Legislature(1997 - 1998)

04/10/1997 01:40 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HOUSE CONCURRENT RESOLUTION 16                                               
       Proposing  recommendations concerning  the sale  of the                 
       Four Dam Pool hydroelectric facilities.                                 
  REPRESENTATIVE RAMONA  BARNES  briefed  the  Committee  that                 
  communities  served  by   the  Four  Dam  Pools   have  been                 
  negotiating  to  acquire  the dams  from  the  Alaska Energy                 
  Authority (AEA).   Unfortunately,  they are  not willing  or                 
  able to give the  State reasonable payment for the  value of                 
  the property.  She  stated that she opposed  any divestiture                 
  which did not guarantee to the State full value for the Four                 
  Dam  Pools.    Representative  Barnes  recommended   that  a                 
  competitive  sale  resulting  from   a  public  Request  For                 
  Proposals (RFP) be the best guarantee that the people of the                 
  State receive fair and full value for valuable assets.                       
  Constituents in Anchorage have a great financial interest in                 
  the  divestiture  process   as  do   the  citizens  of   the                 
  communities that buy the dam power.  All Alaskans are owners                 
  of the  dams; approximately  $500 million  dollars of  State                 
  funds were used to subsidize the investment.                                 
  Representative Barnes  continued, the  controversy over  the                 
  Four Dam Pool stirs up old political wounds and frustrations                 
  over unfulfilled regional energy agreements.  She noted that                 
  originally, legislators had indented to create  an equitable                 
  energy policy for  the entire State, wanting  to develop and                 
  export fossil fuel  resources.  Substantial portions  of oil                 
  revenue generated by that policy  were appropriated to build                 
  and support energy projects like the Four Dam Pool, designed                 
  to lower the  cost of electricity to Alaskan residential and                 
  business consumers.                                                          
  In areas of the State where electric generation costs  could                 
  not be lowered with present technology, the State instituted                 
  a Power Cost  Equalization (PCE) program in  the interest of                 
  economic justice.  She emphasized that  since the oil wealth                 
  of Alaska belongs to all its  citizens, a fair energy policy                 
  dictates  that   every  community  should   have  reasonable                 
  electric rates,  which  is a  fundamental  prerequisite  for                 
  community growth and economic viability.                                     
  She  continued,  there are  those  who feel  that  the State                 
  should  sell the  power  generated  by  the  dams  to  local                 
  utilities pursuant to a Power  Sales Agreement (PSA).  Under                 
  the  PSA,  the  State  carries   the  liability  burden  for                 
  substantial repairs,  uninsured losses,  inflation, loss  of                 
  power  sales, insufficiency  in  the  R&R fund,  performance                 
  failures and  the liability  of a  catastrophic event.   The                 
  State is  currently paying  for substantial  repairs to  the                 
  facilities from  the  income stream  of the  Four Dam  Pool,                 
  through   the   PSA  self-help   clause  and   projected  at                 
  approximately $27 million dollars over the next three years.                 
  She  maintained  that  Alaska  Energy  Authority  (AEA)  has                 
  pursued and continues  to pursue a divestiture  process that                 
  is flawed.  Since August,  1995, AEA sale negotiations  have                 
  only been with the local utilities from the private  sector;                 
  there has  not been  one instance,  of an  offer to pay  the                 
  State's  asking price.   Representative Barnes  stated there                 
  are no reasons why the private sector should  be shut out of                 
  the  sale process  in  favor of  a  "sole-source" effort  to                 
  transfer the dams to local  governments and associations for                 
  $20 million dollars.                                                         
  Representative Barnes pointed out that HCR 16 only addresses                 
  how the dams  are to be  sold.  AEA  should employ a  public                 
  competitive sale process  and publish, as soon  as possible,                 
  an  RFP  to elicit  qualified  buyers.   The  RFP  should be                 
  designed to secure the greatest value  for the State, with a                 
  guarantee that  the sale would  not alter existing  rates to                 
  local communities under the PSA.                                             
  AEA has volunteered to seek the  final approval for the sale                 
  from  the Legislature.   That action  would not  correct the                 
  flawed sole-source process.  She  suggested that such action                 
  would pass  on to  the Legislature,  the serious  procedural                 
  errors and their attendant conflicts.   She recommended that                 
  AEA respond with a dispatch in publishing an RFP so that the                 
  Legislature could know  by the end  of the session that  the                 
  divestiture  process of the Four Dam Pool was being properly                 
  Representative Barnes provided a historical overview  of the                 
  Four Dam Pool transfer fund and State loan.  In 1984, as the                 
  $200 million dollar  variable demand  bonds became due,  the                 
  State  appropriated  $210  million   dollars  to  the  Power                 
  Development Revolving Loan  Fund (PDRLF) for  a loan to  AEA                 
  for  the   long  term  financing   of  the  Four   Dam  Pool                 
  hydroelectric projects.  AEA paid off the interim financing,                 
  lapsing substantial amounts  to the  general fund, and  used                 
  the remaining loan proceeds to  complete construction of the                 
  That   was  initially   administered  by  the   Division  of                 
  Investments, Department of Commerce and Economic Development                 
  (DCED).  In 1989, the fund was transferred to AEA.  Then CH.                 
