Legislature(2015 - 2016)HOUSE FINANCE 519

03/31/2015 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Delayed to 2:35 p.m. Today --
<Bill Hearing Canceled>
Heard & Held
Heard & Held
+ Bills Previously Heard/Scheduled TELECONFERENCED
Moved CSHB 68(FIN) Out of Committee
<Bill Hearing Rescheduled from 3/30/15>
HOUSE BILL NO. 143                                                                                                            
     "An Act  authorizing the Alaska  Industrial Development                                                                    
     and  Export Authority  to issue  bonds  to finance  the                                                                    
     infrastructure   and   construction    costs   of   the                                                                    
     Sweetheart Lake hydroelectric  project; and relating to                                                                    
     legislative approval for a loan  from the power project                                                                    
     fund to the Lynn Canal Transmission Corporation."                                                                          
Co-Chair  Neuman  MOVED  to  ADOPT  the  proposed  committee                                                                    
substitute  for HB  143,  Work  Draft 29-LS0599\E  (Wallace,                                                                    
There being NO OBJECTION, it was so ordered.                                                                                    
2:57:57 PM                                                                                                                    
CRYSTAL   KOENEMAN,  STAFF,   REPRESENTATIVE  CATHY   MUNOZ,                                                                    
discussed  the  legislation.  She explained  that  the  bill                                                                    
provided  legislative authority  for  the Alaska  Industrial                                                                    
Development and  Export Authority (AIDEA) to  issue bonds to                                                                    
finance  the infrastructure  and construction  costs of  the                                                                    
Sweetheart  Lake  Hydroelectric  project. In  addition,  the                                                                    
bill  authorized Alaska  Energy Authority  (AEA) to  provide                                                                    
loans from  the Power Project  Fund (PPF) for both  the Lynn                                                                    
Canal Transmission  Corporation and the King  Cove Waterfall                                                                    
Creek Hydroelectric  Project. She detailed that  the Federal                                                                    
Regulatory   Agency  had   accepted  the   Sweetheart  Creek                                                                    
hydropower license application  and was currently processing                                                                    
the  Environmental Impact  Statement  (EIS). The  Sweetheart                                                                    
Creek project  would provide Juneau  with an  additional 116                                                                    
thousand  megawatt hours;  an  increase  in Juneau's  energy                                                                    
capacity of  25 percent. The  project would also  provide 85                                                                    
new  jobs,  new  recreational  infrastructure,  and  fishery                                                                    
enhancements. The Lynn Canal  transmission project would add                                                                    
approximately  35  miles  of   transmission  line  from  the                                                                    
existing Lena  substation to the Kensington  Mine. She noted                                                                    
support from the  City and Borough of Juneau  (CBJ), and the                                                                    
Southeast Conference.                                                                                                           
ADAM BERG, STAFF, REPRESENTATIVE  BRYCE EDGMON, reviewed the                                                                    
King Cove  Waterfall Creek Project.  He communicated  that a                                                                    
statutory  requirement for  a loan  from  the Power  Project                                                                    
Fund (PPF)  was legislative  approval of loans  exceeding $5                                                                    
million. The Waterfall Creek  project immediately required a                                                                    
loan of $1.2 million, and  to advance to construction a loan                                                                    
totaling $6  million was necessary. He  highlighted that the                                                                    
project was fully designed,  permitted, and construction bid                                                                    
ready.  The completed  project would  provide King  Cove the                                                                    
capability to  produce 75 percent  of its energy  needs with                                                                    
Ms. Koeneman  revealed that passage  of the  legislation did                                                                    
not   guarantee  project   completion.  The   projects  were                                                                    
required   to  pass   financial,  economic,   and  technical                                                                    
feasibility studies  and due diligence  analysis as  well as                                                                    
board approval to move forward.                                                                                                 
3:02:15 PM                                                                                                                    
Co-Chair Neuman referred to the  new Department of Commerce,                                                                    
Community and  Economic Development (DCCED) fiscal  note for                                                                    
AEA. He read from the analysis:                                                                                                 
     Although   HB   143    provides   AEA   with   required                                                                    
     authorization  for a  loan,  the PPF  does  not have  a                                                                    
     balance sufficient to fund a  $22,000,000 loan. The PPF                                                                    
     currently has approximately  $13,000,000 in uncommitted                                                                    
