Legislature(1999 - 2000)
04/28/1999 08:07 AM House URS
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HCR 10 - SALE OF FOUR DAM POOL CHAIRMAN HUDSON announced that the next order of business was House Concurrent Resolution No. 10, proposing recommendations concerning the sale of the Four Dam Pool hydroelectric facilities. Number 1926 CLIFF STONE, Legislative Assistant for Representative Austerman, Alaska State Legislature, stated that the adoption of HCR 10 will request the Alaska Energy Authority (AEA) to divest itself of its interest in the Four Dam Pool. These projects were constructed in the mid-1980s and they served the communities of Copper Center, Glennallen, Ketchikan, Kodiak, Petersburg, Port Lions, Valdez and Wrangell. Representative Austerman took HCR 16 and used it as a template to construct HCR 10. The wording, "fair market value," has been subject to some question; can we really expect this to go out to the market in the form of a request for proposals (RFP) and will it be open to just those communities listed or will people be given the opportunity to bid on this RFP? Number 1812 REPRESENTATIVE BERKOWITZ noted, "The Sitka wildflower has cropped up amongst the devils club again on this sponsor sheet." He wondered how much money will go into the general fund on account of the sale when the dust settles. REPRESENTATIVE AUSTERMAN responded that a lot of numbers have been thrown around. The question is, what is the fair market value? He said that he would love to see $125 million go into the general fund, but he has heard numbers a lot lower than that, so it is anyone's guess. REPRESENTATIVE DAVIES said that when the issue was dealt with last there was a major concern with the term, "commitment of the price." He asked the committee if they remembered something of that nature. He indicated that in the construction of the dams, he believes there was a certain price that was guaranteed to communities. REPRESENTATIVE AUSTERMAN explained that there is a power sales agreement that is a 40-year agreement that was originally signed with the construction of the dams and it has been a problem all along. Senator Grevel, when he was attempting to purchase this, it became obvious that he would have to break that power sales agreement to make his agreement work, and that is why HCR 10 is directing Alaska Energy Authority (AEA) to go out into the community to negotiate. He said that there are a lot of liabilities the state of Alaska has with the four dams, and he would like to see the state get out of the liability. Number 1678 REPRESENTATIVE DAVIES referred to line 12 of HCR 10, where it states, "WHEREAS the Alaska Energy Authority retains, under the power sales agreement, significant liabilities relating to the power project," but in the "resolves" it is not mentions. He wondered if it is Representative Austerman's intent to continue to honor the power sales agreement. REPRESENTATIVE AUSTERMAN stated that the intent is that the state of Alaska get out of the agreement all together; The AEA sell the four dams as a consortium or individually to each community. The best thing that could happen is for the Four Dam Pool to become the Four Dam Pool Inc. and buy the facilities and everything from the state of Alaska. Number 1620 REPRESENTATIVE DAVIES wondered if the power sales agreement is a commitment to the consumers in that area; that the liability being referred to is the state's contract with the consumers in the region, which means that there would have to be some concurrence by those consumers. REPRESENTATIVE AUSTERMAN replied correct. He indicated that he would have to have someone that has been more directly involved with the sales agreement in order to provide a definite answer on how they would address that issue. REPRESENTATIVE GREEN stated that it seems that the sale of the Four Dam Pool would have to be an all or nothing thing, as opposed to one at a time. REPRESENTATIVE AUSTERMAN stated that he believes the AEA cannot divest one unit without all four units agreeing to it. Number 1534 REPRESENTATIVE PORTER asked if the utilities being serviced by the Four Dam Pool have a first right of refusal. REPRESENTATIVE AUSTERMAN replied that he does not know and would have to defer to one of the utilities themselves. He said that he does know all four units could be sold individually if they all agree. The divestiture and the power sales agreement have been the biggest problem with why the Four Dam Pool has not sold in the past; if there is an outside entity they don't want to except the power sales agreement and everything else tied to it. Later on when the income stream was set up and divided it up there was nothing in the agreement that protected the state, but did protect all the utilities. There is a self-help clause within the whole thing; if the state doesn't come up with general funds to prepare the dams then they have there self-help clause and they can take their income stream that is being divided up and make the repairs. He added that the problems that existed when this agreement was set up are being worked out now. ED KOZAK, General Manager, Kodiak Electric Association (KEA), testified via teleconference from Kodiak. He stated that KEA is a member-owned non-profit cooperative that has provided service to Kodiak and the village of Port Lions for 57 years. The KEA Board of