Legislature(2005 - 2006)CAPITOL 124

03/31/2005 08:00 AM House COMMUNITY & REGIONAL AFFAIRS


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= HB 157 ELEC/PHONE COOP & OTHER ENTITIES TELECONFERENCED
Moved CSSSHB 157(CRA) Out of Committee
*+ HB 229 REINSTATEMENT OF NATIVE CORPORATIONS TELECONFERENCED
Moved Out of Committee
Bills Previously Heard/Scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
    HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                   
                         March 31, 2005                                                                                         
                           8:08 a.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Co-Chair                                                                                             
Representative Bill Thomas, Co-Chair                                                                                            
Representative Gabrielle LeDoux                                                                                                 
Representative Woodie Salmon                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Pete Kott                                                                                                        
Representative Mark Neuman                                                                                                      
Representative Sharon Cissna                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
HOUSE BILL NO. 229                                                                                                              
"An Act relating to the reinstatement of Native corporations;                                                                   
and providing for an effective date."                                                                                           
                                                                                                                                
     - MOVED HB 229 OUT OF COMMITTEE                                                                                            
                                                                                                                                
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 157                                                                                       
"An Act clarifying the powers of electric or telephone                                                                          
cooperatives to become members of or own stock in other                                                                         
entities."                                                                                                                      
                                                                                                                                
     - MOVED CSSSHB 157(CRA) OUT OF COMMITTEE                                                                                   
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 229                                                                                                                  
SHORT TITLE: REINSTATEMENT OF NATIVE CORPORATIONS                                                                               
SPONSOR(S): REPRESENTATIVE(S) FOSTER                                                                                            
                                                                                                                                
03/22/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/22/05       (H)       CRA, FIN                                                                                               
03/31/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
                                                                                                                                
BILL: HB 157                                                                                                                  
SHORT TITLE: ELEC/PHONE COOP & OTHER ENTITIES                                                                                   
SPONSOR(S): REPRESENTATIVE(S) ANDERSON                                                                                          
                                                                                                                                
02/18/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/18/05       (H)       CRA, L&C                                                                                               
02/28/05       (H)       SPONSOR SUBSTITUTE INTRODUCED                                                                          
02/28/05       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/28/05       (H)       CRA, L&C                                                                                               
03/22/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
03/22/05       (H)       <Bill Hearing Canceled>                                                                                
03/31/05       (H)       CRA AT 8:00 AM CAPITOL 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
PAUL LABOLLE, Staff                                                                                                             
to Representative Richard Foster                                                                                                
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the sponsor of HB
229, Representative Foster.                                                                                                     
                                                                                                                                
ALYCE HOUSTON, Corporation Records & Licensing Supervisor                                                                       
Division of Banking & Securities                                                                                                
Department of Commerce, Community, & Economic Development                                                                       
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Offered information regarding HB 229.                                                                      
                                                                                                                                
JOHN BITTNER, Staff                                                                                                             
to Representative Tom Anderson                                                                                                  
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified on behalf of the sponsor of HB
157, Representative Anderson.                                                                                                   
                                                                                                                                
BRIAN BOGEN, CEO/President                                                                                                      
Delta Western, Inc                                                                                                              
Seattle, Washington                                                                                                             
POSITION STATEMENT:  Offered information pertaining to HB 157.                                                                  
                                                                                                                                
BRAD REEVE, General Manager                                                                                                     
Kotzebue Electric Association                                                                                                   
Kotzebue, Alaska                                                                                                                
POSITION STATEMENT:  Testified in support of HB 157.                                                                            
                                                                                                                                
SALLY SADDLER, Business Development Specialist/Legislative                                                                      
Liaison                                                                                                                         
Division of Community Advocacy                                                                                                  
Department of Commerce, Community, & Economic Development                                                                       
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Offered information pertaining to HB 157.                                                                  
                                                                                                                                
ERIC P. YOULD, Executive Director                                                                                               
Alaska Power Association                                                                                                        
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 157.                                                                            
                                                                                                                                
DONNA VUKICH, General Manager                                                                                                   
Naknek Electric Association                                                                                                     
Naknek, Alaska                                                                                                                  
POSITION STATEMENT:  Offered testimony on HB 157.                                                                               
                                                                                                                                
