Legislature(2001 - 2002)
01/23/2001 08:05 AM House CRA
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE COMMUNITY & REGIONAL AFFAIRS STANDING COMMITTEE
January 23, 2001
8:05 a.m.
COMMITTEE CALENDAR
OVERVIEW: AK INDUSTRIAL DEV & EXPORT AUTHORITY
TAPES
01-3, SIDES A & B
CALL TO ORDER
REPRESENTATIVE KEVIN MEYER, CO-CHAIR, convened the House
Community & Regional Affairs Standing Committee at 8:05
a.m.
PRESENT
Committee members present were Representatives Meyer,
Morgan, Halcro, Murkowski, Guess, and Kerttula.
SUMMARY OF INFORMATION
ROBERT G. POE, Executive Director, Alaska Industrial
Development and Export Authority (AIDEA) and Alaska Energy
Authority (AEA), gave an overview of AIDEA and AEA with an
emphasis on AEA programs, specifically bulk fuel
consolidation projects and rural power enhancement
projects. Handouts were provided. Mr. Poe explained the
organizational structure of AEA since the breakup of the
Department of Community and Regional Affairs. The Rural
Energy Programs include Bulk Fuel Storage Upgrades and
Consolidations, Rural Power System Upgrades, Power Cost
Equalization. The program has two active loan funds, which
are the Bulk Fuel Revolving Loan Fund and the Power Project
Fund. There is one inactive loan fund, the Rural
Electrification Loan Fund, which still has active loans.
Other AEA programs include Alternative Energy Programs,
Preventative Maintenance Rural Energy Systems, emergency
response to power outages and bulk fuel systems, training
of local utility personnel and tank farm operators.
MR. POE said there are 1,000 storage tank farms in rural
Alaska and that AEA has been to 167 communities where they
are located. Most [storage tank farms] are not in
compliance according to the Environmental Protection
Agency (EPA) and the United States Coast Guard's (USCG)
criteria. He pointed out that [storage tank farms] are
prioritized in a database according to maintenance needs
and problems with the tanks. The Bulk Fuel Program
includes evaluation of existing facilities. Alaska Energy
Association repairs, builds, designs, and constructs code
compliant facilities. Alaska Industrial Development &
Export Authority tries to accomplish consolidation in order
to gain economy of scale for containment of possible fuel
spills and to build in additional capacity. Mr. Poe
reviewed the handouts as well as the funding applied to AEA
projects in rural Alaska. He pointed out that, through
Senator Stevens and the Denali Commission, a great deal
more money has been made available to respond to the
problem in Alaska. The challenge for AEA is to effectively
use and apply the funds to deal with rural Alaska's
problems in a timely manner.
MR. POE said that on January 18, 2001, the Denali
Commission awarded AEA $7 million of additional funds, $6
million of which will go to bulk fuel storage projects. To
date, $36 million has gone into that effort. He noted
that, in the future, $20 million may be available annually
to deal with bulk fuel storage tanks. Therefore, AEA's
challenge is to effectively use the money to solve this
problem.
MR. POE turned to the Rural Power System Upgrade program.
He noted that 90 percent of rural communities in Alaska
generate electricity through diesel generation. Projects
are expensive and take a long time to amortize and pay off.
He remarked that a gallon of diesel fuel is still the most
easily handled and best-priced package of energy that can
be brought to rural Alaska. Diesel will be around for some
time to come. Mr. Poe informed the committee that 90
percent of rural electric utilities in Alaska are
generating electricity through diesel. There are very few
interties. Of 100 electric utilities, 80 serve a single
community and thus there are often not many economies of
scale or other efficiencies because communities are far
apart. Mr. Poe cited four opportunities for reducing the
cost of generation in rural Alaska: evaluation of existing
power plants and distribution systems, design,
construction, and repair and replacement of power projects.
MR. POE addressed AEA's response to emergencies relating to
the loss of diesel generation. He noted that the defunct
Rural Electrification Loan Fund still has loans out and
pays for emergency response. This is commonly known as the
Circuit Rider program, which also does training. He
pointed out that AEA works with the Alaska Vocational
Technical Center (AVTEC) in Seward to provide onsite
training to run power plants. This training is also
provided by the circuit riders. The [Alaska Energy
Authority] also works with AVTEC to provide bulk fuel
operator training, as well as utility clerk training
associated with the Power Cost Equalization Program (PCEP).
MR. POE reviewed the Alternative Energy Program. This
program includes wind, fuel cells, batteries, coal,
biomass/wood waste, natural gas, hydroelectric, and
conservation.
