Legislature(1997 - 1998)

04/22/1997 01:48 PM House FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
  HOUSE CONCURRENT RESOLUTION NO. 16                                           
       Proposing  recommendations concerning  the sale  of the                 
       Four Dam Pool hydroelectric facilities.                                 
  Co-Chair  Therriault   provided  members  with   a  proposed                 
  committee substitute, work draft  #O-LS0755\B, dated 4/18/97                 
  (copy on  file).  He explained that the committee substitute                 
  instructs  the  Alaska  Industrial  Development  and  Export                 
  Authority  (AIDEA)   to  conclude   negotiations  with   the                 
  utilities by July 31, 1997.  If at that time, AIDEA does not                 
  receive an acceptable proposal from the utilities they would                 
  immediately go to an open RFP.   He noted that the RFP would                 
  be open to  any qualified  bidder to assure  that the  State                 
  receives fair market value, protect the electric power rates                 
  to  the  communities,  provide for  adequate  power  for the                 
  communities, and  allow  adequate reserves  to  ensure  that                 
  power projects are adequately maintained.  He noted that any                 
  proposals would be subject to legislative approval.                          
  Co-Chair Therriault noted that the  Power Sales Agreement is                 
  a stand alone  contract.   If the utilities  put together  a                 
  purchase they  could modify the  Power Sales Agreement.   An                 
  outside purchaser could also negotiate with the utilities to                 
  modify the Power Sales Agreement.                                            
  Representative  Grussendorf  observed that  the negotiations                 
  with the utilities included  a provision to honor  the Power                 
  Sales   Agreement.      In  response   to   a   question  by                 
  Representative Grussendorf, Co-Chair Therriault acknowledged                 
  that the utilities are key players in any negotiations.                      
  Representative Grussendorf asked if AIDEA should be  allowed                 
  to determine if it  is in the best interest of  the State to                 
  issue  a  RFP.    Co-Chair  Therriault  stated  that  he  is                 
  interested in  finding out what  is possible in  the private                 
  Representative Mulder  referred to  page 2, lines  27 &  28.                 
  Co-Chair Therriault explained  that the  intent is that  any                 
  proposal include provisions to maintain the facilities.                      
  Representative Davies expressed concern with placing a value                 
  of $84 million dollars  on the projects.  He  suggested that                 
  the language  on page  2, lines 2  and 3  be withdrawn.   He                 
  pointed  out  that  the testimony  by  Mr.  Simmons included                 
  several assumptions.  Representative Mulder  noted that  $84                 
  million  dollars  was  the  lower  number  in  Mr.  Simmons'                 
  estimation of value.                                                         
  testified via the teleconference network.   He observed that                 
  KEA's average annual line loss for  the past three years was                 
  3.23 percent.  This is significantly lower than the national                 
  standard of 8 percent.   The average annual outage  time for                 
  each  member  was 3.8  hours.    The national  average  is 5                 
  percent.   Rates were  reduced by  1.85 percent  in December                 
  1996.  He  emphasized that KEA  has returned more than  $1.6                 
  million  dollars  of   margins  back   to  members  of   the                 
  Mr. Kozak noted  that a  1995, Department  of Community  and                 
  Regional Affairs study  showed that there are  126 utilities                 
  in  the state  that have  average  rates higher  than KEA's.                 
  There are  21 utilities that have rates  lower than KEA.  He                 
  stressed that KEA's rates are currently lower than they were                 
  in 1986.  He asked for a chance to do more for the community                 
  and the State.                                                               
  Mr. Kozak stated  that long-term  economic strength will  be                 
  achieved  with  reasonably  priced   and  reliable  electric                 
  energy.  He noted that without the Terror Lake project, that                 
  retail rates would be higher in Kodiak and Port Lions.    He                 
  asserted that the Terror Lake  project has stabilized retail                 
  rates.  He observed that the reduction of  retail rates is a                 
  corporate goal.  He maintained that the sale of the projects                 
  to the  utilities will  provide  a stable  economic base  in                 
  those  communities.    He asserted  that  retail  rates will                 
  increase if private  ownership occurs.  He  observed that at                 
  the end of the contract (approximately 30 years) the debt is                 
  paid off.  If the State  owns the Four Dam Pool, the  retail                 
  rate will be  reduced when the debt is  paid.  He maintained                 
  that if the utilities own the Four Dam Pool, the retail rate                 
  will also be  reduced when  the debt is  paid.  He  asserted                 
  that it is  unlikely that a  "for profit" firm would  reduce                 
  the retail rate after the debt is paid.                                      