RICHARD GEORGE, Board Member                                                                                                    
Inside Passage Electric Cooperative                                                                                             
Angoon, Alaska                                                                                                                  
POSITION STATEMENT:  Offered testimony on HB 157.                                                                               
                                                                                                                                
VERN RAUSCHER, General Manager                                                                                                  
Inside Passage Electric Cooperative                                                                                             
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 157.                                                                            
                                                                                                                                
DALE PETERS, President of the Board                                                                                             
Naknek Electric Association                                                                                                     
Naknek, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HB 157.                                                                            
                                                                                                                                
MEERA KOHLER, President & CEO                                                                                                   
Alaska Village Electric Cooperative                                                                                             
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 157.                                                                            
                                                                                                                                
MARK HICKEY, Consultant                                                                                                         
Petro Marine Services                                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Offered testimony on behalf of Petro Marine                                                                
Services.                                                                                                                       
                                                                                                                                
RAY GILLESPIE, Lobbyist                                                                                                         
Yukon Fuel Company                                                                                                              
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Offered information regarding HB 157.                                                                      
                                                                                                                                
CHUCK HARLAMERT, Juneau Section Chief                                                                                           
Tax Division                                                                                                                    
Department of Revenue                                                                                                           
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Offered information regarding HB 157.                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CO-CHAIR  BILL THOMAS  called the  House  Community and  Regional                                                             
Affairs  Standing  Committee  meeting  to order  at  8:08:36  AM.                                                             
Representatives Thomas,  Olson, LeDoux,  and Salmon  were present                                                               
at the call to order.                                                                                                           
                                                                                                                                
HB 229-REINSTATEMENT OF NATIVE CORPORATIONS                                                                                   
                                                                                                                                
8:09:10 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS announced that the  first order of business would                                                               
be HOUSE  BILL NO. 229 "An  Act relating to the  reinstatement of                                                               
Native corporations; and providing for an effective date."                                                                      
                                                                                                                                
8:09:14 AM                                                                                                                    
                                                                                                                                
PAUL  LABOLLE,  Staff  to  Representative  Foster,  Alaska  State                                                               
Legislature,  presented  HB  229   on  behalf  of  Representative                                                               
Foster.  He explained that every  two years a $100 fee and report                                                               
listing the  corporate officers is required  by the state.   If a                                                               
Native  corporation  fails  to  file  the  aforementioned  report                                                               
during the  allocated time period,  this legislation  provides an                                                               
additional two-year  grace period after which  no compliance will                                                               
result in  involuntarily disolvement and legislation  is required                                                               
to reinstate the corporation.   Reinstatement ensures that should                                                               
the  dissolved corporation  form a  new corporation,  it wouldn't                                                               
have  its   assets  granted  under   the  Alaska   Native  Claims                                                               
Settlement  Act  and thus  it  would  be  a corporation  with  no                                                               
assets.                                                                                                                         
                                                                                                                                
8:10:13 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS  asked if a  new corporation is formed,  would it                                                               
take the debts with it.                                                                                                         
                                                                                                                                
MR.  LABOLLE  replied  that  the new  corporation  would  be  not                                                               
maintain  the debts  or assets,  although the  shareholders would                                                               
have the debts and assets.                                                                                                      
                                                                                                                                
8:10:38 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked why the shareholders  would have the                                                               
debts of the corporation.                                                                                                       
                                                                                                                                
MR.  LABOLLE related  that he  will  refer that  question to  the                                                               
technical expert.   He noted  that the assets would  be broken-up                                                               
and transferred  to each member  of the corporation, and  thus he                                                               
assumed the same would apply for the debts.                                                                                     
                                                                                                                                
ALYCE  HOUSTON,  Corporation   Records  &  Licensing  Supervisor,                                                               
Department  of  Commerce,   Community,  &  Economic  Development,                                                               
related that  it would be  "winding up business" as  the statutes                                                               
allow for voluntary or involuntary dissolution.                                                                                 
                                                                                                                                
