Legislature(2005 - 2006)HOUSE FINANCE 519
04/04/2006 01:30 PM House FINANCE
| Audio | Topic |
|---|---|
| Start | |
| HB57 | |
| HB493 | |
| HB445 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 57 | TELECONFERENCED | |
| + | HB 445 | TELECONFERENCED | |
| + | HB 470 | TELECONFERENCED | |
| *+ | HB 493 | TELECONFERENCED | |
| + | TELECONFERENCED |
HOUSE BILL NO. 445
"An Act relating to the alternative energy grant fund
and to alternative energy grants."
2:40:54 PM
Representative Stoltze MOVED to ADOPT Work DRAFT 24-
LS1311\X, Cook, 3/31/06. There being NO OBJECTIONS the
Committee Substitute (FIN) was ADOPTED.
2:42:00 PM
REPRESENTATIVE BILL THOMAS, Sponsor, introduced his staff,
Kaci Schroeder and testified regarding the bill. He
explained that the bill proposed to take ten cents per
barrel from oil price revenue sharing and place it into an
alternative energy fund, to be administered by the
Alternative Energy Authority (AEA). He noted that AEA
already had the infrastructure necessary to administer
grants. He estimated that the fund would generate
approximately $30 million per year. The program funding
mechanism could be in place only if the price of oil was $35
per barrel or higher. The program funding could sustain
itself if left alone. He explained that the AEA would
direct the funding to support alternative and efficient
energy projects. Grants may not exceed $20 million, but
grantees may be eligible for more than one grant over time.
Projects are to be submitted to the AEA, who would use their
existing criterion to determine project viability. Grantees
must match funding at 25 percent. He defined an alternative
energy project as "a project that produces energy for the
production of electricity, heat or medical power, derived
from renewable or local resources other than liquid
petroleum, primarily diesel." He went on to define energy
efficiency project as one that "improves the efficiency of
energy generation, transmission or use at facilities across
the state". This includes facility installation, energy
efficient lighting, and improved use of diesel fuel. He
defined an electric utility as "an entity that provides
power for public consumption and has been certified by the
Regulatory Commission of Alaska (RCA)".
2:46:42 PM
Representative Thomas noted that the legislation was crafted
following a trip to Yakutat, where the cost of fuel was an
issue, and residents expressed a desire to utilize nearby
natural gas, but lacked the financial resources to create a
system. He pointed out that when Haines converted to hydro-
electric power, although some were skeptical, it has
provided steady rates in the current climate of rising
costs. He expressed the desire for the State to plan for
the future.
Representative Thomas proposed that the bill would benefit
urban as well as rural communities. He noted that in South
Central Alaska, natural gas was running low. He stressed
that using current resources to solve these problems would
save money in the future. He stated that some communities
in his district use over a million gallons of diesel per
year. He suggested that with a grant program, a community
could bond their share and recoup the funds over a six or
eight year period, using technologies such as wind and tidal
surge. He also proposed that it could free up some PCE
funds.
Additionally, Representative Thomas noted that decreasing
energy costs to consumers puts money back into the Alaskan
economy. He referenced the Fire Island project, and Chugiac
Electric that sought to harness geothermal power at a nearby
hotsprings, as well as some southeast communities looking
into using wood fire to heat swimming pools and cut down on
wood waste. He concluded his presentation by pointing out
that projects would be screened by the AEA rather than
approaching the legislature directly, thereby streamlining
the funding process.
2:50:23 PM
Representative Thomas expressed his usual stance as a pro-
industry legislator, and conceded that a new environmental
focus was novel for his office. Co-Chair Meyer observed
that using hydro energy seemed wise for Representative
Thomas' district and asked if there was reference to nuclear
energy in the bill. Representative Thomas stated that,
although there was allowance for nuclear projects in the
bill, the AEA did not currently allow such projects.
2:51:46 PM
Representative Holm asked about the criterion that would be
adopted to determine economic viability of a project. He
maintained caution in giving authority to regulatory
agencies, and asked for assurances of fair and unbiased
decision making.
