Legislature(1993 - 1994)
02/04/1994 09:00 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 243: An Act relating to the four dam pool transfer
fund.
A presentation was made by Terry Cramer, Attorney,
Legislative Legal Counsel, Legislative Affairs
Agency; Virginia Stonkus, fiscal analyst, and Mike
Greany, Director, Legislative Finance Division.
Edgar Blatchford, Commissioner, Department of
Community & Regional Affairs; Bruce Geraghty,
Deputy Commissioner, Department of Community &
Regional Affairs; and Robert Harris, Director,
Energy Division, Department of Community &
Regional Affairs, fielded questions asked by the
committee. Due to lack of time, SB 243 was held
in committee until Wednesday, February 9, 1994.
SENATE BILL NO. 243:
An Act relating to the four dam pool transfer fund.
CO-CHAIR PEARCE invited Mike Greany, Director, Legislative
Finance Division, to come before the committee and outline
the presentation on SB 101 and SB 126, the intertie bills
passed last year.
MIKE GREANY said that the presentation would attempt to
explain in plain language the effects of SB 101 and SB 126.
Handouts were provided to the committee. He reminded the
committee of their request for a description of what had
been enacted in the energy package from last year, focusing
particularly on the financial aspect - new funds, old funds,
and current fund balances. He introduced Terry Cramer, the
drafter of both bills, and asked her to speak to the
committee.
SENATOR KERTTULA said he was interested in how the public
purpose is served. He asked was the expenditure of funds
being done properly and with the public interest in mind
especially in regard to the oversight of those funds and
contracts. Co-chair Pearce also noted that Commissioner
Campbell, DOT&PF, and other department personnel were in the
audience to field questions.
TERRY CRAMER, Attorney, Legislative Legal Counsel,
Legislative Affairs Agency, Division of Legal Services, said
that she had drafted SB 106 (which became Chapter 18) and SB
126 (which became Chapter 19). She read from a handout
titled, Sectional Summary of Chapter 18 dated October 12,
1993 (Attachment A, copy on file). She or department
personnel fielded the following questions from members of
the committee as they came up in her presentation.
Senator Rieger asked if Sec. 42.45.010, subsections (c) and
(d), paralleled the prior eligibility standards in
regulations for AEA. Ms. Cramer said that she believed that
to be true but would have to check the statutes at a break
in the meeting. At Senator Kerttula's request, BRUCE
GERAGHTY, Deputy Commissioner, Department of Community &
Regional Affairs, said that, at present, DC&RA was operating
under the old regulations. The adoption of new regulations
might have minor changes but he had not seen a draft as yet.
In answer to Senator Kerttula, Mr. Geraghty said he would
provide a list of the new regulations for the committee
before they were adopted.
Senator Kerttula asked if the loan committee set out in Sec.
42.45.060 had been established and was it functioning. Mr.
Geraghty said that the loan committee had not been
established as yet but would be in the next 30 days or so.
The Governor would appoint the public members.
End SFC-94 #17, Side 1
Begin SFC-94 #17, Side 2
In answer to Senator Kerttula, Ms. Cramer said that the
grant process, Sec. 42.45.180, was new and did not exist
before. She said this section allows the Department of
Community & Regional Affairs to fund grants for small power
projects to reduce the costs of a utility (page 5 of the
handout). Three percent of the balance of the fund is set
aside for use as grants for small power projects. The
eligible utility is required to secure financing elsewhere
for at least 25 percent of the project. The term "small
power project" is defined as a modified project that will
generate, store or conserve no more than 1.5 megawatts of
power and has an estimated cost of less than $3M. Senator
Kerttula felt this was one of the areas where he thought on
site use of resources should be encouraged instead of
shipping in fuel and subsidizing programs.
Senator Kerttula asked for an explanation of Ms. Cramer's
statement that Sec. 42.45.410 directs the department to the
"maximum extent possible feasible" to enter into contracts
with appropriate entities in the private sector in carrying
out the duties under the Chapter. She said it was a
direction that the department should try to contract out.
Senator Kerttula asked the department what it envisioned in
monitoring that sort of delegation. He went on to say that
government was pretty loose anyway, and he felt this
direction provided potential for all kinds of abuses. Mr.