8:11:51 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  moved to  report HB  229 out  of committee                                                               
with individual recommendations and the  zero fiscal note.  There                                                               
being no objection, HB 229  was reported from the House Community                                                               
and Regional Affairs Standing Committee.                                                                                        
                                                                                                                                
The committee took an at-ease from 8:12:21 AM to 8:39:37 AM.                                                                
                                                                                                                                
HB 157-ELEC/PHONE COOP & OTHER ENTITIES                                                                                       
                                                                                                                                
CO-CHAIR THOMAS announced  that the next order  of business would                                                               
be SPONSOR SUBSTITUTE FOR HOUSE  BILL NO. 157, "An Act clarifying                                                               
the  powers  of  electric  or telephone  cooperatives  to  become                                                               
members of or own stock in other entities."                                                                                     
                                                                                                                                
CO-CHAIR OLSON  moved to adopt  CSSSHB 157,  Version 24-LS0562\L,                                                               
Craver,  3/31/05, as  a work  draft.   There being  no objection,                                                               
Version L was before the committee.                                                                                             
                                                                                                                                
8:39:44 AM                                                                                                                    
                                                                                                                                
JOHN BITTNER, Staff to Representative  Tom Anderson, Alaska State                                                               
Legislature,  informed the  members  that CSSSHB  157 is  brought                                                               
forth to  address concerns  regarding the  scope of  the original                                                               
bill.   He related the changes  on page 2, lines  20-21, allow an                                                               
electric cooperative  to form a limited  liability company (LLC).                                                               
The  aforementioned language  updates the  statutes because  LLCs                                                               
weren't  common  in  Alaska  when   the  original  statutes  were                                                               
written.   The language on  page 2,  line 22, gives  the electric                                                               
cooperative the  authority to  sell fuel  not needed  to generate                                                               
electricity.  He  explained that these [paragraphs]  are under AS                                                               
10.25.020  because  "everything  we   do  here  only  applies  to                                                               
electric  cooperatives."    He  mentioned  that  there  was  some                                                               
concern with regard to including  telephones.  However, telephone                                                               
[companies] as far as he  knows aren't interested in selling fuel                                                               
whereas  electric  utilities  already   purchase  bulk  fuel  for                                                               
personal  use,  and  therefore  it  would  make  more  sense  for                                                               
electric utilities to expand into the private aspect.                                                                           
                                                                                                                                
8:42:09 AM                                                                                                                    
                                                                                                                                
MR.  BITTNER, in  response  to  Representative Salmon,  specified                                                               
that the  difference in the  number of  paragraphs in HB  157 and                                                               
CSSSHB 157,  Version L, is because  in Version L the  language is                                                               
inserted  in   AS  10.25.020,   which  only   addresses  electric                                                               
cooperatives.   The  original bill  addressed both  telephone and                                                               
electric cooperatives.                                                                                                          
                                                                                                                                
8:43:03 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SALMON  asked, for clarification purposes,  if the                                                               
legislation allows the electric company to sell fuel.                                                                           
                                                                                                                                
MR. BITTNER said that's his understanding.                                                                                      
                                                                                                                                
The committee took an at-ease from 8:43:40 AM to 8:46:21 AM.                                                                
                                                                                                                                
8:46:26 AM                                                                                                                    
                                                                                                                                
BRIAN  BOGEN, CEO/President,  Delta  Western,  Inc., related  his                                                               
concern regarding whether  this legislation is a  matter of "good                                                               
public  policy" to  encourage governmentally  subsidized entities                                                               
to compete  with the  private sector.   He added  that he  is not                                                               
opposed to competition, but he  is "uncomfortable" competing with                                                               
entities that receive public subsidies.                                                                                         
                                                                                                                                