MR. POE addressed Power Cost Equalization (PCE) that
provides rate reduction to 193 communities in Alaska. He
explained a two-step process, which involves the Regulatory
Commission of Alaska (RCA) setting the PCE rates for each
community and considering fuel expenses, operating costs,
and overhead in order to determine the true cost of a
kilowatt hour in a community. After that determination,
the Rural Energy Group defines the amount of electricity
eligible for PCE. Mr. Poe gave a simple explanation of PCE
calculations.
MR. POE explained the two previously mentioned loan funds.
The Rural Electric Group has two loan funds: the Power
Project Fund and the Bulk Fuel Revolving Loan Fund, (as
well as the defunct Rural Electrification Revolving Loan
Fund). The Power Project Fund provides funding for
electric utilities, primarily bulk fuel storage associated
with the electric utilities and potable water. Currently,
there is $3 million available for loans each year. There
are 43 active loans, and about $22.3 million is already
"placed," while about $3.7 million is committed but not
"out and placed." He noted that there is $7.6 million in
cash and the delinquency rate is 3.9 percent ($867,000).
MR. POE explained that the Bulk Fuel Revolving Loan Fund
helps communities buy all the fuel they need for a year.
This fund is available to communities with a population of
less than 2000. [The communities pay] less than $100,000 a
year, which [the fund] recovers through rate recovery. He
specified that there are 52 active loans with an
outstanding balance of $1.4 million and there is $522,000
in cash. He noted that approximately $800,000 was used in
emergency funds to make bulk fuel loans to salmon disaster
communities. Mr. Poe indicated that "they" are looking for
a $5 million federal grant to enhance this loan fund. He
informed the committee that there are still Rural
Electrification loans being paid off. Eleven loans are
being paid off, which amounts to approximately $2.4
million. He pointed out that there is $60,000 [in]
delinquency.
MR. POE remarked that the challenge is to leverage the
funds "they" have. He related his belief that "they"
shouldn't hire new employees. Mr. Poe noted the private
sector idea of using points, as opposed to a bid process,
as a means for the private sector to help deliver services.
For example, there might be apprenticeship programs [that
do] two or three projects in a region over a few years.
The private sector could help with designing, building,
training, and career development opportunities. Therefore,
a point system [could allow the private sector] to
accomplish things that might not otherwise be possible.
REPRESENTATIVE HALCRO recalled, from last year, [that it
would take] $100 million to bring stand alone power systems
up to compliance. He asked if "we" are $90 million away
from meeting [that] goal.
MR. POE said we are a long way from getting systems
upgraded. He related his view that since money is now
available, it is critical to effectively apply it. He
turned to the Denali Commission's question as to why the
money can't be placed if the need exists and expressed the
need for community support.
REPRESENTATIVE HALCRO asked if AEA has come up with a
complete list of the needs that exist. He also asked if
there is some kind of target schedule to address those
needs over the next five to ten years.
MR. POE replied there is a complete list of the rural bulk
fuel projects as well as a prioritized list that gets
updated periodically. A full listing of power project
conditions in rural Alaska should be completed by next
month. He noted that they are six communities short of
having visited every rural community (167 exist). He also
noted that the Denali Commission may provide some grant
funds and thus there could be a combination of grant and
loan funds for particular projects.
REPRESENTATIVE MURKOWSKI stated support for community buy-
in [programs]. She discussed wind power issues. She asked
about loan funds and fish disasters and whether there is a
link between the two.
MR. POE explained that loans are reviewed by a committee
and each [loan] is considered separately. The loan program
is not well known. He noted that the United States
Department of Agriculture (USDA) loans will help capitalize
the fund.
DAVID E. GERMER, Deputy Director, Business Development and
Rural Energy, Alaska Industrial Development and Export
Authority (AIDEA), pointed out that AEA does not help
communities apply for the Bulk Fuel Revolving Loan Program.
However, after the fish disaster [AEA] received $800,000
from the Department of Military of Veterans in order to
make emergency loans. He noted that although a credit
analysis is generally done, a normal credit analysis was
not done for loans associated with fish disaster and thus
the loans were provided quickly. The funds were
distributed in about 3.5 weeks.
REPRESENTATIVE MURKOWSKI asked about loan payback.
MR. GERMER replied that payback parallels bulk fuel
revolving loan program regulations.
MR. POE commented on wind energy issues in Kotzebue, Wales,
and Selawik. He acknowledged that there are other wind
opportunities. He also cited four efficiencies to reduce
the cost of energy generation in rural Alaska: diesel
efficiency and efficiencies in switching gear, waste heat
recovery, conservation measures, and alternative energy.
MR. POE replied, in response to Co-Chair Meyer, that the
big capital cost would have to be amortized through utility
rates. He reviewed other gas [pipeline] potential
throughout Alaska.