  18, SLA 93, repeated the PDRLF and transferred  those assets                 
  to the  Four  Dam Pool  Transfer  Fund administered  by  the                 
  Division  of Energy,  Department  of Community  and Regional                 
  Affairs (DCRA).                                                              
  She stated that the Four Dam Pool Transfer Fund is currently                 
  the holder of the loan agreement between the State of Alaska                 
  and AEA.  The  loan is secured by promissory  notes totaling                 
  approximately $185 million dollars and all revenues from the                 
  Four  Dam  Pool systems;  AEA's  rights under  any agreement                 
  related to the systems and AEA's resulting rights to receive                 
  payments.  The  loan would also be secured  by the assets of                 
  the hydroelectric projects in the Four Dam Pool areas.                       
  The revenue to  the Four  Dam Pool varies  depending on  the                 
  power  purchased  and/or  available;  it   also  depends  on                 
  determinations  made   by  AEA   and  the  wholesale   power                 
  purchasers to  retain part  or all  of the  debt service  to                 
  cover certain project  risks.  AEA  and the wholesale  power                 
  purchasers are retaining debt service up through July, 1997,                 
  for a total of approximately $27 million dollars.                            
  Representative Barnes pointed out that  her concern was that                 
  the Railbelt communities  had not received their  fair share                 
  of  the  appropriations  historically   granted  for  energy                 
  concerns.    After all  was "said  and  done", in  1994, the                 
  Railbelt communities  were left with  $100 million  dollars.                 
  She pointed out  that Ketchikan had  received a $20  million                 
  dollar intertie.  A commitment was  made that the loan would                 
  be  paid  back and  that  $4  million dollars  a  year would                 
  additionally  be  reimbursed  for  a  total of  $28  million                 
  dollars.   She pointed  out that  Senator  Sharp offered  an                 
  amendment recommending the sale  of the Four Dam Pool.   She                 
  noted that the amendment was proposed  one year after he had                 
  negotiated "in good faith" the same legislation to  lend $20                 
  million  dollars  to build  the  intertie from  the Railbelt                 
  Energy fund.                                                                 
  The  revenue  stream  from  the   Four  Dam  Pool  generates                 
  approximately  $11  million dollars  in  interest only.   No                 
  money has been  paid into  the principle.   The $11  million                 
  dollars was intended to be split as follows:                                 
       *    40% to the  Power Cost Equalization (PCE)  & Rural                 
            Electric Capitalization Fund (RECF);                               
       *    40% to the Southeast Energy Fund; and                              
       *    20% to the Power Project (revolving loan) Fund.                    
  She  elaborated  that  the Four  Dam  Pool  communities were                 
  currently negotiating to have  the dams given to them  at no                 
  charge.   At this time, private  enterprise has also offered                 
  to  buy  the  dams  for  $84  million dollars.    The  small                 
  communities thus realized  the situation and offered  to pay                 
  $20 million dollars.                                                         
  Representative  Barnes  explained  that   Alaska  Industrial                 
  Development & Export Authority's (AIDEA)  Board works as the                 
  umbrella  for AEA.   AEA was transferred as  a result of the                 
  debts on the  dams and transmission  lines.  She  reiterated                 
  that these assets  are being negotiated at a give-away cost.                 
  Representative  Barnes demanded  that  these communities  be                 
  required to keep their  word to the people of  the Railbelt.                 
  She recommended that  AIDEA's flawed  process go no  further                 
  Representative  Grussendorf  briefed   the  Committee,   the                 
  original commitment specified  that as long as  the Railbelt                 
  money  was  used for  energy  projects,  there  would be  no                 
  problem.  The  project became "wide  open" when those  funds                 
  were used by  the Railbelt communities and  spent on "other"                 
  projects.    He   stressed  that   the  intent  of   current                 
  negotiations was not to "give" the  dams away and that there                 
  will be compensation given for the services provided.                        