2:52:35 PM
Representative Thomas reiterated that AEA already had
established criteria in place, as well as a process for
reviewing projects. He cited several communities that would
benefit from the proposed program.
Representative Hawker referred to earlier comments, and
asked for clarification of the idea of the State having
"extra" wealth. Representative Thomas referred to the vote
to reserve $600 million and proposed that if the State used
$20 to $30 million to support alternative energy projects,
communities could be weaned from dependence on diesel fuel.
He referred to several communities that were being helped
with small grants to retire debt and go forward with energy
projects. He observed that oil prices were not expected to
decline, and suggested it would be wise to use reserves for
pro-active programs. Responding to another comment by
Representative Hawker, Representative Thomas mentioned the
PPT bill and the perception that $1 billion to $2.3 billion
in revenue would be raised by the State. He suggested that
some of the monies should be used to make the State more
energy independent. He maintained that the funding for his
bill would be generated by the State's royalties, if they
were at a level over $35 per barrel. He proposed that, if
adopted, the program would use ten cents per barrel for
energy projects. He stressed that he did not believe that
the entire $20 to $30 million per year would be spent on
projects.
2:56:38 PM
Representative Hawker insisted upon clarifying the notion of
"extra" wealth. He referenced the "prevailing price", or
West Coast price, of $35 per barrel. He proposed that more
than $45 per barrel was needed to balance the State's
budget, and maintained that by taking ten cents from the
amount it increased the State's deficit. He stated that
there was not currently adequate funding for social
services, and proposed that taking $100 million out of the
budget would result in deficit spending for the State.
Representative Thomas replied that projects would ultimately
be channeled through the legislative budget process, giving
legislators the opportunity not to fund them if funds were
not available. He emphasized that since his district was
dependant upon diesel, it was a priority for him to see them
replace this with alternative energy.
Representative Hawker expressed concern that even with a
large increase in taxes on the oil industry, the funding was
already spent. He debated the idea that the State was in
the position of having "extra" wealth.
2:59:01 PM
Representative Thomas emphasized that this was an
appropriation bill, and would come before the Committee
yearly for approval. He urged approval.
Vice-Chairman Meyer agreed that the bill was timely and had
merit, and suggested that the funding source would be worked
out in the legislative process.
Representative Joule commented on the hope for the gas line.
He noted that a benefit of the gas pipeline would be access
to that energy for Alaskans in various areas of the State.
He stressed that the proposed legislation is to explore
alternative energy to areas that will not have access to the
gas line reserves. He emphasized the appropriateness of
these areas seeking alternative energy methods. He observed
that the bill attempted to liberate these communities from
dependence on diesel fuel. He encouraged the legislation.
3:01:44 PM
Co-Chair Meyer agreed that especially in remote areas like
Kotzebue, such alternative sources would be very helpful.
3:02:24 PM
RON MILLER, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (AIDEA) testified regarding
the bill. He agreed that the bill did not create a new
program, but rather created another source of funding for
existing alternative energy programs. He noted that the
program was currently funded primarily by federal funds, but
was completing an outside solicitation. He stated that they
used an established set of guidelines in evaluating
potential projects. Their primary focus is on the life
cycle savings of a project. He referred to the Alternative
Energy Newletter, and described projects such as the Prince
of Wales Island hydro electric project, funded by a
combination of grant fund and funds from the power project
loan fund. He noted that this project would displace over
half a million gallons of diesel annually for that area. He
expressed support of the bill.
3:04:37 PM
Representative Holm asked what criteria were employed to
decide which areas and projects would be funded.
PETER CRIMP, PROJECT MANGER FOR ALTERNATIVE ENERGY AND
ENERGY EFFICIENCY, DEPARTMENT OF COMMERCE, COMMUNITY AND
ECONOMIC DEVELOPMENT responded that they conducted life
cycle economic analayses for each project, looking at the
overall savings for its life. He noted that for a
hydroelectric project with a span of 40 years, the costs
were compared over a horizon to an existing project, for
example a diesel power project, and then to the present
value of savings. He noted that they ranked projects by
benefit to costs ratios and allocated resources according to
these ratios.
