Legislature(2001 - 2002)
02/26/2001 09:05 AM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
CS FOR SENATE BILL NO. 84(JUD) "An Act exempting certain joint action agencies from regulation by the state or municipalities; relating to the relationship between certain joint action agencies and the public utilities that form the joint action agencies; relating to powers and immunities of certain joint action agencies; requiring filing of certain joint action agency agreements; relating to the financial affairs of certain joint action agencies; declaring certain joint action agencies to be political subdivisions for certain purposes; relating to liability and indemnification of officers, employees, and agents of certain joint action agencies; and defining 'agency agreement' and 'parties to the agency agreement' as used with reference to certain joint action agencies." st SENATOR ROBIN TAYLOR advised that the 21 Legislature passed legislation creating the Power Cost Equalization (PCE) and authorizing the sale of the Four Dam Pool Projects to local utilities and communities. The PCE Endowment was funded by an appropriation from the Constitutional Budget Reserve (CBR) and from proceeds from the sale of the Four Dam Pool projects. Governor Knowles signed the bills into law in May 2000. The Four Dam Pool Utilities and the State have been diligently working to complete the complex transaction by December 31, 2001. At closing, the proceeds from the sale would be deposited into the PCE Endowment. The Four Dam Pool communities and utilities have created a Joint Action Agency (JAA), which will become the owners of the projects. During the legal review of the new organization, a variety of technical issues were raised concerning the tax and regulatory status of the JAA. Senator Taylor noted that SB 84 would resolve the issues so that the sale of the project could be completed as envisioned and the endowment would be fully funded. The bill addresses the following four issues: · Federal tax status of the Joint Action Agency; · State tax status of the Joint Action Agency; · Potential liability of member utilities for claims against the JAA; and · Exemption from Regulatory Commission of Alaska (RCA). Co-Chair Kelly asked if the cooperative, currently regulated by the RCA would be exempt. Senator Taylor responded that none of their current regulations would change. The owner of their utility, the JAA, would not be subjected to that regulation. Senator Green referenced Page 3 of the sponsor statement and asked who would manage the tax. Senator Taylor replied that would be levied by the State. The main reason for exempting JAA would be to guarantee that it is an instrumentality of government and can issue bonds. Part of the problem is that the municipalities do not want to sign up if the communities were to become liable if there were problems with the dam. He recommended that should be a liability policy carried by the JAA, not by the State. The entity itself has to have a quasi- government look to it. The State's purpose in the sale was that the communities could own the utilities and operate them and then provide for an income stream back to the State. At some date in the future, JAA will disappear when the member communities will decide to regionalize the regulation. Until the debt has been paid, the State of Alaska wants to make certain that the power of sale agreement stays in place and the State is paid. Senator Green asked who would be liable in the worst-case scenario. Senator Taylor replied that JAA would be responsible. They are carrying insurance and have reserve funds for that purpose. Senator Austerman asked if the State was currently holding the liability. Senator Taylor responded that currently, it is the State's liability. The benefit to the State is to get out from under the liability for the projects. Loss of revenue for the State was the catalyst for bringing about a final solution to the endowment created last year. There is a reserve and insurance policy to take care of the projects. The debt should be paid out within eight to twelve years and could then the power costs could be reduced for the member utilities. Senator Green asked how the industry standard had been determined. Senator Taylor explained that an engineering firm who provided estimates of what the possible losses could be expected determined number. He added that the transaction has not yet been finalized. MICHAEL E. SCHRADER, [Testified via Teleconference], Attorney, Ater Wynne, LLP, Portland, Oregon, stated that his firm had worked with the Project Management Committee and the Attorney General's office to prepare the text for SB 84. Mr. Schrader indicated that Senator Taylor had done a great job explaining the bill. He proposed a minor amendment to the bill. He offered to answer questions of the Committee. Senator Ward asked who did not have the power of eminent domain. Mr. Schrader explained the concept of eminent domain which are powers driven by the JAA as a governmental agency. Currently, all the members of the cooperative have those powers. There is a distinction in Alaska law giving cooperatives and how they exercise those powers being one of procedure. They can authorize through a Declaration of Taking, a procedure for title transfers and Compensation for the Taking. In respect for the cooperatives, the system is reversed. All of the members currently have condemnation powers. With respect to JAA, the enabling legislation that was adopted last year, grants JAA, the powers for a public utility of eminent domain that is exercised by the cooperative. However, for tax purposes, it is the condemnation powers and the powers with the municipality. [Audio Equipment Problems]. Senator Taylor added that the member utilities all have condemnation authority at this time. He stated that this would be the "fine tuning" of the agreement. JAA is still limited to be exercised to the condemnation authority within the boundaries of where the individual owners could exercise their authority. Senator Taylor understood that the State Attorney General had proposed minor modifications. BRIAN BJORKQUIST, Assistant Attorney General, Governmental Affairs Section, Department of Law, testified via teleconference that in lieu of the property tax other cooperatives are removed from local property taxes. The modifications are to clarify JAA's responsibility for their own debt. The language in the bill is clear that the State of Alaska is not subject. He commented that other amendments would clarify the subject of eminent domain and declaration of taking. That should be limited to the powers of the declaration of taking within the boundaries of the project. Language should be issued to that section regarding all those powers. He commented that there are three proposed changes. A change to Page 3, Line 30, and Page 3, Line 31. The purpose those changes would be to establish the language for the boundaries of the project and the declaration of taking. *[Difficulty in understanding the teleconferenced speaker - inaudible]. Senator Taylor noted that the suggested amendments would be a re- clarification of definitions regarding imminent domain and to guarantee that the State does not become liable for the debts incurred by JAA. He suggested that the language be addressed through a conceptual amendment written by the legislative drafters. Senator Austerman moved to adopt Amendment #1. [Copy on File]. There being no objection, the amendment was ADOPTED. Senator Leman believed that the language on Page 3, Line 12, "a body corporate and politic and", was redundant. Senator Taylor explained that there had been a number of attorney's working for the communities, the Four Dam Pool group, Alaska Industrial Development Export Authority (AIDEA) and the Attorney General's Office. Each of those attorneys has attempted to address all loopholes. He reiterated that is how the current language came to be and he believed it would do no harm to the intent of the legislation. Co-Chair Kelly noted that currently, utilities are paying taxes based on their wholesale value. Senator Taylor explained that those were fully owned utilities, owned by the municipality itself. As a consequence, they will generate wholesale and retail to consumers of the property. They do not charge a tax on the sale of their own electricity to their own citizens. Coops, which are a separate entity from the community in which they live, charge a retail tax. That tax is actually charged by the State of Alaska. SFC 01 # 25, Side A 10:54 AM Senator Taylor continued, there is only one cooperative entity listed in the bill and that group returns funds through the tax to its service communities. They would continue to receive those payments. Senator Austerman moved to report CS SB 84 (FIN) out of Committee with individual recommendations and the accompanying fiscal notes. There being no objection, CS SB 84 (FIN) MOVED from Committee with a "do pass" recommendation and with fiscal notes #1, #2, and #3 by Department of Community & Economic Development.