8:47:52 AM                                                                                                                    
                                                                                                                                
BRAD  REEVE,  General  Manager,  Kotzebue  Electric  Association,                                                               
testified in  favor of HB  157.   He explained that  the original                                                               
goal of his association was to  form a joint fuel buyers group to                                                               
attract competition and build a  new model for fuel deliveries in                                                               
the  Northwest, which  has been  recognized  as one  of the  most                                                               
successful models for  competitive fuel purchases in  Alaska.  He                                                               
noted  that the  [cooperative] built  its own  infrastructure and                                                               
has saved  over $20 million in  fuel costs that went  directly to                                                               
the community.  He highlighted  that fuel costs are escalating to                                                               
the point of making a  lot of communities unviable, and therefore                                                               
one must be willing to review  new models to assist rural Alaska.                                                               
In establishing  competitive markets, storage and  financing have                                                               
been a  concern.   The most  promising potential  [solutions] has                                                               
been fuel cooperatives  and other models to reduce  the high cost                                                               
of energy.   He related that the Northwest  Artic School District                                                               
has a fuel buying arrangement  with a cooperative to obtain lower                                                               
fuel  costs.    He  opined  that  this  legislation  would  allow                                                               
cooperatives, "which really don't have  a profit motive," to sell                                                               
fuel and keep costs low in rural Alaska.                                                                                        
                                                                                                                                
8:54:03 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS inquired as to  the power cost equalization (PCE)                                                               
ramifications of this legislation.                                                                                              
                                                                                                                                
SALLY   SADDLER,   Business  Development   Specialist/Legislative                                                               
Liaison,   Department   of   Commerce,  Community,   &   Economic                                                               
Development, said,  "I don't  have the  answer to  that question,                                                               
but I can get that for you."                                                                                                    
                                                                                                                                
8:55:03 AM                                                                                                                    
                                                                                                                                
ERIC  P. YOULD,  Executive  Director,  Alaska Power  Association,                                                               
relayed  that his  association  represents  the electric  utility                                                               
industry  which generates  85 percent  of electricity  throughout                                                               
Alaska.   He related his  belief that  high fuel prices  in rural                                                               
Alaska are  exacerbated by the  windfall [profit] that  is coming                                                               
to the  state in the form  of $50 per  barrel oil.  He  noted the                                                               
Board  of Directors  of the  Alaska Power  Association adopted  a                                                               
resolution  recognizing that  Alaska's electric  cooperatives are                                                               
increasingly  receiving  requests  from its  members  asking  the                                                               
cooperative to  become the  full service  energy supplier  in the                                                               
community.   However,  recent court  cases in  other states  have                                                               
questioned the ability of Alaska's  electric cooperatives to form                                                               
subsidiaries  to respond  to their  members'  needs.   Therefore,                                                               
[per the aforementioned resolution]  the Alaska Power Association                                                               
urged   legislative    action   confirming    Alaska's   electric                                                               
cooperatives  ability to  meet  the needs  of  their members  and                                                               
communities.                                                                                                                    
                                                                                                                                
MR.  YOULD  turned to  the  high  cost  of electricity  in  rural                                                               
Alaska.    He informed  the  committee  that the  Inland  Passage                                                               
Electric  Cooperative  provides  electricity to  Angoon,  Hoonah,                                                               
Kake, Klawock, and Chilkat.  A little  of a year ago, the cost of                                                               
diesel fuel was  $1.57 a gallon.  However, this  year the cost of                                                               
diesel fuel is $2.27 a gallon.   In rural Alaska the average cost                                                               
of electricity  is about $0.45  an hour and the  increased diesel                                                               
cost  creates  a surcharge  of  almost  $0.07 per  kilowatt-hour.                                                               
Therefore, the  situation in rural  Alaska is quite chronic.   He                                                               
added that fuel  brought into rural Alaska communities  go to the                                                               
local   electric  utility,   retail   distribution,  and   school                                                               
districts.    The aforementioned  have  varied  fuels prices  and                                                               
often  the cooperative's  price  is  less than  all  three.   The                                                               
reason  for  the  cooperative's  low  price  is  because  of  its                                                               
competent management  staff who are  part of the  communities and                                                               
try to  obtain the cheapest  bid price from the  distributors, he                                                               
opined.   He  said  his  association would  like  to  be able  to                                                               
"knock" the  high cost of fuel  as low as possible.   The problem                                                               
is many cooperatives are trying to  get into the fuel business to                                                               
provide  propane  for  their  own   users.    He  explained  that                                                               
basically,  electric   cooperatives  would   allow  stock   in  a                                                               
subsidiary  corporation   that  sells  gas  to   the  cooperative                                                               
members.   The  aforementioned was  challenged in  the states  of                                                               
Alabama,  Colorado, and  Kentucky where  state courts  found that                                                               
the  electrical  cooperatives  couldn't  move  into  the  propane                                                               
business due  to existing  state statute.   In the  challenges in                                                               
the states of Georgia, Mississippi,  and Texas state courts found                                                               
that the local  state statutes allowed the cooperatives  to be in                                                               
the  subsidiary  businesses.    Therefore,  HB  157  attempts  to                                                               
clarify that  cooperatives can  be in  the business  of providing                                                               
fuel without it  being illegal.  This  legislation modernizes the                                                               
statutes  by  specifying  that cooperatives  can  own  stock  and                                                               
ownership in  a LLC, because  there was  no such entity  when the                                                               
original  cooperative  statute  was  written.   He  concluded  by                                                               
relating  that the  Alaska  Power  Association strongly  supports                                                               
this legislation and hopes it's reported from committee today.                                                                  
                                                                                                                                