3:06:09 PM
Representative Holm asked how various communities would be
chosen. Mr. Crimp noted that they would choose the
community project with the most savings compared to the
least costs.
Representative Holm asked if any biases existed, and only
strict calculations were used. Mr. Crimp noted that they
made every effort to conduct "arms' length" assessments of
projects, using a financial analysis as well as an analysis
of technical merit.
3:07:27 PM
Representative Holm noted a concern expressed about the
project at Fire Island, regarding loss of wildlife and other
deterrents. He speculated that projects might contain
possible problems not addressed from a financial standpoint.
He asked how these concerns were taken into account.
3:08:27 PM
Mr. Crimp explained that before Alaska Energy Authority
provided any funding for projects, they required all
necessary permits. He noted that before Fire Island could
be approved, it would need permits from Fish and Wildlife
service, as well as possibly the FAA, Core of Engineers,
etc. Balanced financing for the project is also required.
3:09:21 PM
Representative Kerttula observed that the ultimate goal of
the bill was not only to provide good sources of energy to
various areas Statewide, but also long-term cost savings.
Mr. Crimp confirmed that this was the thrust of the
Authority's program - to reduce the overall cost of
providing energy to the State.
3:10:19 PM
Representative Joule asked about the progress of the Ing
River project. Mr. Crimp explained that a feasibility
analysis was being conducted for the project in Knik Arm,
that would use tidal flow turbon technology. He noted that
the same technology could be employed in the Yukon River.
Although the economics were currently unclear, he stated
that the overall effort has been useful in producing common
assumptions, and projected 3 to 5 years for completion.
3:11:38 PM
Representative Hawker referred to Page 2, Lines 8 to 13,
which discusses criterion for grant projects. He asked for
clarification of "economically viable" as well as "services
of the grantee". He also asked how economically liability
was determined if a project proved unviable, as had been the
case in some past projects.
Mr. Crimp referred to earlier testimony by Mr. Miller about
the ranking of proposals. He noted that the services that
reduce costs for consumers would receive the focus. He also
stressed that the current program required a match,
sometimes as much as 60 percent, involving out of pocket
match as well as financing.
3:14:17 PM
Representative Hawker noted the current bill contained
only a 25 percent match, and asked if a performance bond
would be required equal to State funding. Mr. Crimp
responded that there was no requirement for a performance
bond, but emphasized that the recipient's investment in a
project was an incentive for project success.
Representative Hawker maintained that while providing an
incentive for programs, the State remained liable for lost
revenue.
3:15:14 PM
Representative Holm asked if these projects were under the
supervision of the Regulatory Commission of Alaska (RCA).
Mr. Miller stated that some utilities were not regulated by
RCA.
3:16:08 PM
Representative Kelly referred to a presentation given about
the small, interconnected hydro power plants for exchange
into the Northwest. He observed that in major Alaskan
communities in Southeast this might be a viable option. He
cited personal experience with various experimental energy
projects, and noted that hydro-electric power tended to be
the most proven resource, as opposed to other projects which
were more speculative. He asked if this project focused on
hydro power as a solution for Alaska.
3:17:54 PM
Mr. Miller responded that they had not been approached with
such a proposal, and speculated that, especially as an
export project, it would have to prove cost effectiveness
for Alaska. Representative Kelly noted that diesel
efficiency and hydro projects seemed to have the greatest
amount of improvement, but observed that sometimes these
projects might be adversely affected by climate and other
environmental factors.
3:19:19 PM
Mr. Miller noted that they were very active in hydro
electric projects, supporting them through grant and
financing programs. He noted two successful hydro projects
in Juneau, as well as on Prince of Wales Island. He also
noted that diesel efficiency has proven successful,
particularly with in-use efficiencies such as lighting
retrofits. He noted that Juneau had some of the lowest
energy rates in the States due to hydro projects.
3:20:33 PM
Vice Chairman Stoltze opened the floor to public
testimony.