Geraghty said that this Section was important in their
approach for organizing the new division. He said they were
examining processes that AEA used internally for providing
the services that were transferred to the division and were
attempting to find methods that would protect the public
dollars at use and utilize the private sector to the maximum
extent possible. He felt there were major concerns in this
area because of the technical nature of the work which
required maintaining technical expertise within the
division. He believed projects in work needed inspections
and the public deserved assurance that the work was being
performed to the specifications of the contract. In answer
to Senator Kerttula, Mr. Geraghty said that the department
was examining all the functions within the division to
comply with this section where appropriate. He assured the
committee that if public funds and purposes could not be
protected by utilizing the public sector, it would be done
in-house.
In answer to Senator Kerttula, Mr. Geraghty said the only
entirely privatized program was the circuit rider program.
Senator Kerttula commented he was aware of that fact and
feared the department was not meeting all the conditions in
regard to that program. Senator Kerttula asked if the
department needed statutory change in order to insure the
protection of the public interest and reiterated his concern
that the criteria set out would not be met or monitored.
Mr. Geraghty assured the committee that the department would
not privatize any function without assurances that the
public interest would be protected. Senator Kerttula said
that a system needed to be devised to insure this in the
future as well. He felt that there were too many loose ends
and that he heard rumors of things being done that were not
in the best interest of the state. Senator Kerttula asked
if Mr. Geraghty had statutory authority to set up a system
that would work and under what time frame. Mr. Geraghty
said he believed he did but it was going to take additional
time to identify programs that could be privatized. If
certain programs, in the department's opinion, could not be
privatized, it would not be done. He said that the
department would be back at the legislature if they had any
problems. He admitted that this section had very broad
coverage over the division's activities and each program
must be analyzed. Senator Kerttula said he did not have
much confidence that the public interest would be served in
the short run. In the long run he felt it would eventually
happen but he would like to see it done right the first
time.
Senator Jacko said that there was not a system in place for
monitoring privatization, and wanted to know how the circuit
rider program contract was being monitored. Mr. Geraghty
said the circuit rider program was the only system in which
they did have a monitoring system in place. The other
programs formally done by AEA, now within the department,
are being examined, workloads designed, and program
operations identified so when contracted out to the private
sector, appropriate oversight and controls would be put in
place. He said if the division cannot accomplish this in a
particular area, it would be retained within the division.
He pointed out that this will have an impact on the amount
of work that the division provides.
Mr. Geraghty said at the time of the transition, the circuit
rider program was already in the process of being contracted
out to the private sector. Much of the background work had
been done, it continued, was implemented, and also expanded
to include about 30% more communities in the delivery
service program.
Senator Jacko said his concern was the number of people that
had been laid off that serviced the rural programs, the
engineers, the maintenance workers, etc. and the oversight
of the contracts. He wanted to know the current workload
and if the remaining employees could accomplish that
workload. Senator Kerttula reiterated that had been the
same concerns of former Director Don Harris. Senator
Kerttula requested information regarding the workload and
projections regarding the number of people needed to support
that workload.
Mr. Geraghty said that at the present time personnel and
workload had not been totally defined. It was an
evolutionary process. He explained that the way AEA was
structured, a good portion of the engineers had been
assigned to the Bradley Lake project and those positions
went over to AEA. Several positions were lost in the rural
programs. He said the number established for a core
organization was based on discussions between the
Commissioner, the former Director, and himself. On December
15, the department received a budget document and made a
"best" judgement call in regard to the organizational
structure. The department's concern in regard to the number
of engineers still exist. Senator Kerttula felt that
presently there were about half the people necessary to do
the job. He felt a combination of political influences and
special interest kept moving in and directing the process
and that Don Harris could give the true story. He felt the
present system would not be able to solve any problems
because it was without competence and the necessary bodies.
He said the magic number 12 kept coming up for the whole
division. He felt the whole situation was a mess, and would
not be solved until someone within the system stood up to
the pressures that exist from legislative groups and
individuals with self-interest.