  POWER OF  ALASKA, stated that  he represented himself  and a                 
  group who had submitted  a proposal for the purchase  of the                 
  Four Dam Pool.   He spoke to what he understood  would be in                 
  the best long term interest of the State's energy power.  He                 
  pointed  out that HCR  16 would  require the  Legislature to                 
  determine if a  public asset is  to be sold.   He added,  if                 
  that asset  is to be  sold, it should  then be sold  "in the                 
  public".   A  procedure for  that process  exists and  would                 
  involve  providing  a  competitive bid,  making  it  open to                 
  qualified bidders.                                                           
  Determination of the  worth of  the Four Dam  Pool would  be                 
  assessed by the  cash flow of  the project.  Senator  Gravel                 
  reminded Committee members that the  dams had been built  as                 
  part of a State  energy program to bring the  cost of energy                 
  to  a  reasonable   arena  so  that  communities   could  be                 
  Senator   Gravel  provided   information   on  the   project                 
  construction dates and  the communities served by  each dam.                 
  Lake Tyee serves Petersburg and was built in 1985.  Wrangell                 
  is served by Solomon Gulch,  Swan Lake serves Ketchikan  and                 
  Terror  Lake  serves  Kodiak.    None  of  these  dams   are                 
  interties.    He  maintained that  the  dam  areas  could be                 
  connected  to  a  Canadian grid  intertie  within  a decade,                 
  although, such  action would  require private  participation                 
  and not just governmental action.                                            
  The dams were  constructed by  State and local  governments.                 
  The cost  was paid for  by the State  in the amount  of $187                 
  million dollars.  Senator Gravel  predicted that the private                 
  sector could deliver  service more  efficiently and  cheaper                 
  than the government.  The local  governments deliver it at a                 
  cost of 8% more.  The State is not qualified to  operate the                 
  dams,  whereas, the  local municipalities  were required  to                 
  operate them, even though the dams are not controlled by the                 
  local communities.   He summarized,  the dams are  currently                 
  operated locally and are controlled  by a project management                 
  He questioned if  it was legal  that local entities are  the                 
  only ones  who could bid  on the dam  sale.  He  pointed out                 
  that national studies have indicated that the private sector                 
  provides  the  most  efficient  electrical  energy  service.                 
  Senator Gravel suggested the problem  exists from the manner                 
  in which the sale  is being handled.  He commented  that the                 
  dams are  a valuable asset  which should  not be  sold on  a                 
  sole-source basis.   When a  valuable State asset  is to  be                 
  sold, it should be handled in a competitive way.                             
  Senator  Gravel addressed  the municipal  practices for  the                 
  sale of  a sole-source  process.  He  distributed a  handout                 
  reviewing  a cross section of  Alaskan city policies.  [Copy                 
  on file].  An open competitive  bid process is self evident.                 
  These communities are  feeling threatened  because a  "cash"                 
  cow could disappear, making them  responsible to address dam                 
  management.  The  dams have an  operation cost of 2.5  cents                 
  per kilowatt hour, whereas, similar dams in the lower 48 are                 
  operated  at .7 cents  per hour.   He commented such  a sale                 
  would not be in the best interest for Alaska.                                
  Senator Gravel reiterated  that by the State selling  to the                 
  municipalities, there would be no winners.  The action would                 
  create a community monopoly and would leave no alternatives.                 
  He  advised  that  passage  of HCR  16  will  have important                 
  political consequences, and reiterated that selling a public                 
  asset should be addressed publicly.                                          
  Co-Chair Therriault questioned how  prospective buyers would                 
  address the  power sale  agreements (PSA).   Senator  Gravel                 
  replied that agreement  had been specifically crafted  for a                 
  point  in history  for those  communities, when  a  lot more                 
  money had been available  in the State.  The dams were built                 
  without knowing who would buy the power; there were no legal                 
  agreements regarding these issues.  The State was behind the                 
  agreement, even though  it was not  good for the Alaska,  it                 
  was very beneficial to the locals.  The agreement stipulates                 
  that the State is  ultimately responsible for the  upkeep of                 
  the projects.   Senator  Gravel noted  that the  Legislature                 
  would be the final authority on the decision to sell.                        
  (Tape Change HFC 97-91, Side 2).                                             
  Senator Gravel  concluded that  the purpose  of the  bonding                 
  agreement would be to sell power and to sell that power at a                 
  fair and continuous rate.                                                    
  Representative Martin asked Senator Gravel  if his group had                 
  essential financial backing  to purchase the Four  Dam Pool.                 