CHRIS ROSE, EXECUTIVE DIRECTOR, RENEWABLE ENERGY ALASKA
PROJECT, testified via teleconference in support of the
bill. He observed that 40 states have incentive policies
built in at the state level for energy renewal. He observed
that the price of oil was projected to remain high, and that
communities that relied solely on this source would face
increasing costs. He also noted that there were
opportunities for improvements in the rail belt. He
explained that his organization was educating the public on
the changes in technologies. For example, in some areas of
the country, wind was the cheapest form of energy available.
He also noted that having a policy like this bill would
create a future energy framework for the state. He stated
that the renewable energy market was the fastest growing in
the country. The "clean energy market" was predicted to
quadruple in nine years' time. He concluded that if
policies like this were put in place, consumers would
benefit from fixed rate power, such as instituting a wind
generator in rural areas. He emphasized that efficiency was
also part of the overall program needed. He concluded that
they believed in the merit of the policy, and encouraged
legislators to use the amount of oil as a guidepost in how
much was invested into alternative energy.
3:26:14 PM
MEERA KOHLER,PRESIDENT AND CEO, ALASKA VILLAGE ELECTRIC CO-
OP testified via teleconference in support of the bill. She
explained that they were a utility providing energy to
21,000 Alaskans in 52 villages. She observed that the bill
provided an opportunity for communities dependent on oil to
develop some alternatives to rising oil costs. She
applauded the bill's link to the cost of oil, and the high
level cap on the grants, as well as the 25 percent cash
match. She concluded that the bill brought Alaska closer to
energy independence and encouraged its support.
3:28:09 PM
Representative Kelly asked if her organization would be
amenable to assuming the completion risk of a venture, or
converting the 25 percent match to a loan. Ms. Kohler noted
that 25 percent of the cost of a project was absorbed by the
utility, and the other costs were covered by the granting
agency. She noted that the utility would retain the risk of
the 25 percent, unless they convinced the granting agency to
share any additional costs.
3:30:28 PM
Representative Kelly observed that if a project was
unsuccessful, a utility would need to take on completion
costs for a project that was not generating revenue. Ms.
Kohler concurred, and added that if a project was funded at
$5 million, and actually cost $6 million, the utility would
need to bridge that gap. She stated that they might
approach the federal government, but confirmed that the
utility would somehow need to come forward.
3:31:38 PM
JOSH LAROSE, SOUTHWEST MUNICIPAL CONFERENCE, testified via
teleconference in support of the bill. He referred to
current newspaper articles about the prices of diesel fuel,
as well as the rural energy funding bills, concluding that
the funding for rural diesel energy would prove
unsustainable. He pointed out that the debate was regarding
how to best provide options to these rural areas. He stated
that small communities were facing a bleak financial
situation, and that the bill presented immediate as well as
future relief.
3:33:46 PM
KATHIE WASSERMAN, ALASKA MUNICIPAL LEAGUE, testified in
support of the legislation. She stated that the bill was
forward thinking, encouraging investigation into utilities'
future, and cost savings in areas such as educational
facilities. She cited her experience as mayor of a small
community, and recalled the high rate of energy cost to
these areas. She proposed that if more communities had the
option to study other means it would provide savings.
3:36:02 PM
Co-Chair Meyer asked about the nature of the hydro plant in
her area. Ms. Wasserman noted that the was put in place a
long time ago by the cold storage company that founded the
community of Pelican, and not paid for by the city or State.
3:36:38 PM
Representative Hawker pointed out the $7 billion dollar
liability to the pension plan by the State. He asked how he
could invest in this program without addressing this other
legal liability.
3:37:17 PM
Ms. Wasserman suggested that there might be other areas
where monies could be cut in the budget. She offered to
discuss these ideas with legislators.
3:37:59 PM
PAUL FUHS, CITY AND BOROUGH OF YAKUTAT, testified about the
costs of energy to smaller communities. He recalled the
importance of savings measures to these areas.
3:39:48 PM
Co-Chair Meyer agreed that the legislation was a good idea.
He offered to work with the Sponsor to come up with
alternative funding.
3:40:57 PM
HB 445 was HELD in Committee for further consideration.
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