  Mr. Kozak reiterated that KEA, Kodiak Island Borough, Kodiak                 
  Chamber of Commerce and the City of Port Lions support local                 
  ownership.  He asserted that local ownership means  that 100                 
  percent of all savings will stay within the State of Alaska.                 
  COMMERCE testified via the teleconference network.  He spoke                 
  in  support  of the  purchase by  the  utilities.   He urged                 
  continuation of negotiations.                                                
  JACK  SHAY,  MAYOR,  CITY  OF  KETCHIKAN testified  via  the                 
  teleconference network.  He stressed that it is unproductive                 
  to try to address  all the past grievances.   He recommended                 
  that discussions with  the utilities be extended  to January                 
  1, 1998.  He recommended  that language be added on  line 22                 
  or 23 of page  2 to clarify that  the Power Sales  Agreement                 
  remains in effect.                                                           
  Co-Chair  Hanley  recounted that  the  AIDEA Board  gave Mr.                 
  Simmons until July 31, 1997 to conclude negotiations.                        
  RICHARD  LEARY, KETCHIKAN  PULP  COMPANY testified  via  the                 
  teleconference  network.   He stated  that the  negotiations                 
  have been conducted in  good faith and should be  allowed to                 
  continue to conclusion.                                                      
  testified via the teleconference network.  He echoed remarks                 
  by Mr. Kozak and Mr.  Leary.  He expressed concern with  the                 
  date of  July 31, 1997.  He  recommended the date be changed                 
  to  the  next  legislative  session  or  the  conclusion  of                 
  discussions.  He expressed concern with  the use of the word                 
  "unwarranted" on line 23, page 2.                                            
  JOHN MAGYAR,  KETCHIKAN PUBLIC  UTILITIES testified  via the                 
  teleconference network.   He asserted  that communities will                 
  not be in  a good position if  a "for profit" firm  owns the                 
  operation.  He suggested  that a linkage to the  Power Sales                 
  Agreement be contained on line 23, page 2.                                   
  BEN  WILLIAMS, KETCHIKAN  testified  via the  teleconference                 
  network.    He  stated that  a  high  electrical  rate is  a                 
  constraint on business  development.  He urged  an extension                 
  on the time line.                                                            
  (The teleconference  network was  temporally lost  due to  a                 
  power outage.)                                                               
  DIRECTORS testified in opposition to HCR  16.  He noted that                 
  over a thousand  letters have  been mailed or  faxed to  the                 
  Legislature in opposition to the  resolution.  He maintained                 
  that  a stable,  reliable,  low cost,  source  of energy  is                 
  essential to the economic well being of their community.  He                 
  asserted  that  the best  option  for rate  stabilization in                 
  Kodiak  is  for  the divestiture  negotiations  between  the                 
  utilities and  communities, and the  Alaska Energy Authority                 
  to continue.                                                                 
  Mr. Sapp observed that communities  that receive energy from                 
  the Four Dam Pools have paid  almost $100 million dollars in                 
  debt service.   He added  that over $46  million dollars  in                 
  operations and maintenance have been paid.  He spoke against                 
  ownership by out-of-state investors.                                         
  Mr. Sapp pointed out that the Power  Sales Agreement ensures                 
  that  the wholesale  power rate will  be established  by the                 
  Committee.  He noted  that the rate has been  basically flat                 
  since 1985.   He noted that the debt service  payment on the                 
  Power Sales Agreement ends in the  year 2030.  He emphasized                 
  that the power rate could be reduced by $.04 cents  when the                 
  debt service  ends.   He did  not think  a private  investor                 
  would  pass  on the  savings.   He  stressed  that ownership                 
  should remain in Alaskan hands.   He urged the defeat of HCR
  ASSOCIATION testified  via the  teleconference network.   He                 
  spoke in opposition  to HCR 16.   He noted that he  has been                 
  involved in the Four Dam  Pool divestiture negotiations with                 