     funds. Without  additional funds  AEA would be  able to                                                                    
     provide a loan of approximately $9,000,000.                                                                                
Co-Chair Neuman asked where the  additional loan funds would                                                                    
come   from.  Ms.   Koeneman  offered   that  the   PPF  was                                                                    
replenished   as  loans   were  repaid.   She  stated   that                                                                    
sufficient  funds would  be available  for the  loans in  HB
Co-Chair Neuman suggested that if  the PPF did not currently                                                                    
have sufficient funds  there would not be  enough to provide                                                                    
loans  for  the bill's  projects  as  well as  other  worthy                                                                    
projects around  the state.  He voiced  that the  bill asked                                                                    
for  future  financing  from an  account  with  insufficient                                                                    
funds.  He thought  that the  state would  be financing  the                                                                    
projects in HB 143 at  the expense of other communities with                                                                    
higher energy  costs and greater  need. He wondered  how the                                                                    
issue should be dealt with.                                                                                                     
Ms. Koeneman  responded that  there were  additional private                                                                    
investment  funds that  would potentially  be available  and                                                                    
the  loan amount  was "up  to $22  million." She  elaborated                                                                    
that  the bill  granted  AEA the  authority  to provide  the                                                                    
loans if the fund became  solvent within the next few years.                                                                    
She understood Co-Chair Neuman's concerns.                                                                                      
3:05:27 PM                                                                                                                    
SARAH   FISHER-GOAD,  EXECUTIVE   DIRECTOR,  ALASKA   ENERGY                                                                    
AUTHORITY,  DEPARTMENT OF  COMMERCE, COMMUNITY  AND ECONOMIC                                                                    
DEVELOPMENT, explained  that the  way AEA handled  the loans                                                                    
in  the  past; when  the  legislation  authorized a  greater                                                                    
amount  than  existed  in  the  PPF,  AEA  worked  with  the                                                                    
applicant  to accept  a smaller  loan amount.  She indicated                                                                    
that AEA ensured  that a proper financing plan  was in place                                                                    
for construction in order to move forward with the project.                                                                     
Co-Chair  Neuman restated  his  question.  He was  concerned                                                                    
that with limited funding for  other areas in the state with                                                                    
greater  need and  higher  energy  costs including  interior                                                                    
Alaska, which  would not  have access to  the PPF  and their                                                                    
projects  would  be  in   jeopardy.  Ms.  Sarah  Fisher-Goad                                                                    
replied  that AEA  attempted to  anticipate other  needs and                                                                    
limited  the loan  to  $9 million.  She  qualified that  the                                                                    
fiscal note  was written  before the  King Cove  project was                                                                    
added.  She reiterated  that AEA  worked with  applicants to                                                                    
provide smaller  loans in  order not to  drain the  fund for                                                                    
smaller  communities and  utilities  that  also applied  for                                                                    
loans. She shared that AEA was  very aware that the fund was                                                                    
needed for  other projects. She announced  that AEA recently                                                                    
provided a  small loan to  Pilot Point for  diesel generator                                                                    
repairs.  She  assured  that  AEA  always  kept  loan  funds                                                                    
available   in   order   to  finance   loans   for   smaller                                                                    
Representative  Wilson asked  about the  King Cove  project.                                                                    
She asked whether the community  already received Power Cost                                                                    
Equalization  (PCE) and  if  so, would  the  project have  a                                                                    
positive  impact to  substantially lower  energy bills.  Mr.                                                                    
Berg deferred to Ms. Sarah Fisher-Goad.                                                                                         
Ms. Sarah  Fisher-Goad responded that King  Cove did receive                                                                    
Power Cost Equalization (PCE) but  was uncertain what impact                                                                    
the project would have to  lower energy costs. She furthered                                                                    
that the community of King  Cove was very proactive with the                                                                    
development of hydropower and lowering  costs. King Cove had                                                                    
lower power  costs than  many other  communities due  to the                                                                    
development  of hydropower  and  just  barely qualified  for                                                                    
loans from the  Renewable Energy Fund due  to AEA's emphasis                                                                    