  Senator  Gravel   acknowledged  a  letter  which   had  been                 
  distributed  to  members  by  Mr.  Hoffman,  Pacific  Power,                 
  indicating that  his company was no longer interested in the                 
  Alaska  endeavor.   Senator  Gravel  provided an  additional                 
  letter  from  the   Alaska  Power   and  Telephone   Company                 
  addressing  financial  support  of the  project.    [Copy on                 
  file].  Alaska  Power and  Telephone Company commented  that                 
  they could operate  the dams for half the current costs.  He                 
  thought that additional  funding could be raised  through an                 
  RFP process.                                                                 
  In response  to Representative Grussendorf's  query, Senator                 
  Gravel commented that when the asset  is sold, no swap would                 
  be included.   There are  no procedures  within the  Alaskan                 
  communities which allow  the current procedure determination                 
  process  in selling  the dams.   He  added,  the possibility                 
  exists  that  financiers  could come  to  AIDEA  and request                 
  financing.  He did not think that would be unusual.  Senator                 
  Gravel  pointed out  that  both  a  Canadian company  and  a                 
  national company have received financing through AIDEA.                      
  noted that he was in agreement with much of the previous two                 
  testimonies.   He  stated that  the problem  was where  that                 
  perspective ends.                                                            
  Mr.  Simmons explained  the  time-line for  the  divestiture                 
  (sale) talks.   In August,  1995, AIDEA met  with the  local                 
  utilities to talk  about the  potential of the  sale of  the                 
  dams.    Specific  requirements  were stipulated  which  the                 
  communities  had  to incorporate  in  the sale  before AIDEA                 
  would support that  move.  The  first was adequate value,  a                 
  determination  which  would  be  made  at  negotiations  and                 
  through the  process; additionally, the  decision must  come                 
  before the Legislature for approval.                                         
  Mr. Simmons spoke to the State's need  to sell the dams.  In                 
  1993, legislation reorganized AEA, breaking  it up, at which                 
  time,  AIDEA received the oversight of $1 billion dollars in                 
  assets.   In  that legislation,  it was  clarified  that the                 
  State should divest  itself from all operations.   The State                 
  has done that and no longer  operates any of the facilities.                 
  Facilities   are   currently  operated   by   utilities  and                 
  communities.  Additionally, in the  legislation, AEA was not                 
  given   financial  where-with-all  to   live  up   to  their                 
  responsibilities.   AIDEA understood  that the  intent meant                 
  that the  Legislature wanted  the State  to get  out of  the                 
  energy business,  at which time,  AIDEA took upon  itself to                 
  divest.   At  no time,  had  it been  discussed to  give the                 
  utilities away.                                                              
  In 1995,  the State  was sued  by the  utilities, under  the                 
  Power  Sales  Agreement  (PSA)  for  not living  up  to  the                 
  agreement.   There is a  provision in  the agreement  called                 
  "self help" which allows the utilities to withhold the funds                 
  to make the  repairs themselves.   Currently, the State  has                 
  two  more  years  of  self  help.   One  of  the  provisions                 
  requested by the utilities was that the State negotiate with                 
  them; the  State agreed.   This is how the  State arrived at                 
  the exclusive negotiations  with utilities.   At that  time,                 
  the need  for a risk assessment was obvious.  The cost would                 
  be  $300-$400  thousand  dollars.    AIDEA  asked  that  the                 
  utilities pay  for half of that  cost and they agreed.   Mr.                 
  Simmons stressed that  the risk assessment has value  to the                 
  State,  irregardless  of  the sale  negotiation.    It would                 
  outline the risks of continued ownership.                                    
  In 1996, AIDEA and the utilities  had their last meeting.  A                 
  sale price was  proposed by AIDEA,  which was more than  the                 
  utilities  thought  the dams  are worth.    At that  time, a                 
  hiatus was taken.  The worth is between $84 and $104 million                 
  dollars  with many  contingencies to  address repair  costs.                 
  The  value was determined in projecting the present value of                 
  the  revenue stream which is  calculated by the revenue that                 
  the State  anticipates to  receive from  the sales  of power                 
  over the next  thirty-four years.   At this time, the  State                 
  must determine  what the risk of continued  ownership of the                 
  projects would be.  The three risks are:                                     
       1.   Future repairs;                                                    
       2.   Inadequate repairs & replacement; and                              
       3.   Down time of the facility.                                         
  Mr. Simmons  acknowledged that Senator Gravel  had submitted                 
  his proposal to AIDEA.   The utilities offered to  negotiate                 
  with  the  Senator,  with the  stipulation  that  they would                 
  control   the  power  sales  agreement.    Senator  Gravel's                 
  proposal   calls   for  that   contract  being   amended  or                 
  terminated.    AIDEA  was left  in  a  "catch 22"  position.                 