CO-CHAIR MORGAN asked what technical assistance is offered
to communities that have qualified for construction of
rural energy projects, but lack the technical expertise to
get a higher compliance ranking in the list.
BRUCE TIEDEMAN, Acting Rural Energy Manager, Alaska
Industrial Development and Export Authority (AIDEA),
replied that AIDEA first meets with communities to find out
what their needs are. After 35 percent [of the] design
[work] [is done], AIDEA goes back to the communities to
discuss what more is needed to get the project constructed,
such as resolutions for site selection. Often, AIDEA uses
community meetings to explain what the program is, what
considerations are needed to develop consolidation, code
compliance factors, and economies of scale. Mr. Tiedeman
explained that the high turnover of city government
officials [in rural areas] can create problems, so there is
a need to go back and talk to communities on a regular
basis.
CO-CHAIR MORGAN further asked if a community with low
ranking needed to go back and work on the whole
application, or just areas that caused the low ranking.
MR. TIEDEMAN replied that AIDEA meets with the community
and explains the current situation as well as how the
community can develop a code complaint facility; they
explain potential deficiencies and possible solutions to
correct foreseeable problems. Thus, in cooperation with
communities, code compliant facilities are developed.
CO-CHAIR MORGAN then asked about the 2000 project
development plan that included 16 bulk fuel [facilities]
and 12 power [facilities] in various stages of construction
and upgrade. He noted that on this list are Upper and
Lower Kalskag, which are just now in the design [stage],
though two years ago there was enough money to construct
them. Stating that one of them had $1 million and the
other had $900,000, he wondered why this year the
projection is still just in the design phase.
MR. POE stated that community agreement is a really
important part of a successful project but until they
[AIDEA] get agreement between the communities, they can't
go in there; that is the situation with Upper and Lower
Kalskag. Mr. Poe said they would like to build the
projects, but community agreement is needed first, and he
doesn't know how to get these communities to agree.
CO-CHAIR MORGAN asked if the communities had lost the
construction dollars.
MR. POE responded that the communities have not lost their
place on the list and there are more construction dollars
coming, but the [current] dollars were reallocated to
projects that were ready. This is due to pressure from the
Denali Commission to get the money placed. The Denali
Commission is not able to go to DC [Washington] and get
more money if there are still unplaced funds. They [Denali
Commission] have put pressure on AEA to work with projects
that are ready. Mr. Poe requested Representative Morgan's
help [in getting community agreement].
MR. TIEDEMAN acknowledged that because of the close
proximity of the two communities [Upper and Lower Kalskag]
AIDEA felt that consolidation of projects would save costs.
This idea was explored but ultimately, the communities
decided they didn't want this type of consolidation to
happen. This decision was based on issues such as
available land, who owned it, and how it was connected to
both communities. The current leadership wanted certain
sites but these proved problematic; there was also the
issue of who was going to participate. The communities
found that for every change, there was a cost. Now the
conceptual design is done and the costs have proven to be
more than what was first allocated. The communities now
have a better handle on costs for each individual site.
REPRESENTATIVE GUESS asked how much progress down the list
AEA has made.
MR. POE said they are at White Mountain on the list, or
about number 50 out of 167.
REPRESENTATIVE GUESS asked if the bulk fuel projects from
the school construction major maintenance list were
included on the AEA list.
MR. TIEDEMAN said they have been working with schools and
school districts to the greatest extent possible.
MR. POE added that consolidation of several facilities is
best but agreement in the community is sometimes hard to
get.
REPRESENTATIVE KERTTULA asked if AIDEA had looked at the
ADEC water management program, with its model of training
the people in the communities to run the plants themselves;
is AIDEA trying to institute similar training programs?
MR. POE cited a Village Safe Water example of training more
than one person at a time. Mr. Tiedeman added that AIDEA
was coordinating with the U.S. Department of Housing and
Urban Development (HUD) and the Village Safe Water Program
(VSWP), and vice versa.
REPRESENTATIVE HALCRO, regarding the HB 40 [merger of the
Department of Community and Regional Affairs with the
Department of Commerce And Economic Development] transition
process, asked Mr. Tiedeman if he felt communities were
being kept in the decision-making process on rural energy
relationships and were also made to feel they [communities]
were involved in these decisions.
MR. TIEDEMAN answered that the transition was difficult but
feels it has turned the corner. There is a new building,
with services in one facility. They [DCED] have good
accounting and loan staff, and this has taken pressure off
of them in serving rural communities. The new staff is
learning what has been done in the past and utilizing
suggestions to maintain a good program. There is more
travel to communities and [DCED is] better able to respond
to community needs. The transition has really helped and
there are no major problems, except spending the money from
the Denali Commission.