9:01:55 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  inquired as to the  rationale for allowing                                                               
electric  cooperatives   to  sell   fuel  as  opposed   to  other                                                               
commodities,  such  as groceries,  that  are  also exorbitant  in                                                               
rural areas.                                                                                                                    
                                                                                                                                
MR. YOULD  highlighted that cooperatives are  "member driven" and                                                               
aren't in the market of  looking for business ventures but rather                                                               
responding  to member's  requests,  in order  to  drive down  the                                                               
costs  of collective  goods.   The  cooperatives are  not in  the                                                               
market  to make  profits  because it  could  lose its  tax-exempt                                                               
status.  He opined that  electric companies should be looking for                                                               
as  much competition  as possible.    In rural  Alaska, there  is                                                               
almost  no competition,  and it's  almost a  monopolistic system.                                                               
He related there is not  a "ground swell" of cooperatives wanting                                                               
to enter  the fuel business,  presently only two  communities are                                                               
looking  into  the  business  because  the  local  retailers  are                                                               
looking to get out of the  business.  The only difference between                                                               
cooperatives and  the private sector  is that  cooperatives don't                                                               
pay taxes.  Nevertheless, the  cooperative always operates on the                                                               
zero profit margin  in order to keep the cost  to the consumer as                                                               
low  as  possible while  private  companies  will always  try  to                                                               
[increase] profit as possible, he said.                                                                                         
                                                                                                                                
9:05:24 AM                                                                                                                    
                                                                                                                                
DONNA  VUKICH,  General  Manager,  Naknek  Electric  Association,                                                               
related that  over the  last eight to  ten years  Naknek Electric                                                               
Association's members  have expressed the  desire to find  a fuel                                                               
entity to  provide the needs of  the community.  However,  due to                                                               
the earlier  mentioned court  cases, Naknek  Electric Association                                                               
doesn't feel  it can  invest or leverage  its members'  money and                                                               
face an  uncertain outcome  were there a  challenge.   Ms. Vukich                                                               
explained that  Naknek Electric Association  is reviewing  a "for                                                               
profit corporation subsidiary" of  the cooperative and some money                                                               
would  go into  a dividend  in  order to  build a  reserve.   "We                                                               
believe that  we could keep  the cost  down for our  community so                                                               
that it is a savings for our community," she opined.                                                                            
                                                                                                                                
9:07:23 AM                                                                                                                    
                                                                                                                                
RICHARD   GEORGE,   Board   Member,   Inside   Passage   Electric                                                               
Cooperative, relayed that the unemployment  rate in the community                                                               
of Angoon  is about  80 percent.   He said that  in his  30 years                                                               
with the cooperative he has never  seen the price of fuel as such                                                               
the issue it is today.  The price  of fuel in Angoon is $2.72 per                                                               
gallon.    He informed  the  committee  that the  Inside  Passage                                                               
Electric Cooperative  purchases fuel at  the same source  [as the                                                               
retailer]   for  $1.71,   so  there   is  a   "wide  spread   for                                                               
profitability."   Fuel  costs, he  opined,  need to  be lower  in                                                               
order to  help alleviate the  current living conditions  of rural                                                               
communities.  In  fact, there has been discussion  of closing the                                                               
local school early due to  the high operational costs, which most                                                               
view [as the  fault] of utilities.  He related  many of the areas                                                               
in  which increased  fuel costs  have impacted  people.   He said                                                               
electric  utilities aren't  trying to  make profits  from selling                                                               
fuel  but rather  help alleviate  the  cost of  the commodity  in                                                               
order to sustain [the rural] lifestyle.                                                                                         
                                                                                                                                