  Additionally, Senator Gravel wants his proposal to receive a                 
  12-15% rate of return.  AIDEA does  not see how the contract                 
  can stay in place and at the same time,  the Senator's group                 
  receiving that rate of return.  Either the contract would be                 
  broken  or  the price  which  comes  to the  State  would be                 
  substantially  less.   Under  those  terms, AIDEA  would not                 
  bring this potential sale to the Legislature for approval.                   
  In February,  1997, Senator  Gravel made  a proposal to  the                 
  AIDEA Board.   In October, 1996, the  utilities then started                 
  contacting AIDEA to come back to the table.  In March, 1997,                 
  the utilities outlined a proposal which would be within  the                 
  parameters established  in 1975; Mr. Simmons  suggested that                 
  the  proposal  has  value.   The  Board  granted  the  local                 
  utilities 120  days to  make substantial  progress in  those                 
  discussions.    If  progress  is  not  made,  the Board  has                 
  requested that other alternatives be initiated.                              
  Mr. Simmons  noted that  AIDEA does  not oppose  competitive                 
  sales, although, there is no legal requirement  for AIDEA to                 
  do a  competitive sale.   To provide an  RFP, at  this time,                 
  would require two conditions:                                                
       1.   All  State and federal  laws are  adhered to;                      
       2.   Any contract in place is also honored.                             
  Mr. Simmons noted that action would  bring AIDEA back to the                 
  catch-22 situation, in  as much as  Senator Gravel has  told                 
  AIDEA that he  would not be able  to get his 12-15%  rate of                 
  return  and at  the  same time,  offer  AIDEA the  necessary                 
  funds, while continuing  to live within  the contract.   The                 
  Legislature has the power  to authorize AIDEA to go  out and                 
  accept the highest  bid, breaching the contract.   The Board                 
  does not want to do that.   Every week, AIDEA is negotiating                 
  contracts with the private sector.   To become more involved                 
  in  a  competitive  sale,  AIDEA  would  need  more  than  a                 
  resolution; they would need information specified in statute                 
  to make such a determination.                                                
  Co-Chair Therriault pointed  out that  there has never  been                 
  public notification of the pending sale.  He asked why.  Mr.                 
  Simmons countered that  many groups  involved in the  energy                 
  field were aware of AIDEA's intent.  At this time, there are                 
  two  private  sector  entities interested.    AIDEA  has not                 
  undertaken  an RFP process  because they have  no funds; AEA                 
  receives   no   legislative   funds   for  any   activities;                 
  consequently, the sale has not been publicized.                              
  In response  to Representative Martin, Mr. Simmons explained                 
  that  AIDEA  is  included under  the  Executive  Budget Act,                 
  although, there is  nothing written in the  Procurement Code                 
  in   which   real    estate   is   specifically    exempted.                 
  Representative   Martin   spoke   to   Chapter   8,    State                 
  Constitution, regarding sales and grants.                                    
  OF LAW, stated that the  requirements under the Constitution                 
  are for notice  of disposal  of natural resources.   In  the                 
  above case, the State is addressing the real property assets                 
  of the State,  a process which   entails legislative action.                 
  AIDEA  envisioned a  public process  with sufficient  public                 
  notice for the disposal.                                                     
  Representative Barnes  pointed out  that she  had not  heard                 
  publicity of the  availability of  the Four  Dam Pool  sale.                 
  Mr. Simmons agreed  that some people  do not know about  it,                 
  while adding that any RFP process undertaken would contain a                 
  provision  that the present contracts  be honored.  He added                 
  that  any  purchase price  offered  at  this time  would  be                 
  inadequate in regards to what Representative Barnes expects.                 
  Representative   Barnes  clarified   that   she  had   never                 
  insinuated  that  the power  sales  agreement should  not be                 
  honored.  She pointed out that last year, AIDEA came forward                 
  with a proposal  to sell the  dams.  That proposal  provided                 
  bonds which she felt  would have tied up the  revenue stream                 
  for  five  years.    If the  self-help  agreement  had  been                 
  instituted, the same job  could have been done in  two years                 
  rather than the proposed ten.                                                
  Representative   Mulder  questioned   if   the  power   sale                 
  agreements would be a good deal for the State.  Mr.  Simmons                 
  replied that in today's circumstances, there is no authority                 
  to negotiate that  agreement.  AIDEA's intent would  be that                 
  if  negotiations  are not  successful with  the communities,                 
  AIDEA will then  come before the Legislature  next year with                 
  other  options.  Representative  Mulder asked if communities                 
  would  be  capable of  paying  $84 million  dollars  for the                 
  assets.   Mr. Simmons  stated that he  would not be  able to                 
  answer that without negotiating  terms with the communities.                 
