01/26/2017 11:00 AM House ENERGY
| Audio | Topic |
|---|---|
| Start | |
| HB80 | |
| Overview: Property Assessed Clean Energy (pace) Energy Efficiency Financing | |
| HB80 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| *+ | HB 80 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON ENERGY
January 26, 2017
11:09 a.m.
MEMBERS PRESENT
Representative Adam Wool, Chair
Representative Ivy Spohnholz, Vice Chair
Representative Matt Claman
Representative DeLena Johnson
Representative Jennifer Johnston
Representative George Rauscher
MEMBERS ABSENT
Representative Dean Westlake
COMMITTEE CALENDAR
HOUSE BILL NO. 80
"An Act adopting the Municipal Property Assessed Clean Energy
Act; authorizing municipalities to establish programs to impose
assessments for energy improvements in regions designated by
municipalities; imposing fees; and providing for an effective
date."
- HEARD & HELD
OVERVIEW: PROPERTY ASSESSED CLEAN ENERGY (PACE) ENERGY
EFFICIENCY FINANCING
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 80
SHORT TITLE: MUNI ENERGY IMPROVEMNT:ASSESSMNTS/BONDS
SPONSOR(s): REPRESENTATIVE(s) WOOL
01/25/17 (H) READ THE FIRST TIME - REFERRALS
01/25/17 (H) ENE, CRA
01/26/17 (H) ENE AT 11:00 AM CAPITOL 17
BILL: HB 80
SHORT TITLE: MUNI ENERGY IMPROVEMNT:ASSESSMNTS/BONDS
SPONSOR(s): REPRESENTATIVE(s) WOOL
01/25/17 (H) READ THE FIRST TIME - REFERRALS
01/25/17 (H) ENE, CRA
01/26/17 (H) ENE AT 11:00 AM CAPITOL 17
WITNESS REGISTER
ROB EARL, Staff
Representative Adam Wool
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 80 on behalf of the bill
sponsor, Representative Wool.
SEAN SKALING, Assistant Executive Director
Energy Policy Director
Alaska Energy Authority (AEA)
Anchorage, Alaska
POSITION STATEMENT: Presented a PowerPoint on Property Assessed
Clean Energy (PACE) Energy Efficiency Financing and answered
questions.
GENE THERRIAULT, Energy Policy Assistant
Alaska Energy Authority (AEA)
Anchorage, Alaska
POSITION STATEMENT: Answered questions during discussion of HB
80.
CHRIS ROSE, Executive Director
Renewable Energy Alaska Project (REAP)
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 80.
KATHIE WASSERMAN
Executive Director
Alaska Municipal League
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 80.
JIM DODSON, President
Fairbanks Economic Development Corporation (FEDC)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 80.
BRITTANY SMART, Spokesperson
Office of the Mayor
Fairbanks North Star Borough (FNSB)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 80.
JACK WILBUR, Vice-Chair
Board of Directors
Interior Gas Utility (IGU)
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of HB 80.
ACTION NARRATIVE
11:09:36 AM
CHAIR ADAM WOOL called the House Special Committee on Energy
meeting to order at 11:09 a.m. Representatives Wool, Spohnholz,
Claman, Johnson, Johnston, and Rauscher were present at the call
to order.
HB 80-MUNI ENERGY IMPROVEMNT:ASSESSMNTS/BONDS
HB 80-MUNI ENERGY IMPROVEMNT:ASSESSMNTS/BONDS
11:10:05 AM
CHAIR WOOL announced that the only order of business would be
HOUSE BILL NO. 80, "An Act adopting the Municipal Property
Assessed Clean Energy Act; authorizing municipalities to
establish programs to impose assessments for energy improvements
in regions designated by municipalities; imposing fees; and
providing for an effective date."
11:10:39 AM
ROB EARL, Staff, Representative Adam Wool, Alaska State
Legislature, clarified that HB 80, with a zero fiscal note, was
also known as PACE, the Municipal Property Assessed Clean Energy
Act, which would allow local municipal governments to create a
property assessed clean energy financing mechanism. He
explained that local PACE financing would incentivize energy
efficiency improvements to commercial buildings, as it would
allow use of the existing property tax collection mechanism as a
means of servicing loans for energy efficiency improvements and
alternate energy installation on commercial property. He stated
that local governments would work with interested business
owners to identify energy improvements under the PACE program.
He reported that the PACE financing resulted in low default
rates, which facilitated low interest lending, allowed for
longer financing periods, and offered seamless transferability
with sale of the property.
[HB 80 was taken up later in the meeting.]