  AIDEA.  He stressed that utilities and the State have worked                 
  hard  and spent a considerable  amount of time and resources                 
  during the  negotiation.   He stated  that the  parties have                 
  made   significant   progress.     He   asserted   that  the                 
  negotiations  should  be  allowed  to   be  concluded.    He                 
  maintained that the only transfer  that satisfies the terms,                 
  outlined on  page 2, is  the transfer to the  utilities.  He                 
  observed that the  Four Dam Pool is unique  and complex.  He                 
  did not think any owner other than the utilities would be in                 
  the best interest of the utility rate payers.  He maintained                 
  that an investor  owned company would  be unlikely to  share                 
  the primary goal of providing safe, reliable, and affordable                 
  service to  members.   He thought  a private  sale would  be                 
  difficult due to the  Power Sales Agreement.  He  urged that                 
  the resolution be held.                                                      
  Mr. Wilkinson  responded to  comments  concerning the  Power                 
  Sales  Agreement  remaining   in  effect  until  after   the                 
  transfer.  He stressed  that a level playing field  needs to                 
  be developed.  He stated that if there is a possibility that                 
  the Power Sales Agreement can be changed in a deal structure                 
  between  the State and  the utilities,  then they  should be                 
  given the opportunity.  He noted  that according to a letter                 
  by  Mr.  Jim Ayers,  dated June  29,  1995, the  Power Sales                 
  Agreement  must  stay in  effect  until after  the ownership                 
  transfer.  He agreed that it  might be appropriate for AIDEA                 
  to decide if  a formal RFP should go forward.   He suggested                 
  that language identifying  the value at $84  million dollars                 
  be  deleted.   He  emphasized  that  there are  a  number of                 
  significant assumptions involved  in the selling price.   He                 
  noted that assumptions about future load growth, the loss of                 
  customers, inflation, increased competition, discounted rate                 
  and regulatory risk, and reform  impact the determination of                 
  the present value.                                                           
  JOHN  DOWNS,  GLENNALLEN  testified  via the  teleconference                 
  network.   He spoke  against the  purchase of  the Four  Dam                 
  Pools by an  outside entity.   He  stressed that the current                 
  negotiations should be completed before others begin.                        
  testified via the  teleconference network.   He pointed  out                 
  that when the projects were  first conceived, Wrangell chose                 
  the dam development as their  top capital projects priority.                 
  He  observed  that  local  communities  placed  $390 million                 
  dollars of their  grant funds into  the projects.  He  urged                 
  that HCR 16 be set aside until negotiations are complete.                    
  WALTER  WOODS,  VALDEZ   testified  via  the  teleconference                 
  network.  He stated that the divestiture negotiations should                 
  be allowed to come to completion.                                            
  COMMERCE,  LAKE  LOUISE  testified  via  the  teleconference                 
  network.    He  stressed  that  safe,  reliable,  economical                 
  electrical power is the basis of economic development in the                 
  State.  He stressed the need to  assure that the resource is                 
  at the benefit of Alaskans.  He urged that the resolution be                 
  held until negotiations are exhausted.                                       
  CITIZENS POWER OF  ALASKA testified  via the  teleconference                 
  network in  support of the  resolution.  He  maintained that                 
  the resolution  only  addresses the  issue of  using a  sole                 
  source process for the divestiture of  a valuable asset.  He                 
  maintained that a  person in Nome owns  as much of  the Four                 
  Dam Pool as a person in the Copper Valley or Ketchikan.   He                 
  emphasized that it  is important to  all Alaskans to have  a                 
  competitive sale.  He stressed that the Energy Group is made                 
  up  of Alaskans and  outside investors.   He maintained that                 
  half  of the owners would  be individual consumers who would                 
  own shares in the Corporation.   He concluded that more than                 
