc.  (Interior                                                               
Rivers RC&D), Natural Resource  Conservation Service (NRCS), U.S.                                                               
Department  of Agriculture,  and  a representative  of the  Aniak                                                               
Traditional   Council,   said   Interior  Rivers   RC&D   council                                                               
represents  eleven villages  on  the middle  Kuskokwim River  and                                                               
four  villages  on the  Yukon  River.    She  said she  was  also                                                               
speaking on behalf of the Aniak  Traditional Council.  One of the                                                               
main goals  of Interior Rivers  RC&D council is to  seek economic                                                               
development  for  the  villages,  therefore,  she  expressed  her                                                               
support of  HB 294, and  the increase from  500 to 700  kW hours.                                                               
Her  region  has  also  suffered  from  extremely  cold  weather,                                                               
especially in the  middle Yukon River and  middle Kuskokwim River                                                               
areas,  and residents  are having  broken pipes  and difficulties                                                               
caring for their families and  elders during power outages.  Even                                                               
with the current  level of PCE, residents are  paying over $1,000                                                               
per month for  fuel and electricity, and are  worried about being                                                               
disconnected for nonpayment of their  bills.  Ms. Morgan stressed                                                               
that  small businesses  also need  to  be eligible  for PCE,  and                                                               
acknowledged the  past work  by legislators  that has  helped the                                                               
region.                                                                                                                         
                                                                                                                                
4:20:39 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  FOSTER   said  HB  294   would  be  held   for  further                                                               
consideration.                                                                                                                  

Document Name Date/Time Subjects
A - CCHRC Presentation.pdf HENE 2/14/2012 3:00:00 PM
B - Chikuminuk Presentation.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 01 HB 294, Version A.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 02 Sponsor Statement.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 03 PCE Endowment Existing Statutes.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 04 Existing PCE Statutes.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 05 Energy Appropriations FY08-12.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 06 Leg Research 99 086.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 07 Leg Research 00 022.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 08 Leg Research 06 016.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 09 Leg Research 09 200.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 10 PCE_Report_Gov_Blue_ribbon_2-1-991.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 11 DCCED-AEA-02-10-12.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 12 DCCED-AIDEA-02-10-12.pdf HENE 2/14/2012 3:00:00 PM
HB 294 - 13 Minto Development Corp PCE Support Letter.pdf HENE 2/14/2012 3:00:00 PM