REPRESENTATIVE HALCRO inquired about outreach programs.
MR. POE said more outreach for bulk fuel would have
resulted in AEA not being able to meet the need. The
[Alaska Energy Authority] has tried to target communities
that don't have any other alternative to get the fuel
purchased. The $5 million grant may allow outreach to make
more sense. He cited some outreach efforts they had done.
REPRESENTATIVE HALCRO referred to delinquent loans and
asked what, if anything, was being done to recover these
loan?
MR. POE responded that with the AIDEA Rural Bulk Fuel
Program and the Power Project Fund they try to work with
the communities. Usually communities do pay. It's a
cooperative effort. With regard to AIDEA loan
participations, "they" are a little less cooperative and a
lot more like a banker.
REPRESENTATIVE HALCRO asked about PCE funding and the Four
Dam Pool endowment. He inquired about the projected
shortfall this year.
MR. POE predicted a shortfall of $7.8 million, although
that won't be known until around February 21, 2001, [when
the] revised number is submitted.
CO-CHAIR MORGAN asked if the $7.8 is for FY02 or FY03.
MR. GERMER answered that FY03 is projected at $2.2-$2.3
million based on the Four Dam Pool sale, which will occur
at the end of this year.
MR. POE said if the sale doesn't happen, then the shortfall
will be in the "same ballgame." However, he indicated
that he is convinced the transfer will occur by the end of
the year.
REPRESENTATIVE HALCRO asked about the Alaska Seafood
International Plant.
MR. POE gave an overview of the plant's location, products,
and investors.
CO-CHAIR MEYER asked if Federal Express or UPS was
expanding and adding people.
MR. POE said he had heard the announcements, but could not
confirm their accuracy.
CO-CHAIR MEYER added that he was happy to see the seafood
processing in Anchorage since it helps diversify the
economy.
REPRESENTATIVE MURKOWSKI asked what is being produced at
the plant and if the plant was producing now.
MR. POE replied that it is not producing now and production
is [dependent upon] a fourth investor.
MR. POE gave a brief overview of the Ketchikan Shipyard.
Built in 1985, it hasn't had much success in terms of
operators, but the current operators from Department of
Transportation and Public Facilities (DOT/PF) have been
very successful in providing good jobs. The department has
an average payroll of 110 people and last week it was at
153 people. Revenues are in the neighborhood of $19
million. He spoke to the need for a second ship-lift. The
shipyard is a success story on the economic development
side, although not a financially successful story for
AIDEA.
REPRESENTATIVE HALCRO asked about the critics of the
Ketchikan Shipyard, and, in particular, the higher costs of
taking vessels there as opposed to the Pacific Northwest.
MR. POE replied that he has heard the critics and there is
no truth to what [the critics] say. He went on to mention
that the Ketchikan Shipyard has won competitive bids.
REPRESENTATIVE MURKOWSKI asked if there are plans for
expansion of a second ship pullout.
MR. POE said there definitely are plans, but funding is the
challenge. He spoke of different ways to accomplish the
construction. The operators are looking at these, but
funding is the challenge.
ERIC YOULD, Executive Director, Alaska Rural Electric
Cooperative Association (ARECA), gave a brief overview of
ARECA, the trade association for the electric utility
industry in Alaska. He stated he supported AEA's focus on
energy sources and noted that diesel remains the most
efficient energy source available. He agreed with the
concept of alternative energy evaluation. He concurred
with AEA's focus on increased efficiency. Mr. Yould
commented that Alaska Village Electric Cooperative,
Incorporated (AVEC) is a tremendously great success story.
REPRESENTATIVE HALCRO asked, from the viewpoint of the co-
ops, if the department merger affected the delivery of
energy and working relationships with rural Alaska.
MR. YOULD said that Division of Energy's focus has been on
those communities that cannot provide for themselves. Some
communities could never have had a viable utility system
had not PCE allowed them to get up and operating. Alaska
Energy Authority is looking to the more chronic areas of
Alaska and are providing a very good service.
[End of tape and second tape would not start recording.
Meeting ended approximately five minutes later.]
ANNOUNCEMENTS
No announcements were made.
COMMITTEE ACTION
The committee took no action.
ADJOURNMENT
CO-CHAIR MEYER adjourned the House Community and Regional
Affairs Standing Committee at 9:45 a.m.
NOTE: The meeting was recorded and handwritten log notes
were taken. A copy of the tape(s) and log notes may be
obtained by contacting the House Records Office at State
Capitol, Room 3, Juneau, Alaska 99801 (mailing address),
(907) 465-2214, and after adjournment of the second session
of the Twenty-Second Alaska State Legislature this
information may be obtained by contacting the Legislative
Reference Library at (907) 465-3808.
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