on higher  cost areas.  She conveyed that  she did  not have                                                                    
the communities PCE figures available  but expected that the                                                                    
project   would  be   "beneficial"  to   the  rate   payers.                                                                    
Representative Wilson requested  the information. She wanted                                                                    
to see  communities become  more self-sufficient  and wanted                                                                    
AEA to determine whether the  project would also lower rates                                                                    
and therefore, lower  PCE payouts and base  loan criteria on                                                                    
those outcomes.                                                                                                                 
3:11:27 PM                                                                                                                    
Representative   Kawasaki   cited   the  fiscal   note   and                                                                    
referenced the  PPF balance of  $13 million  in "uncommitted                                                                    
funds."  He asked  whether that  meant there  were no  other                                                                    
projects under  consideration by AEA. Ms.  Sarah Fisher-Goad                                                                    
responded that there were two  projects that were pending as                                                                    
part  of  the  available  balance.  She  reported  that  AEA                                                                    
currently  had projects,  working  their  way through  other                                                                    
requirements, with committed loan  funds not yet distributed                                                                    
that  were still  in the  fund  but not  loanable. The  cash                                                                    
balance of the  PPF was higher than  $13 million considering                                                                    
the  committed  funds.  She  provided  the  example  of  the                                                                    
Reynolds  Creek  Hydroelectric  project   which  had  a  $20                                                                    
million committed loan from the PPF.                                                                                            
Representative Kawasaki  asked for instances when  AEA would                                                                    
not  authorize  the  entire  loan   amount  and  under  what                                                                    
reasoning.   Ms.  Sarah   Fisher-Goad   related  a   similar                                                                    
situation  for   a  project  in   Sitka  that   received  an                                                                    
authorization  for  $18  million  but the  PPF  balance  was                                                                    
lower. The  City of  Sitka was  able to  find a  better loan                                                                    
with  lower interest  through the  municipal  bond bank  and                                                                    
financed the project  through the bond bank.  She added that                                                                    
in the past AEA  received alternative appropriations for the                                                                    
loan fund.  In 2010,  AEA sold the  loan portfolio  to AIDEA                                                                    
for  a  cash infusion  into  the  fund  and received  a  $10                                                                    
million  appropriation directly  into  the  fund. She  noted                                                                    
that another  alternative for a  project to  receive funding                                                                    
through  PPF was  through a  direct  appropriation into  the                                                                    
fund similar to the Humpback Creek project in Cordova.                                                                          
Representative  Munoz requested  time to  allow Mr.  Ziglick                                                                    
to testify. Co-Chair Thompson agreed.                                                                                           
3:15:45 PM                                                                                                                    
Representative Guttenberg declared  that the Interior Energy                                                                    
Project (IEP)  only needed authorization  to change  the way                                                                    
appropriated  funds  would  be  used. He  claimed  that  the                                                                    
interior communities paid some  of the highest utility rates                                                                    
in the nation  on a road system. He asked  what the kilowatt                                                                    
costs were currently for the  rate payers in the communities                                                                    
the projects  in HB  143 would serve.  He wondered  what the                                                                    
savings for the rate payers  would be. Ms. Sarah Fisher-Goad                                                                    
reported  that the  City  of  King Cove  paid  23 cents  per                                                                    
kilowatt  hour after  a PCE  rate  of 8  cents per  kilowatt                                                                    
hour. She would provide  additional information with respect                                                                    
to what the  rates would be after the King  Cove project was                                                                    
operational.  She informed  the committee  that AEA  did not                                                                    
have  an  application  from   the  Lynn  Canal  transmission                                                                    
project and deferred to a project spokesman for an answer.                                                                      
Representative  Guttenberg  asked whether  the  transmission                                                                    
project  was   "advanced  enough."  Ms.   Sarah  Fisher-Goad                                                                    
responded that without  an application she had  not done any                                                                    