  half of the  company would  be Alaskan owned.   He  asserted                 
  that the private sector can produce electricity cheaper than                 
  the municipalities or  associations.   He stated that  there                 
  would  be no rate increase  for 30 years.   He stressed that                 
  there would be immediate profits  occurring to the consumers                 
  and investors.                                                               
  (Tape Change, HFC 97-110, Side 2)                                            
  Mr. Gravel stated  that the operation  costs of the dams  is                 
  $.02 cents per  kilowatt hour.   He emphasized that this  is                 
  above the national average.  He maintained that the dams can                 
  be more efficiently  operated.  He asserted  that the intent                 
  was to give the  municipalities the dams for nothing  at the                 
  expense of the rest  of Alaskans.  He summarized  that rates                 
  will  not  increase,  the  dams  will  be  more  efficiently                 
  operated and more than 50 percent of the dams will be  owned                 
  by Alaskans.                                                                 
  Representative Grussendorf maintained that Mr. Gravel sought                 
  a sole source contract for the dams.  Mr. Gravel denied that                 
  he sought  a sole  source contract.   He  observed that  the                 
  Energy Group  met with  the utilities to  determine if  they                 
  would support their effort.  He                                              
  alleged that the  utilities traveled to Washington  State at                 
  the expense of their consumers.  He observed that the Energy                 
  Group's proposal stipulated that they  would not raise rates                 
  for 30 years except for a CPI factored increase for the cost                 
  of  operation.   The  utilities declined  their  offer.   He                 
  stressed  that the proposal  represents investment in Alaska                 
  from outside investors.   He concluded that a RFP  was their                 
  only  alternative.   He emphasized  that  there should  be a                 
  competitive bid.                                                             
  Representative  Davies  observed that,  while  he  agrees in                 
  general that sole  source distributions should not  be done,                 
  since municipalities are an  extension of the State and  the                 
  projects included local  funds, that it is  appropriate that                 
  municipalities have first  right of  refusal.  He  disagreed                 
  that the  projects were at the expense of other areas of the                 
  State.  He  observed that  state funds were  spent in  other                 
  areas of the State at the same time that these projects were                 
  constructed.  Mr. Gravel denied that the cooperatives are an                 
  extension  of the state.   He added  that the municipalities                 
  are  governments.   He  maintained  that  it is  better  for                 
  consumers  to  have  the activity  operated  by  the private                 
  Representative  Kelly  did  not  think   that  the  City  of                 
  Fairbanks would  have  elected to  sell  their power  to  an                 
  outside entity.                                                              
  CLIFF DAVIDSON, FORMER  REPRESENTATIVE, KODIAK testified via                 
  the teleconference  network.   He observed  that power  rate                 
  equity will  be an  issue  for many  years.   He noted  that                 
  negotiations between public  agencies are very complex.   He                 
  pointed out that  it is difficult  to compare Alaska to  the                 
  rest of the  nation.  He  questioned if rural Alaskans  will                 
  buy stock in  a company that they  already own as part  of a                 
  cooperative.  He noted  that it is difficult to  foresee the                 
  effect  of  the  CPI  in  thirty   years.    He  urged  that                 
  negotiations be allowed sufficient time to continue.                         
  COOPERATIVE  ASSOCIATION noted that  the cooperatives in the                 
  Association produce approximately 95 percent of the power in                 
  Alaska.  He concurred that there  should be reference to the                 
  Power  Sales  Agreement.    He  stressed  that  Power  Sales                 
  Agreement was made in good faith between the communities and                 
  the State of Alaska.  He suggested that communities be given                 
  the first right of refusal to  buy the projects for whatever                 
  the highest  bid is, if the projects are  put out to an RFP.                 