^Overview: Property Assessed Clean Energy (PACE) Energy
Efficiency Financing
Overview: Property Assessed Clean Energy (PACE) Energy
Efficiency Financing
11:12:48 AM
SEAN SKALING, Assistant Executive Director, Energy Policy
Director, Alaska Energy Authority (AEA), directed attention to a
PowerPoint presentation titled, "C-PACE Scenario." He presented
slide 3, "How C-PACE Works," and detailed a scenario in which
the owners of a commercial building had high energy costs, and
even after an energy audit which listed the potential changes
and associated costs with a measureable energy savings of 30
percent, the business was not able to afford a bank loan because
of the loan payment schedule. He pointed out that the proposed
efficiency changes were cost effective, and with cash, would
have been a great investment. He added that this was a growing
business, with the possibility of a move from the building
before the financial return from those savings would be
recognized. He declared that AEA had found this business to be
"fairly typical," noting that when AEA had run a commercial
energy audit program, the difficulty faced by the businesses had
been the hurdles with financing. He emphasized that the C-PACE
program was voluntary, offered long-term financing, low-
interest, and less risk for the bank and investor. The C-PACE
program created positive cash flow and allowed for seamless
transfer upon sale of the loan, the building, and the efficiency
improvements. He explained that energy efficiency measures such
as heating and cooling systems, lighting, and insulation were
included as eligible improvements, slide 4, "C-PACE Eligible
Improvements." He added that alternative energy, such as heat
pumps and solar, were also eligible, slide 5. Moving on to
slide 6, "Cash Flow from Energy Efficiency," he reported that a
typical business would have a lower payment after the energy
efficiency work with PACE refinancing.
CHAIR WOOL asked if AEA would limit the loan payment to help
with the cash flow.
MR. SKALING explained that the system was designed to keep the
loan "long and low" as the program allowed a 20-year term.
11:18:37 AM
MR. SKALING added that most places where the PACE program was in
place extended the loan a bit past the payback period, and that
the energy efficiency savings lasted for years after the loan
was re-paid. He detailed that a property owner interested in
doing efficiency measures would go to an energy contractor and
get an energy efficiency audit report, which they would take to
an investor for the upfront project capital to pay for the
energy improvements, slides 6 and 7, "PACE: How Loan is Repaid."
He explained that the loan payments were made along with the
existing property tax bill, as a separate line item, and the
local government would forward the payment to the investor. He
pointed out that there was security from the contracts between
the property owner and the city, and the city with the investor.
He added that there could also be a performance contract with
the energy company, in which the energy savings was guaranteed.
He declared that this was voluntary, as the proposed bill
allowed municipalities and banks the option, noting that
Fairbanks, Anchorage and Juneau were interested in the program.
He reported that PACE was enabled in 33 state, slide 9, and that
it was time to add Alaska, slide 10. He emphasized that this
created a program for property owners to have lower payments and
offered lenders more assurance that the energy efficiency
improvements were real, while contractors, energy auditors, and
vendors were kept working.
11:23:19 AM
GENE THERRIAULT, Energy Policy Assistant, Alaska Energy
Authority, shared that he had a long-time interest in the PACE
program since he had served on a national board for energy
officials. During this time, his search for sources of low-cost
capital that could help Alaska constituents with energy
improvement had discovered that the PACE mechanism was effective
in other states. He directed attention to slide 12, "Financing
Options," and relayed that, with some local banks, a portion of
the loan portfolio could be made available at a lower interest
rate, although these needed to be assured of a low default rate.
While working with a local government for the issuance and
collection of the property tax bill, with an assessment added to
make the loan repayment, the banks felt assured that there would
be a very low default rate. He pointed out that a municipality
could also issue revenue to be repaid under this same mechanism.
He read from some of the Rural Utility Service (RUS)
regulations, including the energy efficiency and conservation
loan program, which was a recurring fund source in RUS. He
shared that this program was underutilized, and, consequently
the program was interested in finding ways to link users with
the funding. He reported that the current loan interest rates
for ten-year financing was 2.5 percent, whereas the PACE program
allowed repayment over a ten to twenty-year period. He
reiterated that the long loan repayment period was key. He
shared that the regulations for the energy efficiency and
conservation loan program were looking for a mechanism which
would lower default rates, noting that the PACE program would
most likely qualify. In response to Chair Wool, he clarified
that RUS was a Rural Utility Service.
11:28:44 AM
REPRESENTATIVE RAUSCHER asked if there was a risk assessment and
default history for these loans.