Senator Jacko felt his question had gone unanswered and
again asked Mr. Geraghty to speak to manhours and
projections the division might be using. Mr. Geraghty said
the Director had been working on those issues but it had not
been reviewed by management. Mr. Geraghty said that the
systems in work in rural Alaska are to a certain degree
susceptible to standardization and, in doing that, much of
the engineering work could be boilerplated. Those internal
processes were not in place at the present time. He felt
that the division did not have to go into each community on
an individual basis and re-invent the wheel. There are
other communities in close proximity to each other where
other processes can be applied, and low-cost energy could be
centralized. These types of applications for achieving low
cost energy in rural Alaska are the things the division is
trying to matrix into the authority given by the
legislation. There is a concern about the workload and the
capabilities of the technical staff to monitor and regulate
the privatization of various services while, at the same
time, moving toward the implementation of legislation passed
last year. He did not feel that it would be accomplished
for at least 6 months to a year but the majority of the
systems would be in place by then.
Senator Jacko said that did not alleviate his concerns. He
said he wanted to know if the department had enough people
to accomplish its goals. He felt the division was
understaffed and was uncomfortable with Mr. Geraghty's
comment "it not being defined as yet" in regard to workload
and projections. He was concerned about service to rural
Alaska and he felt the outcome probably would not surface
until the legislature adjourned. Mr. Geraghty said that the
structure in place would accomplish what was intended by the
legislation. If it did not the department would return to
the legislature to request increased staff. Senator Jacko
asked if those requests would occur after the legislature
adjourned. Mr. Geraghty said it might be sooner. Senator
Kerttula said it might take four or five scandals but he
hoped that would not happen.
Senator Jacko requested that Director Robert Harris come
before the committee and testify as to the division's
progress and if any consultants had been used. Mr. Geraghty
said that no consultants had been used. He went on to say
that the department had been trying to work with experienced
staff within the agency who knew the parameters, the
previous systems, and the new system was moving forward
required by law. Senator Jacko asked if someone had looked
at both systems and proposed a plan comparing manhours from
one system to the next. Mr. Geraghty answered
affirmatively. He said that he had not seen the completion
of that work and did not even know if it was complete.
Senator Jacko asked if Director Robert Harris would know.
At this time Co-chair Pearce invited Mr. Harris to join the
committee at the table and speak to those issues.
DIRECTOR ROBERT HARRIS asked Senator Jacko to repeat his
question. Senator Jacko said he had been asking for a
better definition of the number of manhours needed to
accomplish the monitoring of oversight. He reiterated his
concern regarding the layoff of engineers and maintenance
workers and wanted to know if the division was going to be
able to continue to provide adequate services. Senator
Kerttula added "efficiently and in the best interests of the
state". Mr. Harris said that he had done some preliminary
work with project manhours but he had not discussed it with
management as yet. He said there were more positions in the
old AEA org chart than there was now but most of the
programs were functioning that existed during pre-AEA. He
admitted the organization was small now, and the tasks had
not changed appreciably so not as much could be done as
quickly.
Senator Jacko asked who was monitoring the contracts. Mr.
Harris said that in terms of working with particular
contracts, over the course of the transition, project
engineers or project managers were responsible for the
appropriate expenditure of funds. He predicted fewer and
slower paced projects. Rather than saying that oversight on
these projects is not being done properly, he would rather
say that at this point not as many projects were being
pushed out the door. Also, it is winter, and the slow time
of the construction season, so there were not a lot of
projects expected to be going on. Senator Jacko asked for
his projection of how many engineers would be needed to
continue the workload. Mr. Harris said that he would rather
talk to management before he talked to the committee about
his projections.
Senator Kerttula said that was the point. The division was
supposed to be a semi-autonomous agency and now a whole
system had to be accessed before decisions could be made
that technical competence thought important. He stated it
was a very difficult way to get things done. Mr. Geraghty
agreed with the committee's concerns. Senator Kerttula
blamed the legislature for this problem.
Mr. Geraghty said there was a bulk fuel problem in the
amount of $200M that had been identified. He said that if
the legislature wanted to appropriate $200M to solve that
problem, the department could get it done. Mr. Geraghty
went on to say appropriations that only cover part of a
problem on an annual basis was like dealing with pieces of a
puzzle. The department had approached the problems in a
step by step, logical fashion with the staff employed.
