Legislature(2005 - 2006)BUTROVICH 205
01/26/2005 03:30 PM Senate RESOURCES
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SB 32-WATER/SEWER/WASTE GRANTS TO UTILITIES SENATOR THERRIAULT, sponsor of SB 32, said it was introduced to correct a problem that manifested itself with the sale of the Fairbanks Municipal Water System. He said The State of Alaska provides a water system grant program specifically to keep water utility rates affordable and explained: The program is authorized through AS 46.03.030 and available funds are accessible through grant applications. However, because of changing patterns of ownership, not all state regulated public utilities under the Regulatory Commission of Alaska (RCA) are now eligible for those state grants. The Fairbanks water utility became ineligible to apply for these grants when it was sold to a private entity. SB 32 amends current law to accommodate the growing trend of publicly regulated, privately-owned, utility systems while remaining consistent with the law's original intent of keeping safe water affordable to the public. With the changes to AS 46.03.030 made in SB 32, all public utilities subject to the burdens and associated costs imposed by the state RCA regulations will now be eligible to apply for grants as currently established under AS 46.03. 3:39:13 PM SENATOR SEEKINS arrived. 3:39:24 PM SENATOR THERRIAULT iterated that the Fairbanks water utility sale into private ownership made the City of Fairbanks ineligible to apply for the grants. The policy question for us as legislators is if the federal government makes money available to assure that the broadest number of people possible have a safe and affordable source of drinking water, then should the ownership structure of the utility determine whether the people can apply for those grants or not. My contention to you is that the ownership structure shouldn't automatically make that group of citizens in the State of Alaska ineligible. 3:40:15 PM I know there is some question with regard to 'Well, if a privately held entity is able to seek a grant, get a grant, expand facilities or update equipment, should that private entity be able to enrich the pocketbooks of its owners through the future sale of the entity, then, to somebody else?' But the way that the rate structure looks, RCA would not allow a rate that would allow a new owner to recoup the cost of buying that transparent asset. So, when a grant is given and the money is invested into the system that is placed on the books as a transparent asset. If the utility is then sold to somebody else, the buyer is only going to pay a price that he can then charge a rate to recoup his money. If RCA does not allow you to charge a rate for that part of the infrastructure that was put in place through a grant, then the owner's not going to pay that price. He is only going to pay for that portion of the assets that he can actually charge a rate for to recoup his purchase prices. SENATOR THERRIAULT noted correspondence from Nan Thompson, former RCA chairperson, that supported his statement. CHAIR WAGONER asked how that would be tracked. SENATOR THERRIAULT replied that he wasn't sure. Department of Environmental Conservation (DEC) might be able to answer how utilities indicate equity ownership on the books. 3:42:54 PM He said an inadvertent problem with the wording was created for the City of Ketchikan and that proposed Amendment 1 addresses it. 3:43:12 PM SENATOR SEEKINS asked if there was an accounting when the Fairbanks utilities were sold to a private entity that said it couldn't sell the assets that were granted to it. SENATOR THERRIAULT replied that he didn't know, but the rate the purchasing entity applied for couldn't include repayment for any money it used to buy the grant portion of the asset. SENATOR SEEKINS mused, "So, if it goes from public to private, they couldn't do it. So, we can assume that going from private to public they couldn't, as well." 3:44:44 PM SENATOR THERRIAULT replied he understands that as ownership of transparent assets float along, no one can put together a rate that recoups money for infrastructure that has been paid for by a grant. 3:45:07 PM SENATOR SEEKINS responded that the grants are for the benefit of the end users, the citizens of the state. He asked if Power Equalization Program funds are channeled through private utilities for the benefit of the end user. SENATOR THERRIAULT replied that he didn't know how those grants work. SENATOR SEEKINS said it appears to him that the intent is to try to lower the cost for the end user whether it is a public or a private utility. 3:45:47 PM SENATOR STEDMAN offered Amendment 1. 24-LS0290\A.1 Craver 3/3/05 A M E N D M E N T OFFERED IN THE SENATE BY SENATOR THERRIAULT TO: SB 32 Page 1, line 1: Delete "regulated" Page 2, line 17, following "if": Insert "(1)" Page 2, line 18, following "AS 42.05": Insert "; or (2) the utility is owned and operated by a political subdivision of the state that is a municipality" He explained that it doesn't modify the ability that municipalities currently have from entering this program, but keeps the playing field level by including private utilities that were once public and then sold into the private sector. 3:47:19 PM SENATOR ELTON objected to ask more about the Ketchikan situation. He also asked if deleting "regulated" from the title expanded the pool of potential applicants for the grant program. 3:48:06 PM SENATOR STEDMAN responded that Ketchikan is included with other municipalities that have enterprise funds. This bill would allow a lot more communities to become eligible to apply for grants. He thought Juneau has an enterprise fund for its utilities. 3:48:53 PM SENATOR THERRIAULT said he understands that the problem comes up with the word "regulated" and asked if that meant just regulation by the RCA. Ketchikan is regulated by its own separate public utility board. He didn't intend for it to be precluded and this legislation clarifies that. 3:49:40 PM SENATOR ELTON asked if deleting "regulated" expands the pool of new applicants who want access to the grant funds. 3:50:20 PM SENATOR THERRIAULT replied yes, the group that requests regulation could expand, but this amendment was structured to specifically take care of those entities that have their own public utility board. Presently there are 23 water and wastewater utilities in the state. That number could go up to 170, but he didn't expect that many real small utilities would apply. 3:51:28 PM SENATOR ELTON asked if adopting Amendment 1 would change the fiscal note. 3:51:53 PM SENATOR THERRIAULT replied that Amendment 1 doesn't solve the department's potential fiscal problem of having a flood of new grant applications. He was willing to work with the administration to control the fiscal impact. 