9:11:59 AM                                                                                                                    
                                                                                                                                
VERN   RAUSCHER,  General   Manager,   Inside  Passage   Electric                                                               
Cooperative,  offered his  support of  HB 157.   He  turned to  a                                                               
graph that  highlights the barge  fuel cost, which  has increased                                                               
140 percent  over the last  10 years,  110 percent over  the last                                                               
five years.   As a cooperative there is an  obligation to provide                                                               
low cost  services while searching  for ways in which  to enhance                                                               
the welfare of the customers, he added.                                                                                         
                                                                                                                                
9:13:46 AM                                                                                                                    
                                                                                                                                
DALE   PETERS,   President   of  the   Board,   Naknek   Electric                                                               
Association, said he supports HB 157.   He offered that people in                                                               
Naknek are  moving because of  the high  cost of living  and this                                                               
legislation  would  change the  statutes  in  order to  help  the                                                               
communities.   Economic development  is one of  the associations'                                                               
highest  priorities  and  it's important  to  meet  the  members'                                                               
needs.                                                                                                                          
                                                                                                                                
9:15:13 AM                                                                                                                    
                                                                                                                                
MEERA   KOHLER,  President   &  CEO,   Alaska  Village   Electric                                                               
Cooperative,  related that  her cooperative  serves 52  villages,                                                               
which represent 44  percent of Alaska's village  population.  She                                                               
noted  that the  cooperative's "huge"  business expense  is fuel.                                                               
She said  her cooperative  is one of  the few  locally controlled                                                               
and owned operations that is  economically sustainable, which she                                                               
attributed  to the  force of  many villages  working together  to                                                               
provide  their  own  needs.    She  highlighted  that  the  rural                                                               
communities have  issues with aging  wires, Internet  access, and                                                               
jobs.  The  cooperative is always on the cusp  of what is allowed                                                               
by statute.   With regard  to earlier comments  that cooperatives                                                               
are  "subsidized", Ms.  Kohler specified  that  the only  subsidy                                                               
electric  cooperatives receive  is  what its  members receive  in                                                               
PCE.   She highlighted that  PCE is  computed by the  state based                                                               
upon the actual costs of doing  business.  If the cooperative was                                                               
able  to diversify  and provide  other services,  costs would  be                                                               
reduced  because   the  costs  would  be   spread  amongst  other                                                               
businesses.   Furthermore, diversification would be  a benefit to                                                               
PCE because  it would reduce  the allowable  costs for PCE.   Ms.                                                               
Kohler explained that as a  nonprofit cooperative, its assets are                                                               
capitalized  over   a  long-term  period  of   15-30  years,  and                                                               
therefore the  cost included in  the electric base rates  is only                                                               
one-fifteenth  to  one-thirtieth of  the  cost  of those  assets.                                                               
However,  a  private  entity typically  collects  on  its  assets                                                               
within 5 years.   "The back of rural Alaska  is breaking; they're                                                               
economically strapped.  And this bill  will go a long way towards                                                               
empowering   them   to   help    themselves   to   achieve   that                                                               
sustainability," she  said.  She  urged the committee to  move HB
157 out of committee.                                                                                                           
                                                                                                                                