Directors and management staff strongly support HCR 10. They believe that it is through the sale of the Four Dam Pool that long term economic strength is promoted in their utilities in the community. He asked, "Why should we support ownership?" He said that first, significant opportunities for rate reductions, cost control, reliability and protection of service are there with utility ownership. There is the potential for increased economic development opportunity in the community with local control and decision making authority. The personnel knowledge and training necessary to keep the project well maintained is already in place. He said that they feel it is critically important with the isolated stand-alone electric utilities that are in the Four Dam Pool. Electric utilities served by the Four Dam Pool are either a cooperative or a municipal, which means that 100 percent of the savings will remain with the people in the state of Alaska. In example, over $3 million in capital credits have been returned by KEA to its members over the last three years. He added that the Kodiak Chamber of Commerce and the City of Port Lions have both passed resolutions in support of local ownership. He indicated that the state has divested boat harbors and roads to the local communities; therefore, it makes perfect sense to divest the Four Dam Pool to the local communities as well. It is their belief that local ownership of the projects will result in rate reductions at the retail levels and the sale of the projects to the utilities will provide a stable economic base in all eight communities that are served by the projects, which will result in a stronger state of Alaska. Number 1256 REPRESENTATIVE PORTER wondered whether or not the utilities in the communities have the first right of refusal under the power sales agreement. MR. KOZAK replied that the power sales agreement is a 45-year agreement, in which, the state and five communities are signatory to that agreement and all the utilities are contracted by that agreement to buy all of their energy from the projects that the serve the community. He added that he believes the answer to Representative Porter's question is yes. Number 1219 CHAIRMAN HUDSON pointed out that it may be true. REPRESENTATIVE DAVIES wondered if one of the communities was not in favor of the implied change in the contract if they would have a veto power. MR. KOZAK responded that any change in the power sales agreement has to be agreed to by all the parties that signed the agreement. BOB EVANS, Copper Valley Electric Association, Four Dam Pool, stated that he believes he is hearing two questions; Representative Davies is responding to a question that deals with the power sales agreement and the right of each community to be unanimous in their decision making and Representative Porter is asking whether or not the communities have the first right of refusal of the sale of the projects. The questions merge in some respects. If there is going to be a sale of the projects, ultimately it is going to require the approval from each of the communities to give up the power sales agreement. The reality is in the municipalities; it is going to require a vote of the people. Number 1070 RICHARD TRIMBLE, Alternate Representative, Project Management Committee, Four Dam Pool and Power Project Manager, Ketchikan Public Utilities (KPU), testified via teleconference from Ketchikan. He stated that Ketichikan has consistently supported a divestiture of the Four Dam Pool facilities to the purchasing utilities. He indicated that KPU has worked hard to craft an agreement that works for both the Four Dam Pool communities and the state. They feel that HCR 10 seeks to accomplish this objective. On the other hand, they do not support the concept of selling the facilities under a general RFP, because they do not believe the Four Dam Pool communities or the state of Alaska will be best served through that process. He asked will the RFP process bring a higher price for the Four Dam Pool? He said that it won't bring a better price from the purchasing utility. He pointed out that they are not in a good position to respond to an open RFP. He asked will a RFP bring a higher price for the Four Dam Pool from a private enterprise? He responded that is possible, but in the long run it is a losing proposition for the state. The risks that were jointly evaluated by the communities and the state during the vestiture negotiations are real. The communities have been prudent in their evaluation of that risk, because they recognize that they will bear them for decades to come. He said that it will be the communities and the state who will be left holding the bag when the risks do materialize and the venture fails; therefore, relieving the state of the liabilities is a vestiture to the Four Dam Pool. He indicated that they are ready to proceed; however, they do not support an RFP process. Number 0890 REPRESENTATIVE PORTER explained that in his reading of the "RESOLVE" in HCR 10, the only divestiture that would be available would be to the individual communities or a consortium of the community; there is no opportunity for an outside proposer under the RFP. MR. EVANS pointed out that if there was an RFP and a higher bidder, other than one of the communities, each community would have to approve the third party purchaser to take