  (Tape Change HFC 97-92, Side 1).                                             
  Co-Chair  Hanley asked  if the  utilities were  anticipating                 
  renegotiating their own  power sales agreements in  order to                 
  achieve the needed amount  for the sale.  He  questioned how                 
  the communities could make the numbers work without breaking                 
  the power sales  agreement.  Mr. Simmons  advised that those                 
  who control the  power sale agreements, control  the outcome                 
  of what can  be offered  on the facilities.   The  utilities                 
  control  the  power   sale  agreements  and  can   make  any                 
  modifications  to  it that  they want  as  long as  they all                 
  agree.  Co-Chair  Hanley pointed out that  local communities                 
  have the advantage  to modify  it.  He  suggested that  they                 
  could modify it,  coming forward with  a proposal which  was                 
  substantially less, based on the agreement.                                  
  Co-Chair Hanley  pointed out that the  communities currently                 
  have the best deal that they  could possibly have, and would                 
  want the situation to  continue to work as it  currently is.                 
  Mr.  Simmons noted that  there are  some advantages  for the                 
  communities to take over the utilities.  Owning it would put                 
  the energy control through the community rather than through                 
  the  federal  government.    He  agreed  that  to  date  the                 
  communities have not  made a serious  offer.  He  reiterated                 
  that AIDEA will not bring to the Legislature any offer which                 
  is not fair market value.                                                    
  ERIC  REDMAN, COUNSEL,  CITY  OF WRANGELL,  provided written                 
  testimony.  [Copy  on file].   He noted that he  represented                 
  Wrangell  on  the Tyee  Lake Project  and  on Four  Dam Pool                 
  matters.   In the  1980's, Mr.  Redman helped  to draft  and                 
  negotiate the  long-term power  sales agreement and  related                 
  documents for the projects.                                                  
  Mr. Redman  noted  that the  shortest  route to  an  optimal                 
  divestiture  outcome would  be for  both the  State  and the                 
  utilities to stay  with the current course  of negotiations.                 
  If either side  drags its feet or  if there is  no agreement                 
  reached,  or  if an  agreement is  reached  and it  fails to                 
  satisfy the Legislature, then a  different course would make                 
  sense.  He pointed out that there has been no failure yet.                   
  Mr.  Redman  commented  that  there  are strong  reasons  of                 
  prudence and policy  for trying to divest the  facilities to                 
  the communities rather  than to  other parties.   If HCR  16                 
  were  adopted, it  would terminate  an  on-going divestiture                 
  negotiation.  He believed that  the negotiations are a  good                 
  idea and have a significant likelihood of success.  He asked                 
  that the Legislature consider four basic points:                             
       1.   The current  divestiture negotiation  process                      
            was selected by AIDEA on behalf of the State.                      
            That process has not failed yet.                                   
       2.   As  all parties  to  the current  divestiture                      
            negotiations   recognize,    any   negotiated                      
            divestiture proposal  will require  enactment                      
            of enabling legislation.  No divestiture  can                      
            be    implemented    under    existing   law.                      
            Therefore, no negotiated divestiture  will be                      
            possible except  on terms and  conditions the                      
            Legislature first reviews and approves.                            
       3.   The State and the utilities  are bound to one                      
            another through the PSA, a long term contract                      
            from  which  neither side  can  be  forced to                      
            release the other against its will.                                
       4.   The  very purpose  of  the  State's huge  and                      
            often frustrating investment in  the Four Dam                      
            Pool and other energy projects was to provide                      
            economic  benefit   to  the  State   and  its                      
            citizens  through  a reliable  and affordable                      
            power supply that would maintain and  enhance                      
            economic development in Alaskan localities.                        
  Mr. Redman pointed out that most divestitures take  place at                 
  prices lower  than  the  cost  of  the  assets  being  sold.                 
  Divestiture of the Four Dam Pool will not necessarily follow                 
  that  rule.    The  result  of  a  below-cost  sale  of  the                 
  particular assets to private parties would be that, at least                 
  a portion of  the economic benefit  that the facilities  are                 
  still  capable  of   producing,  would  be  sacrificed   and                 
  transferred into private hands.                                              
  He added that two years ago,  AIDEA asked the five consumer-                 
  owned utilities to discuss the possible divestiture of these                 
  State-owned  projects to  the  utilities.   AIDEA  initiated                 
  these   discussions  and  dictated  the  ground  rules;  the                 
  communities agreed.  Over time, the discussions evolved into                 
  negotiations  which   made  progress.    The  discussion  of                 
  potential  purchase price  was driven  by the fact  that the                 
  price would have  to be low  enough so that the  communities                 
  could pay it,  taking on the  Four Dam Pool financial  risks                 
  currently borne by the State, and still not end up worse off                 
  than they are at this time under the PSA.                                    