analysis.  She knew  that the  project was  "closely linked"                                                                    
with the Sweetheart Lake project.                                                                                               
WAYNE ZIGARLICK,  VICE PRESIDENT and GENERAL  MANAGER, COEUR                                                                    
ALASKA  KENSINGTON GOLD  MINE  (via teleconference),  stated                                                                    
that the gold mine was  located approximately 45 miles north                                                                    
of Juneau. He  delineated that the mine  employed 320 direct                                                                    
employees  and  approximately  40  contract  employees.  The                                                                    
operation  took  approximately  8  megawatts  of  electrical                                                                    
power to  support all  of the  mining activities.  The power                                                                    
was currently supplied  by 7 diesel generators.  The cost of                                                                    
power generation including fuel  and maintenance amounted to                                                                    
12  to 15  percent of  the mine's  operating cost.  He noted                                                                    
that  the power  costs  were the  second greatest  operating                                                                    
expense behind  labor costs. He believed  that hydroelectric                                                                    
power would  significantly reduce the mines  power costs and                                                                    
increase the  mines sustainability.  He reported  that Coeur                                                                    
Alaska  entered  into  a   "letter  agreement"  with  Juneau                                                                    
Hydropower.  The essence  of the  agreement committed  Coeur                                                                    
Alaska  to negotiate  a power  sales  agreement with  Juneau                                                                    
Hydropower  "once   the  terms  of  the   agreement  can  be                                                                    
identified." He  relayed that  he was  the President  of the                                                                    
Lynn  Canal  Transmission  Corporation, which  was  a  "non-                                                                    
profit   entity   designed   to  provide   open   and   non-                                                                    
discriminatory  transmission line  services to  the northern                                                                    
Lynn Canal at the lowest possible cost."                                                                                        
3:20:50 PM                                                                                                                    
Representative Gara  did not have  a problem with  the bill.                                                                    
He summarized  that the loan  would be provided to  the Lynn                                                                    
Canal  Transmission  Corporation   to  interconnect  to  the                                                                    
Kennsington  Mine  and only  applied  to  the northern  Lynn                                                                    
Canal region. He wanted to  know whether other "major" users                                                                    
aside  from the  mine  would benefit  from the  transmission                                                                    
line.   Mr.  Zigarlick   replied  that   there  were   other                                                                    
residential  users and  landowners that  would benefit  from                                                                    
the transmission line.                                                                                                          
Co-Chair Thompson requested that  the bill's sponsor provide                                                                    
the committee with  more information on how  many people the                                                                    
projects would serve.                                                                                                           
Vice-Chair Saddler referred to the  letter from AEA (copy on                                                                    
file) that  stated AEA would  engage in the  "due diligence"                                                                    
necessary  for  authorization  of  the  loan  regardless  of                                                                    
passage of  the legislation.  However the letter  from AIDEA                                                                    
(copy on  file) stated that  they would not  proceed without                                                                    
authorization.  He  asked  for clarification  regarding  the                                                                    
discrepancy and  wondered how much  AEA would expend  on due                                                                    
diligence  in  the absence  of  authorization.  He read  the                                                                    
following from the AEA letter:                                                                                                  
     Independent of  the legislative authorization  and upon                                                                    
     receipt  of a  PPF loan  application AEA  will complete                                                                    
     project  due  diligence   analysis  of  the  financial,                                                                    
    economic, and technical feasibility of the project.                                                                         
Ms.  Sarah Fisher-Goad  commented  that her  letter was  not                                                                    
phrased  correctly and  apologized. She  clarified that  her                                                                    
use of the  word "independent" meant that  the due diligence                                                                    
would  be an  effort independent  of the  authorization. She                                                                    
explained  that even  with authorization  of  the loan,  AEA                                                                    
would still engage in a  due diligence effort and emphasized                                                                    
that the  authorization for the  loan did not mean  the loan                                                                    