MR. THERRIAULT replied that he would provide that information,
directing attention to an organization, PACE Nation, which
worked with the various PACE programs nationally. He relayed
that the Alaska program had been modeled after the Texas
program, as it had protections for existing mortgage holders and
local governments. He shared that the requirement for audit
recommendations, as well as a follow-up audit to prove the
improvements were done correctly, had cut down on defaults. He
pointed out that this was similar to the home energy improvement
program under Alaska Housing Finance Corporation.
REPRESENTATIVE RAUSCHER asked if profit margin affected everyone
equally.
MR. THERRIAULT asked if this was regarding credit worthiness.
REPRESENTATIVE RAUSCHER explained that sometimes an applicant
could make too much money, or have too much profit, to qualify
for a program.
MR. THERRIAULT replied that this was not a requirement of the
proposed legislation. He explained that should a local
government, when implementing the program, want to direct monies
to lower-profit businesses, there could be a "profit test" to
ensure the money went to an applicant with a higher need. He
declared that this decision would be made at the local level,
and that it would still be necessary to follow the steps in the
legislation for implementation of the program.
MR. THERRIAULT added that a local government could charge a fee
to cover the local costs or build up the loan reserve to protect
against defaults. He pointed out that a limiting factor to fees
would be to keep the cost for participation low enough to
incentivize. He opined that a local government would not "jack
up fees."
11:34:34 AM
REPRESENTATIVE CLAMAN asked if the assessment process with a
municipality would put the energy improvement loans ahead of
collection of other loans in the event of default, and whether
this was a problem with the banks.
MR. THERRIAULT replied that with the commercial PACE there
appeared to be "a growing acceptance of that," pointing out that
the proposed bill had protection for the bank. He explained
that with an existing commercial mortgage on the property, a
PACE applicant had to receive permission from that lender. He
relayed that many lenders gave permission as there was an
improvement being made to the collateral property.
REPRESENTATIVE CLAMAN asked for clarification that the PACE loan
required permission from the existing lender.
MR. THERRIAULT added that, should there be a default, the entire
remaining PACE loan did not have to be repaid, only the current
year payment, as the new owner received the ongoing benefit with
the ongoing payment. He stated that the federal funds available
under the aforementioned energy efficiency and conservation loan
program was about $250 million annually. He spoke about the
federal Rural Energy Saving Program (RESP) which funded $50
million nationwide, with good loan terms for "repayment
mechanisms that are demonstrated to have appropriate risk
mitigation features." He relayed that this was another program
looking for a mechanism similar to PACE. He added that there
was a zero-interest rate for the RESP money to the utility.
11:38:13 AM
REPRESENTATIVE JOHNSTON asked which congressional delegations
supported these programs and whether these programs had
sustainability.
MR. THERRIAULT, in response, said that the energy efficiency and
conservation loan program, as part of the United States
Department of Agriculture (USDA) RUS program, annually had about
$250 million built into its base budget. He reiterated that
this was underutilized, and that USDA was "anxious to get the
money out." He compared this program to Alaska Industrial
Development and Export Authority (AIDEA), as it had a portfolio
and paid money back to the federal government. In further
response to Representative Johnston, he allowed that he was not
sure whether that program received new dollars, although it had
"a fair amount of congressional support."
11:39:27 AM
CHAIR WOOL asked for the reason that the proposed bill only
covered commercial properties.
MR. THERRIAULT explained that a PACE loan would bump an existing
mortgage into a secondary position. He declared that the
residential loans from the Federal Home Loan Mortgage
Corporation, known as Freddie Mac, and the Federal National
Mortgage Association, known as Fannie Mae, were not willing to
take a secondary position, and would not purchase any
residential property loan portfolios from banks. He added that
although some states had attempted to maneuver around this, it
had been found to necessitate giving up main attributes of PACE,
including the senior loan position and the seamless
transferability of the loan. He offered a recommendation to
keep the proposed bill for PACE loans to commercial properties,
with the possibility of expansion in the future.
CHAIR WOOL asked if a goal of the proposed legislation would
include an owner who wanted to convert to natural gas, as the
savings might be undetermined although the air quality would be
improved.
MR. THERRIAULT acknowledged that federal agencies were requiring
higher air quality in Fairbanks by imposing stricter
requirements on the community. He stated that the current
program targeted energy savings, and he pointed out that a
natural gas appliance was more energy efficient, hence would
generate a savings for fuel and efficiency. He pointed out that
as the use of wood burning was often low cost, a shift to
another energy source may not "clear the hurdle of the
economics." He declared, however, that the mechanism should not
be available and considered as a means to improve the air
quality.
CHAIR WOOL opined that the restriction to commercial properties
would narrow the number of facilities using wood.