3:52:34 PM SENATOR ELTON asked how much money has been available through the grant program over the years? 3:53:02 PM SENATOR THERRIAULT replied that the FY'06 budget appropriates $11 million to the grant program. The bill doesn't guarantee qualification for the funds, but it allows entities to turn in an application, to have it scored and be evaluated with all other applicants. 3:53:28 PM SENATOR ELTON said the pie doesn't increase, but "You're going to cut it into more slices is the likely result." SENATOR THERRIAULT agreed that was correct. 3:53:59 PM CHAIR WAGONER asked if there was further discussion on Amendment 1. There were no further objections and Amendment 1 was adopted. 3:54:14 PM SENATOR GUESS asked if there might be unintended consequences by having one utility that serves multiple areas getting a different reimbursement rate than if it was getting a grant for one of its specific areas - in reference to language on page 2, line 4. 3:54:53 PM SENATOR THERRIAULT said he didn't think a grant application could be put in for a specific area - neither could he think of a utility that would fall into the category of serving separate and distinct areas. 3:55:07 PM SENATOR GUESS asked if there was a reason language on page 1, line 13, refers to municipalities and public utilities, but on page 2, lines 4-11 "municipalities with" is deleted so that language refers only to utilities. She was wondering if "municipality or" should be deleted in (e) to be consistent with language on page 2. SENATOR THERRIAULT explained that language "municipality with" means any ownership that was non-municipal would be excluded. 3:56:43 PM SENATOR SEEKINS moved CSSB 32(RES) from committee with attached fiscal notes and individual recommendations. SENATOR ELTON objected to note that the city manager of Petersburg, who has some experience with the program, opposes the bill. He would be more comfortable with some kind of communication from the Alaska Municipal League (AML) or a group that recognizes organized municipalities on what the net effect may be for them. He especially thought about the potential diminishment of grants - their number and size - that may occur across the board. 3:58:12 PM CHAIR WAGONER responded that he discussed that letter with Senator Therriault, but not with Senator Stedman, who represents Petersburg. He pointed out that this bill goes to the Finance Committee next and Senator Stedman has a seat on that committee. The question could be asked there. 3:58:41 PM SENATOR THERRIAULT commented that he understands Petersburg's concerns, which are twofold. One is whether a private entity could make a profit at the state's expense by having access to these grants; but the RCA has assured the Legislature it would not allow a rate for an entity to repay itself for something that was constructed using grant fund money. The second issue is more entities will potentially be in the pool to compete for the same size pie. He is proposing to just go back to the kind of participants that existed a few years ago. He feels if government money (mostly federal) is available to make a safe and affordable source of drinking water, the ownership structure shouldn't preclude some people from qualifying and some not. 4:00:53 PM CHAIR WAGONER recognized that James Keen, RCA, was on line to answer questions. 4:01:06 PM SENATOR ELTON said he understands adding the Fairbanks utility back, but the fiscal note says there are 193 other potential applicants. "Did they have access to the grant fund in the past?" 4:01:38 PM SENATOR THERRIAULT answered that the total pool of applicants would be larger under the new structure. However, he seriously questioned whether every small trailer park would want to live under RCA regulation on the off-chance that it might get a grant. 4:02:19 PM SENATOR ELTON said he didn't have the comfort level to support the bill at this point. 4:02:56 PM SENATOR STEDMAN said that the fiscal note would come under scrutiny in the Finance Committee and the AML would have time to have some input. He thought it would be impossible for entities to profiteer off of the grants. 4:03:32 PM CHAIR WAGONER asked how transactions are accounted for and how that cost would be avoided being passed on to the user of the utility system at a future date. 4:04:27 PM COMMISSIONER JIM STRANDBERG, RCA, replied sale of a utility is a commercial agreement between two entities. The regulators will only allow the new owner to have a rate at a certain level based on the depreciated book value of the infrastructure, less contributions in AIDA construction. If the entity that purchased the utility wanted it bad enough and paid a lot more than what the book value was, that's its business. That would not be allowed in the rate to be charged to the future ratepayer. 4:06:40 PM SENATOR SEEKINS commented that he would vote for this bill because it appears that people from 96 additional utilities, public or private, will benefit without discrimination in getting public funding for safe water. If the goal is to get safe water to as many people in Alaska as possible, that's a good public purpose. 4:07:46 PM MS. KARA MORIARTY, President and CEO, Fairbanks Greater Chamber of Commerce, supported SB 32 and the concept that all utilities should be on the same playing field and be eligible to receive state grant funds. Currently, the only utilities that are eligible for the grants are publicly owned and are primarily used for infrastructure development and upgrades. Based on regulations set forward by the Regulatory Commission of Alaska, the shareholders and privately owned utilities cannot generate a return on investment or receive depreciation expense credits for any grant funds they receive. Because of those regulations, the only beneficiaries, then, of a privately-owned utility to receive these grants would be the ratepayers, the citizens of a community. All utilities in Fairbanks are either owned privately or by a cooperative. In essence, Fairbanks businesses and residents are at a disadvantage compared to other Alaska residents. One of the first questions we often field at the Chamber from perspective businesses that want to locate to Fairbanks or even those businesses that are here and want to expand, is what is the cost of doing business and utility costs are certainly a major component of a business's operating costs.... She concluded by urging the committee to allow privately owned utilities to be eligible for grants like other utilities across the state. 4:10:53 PM SENATOR SEEKINS renewed his motion to pass CSSB 32(RES) from committee with individual recommendations and attached fiscal note. Senators Stedman, Stevens, Dyson, Seekins and Chair Wagoner voted yea; and Senator Elton voted nay. CSSB 32(RES) moved from committee.