  He observed that  an investor  owned utility  would have  to                 
  negotiate  with  each  of the  five  communities  subject to                 
  benefits from the projects.  An investor owned utility would                 
  have to bid a rate that  would take into account taxes,  the                 
  high  cost  of  management, a  12  -  15  percent return  in                 
  investment, debt financing of 8 - 10 percent, and profits to                 
  the 50 percent owned by individual Alaskans.  He  maintained                 
  that the resulting proposal would be significantly less than                 
  $84 million  dollars.   He questioned  why a  private entity                 
  should get the windfall at the end of 30 years when the debt                 
  is paid  off.  He suggested  that the windfall should  go to                 
  strengthening the communities.   He  pointed out that  other                 
  hydro power projects  in Alaska have  lasted between 50  and                 
  100 years.                                                                   
  Mr. Youll pointed out that investor owned entities go  where                 
  they can  make a  profit.   He observed  that private  owned                 
  utilities have gravitated to  urban areas.  They did  not go                 
  into rural areas.   The  federal government recognized  that                 
  the only way  to electrify  rural areas was  with the  Rural                 
  Electrification Administration (REA).   He noted  that REA's                 
  are the predominate  entities in  the State of  Alaska.   He                 
  acknowledged that the REA rates are approximately 20 percent                 
  higher.  He  maintained that  the difference is  due to  low                 
  population density  not management.   He  concluded that  if                 
  negotiations are not successful that  AIEDA should be tasked                 
  to  come  up  with  a   responsible  recommendation  to  the                 
  Representative Grussendorf observed that  Mr. Youll was  the                 
  first Executive Director  of the Alaska Power Authority.  In                 
  response to  a question  by Representative  Grussendorf, Mr.                 
  Youll noted that the flat rate, offered by the Energy Group,                 
  would be based on nominal dollars rather than real  dollars.                 
  He noted  that this  is more  than what  the utilities  have                 
  negotiated.  He  maintained that rates would  increase under                 
  the Energy Group.   He stressed  that under the Power  Sales                 
  Agreement the rate would remain flat.                                        
  TOM  FRIESEN,  CITY COUNCIL,  KETCHIKAN  clarified erroneous                 
  comments made  in previous meetings.   He observed  that the                 
  loan that Representative  Barnes stated  was not paid  back,                 
  was a $20  million dollar  loan to Ketchikan.   He  stressed                 
  that the  loan was  not taken  out.   The loan  sits in  the                 
  Department of Community and Regional Affairs.  The loan will                 
  be  taken  out  if  the  line   is  energized  to  the  Tyee                 
  Hydroelectric Project.  He disputed  comments that people in                 
  areas  outside of  the Four  Dam Pools  communities have  an                 
  equal interest in the dams.  He noted that the meeting  that                 
  Mr.   Gravel   referred   to,   in   which   utilities  sent                 
  representatives  to Washington,  was  a regularly  scheduled                 
  meeting  of  the Project  Management  Committee that  met in                 
  Seattle  due  to  the  flight  difficulties  in  Juneau  and                 
  Anchorage.   He noted  that the  meeting was  not a  special                 
  meeting, paid by rate payers, to hear Mr. Gravel's proposal.                 
  He observed that  the cost  of power in  Ketchikan is  $.024                 
  cents for operation  and maintenance.  He  estimated that if                 
  the utility owned the project  that they could reduce  their                 
  rate by half  of a  cent.   He observed that  35 percent  of                 
  their operation costs  go to  the State for  administration.                 
  He asserted that the projects belong to the communities.  He                 
  maintained that the Project Management Committee will make a                 
  present day value offer to the  State.  He spoke against the                 
  resolution.  He stressed that July 31, 1997  should not be a                 
  completion date.  He noted that the Committee was given July                 
  31, 1997 as a target date for a legitimate offer.                            
  In  response  to  a question  by  Representative  Kelly, Mr.                 
  Friesen reiterated  that  ownership by  the utilities  could                 
  result in an immediate reduction of four-tenths of a cent or                 
  one-half of a cent.                                                          
  Representative Martin clarified  that the City  of Ketchikan                 
  spent their  1982  capital  funding on  the  purchase  of  a                 
  sawmill site in Ketchikan.                                                   
  Co-Chair Therriault  MOVED to adopt work  draft #O-LS0755\B,                 
  dated 4/18/97.  There being NO OBJECTION, it was so ordered.                 
  HCR 16 was HELD in Committee for further consideration.                      

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