would be approved.                                                                                                              
Vice-Chair  Saddler  relayed that  he  was  familiar with  a                                                                    
Southeast Alaska  Regional future  energy plan.  He wondered                                                                    
how the  projects fit into  the plan. Ms.  Sarah Fisher-Goad                                                                    
indicated  that  she  would have  to  review  the  Southeast                                                                    
Integrated Resource  plan to determine whether  the projects                                                                    
were specifically  addressed in the plan.  She would provide                                                                    
the information.                                                                                                                
Representative Munoz indicated  that the Integrated Resource                                                                    
Plan  was  not  accepted  by   the  region  because  of  its                                                                    
recommendation to utilize woodstoves  as a primary source of                                                                    
generating the  regions electricity. She cautioned  that she                                                                    
would  not  rely  on  the   study's  outcomes  to  draw  any                                                                    
conclusions about  the bill's projects.  She added  that the                                                                    
projects were  supported by  the Southeast  Conference which                                                                    
was  a   regional  entity   of  Southeast   communities  and                                                                    
3:25:27 PM                                                                                                                    
Representative   Pruitt    remembered   that    the   report                                                                    
recommended  that  Southeast  should turn  to  wood  burning                                                                    
stoves. He  indicated that the projects  would help mitigate                                                                    
the issues created by wood burning in the Juneau area.                                                                          
Representative   Munoz  offered   that  the   project  would                                                                    
increase  the city's  hydroelectric capacity  by 20  percent                                                                    
and positively impact rate users.                                                                                               
Representative Edgmon  surmised that  both projects  met the                                                                    
objectives of the  Alaska Energy Policy that  was adopted in                                                                    
2010. He recalled that the  policy identified the PPF as the                                                                    
primary source of funding for  projects that benefitted rate                                                                    
payers  and  for  business   development.  He  requested  an                                                                    
opportunity to  further discuss the  policy during  the next                                                                    
hearing on the bill.                                                                                                            
Representative Guttenberg pointed  out that many communities                                                                    
around  the state  are moving  towards using  biomass fueled                                                                    
energy. He  stated that Southeast  had an ample  quantity of                                                                    
biomass  and cited  a  biomass project  in  Tok for  heating                                                                    
schools. He believed  that biomass took the  pressure off of                                                                    
using transmission lines.                                                                                                       
Representative  Munoz stated  that she  had not  intended to                                                                    
diminish  the use  of biomass  fuels and  stated that  there                                                                    
were   successful  biomass   projects   in  Southeast.   She                                                                    
commented  that  the  integrated plan  recommended  a  major                                                                    
conversion  of much  of the  region  which did  not fit  the                                                                    
model  of a  region rich  in water  resources. She  believed                                                                    
that biomass  was part  of the solution  but not  the entire                                                                    
HB  143  was  HEARD  and   HELD  in  committee  for  further                                                                    

Document Name Date/Time Subjects
HB81 Sectional Analysis.pdf HFIN 3/31/2015 1:30:00 PM
HB 81
HB81 Sponsor Statement.pdf HFIN 3/31/2015 1:30:00 PM
HB 81
HB81 Supporting Documents-Email Richard Carr 2-18-2015.pdf HFIN 3/31/2015 1:30:00 PM
HB 81
HB81 Supporting Documents-Email Richard Green 2-18-2015.pdf HFIN 3/31/2015 1:30:00 PM
HB 81
HB81 Supporting Documents-Email Scott Allen 2-17-2015.pdf HFIN 3/31/2015 1:30:00 PM
HB 81
HB81 Supporting Documents-Letter Chuck Homan 2-11-2015.pdf HFIN 3/31/2015 1:30:00 PM
HB 81
HB81 Supporting Documents-Letter Jess Hall 2-10-2015.pdf HFIN 3/31/2015 1:30:00 PM
HB 81
HB 143 CS WorkDraft E version.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 Letter of Support - AEA.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 Letter of Support - AIDEA.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 Letters of Support.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 Resolutions of Support.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 Sponsor Statement.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB135 - Sectional Analysis.pdf HFIN 3/31/2015 1:30:00 PM
HB 135
HB135 - Supporting Document - Roth 457 FAQs.pdf HFIN 3/31/2015 1:30:00 PM
HB 135
HB135 Public Employee Roth Contributions Transmittal Letter.pdf HFIN 3/31/2015 1:30:00 PM
HB 135
HB 143 NEW FN DCCED AIDEA.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 NEW FN DCCED AEA.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
Waterfall Creek-King Cove HB 143.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 support.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
JHI Rep. Saddler Letter 4-2-15.pdf HFIN 3/31/2015 1:30:00 PM
HB 143
HB 143 Sponsor Statement.pdf HFIN 3/31/2015 1:30:00 PM
HB 143