9:19:05 AM                                                                                                                    
                                                                                                                                
MARK HICKEY, Consultant, Petro Marine  Services, related that his                                                               
company is an  Alaska-based company that is  concerned about this                                                               
legislation, although  no formal  position has  been taken.   The                                                               
concern is  regarding whether there's  a level playing  field for                                                               
competition.   Mr. Hickey indicated  that the concern  stems from                                                               
tax treatment and subsidies.   With regard to subsidies, there is                                                               
a more  significant subsidy with  the cooperatives than  the PCE,                                                               
which is found in the capital side.   In the past the subsidy has                                                               
come in  the form  of state programs,  although more  recently it                                                               
has surfaced in  program with the Denali Commission  and the U.S.                                                               
Department  of  Agriculture's  rural  development  program.    He                                                               
relayed  that  in   the  2004  report  from   the  Department  of                                                               
Agriculture,   some  $20   million  worth   of  grants   went  to                                                               
cooperatives and  another $14 million-plus in  low interest loans                                                               
went to  cooperatives.   Private companies  don't have  access to                                                               
those  types of  funds  and  aren't asking  for  such.   However,                                                               
cooperatives  do  ask for  that  money.   The  aforementioned  is                                                               
something  which  the committee  should  examine  with regard  to                                                               
whether  it's a  level playing  field.   With regard  to the  tax                                                               
treatment, Mr.  Hickey suggested that  the committee may  want to                                                               
take some time  and question what it means  to allow cooperatives                                                               
to sell  fuel without doing so  through a corporation or  an LLC.                                                               
For instance,  the state may  not be  able to collect  state fuel                                                               
and marine  fuel taxes from  the cooperative because of  its tax-                                                               
exempt status,  which would  result in  a negative  fiscal impact                                                               
for the state.                                                                                                                  
                                                                                                                                
9:22:21 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS  pointed out that  electric companies  don't seem                                                               
to   be   interested  in   buying   some   of  the   rural   fuel                                                               
distributorships, while  the cooperatives may  want to  buy those                                                               
local facilities.  He asked if  there would be a problem with the                                                               
aforementioned when  the [electric companies] don't  want to have                                                               
a presence in an area.                                                                                                          
                                                                                                                                
MR. HICKEY replied  that's a problem throughout  rural Alaska and                                                               
perhaps  there are  locations and  conditions  that warrant  [the                                                               
cooperatives  help], but  still  the  question regarding  whether                                                               
there is  a level playing  field should  be addressed as  well as                                                               
whether  the  state  wants  to  encourage  subsidies  in  private                                                               
business.                                                                                                                       
                                                                                                                                
9:23:52 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  THOMAS   opined  that   no  privately   owned  electric                                                               
companies  want to  buy the  local  fuel companies  in the  rural                                                               
villages.                                                                                                                       
                                                                                                                                
MR. HICKEY said the aforementioned  instances presents a problem.                                                               
However,   creating   broad    authority,   without   regard   to                                                               
circumstances,    allowing   government    supported   subsidized                                                               
cooperatives  to   compete  with   the  private   sector  without                                                               
restriction and without the same  tax treatment is "unfair in our                                                               
view."  He  added that Petro Marine Services is  not the retailer                                                               
in many of  the smaller locations, but  individual retailers stop                                                               
operating because  of the thin  margins in  the area.   He opined                                                               
that this  legislation may  impact the  community by  pushing the                                                               
small retailer out of business.                                                                                                 
                                                                                                                                
9:26:01 AM                                                                                                                    
                                                                                                                                
RAY GILLESPIE,  Lobbyist, Yukon  Fuel Company,  expressed concern                                                               
about   government   subsidized   competition   from   tax-exempt                                                               
organizations.   However, he acknowledged that  there are certain                                                               
circumstances  in  rural  Alaska  that deserve  attention  and  a                                                               
solution.  He  indicated that Alaskans are the  victims of forces                                                               
outside of [the  state's] control.  This  legislation, he opined,                                                               
significantly  expands the  cooperative  authority  to enter  the                                                               
private for-profit  business.   He, too,  mentioned the  issue of                                                               
subsidies to these cooperatives,  which Yukon Fuel has supported.                                                               
Although  these [subsidy]  programs tend  to reduce  the cost  of                                                               
fuel in rural Alaska and  make fuel storage and distribution more                                                               
environmentally  safe, allowing  those  subsidies to  be used  in                                                               
direct competition with the private  sector are questionable.  An                                                               
ill-advised  system could  result in  driving private  investment                                                               
and competition  from the  market place and  replacing it  with a                                                               
more  government  dependent  system.    With  regard  to  the  CS                                                               
specifically,  Mr. Gillespie  suggested that  it goes  far beyond                                                               
the original legislation by allowing  cooperatives to go directly                                                               
into the fuel sales business.                                                                                                   
                                                                                                                                