  Mr. Redman  continued, the problem  is high costs  and risks                 
  which characterize the history of the  Four Dam Pool.  These                 
  projects have greatly disappointed the original expectations                 
  of the State and the Four  Dam Pool communities alike.   The                 
  State  ended  up  having to  spend  far  more  to build  the                 
  projects than it intended, about $500 million dollars total.                 
  The  financial  expectations of  the  communities  were also                 
  bitterly  disappointed.   Southeast  communities are  paying                 
  twice the price  of power from  Bradley or Snettisham.   The                 
  Four Dam Pool projects  turned out to be very  expensive for                 
  the relatively small amount of power they  produce.  Despite                 
  their costs, some of the Four  Dam Pool projects also turned                 
  out to  have serious design and construction flaws that have                 
  cost the State much  to correct.  The costs  of those errors                 
  in the original construction are borne  by the State because                 
  under  the PSA,  the  communities are  obligated to  pay all                 
  costs which are reasonable to receive power.                                 
  In recent years, some  of the funds the communities  pay the                 
  State for debt  service have  been diverted to  AIDEA on  an                 
  emergency  basis through  the PSA's self-help  provisions to                 
  fund repairs of initial design and construction flaws.                       
  Mr. Redman pointed  out ground rules which  AIDEA imposed on                 
  the negotiations and included two key aspects:                               
       1.   The existing PSA could not be changed; and                         
       2.   The State had  to end  up completely free  of                      
            all risks and obligations under the PSA.                           
  He agreed that the communities would  have to work hard just                 
  to  prevent   power  cost   increases  resulting  from   the                 
  combination of  having  to buy  the  projects and  bear  the                 
  project risks.                                                               
  In response to Co-Chair Therriault's statement regarding the                 
  utilities  advantage,  Mr  Redman noted  he  disagreed.   He                 
  reminded  members  that  the utilities  currently  are  in a                 
  process begun by AIDEA.   He pointed out that at  this time,                 
  there exists an agreement  between the two parties;  a third                 
  party must respect the  fact that the first two  parties are                 
  in a contract at this  time.  He added,  in order to do  any                 
  divestiture,  there exists a need  to arrive at an agreement                 
  with the communities.                                                        
  For the  Committee members,  Representative Barnes  itemized                 
  the amount of kilowatt  cost per hour for energy  within the                 
  community.    The  City  of Anchorage  pays  9.8  cents  per                 
  residential  kilowatt  hour;   Ketchikan  pays  9.3   cents;                 
  Petersburg  pays  9.7 cents;  Sitka  pays 9.0  cents; Alaska                 
  Light and  Power pays  8.7 cents; Wrangle  pays 10.3  cents;                 
  Chugiak  Electric  and other  Railbelt communities  pays 9.5                 
  cents; Golden Valley pays 9.8 cents; and Fairbanks pays 10.7                 
  cents.   She asked  if  Mr. Redman  felt the  Four Dam  Pool                 
  communities were  paying an excessive rate.   Representative                 
  Barnes commented  that she left out Homer and Kodiak because                 
  those   communities  had   excessive  rates   due  to   poor                 
  management.  Mr.  Redman stated that  the power cost to  the                 
  Four Dam Pool was not excessive, but rather,  the whole-sale                 
  power rate  was quite  high in  comparison to  the costs  of                 
  power for other hydro projects in the State.                                 
  Representative Barnes inquired  if a State Senator  had been                 
  on  contract  with the  City of  Wrangell  in 1995  when the                 
  intent language  had been  added to  the budget  bill.   Mr.                 
  Redman replied that Senator Taylor has been the attorney for                 
  the City of Wrangell  at various points in time;  Mr. Redman                 
  did not  know if  he was  in that  position at  the time  in                 
  Co-Chair Hanley questioned  the PSA obligation.   Mr. Redman                 
  replied that AIDEA has  indicated that the PSA would  not be                 
  amended as  a part of the divestiture; also, the divestiture                 
  would have to be complete.   In that respect, the PSA  would                 
  be amended to let the State completely out of the agreement.                 