Senator Kerttula said that monitoring, line repair, some new
construction, and all that had been taken place needed to be
continued with some reasonable level of good government
oversight. Senator Kerttula felt that it was obvious with
the cutbacks suggested, it could not continue. At least at
a minimum, Senator Kerttula wanted what was done to be well
done and with the public interest. He said that he was sure
the bush wanted their programs to continue and be monitored
properly and kept alive. He reiterated his concern that the
department did not have enough employees. He said Americans
were great at abusing programs and great programs could be
written if less money was needed to monitor them.
In answer to Co-chair Frank, Randy Welker, Legislative
Auditor, Legislative Audit Division, said there was a
pending audit request before the Budget & Audit Committee to
look at the Alaska Energy Authority. It would be up for
consideration on Friday, February 11, 1994. Co-chair Frank
said that he felt that audit should be approved. He felt
that the legislature was lacking information and the audit
could answer some questions.
Senator Rieger was concerned about the process that had
taken place in making the organizational changes. It seemed
the reorganization was done very precipitously and somewhat
arbitrarily. He wanted to know if there was any legislative
interference in the process. He had received complaints
this summer from constituents in Anchorage who had been laid
off and he had requested a response from the department.
COMMISSIONER EDGAR BLATCHFORD, Department of Community &
Regional Affairs (DC&RA) said the department had acted as an
observer over the reorganization of the division. Once
legislation was signed into law, it became the
responsibility of the department to follow the intent of the
legislature. He said there had been considerable resistance
within the old Alaska Energy Authority but the department's
obligation was to fulfill the intent of the legislature and
that was what the department had tried to do. From July 1,
and into the fall, his instructions were simple - the
department was to follow the intent of the legislation in
the best interest of the people and the division was to do
nothing that would adversely affect rural Alaska. He again
said there was resistance within the old AEA. He said that
he was to down-size the Energy Authority into a division,
there were costs that needed to be looked at, and he
believed that some savings had been accomplished.
Senator Kerttula stated that there were eyewitnesses to the
fact that legislative and subcontractor pressures had been
applied to his agency. Mr. Blatchford said that it was his
obligation to fulfill the intent of the legislation and if
he needed clarification as to the intent, he would not
hesitate to listen to those legislators that respond to that
legislation. Mr. Blatchford said he had not received any
political pressure by any contractors. Senator Kerttula
asked if any of his subordinates had received pressure. Mr.
Blatchford said that he did not know about that.
Senator Rieger asked Mr. Blatchford if, when he consulted
with legislators in regard to intent, did he consult on
questions of who to hire and who to let go. Mr. Blatchford
said he did not consult anyone about who should be hired and
who should be let go. Co-chair Pearce asked Mr. Blatchford
if he had listened to any legislators in regard to who
should be kept and who should be let go. Mr. Blatchford
said he always listened to the legislature but when
questioned again by Co-chair Pearce, said he did not listen
to any legislators in regard to the final organization of
the division. Co-chair Pearce requested a chart that showed
the training of individuals, their titles (without names),
and length of service at the old Alaska Energy Authority.
She asked him to also list employees who were transferred to
AIDEA, the new division, into what positions they had moved,
their responsibilities, and what training or experience the
individuals had for the positions into which they were
transferred. Mr. Blatchford said he would provide that
information as soon as possible.
Senator Sharp said that the department had more or less
inherited a function that in many instances was not working
well as it was. To move it over and expect it to come into
balance immediately was a difficult task at best. He felt
anytime a long-standing, well funded section is eliminated,
there will be some entrenched territorial values of
employees and others. This division touched a lot of lives
throughout the state and a lot of work is needed for any
merger or down-sizing. It requires an elimination of some
jobs, and combining of responsibilities, hopefully making it
more efficient. He felt this was probably just the first
step the legislature was making in down-sizing government.
He hoped LB&A would find out what steps had been missed and
then be able to use their findings as a constructive device
to help in the transition. That audit, unfortunately, will
take at least 2-3 months even if it is a priority. He
considered electricity a vital necessity and hoped that the
functions would be maintained. He felt if electricity
became unaffordable, it was the same as the power generator
going off. He wanted the audit to address economies
including fuel consumption on certain units and other
technical concerns.