9:29:32 AM                                                                                                                    
                                                                                                                                
CO-CHAIR OLSON asked about the tax issues of this bill.                                                                         
                                                                                                                                
CHUCK HARLAMERT,  Juneau Section Chief, Tax  Division, Department                                                               
of Revenue,  detailed that  [paragraph] (8)  enables cooperatives                                                               
to establish subsidiaries, specifically  LLCs.  If the subsidiary                                                               
is established as an LLC, the  taxable income of that LLC will be                                                               
attributed  to  the  cooperative  and  be  exempt  based  on  the                                                               
cooperative's exempt status.   He opined that  the same mechanism                                                               
applies to the majority of  businesses that operate in the state,                                                               
such as  S corporations.  He  added that thus far  the Department                                                               
of Revenue sees no additional tax consequences.                                                                                 
                                                                                                                                
9:32:16 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS asked if there are any bonding requirements.                                                                    
                                                                                                                                
MR. HARLAMERT replied not to his knowledge.                                                                                     
                                                                                                                                
9:32:29 AM                                                                                                                    
                                                                                                                                
CO-CHAIR THOMAS  related his understanding that  this legislation                                                               
establishes  that cooperatives  can  buy shares  of another  fuel                                                               
company and become partners.                                                                                                    
                                                                                                                                
MR. HARLAMERT related that is  his understanding, and under those                                                               
circumstances the corporation would  be a taxable commodity under                                                               
state law for excise, fuel, and  corporate income taxes.  Only in                                                               
the case of an  LLC as a single member LLC or  one that elects to                                                               
be treated  as a partnership  for income tax purposes  that there                                                               
would be any sheltering under the cooperative's exemption .                                                                     
                                                                                                                                
MR. HARLAMERT  related that [paragraph] (9)  enables cooperatives                                                               
to  directly sell  fuel  in communities  and  have exempt  status                                                               
[from the motor fuel tax].   He highlighted that normally taxable                                                               
fuel is paid to  the state by the seller, who  would be exempt in                                                               
this case.   Whether that exemption  can flow to the  user of the                                                               
fuel however, he was unsure of  the legalities and offered to get                                                               
back to the committee with more information.                                                                                    
                                                                                                                                
9:35:22 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked, assuming  the users are  liable for                                                               
the "use" tax, who would be liable for collection.                                                                              
                                                                                                                                
MR.  HARLAMERT replied  the users  are liable  to report  and pay                                                               
directly to  the department.   He opined  that the  likelihood of                                                               
collection is "much diminished under those circumstances."                                                                      
                                                                                                                                
9:35:58 AM                                                                                                                    
                                                                                                                                
CO-CHAIR  THOMAS  highlighted  that  at the  local  level  people                                                               
cannot  afford to  run schools  and businesses  [because of  high                                                               
fuel costs].                                                                                                                    
                                                                                                                                
9:37:01 AM                                                                                                                    
                                                                                                                                
REPRESENTATIVE SALMON  commented it is  cheaper to get  fuel from                                                               
an aircraft in Fairbanks than  from the local fuel companies, and                                                               
therefore competition  would be good  for rural communities.   He                                                               
further commented that this legislation  is good legislation that                                                               
will create that [competition].                                                                                                 
                                                                                                                                
9:38:03 AM                                                                                                                    
                                                                                                                                
CO-CHAIR OLSON  moved to report CSSSHB  157, Version 24-LS0562\L,                                                               
Craver,    3/31/05,   out    of    committee   with    individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no  objection, CSSSHB  157(CRA)  was reported  out  of the  House                                                               
Community and Regional Affairs Standing Committee.                                                                              
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
9:38:29 AM                                                                                                                    
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Community  and Regional  Affairs Standing  Committee meeting  was                                                               
adjourned at 9:38 a.m.                                                                                                          

Document Name Date/Time Subjects