  Whereas, if the State signed the  PSA over to another entity                 
  at this point in time, the laws of assignment  are such that                 
  they  could   not  relieve   themselves  of   their  initial                 
  obligations.    He understood  that  the State  wants  to be                 
  relieved of that obligation.                                                 
  Co-Chair  Hanley  asked if  the  State could  relieve itself                 
  without  a change  in the PSA.   Mr.  Redman noted  that the                 
  State could do as  Senator Gravel had suggested, in  as much                 
  as it is  a sovereign entity and could tear up the contract.                 
  Co-Chair Hanley  recommended establishing a  deadline.   Mr.                 
  Redman noted that for the  City of Wrangell, any  reasonable                 
  time line would be acceptable for reaching an "agreement  in                 
  Representative  Martin questioned if  there was  a guarantee                 
  that could be given by AIDEA  to make the State whole.   Mr.                 
  Redman replied  that $91  million dollars has  been paid  in                 
  debt service to date.  There  are other insurances; in order                 
  to  borrow  money,  the  bond  holders  will  need  to  have                 
  assurances that they will be repaid.  Individual communities                 
  will be required to enter into big covenants.  The market is                 
  an additional risk.  If the power tends to be too expensive,                 
  the communities could end up with different power suppliers.                 
  He added that 6.5  cents per kilowatt hour is  a dangerously                 
  high price over the long term.                                               
  (Tape Change HFC 97-92, Side 2).                                             
  Representative  G. Davis  questioned the  payback provisions                 
  included in the Bradley Lake agreement.  Mr. Redman  advised                 
  that Bradley Lake was financed with  50% grant money and 50%                 
  conventional market  bond financing.   The State has  no pay                 
  back for that  grant; the loan  portion was financed in  the                 
  open market.                                                                 
  OF KETCHIKAN, testified in support  of Mr. Redman's remarks.                 
  The City of  Ketchikan requests the opportunity  to continue                 
  the current negotiations with AIDEA.                                         
  KODIAK, encouraged the Committee  to accept the  communities                 
  requests  to negotiate  a  deal and  then return  before the                 
  Legislature  at  the  next  session.    At  that  time,  the                 
  Legislature could decide  if the proposal  was a good  deal.                 
  He stressed that  the local communities  have a lot more  at                 
  stake than maximizing  the dollar return.   There is a  keen                 
  interest  among  the  citizens  in  the  State  to  help the                 
  communities  who  are  buying the  power  to  be  viable and                 
  provide  it   at  a   reasonable  rate.     He   noted  that                 
  Representative Barnes  had omitted  the power  rate for  the                 
  City of Kodiak.  That rate is  14.0 cents per kilowatt hour.                 
  Mr. Selby pointed out  the one item which keeps  Kodiak from                 
  being competitive with Seattle in the fish processing market                 
  is that power cost.                                                          
  that tourism is a major industry  in many of the communities                 
  which are served by the Four Dam Pool projects.   He pointed                 
  out that high costs associated within those areas are passed                 
  down  to  the   tourists.    He  suggested   that  increased                 
  electrical costs  would also be  passed on to  the tourists.                 
  He noted that in Gakona, residents  are paying close to 20.0                 
  cents per kilowatt  hour and are  not subsidized.  He  urged                 
  Committee  members  not  to pass  the  bill  from Committee,                 
  claiming that it  has the potential to  adversely impact the                 
  stable  electric  rates   enjoyed  by  the  Four   Dam  Pool                 
  PAUL ANDERSON,  MAYOR, PETERSBURG, noted  that his community                 
  had  fought  long and  hard  for  the long  term  power sale                 
  agreement (PSA).  He spoke to the efficiencies of having the                 
  local community  in  control of  the power  conditions.   He                 
  spoke to the problems  which would result in having  an out-                 
  of-state company owning the electrical  power.  Mr. Anderson                 
  requested that  Committee members  refrain from  passing the                 
  legislation and let  the local communities proceed  with the                 
  divestiture  negotiations.    Those  communities  have  been                 
  acting in "good faith"; concluding  that the Gravel proposal                 
  has hampered action on the local level.                                      
  OF  WRANGELL,   stressed  that  breaching  the   power  sale                 
  agreement with the  City of  Wrangell, would not  be in  the                 
  best interest of  the State or the City.   Mr. Roberts noted                 
  that to proceed with  an RFP when knowing that  any proposal                 
  to divest the project would require changing the power sales                 
  agreement, which would  be detrimental.  He urged  the House                 
  Finance Committee to keep HCR 16 in Committee.                               
  HCR 16 was HELD in Committee for further consideration.                      

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