11:44:34 AM
MR. SKALING directed attention to slide 13, "Easy Win for
Alaska," and declared that this had already been fully vetted in
the 29th Legislative Session, had strong support, and achieved
economic goals for the communities. He pointed to the impacts
of the PACE program for lower bills and an increase to property
value by supporting the proposed bill.
HB 80-MUNI ENERGY IMPROVEMNT:ASSESSMNTS/BONDS
11:46:44 AM
CHAIR WOOL announced the committee would open public testimony
on HB 80.
11:47:02 AM
CHRIS ROSE, Executive Director, Renewable Energy Alaska Project
(REAP), reported that REAP was a statewide non-profit coalition
comprised of about 80 organizations, which included electric
utilities, developers, and independent businesses. He referred
to the written testimony previously submitted. He declared
support for HB 80 and PACE legislation. He emphasized support
for state supported weatherization programs which provided
savings from energy efficiency. He stated that PACE was a
financing tool to allow the money necessary for a return on
investment, adding that it was a voluntary program and an
opportunity for business owners. He declared that the program
would keep money in the community and would add many jobs for
qualified workers. He reiterated his support for the proposed
bill.
11:50:46 AM
KATHIE WASSERMAN, Executive Director, Alaska Municipal League,
declared that the Alaska Municipal League (AML) had supported
previous iterations of the proposed bill, and she expressed her
surprise that the proposed bill had not been passed sooner. She
stated that it was not a mandate, as the commercial owner and
the municipalities could opt in if they so choose. It provided
protections for the public as the municipality was required to
have a resolution of intent, with boundaries identified, and the
public would be aware of the program. She opined that
municipalities would get support from its residents. She stated
that, as energy issues were some of the most difficult for the
state, the proposed bill was a tool to help overcome the
deficit. She declared that the members of AML were in support
of HB 80.
11:52:55 AM
JIM DODSON, President, Fairbanks Economic Development
Corporation (FEDC), stated that this was the right type of
legislation for the new economic era in Alaska. He pointed out
that it was voluntary for the municipality, the borrower, and
the lender, and that it gave the community a tool to effectively
contribute to lowering the cost of energy. He reiterated that
the cost of energy was a barrier to growth of the economy in
Alaska. He encouraged support for the proposed bill.
11:54:21 AM
BRITTANY SMART, Spokesperson, Office of the Mayor, Fairbanks
North Star Borough (FNSB), declared that this was a very
important piece of legislation, especially with regard to its
air quality issues.
CHAIR WOOL asked if there was concern for any administrative
burden or costs.
MS. SMART acknowledged that there were questions for the best
path to implementation of the program, although the proposed
bill did offer risk protections.
11:55:45 AM
JACK WILBUR, Vice-Chair, Board of Directors, Interior Gas
Utility (IGU), stated support of the proposed bill. He
explained that the Interior Gas Utility had been created to
bring low cost energy in the form of liquefied natural gas (LNG)
to the Fairbanks North Star Borough, as it was important to
reduce the current air pollution issues. He reported that
Alaska Industrial Development and Export Authority (AIDEA) had
purchased Pentax Assets, which included a liquefaction facility
in Southcentral Alaska, as well as a fleet of trucks and
trailers to bring the LNG to Fairbanks. He shared that funding
appropriated through the Alaska State Legislature had allowed
IGU to install a distribution system in North Pole with
subsequent distribution in the City of Fairbanks. He declared
that IGU was ready to continue with additional improvements,
including storage facilities and further expansion of the
distribution system. He shared that a key to additional
expansion was for customers to be connected to the distribution
system and to generate revenue to pay off the loans and finance
further expansion. He acknowledged that it was difficult for
businesses to come up with the capital for these conversions.
He pointed out that the PACE legislation allowed for low cost
financing for energy cost saving measures and would incentivize
commercial conversions to LNG.
11:58:41 AM
CHAIR WOOL closed public testimony on HB 80. He announced that
HB 80 would be held over.
11:58:57 AM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Energy meeting was adjourned at 11:58 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 80 - Sponsor Statement.pdf |
HENE 1/26/2017 11:00:00 AM |
HB 80 |
| HB 80 Letter of Support - FNSB.pdf |
HENE 1/26/2017 11:00:00 AM |
HB 80 |
| HB 80 - Letter of Support - REAP.pdf |
HENE 1/26/2017 11:00:00 AM |
HB 80 |
| HB 80 - Fiscal Note - DCCED.pdf |
HENE 1/26/2017 11:00:00 AM |
HB 80 |
| HB 80 - Sectional Analysis.PDF |
HENE 1/26/2017 11:00:00 AM |
HB 80 |