control of the power sales agreement. If the communities chose not to, presumably the state could still sale the property, but they would also retain the risk under the power sales agreement; therefore, without the approval of the communities the state cannot assign the risk under the power sales agreement. Number 0802 REPRESENTATIVE PORTER said that he is assuming the permission would not be given, so the opportunity of an outside purchaser is mute. REPRESENTATIVE DAVIES pointed out that he did not read the "RESOLVE" in HCR 10 as Representative Porter did; it states that the request for proposals for the sale of the power projects is open to the electric utilities in the communities. It does not say that it is open only to them; therefore, a third party could respond to the RFP. CHAIRMAN HUDSON said that is why the question of whether or not they have the first right of refusal came up. REPRESENTATIVE ROKEBERG stated that it should be clear in HCR 10 whether it does or does not. Number 0742 MR. EVANS indicated that the Four Dam Pool communities want HCR 10 to reflect that they are the sole purchasers of these projects. REPRESENTATIVE PORTER made a motion to adopt a conceptual amendment, "on line 5, page 2, after the word 'open' you would say 'only'." REPRESENTATIVE DAVIES wondered, if it is open only to the electric utilities in the communities, then why would a RFP be used. He asked isn't it then a negotiated sale? He said maybe the line should read, "divest itself of its interest in the Four Dam Pool power projects - preparing a request for proposals for the sale, by negotiating a sale of the power projects to those utilities." REPRESENTATIVE BERKOWITZ wondered if it would only be the utilities themselves that could make the purchase; the communities themselves would be precluded from doing so. Number 0610 REPRESENTATIVE AUSTERMAN explained that the issue of whether a consortium of all the Four Dam Pools buy them or a consortium of two of them or if they individually buy them could produce three different RFPs. REPRESENTATIVE BERKOWITZ stated that the language presently in HCR 10 would necessitate that the utility would make the bid and ultimately the purchase. There might be a different mechanism that the community would want to employ rather than the direct sale to the utility itself. REPRESENTATIVE PORTER said that even though some of the utilities are owned by municipalities and some are cooperative, they're made of the same ingredients. REPRESENTATIVE GREEN expressed his concern with regards to output, gigawatts per year, because on line 8 of HCR 10 it states, "the state receives a fair market value for the power projects." What if, for example, the smallest project, Solomon Gulch, had an accounting process that tells the state what would be a good price and they find out it is 1.5 times the best possible bid. He wondered if it would kill the whole deal or if everyone in the group would agree on buying three and leaving one to the state. REPRESENTATIVE AUSTERMAN stated that the power sales agreement would preclude that from happening, because they all have to agree. REPRESENTATIVE GREEN interjected that they might all agree, but they might not want to come up with that kind of money; therefore, they might agree on three being sold, but also agree that one is priced too high. Number 0385 REPRESENTATIVE AUSTERMAN said that if that were the case there would not be agreement among all of them. REPRESENTATIVE BERKOWITZ pointed out that HCR 10 is not suppose to dictate the terms of the sale, but just ask that some steps be taken to move towards a sale. MR. EVANS agreed. He said that HCR 10 is simply asking the AEA to come to the table and come up with a price. REPRESENTATIVE ROKEBERG requested clarification on whether the AEA had been instructed that an appraisal be done to determine fair market value. MR. EVANS indicated that a study has already been done on risk assessment. There are probably many approaches or concepts by which to come to some kind of evaluation. He expects that the AEA and the communities, during the interim, will attempt to find some basis that is acceptable to the legislature. REPRESENTATIVE ROKEBERG pointed out that the term, "fair market value," implies that some type of appraisal would be done. He wondered if the mechanism should be implicit or explicit in the resolution. REPRESENTATIVE AUSTERMAN responded that the AEA has the responsibility and he has no doubt that they will do what they are required to do with regards to do-diligence. REPRESENTATIVE ROKEBERG wondered if there should be legislative approval of any transaction. MR. EVANS explained that when negotiations began a couple of years ago the Governor's office issued a letter and set up certain standards before any approval of a sale could happen. The most important one was there would be no sale short of legislative approval. Number 0059 CHAIRMAN HUDSON asked if there was any objection to the proposed amendment, "on line 5, page 2, after the word 'open' you would say 'only'." There being no objection, the amendment was adopted. Number 0005 REPRESENTATIVE PORTER made a motion to move CSHCR 10 (URS) out of committee with individual recommendation. There being no objection, CSHCR 10 (URS) moved from the House Special Committee on Utility Restructuring.
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