Senator Jacko said his concern was not so much the
entrenched or territorial activities that were taking place
but that service be continued to rural Alaska. He said if
that could be done with less staff that was good because of
the budget reduction. Senator Jacko asked for a copy of any
organizational chart that was available and any projection
of manhours that had been made to insure the monitoring and
continuation of rural programs. He did not want to micro-
manage, he just wanted to be assured of those services.
Senator Jacko asked how many contracts had been let out and
if one individual had more contracts than another. Mr.
Harris said that the circuit rider contract maintenance
program started about 6 years ago to assist rural
communities in operation and maintenance of their powerhouse
and distribution systems. This summer, participating
communities increased from approximately 45 to 60. No one
responded to bids sent out to potential contractors for the
Northslope Borough. They take care of it themselves.
Alaska Power and Telephone covers the southeast area.
Kotzebue Electric services the area around Kotzebue. The
other seven areas went to a contractor based in Anchorage,
Alaska Power Systems. In answer to Senator Jacko, Mr.
Harris said he did not know who owned it but Scott Thompson
and Ms. Quinlen were principals. To Mr. Harris'
understanding, the proper bidding process had taken place in
the contracting procedure. Mr. Harris said that Alaska
Power Systems received those contracts before he was hired
mid-November.
Mr. Blatchford said that he felt amiss and would try again
to answer Senator Rieger's question. He said he had been
through two major reorganizations in the department. The
first was the excising of the Rural Housing program from
DC&RA. That took about 50 people out of the department and
placed them in Alaska Housing Finance Corp. He said it was
a difficult period for the employees. He felt that unless
additional revenues are found to fund these government
operations, there will be more transitions.
End SFC-94 #17, Side 2
Begin SFC-94 #19, Side 1
Senator Kelly asked how many people were laid off to date in
the AEA reorganization. Mr. Harris said that of the 42
employees brought into DC&RA, approximately 23 were laid
off. In answer to Senator Kerttula, Mr. Blatchford did not
anticipate any more changes unless there was a change in the
budget. Senator Kelly said that he felt it did not make
sense to combine departments and keep the same number of
people.
Senator Rieger asked, of the 41 people that moved to DC&RA,
were some people laid off and new ones hired. Mr. Harris
said that he was new and so were the two Deputy Directors.
He knew of one person who had been reassigned but there had
not been any new hires since he had been on board. Mr.
Blatchford said that last summer was very traumatic for the
employees since rumors were rampant regarding down-sizing.
He had created various proposed organizational charts for
different scenarios.
Senator Kerttula stated that the former Director Don Harris
had tremendous pressure put on him to downsize to 12
employees. Mr. Blatchford said that he had a lot of respect
for the legislative body and would not cast aspersions on
the character or integrity of any legislator. He said there
certainly had been discussions about what the size of the
Division should be and he had taken all proposals seriously
that come from the legislature. Senator Kerttula admitted
the Commissioner was in a tough position. Mr. Blatchford
said that his instructions from the Governor was to do
nothing that would adversely impact rural Alaska and to
prepare an energy strategy that would faithfully lead Alaska
to energy efficiency in the 21st century. He felt that the
state has come close to addressing the rural energy needs
for the highway system and for southeast Alaska, but the big
gap was in rural Alaska.
At this time, Ms. Cramer continued her presentation of the
handout on pages 6 and 7, explaining definitions.
Senator Rieger asked for confirmation that Section 25 said
that AIDEA could basically do whatever it wants in order to
build a power transmission intertie. Mr. Cramer agreed that
it said "whatever it wants" if considered appropriate and
prudent in order to own the project or to finance it.
Senator Rieger felt that statement gave AIDEA a blank check
in building an intertie and felt that an amendment was
appropriate. He said restrictions should apply to interties
as well as other capital projects. Senator Kerttula
concurred.
Senator Rieger stated that in regard to bonds the other bill
had language which referred to the ability to waive debt
repayment provisions. He asked if that applied to Sections
29 through 32. Ms. Cramer asked if that could be answered
when she got to that section. Later in the meeting Senator
Rieger said he found the section he was referring to and it
had referred only to feasibility studies so it would not
apply to bond authorizations.
In regard to Section 35, Senator Jacko asked if the PCN
numbers had been removed from the division. Mr. Geraghty
said that some PCNs might be vacant but they had all been
transferred to the new division. There were some minor
changes being made now because there were some errors made
in the transfer between AIDEA and DC&RA. He reiterated that
the PCNs had not been deleted.
In answer to Senator Jacko, Ms. Cramer said that rate
setting remained with the PUC and would not be transferred
to the division. She said the intent was to keep the
existing structure of PCE intact and substitute DC&RA for
those functions that AEA had filled. An error had been made
in drafting the bill where it continued to refer to the AEA
when it should have said department (DC&RA). The intent was
to substitute DC&RA for AEA and leave the functions with the
PUC that they originally had.
At this time Mr. Greany introduced Virginia Stonkus, fiscal
analyst, Legislative Finance Division, and informed the
committee she had prepared the handout titled Summary of
Energy Program Operations - FY94 Enacted to FY95 Governor
(Attachment C, copy on file). He then asked Ms. Cramer to
continue with her second handout to the committee Sectional
Summary of Chapter 19 SLA 1993 (Attachment B, copy on file).
In Section 4, Senator Rieger said that he had read a draft
feasibility plan which shows a hydro-electric project as
being a preferable alternative to the intertie in the case
of serving power to the Glenallen region. He wanted to know
if the department was considering that feasibility study and
would ask for redirection of the loan or whether they were
going to push ahead with the intertie project. Mr. Geraghty
said the feasibility study has just been completed and
distributed. After a 30-day comment period a final draft
would be issued sometime in early March and the Commissioner
would make a decision at that time. He said the study had
been made by R.W. Beck & Associates and was funded by Copper
Valley Electric Assoc. The department had located the
contractor and did the RFP process. Senator Rieger asked if
the department felt it worked well for the utility to pay
for the study when its money was contingent on the result of
the study. Mr. Geraghty said that having a intermediary
does protect the process. Mr. Harris said that the Copper
River Valley Assoc. did reimburse the department for the
study. As it started out under the old AEA, the project
manager had experience in these areas and he felt it was
going to be a fair and impartial feasibility analysis.
Senator Rieger asked if Mr. Harris felt there was a reason
to doubt the results of the study. Mr. Harris said he did
not know if he understood the question. Senator Rieger
asked if there might be any reason the study would be
overruled and some other course taken. Mr. Harris said he
was not aware of any reason. His charge within the
department was to have a fair, impartial, and independent
study. Mr. Harris refused to offer an opinion whether
another hydro-electric project would be funded from money
that was set aside for an intertie.
REPRESENTATIVE OLBERG said he was familiar with the study
and stated there were seven scenarios proposed for this
power source and the intertie is the preferable choice in
five out of seven. There were also two fundamental flaws in
the study that if corrected would make the intertie the
preferable choice in seven out of seven scenarios.
Senator Rieger said he was reading from the summary of the
study and it said that high growth load scenarios indicated
a preference for an intertie and medium-low or low growth
indicate preference for other cases. It said a lot has to
do with how big the refinery would have to be and there is
some question about that. Senator Sharp commented that if
Senator Rieger was reading from the newspaper article he
thought he was, he should take it for what it was worth.
Senator Kerttula said that it had been long reported that
Union oil has a large gas reserve in the Glennallen area and
on site generation there with a shorter transmission
facility could have potential.
Ms. Cramer continued with her explanation through Section
15.
Mr. Greany at this time turned the committee's attention to
his handout Summary of Provisions, Chapters 18 and 19, SLA
1993 (Attachment D, copy on file) and asked Ms. Stonkus to
speak to the handout.
VIRGINIA STONKUS, fiscal analyst, Legislative Finance
Divsion, outlined Attachment D for the committee. She said
that the prime source of funding under Chapter 19 was the
Railbelt Intertie Reserve, the balance of which was
approximtely $118M, and started the whole legislative
process. She then outlined the various sections. She
referred to the handout titled "FY 94 Enacted Energy
Legislation" (Attachment E) as a reference for fund
balances. The intent of the presentation was to show what
monies went into which funds. She was prepared to speak to
available balances of those funds but reminded the committee
that "available balance" still involved negotiations and
processes that could influence those balances.
At this point the committee convened to go to the floor.
The presentation by Legislative Finance Division was put on
hold until such time as it could be rescheduled.
ADJOURNMENT
The meeting was adjourned at approximately 10:55 a.m.
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