Legislature(1999 - 2000)
05/07/1999 02:50 PM House FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
May 7, 1998
2:50 P.M.
TAPE HFC 98 - 120, Side 1
TAPE HFC 98 - 120, Side 2
TAPE HFC 98 - 121, Side 1
CALL TO ORDER
Co-Chair Gene Therriault called the House Finance Committee
meeting to order at 2:50 p.m.
PRESENT
Co-Chair Hanley Representative Kelly
Co-Chair Therriault Representative Kohring
Representative Davies Representative Martin
Representative Davis Representative Moses
Representative Foster Representative Mulder
Representative Grussendorf
ALSO PRESENT
Representative Cowdery; Peter Torkelson, Staff,
Representative Cowdery; Robert Wilkinson, Chief Executive
Officer, Copper Valley Electric Association, and Member,
Four Damn Pool; Chris Hocker, Vice President, CHI Energy
Stanford Connecticut; Brian Rogers, Financial Advisor, CHI
Energy;
TESTIFIED VIA TELECONFERENCE
Gale Kincaid, Triad Sales, Anchorage; Walter, Sapp,
President, Board of Directors, Kodiak Electrical Association
and Treasure, Four Dam Pool Project Management Committee,
Kodiak; Randy Simmons, Executive Director, Alaska Industrial
Development and Export Authority; Keith Laufer, Manager,
Finance and Legal Affairs, Alaska Industrial Development and
Export Authority (AIDEA); Dave Carlson, Petersburg; Ed
Kozak, General Manager, Kodiak Electrical Association.
HB 167 "An Act relating to mobile home dealers."
CSHB 167 (L&C) was REPORTED out of Committee with
"no recommendation" and a zero fiscal note by the
Department of Commerce and Economic Development
dated 4/28/99.
HCR 10 Proposing recommendations concerning the sale of
the Four Dam Pool hydroelectric facilities.
CSHCR 10 (FIN) was REPORTED out of Committee with
a "do pass" recommendation and with a zero fiscal
note by the House Special Committee on Utility
Restructuring for the Department of Commerce and
Economic Development dated 4/29/99.
ALCOHOL BEVERAGE CONTROL BOARD
Co-Chair Therriault pointed out that the House Finance
Committee had received the resumes of the Alcohol Beverage
Control Board candidates. He asked members to let him know
if they would like a hearing scheduled on any of the
nominees.
No action was taken on the Alcohol Beverage Control Board
candidates.
HOUSE BILL NO. 167
"An Act relating to mobile home dealers."
PETER TORKELSON, STAFF, REPRESENTATIVE COWDERY testified, on
behalf of the sponsor, in support of HB 167. He maintained
that as originally drafted, House Bill 167 would have merely
relieved small used mobile home dealers of burdensome
bonding and licensure requirements under existing law. He
stressed that this made sense, since used dealers market
mobile homes without warranty.
Mr. Torkelson pointed out that the Labor and Commerce
Committee heard considerable testimony on the bill and
resolved that the entire licensure structure, while
implemented with good intentions, really didn't serve a
meaningful public process commensurate with its cost to
private business.
Mr. Torkelson observed that there have been no claims
against a licensee or their bond under the existing law.
"Indeed, it is difficult to find any compelling reason for
regulating mobile home dealers at all." He acknowledged that
there are third party stories of irresponsible sales agents,
but emphasized that these aren't the ones who can afford a
bond or are willing to comply with a licensing requirement.
Mr. Torkelson emphasized that most mobile home dealers are
relatively small operators. "To them, the costs, or perhaps
unavailability, of bonding can mean the difference between
staying in business or going out of business. It can mean
the difference between operating a legitimate business, or
one that merely exists on the margins." He maintained that
protecting small businesses and promoting a vibrant
community of competition is a worthy goal.
Mr. Torkelson acknowledged that there is opposition to the
measure. "They argue that protections are needed, that
regulation is better for business. It seems that regulation
is better for their business, but not all business. If the
current statutes suppress competition with burdensome
bonding fees then surely someone will be in favor of keeping
the status quo."
Mr. Torkelson asserted that HB 167 relieves business, at no
ascertainable risk to consumer protection.
GALE KINCAID, TRIAD SALES, ANCHORAGE, testified via
teleconference in support of the legislation. He noted that
he has owned and operated a mobile home business for the
last 10 years. He maintained that the bond limits
competition because most companies cannot afford the bond or
qualify for financing on the bond. He asserted that
businesses are forced to operate without a bond.
REPRESENTATIVE COWDERY, SPONSOR, questioned if Mr. Kincaid
had every had or heard of a complaint against a licensed or
unlicensed dealer. Mr. Kincaid responded that he was not
aware of any complaints. He pointed out that used sales are
on an "as is" basis. He maintained that there is no
liability.
Mr. Torkelson reiterated that the original bill only
addressed used home mobile home dealers. Testimony in the
House Labor and Commerce Committee noted that there are only
14 licenses. If used mobile home dealers were removed there
would only be four new home dealers left. This is too small
of a group to support the licensing structure. The Division
felt that it would be meaningless to retain the law. There
were no consumers requesting protection.
Co-Chair Mulder MOVED to report HB 167 out of Committee with
the accompanying fiscal note. There being NO OBJECTION, it
was so ordered.
CSHB 167 (L&C) was REPORTED out of Committee with "no
recommendation" and a zero fiscal note by the Department of
Commerce and Economic Development dated 4/28/99.
HOUSE CONCURRENT RESOLUTION NO. 10
Proposing recommendations concerning the sale of the
Four Dam Pool hydroelectric facilities.
Co-Chair Therriault provided members with a proposed
committee substitute for HCR 10, 1-LS0844\K, 5/7/99 (copy on
file).
Representative J. Davies MOVED to ADOPT a proposed committee
substitute for HCR 10, 1-LS0844\K, 5/7/99. Representative
Austerman OBJECTED.
Co-Chair Therriault reviewed changes made by the committee
substitute. He noted the following resolve was deleted from
page 1, lines 9 - 12:
"WHEREAS the Alaska Energy Authority retains, under the
power sales agreement, significant liabilities relating
to the power projects, including responsibility for
uninsured facility failure, substandard performance,
deficiencies in the reserve and replacement fund, and
loss of power sales."
Co-Chair Therriault noted that, "The power projects provide
adequate power to the communities; and be it" on page 2,
line 9 was replaced by "the authority gives due
consideration to the prospective purchaser's commitment to
Alaska hire, contracting, and Alaskan participation in the
purchasing entity; and be it." He noted that a Further
Resolve was also added:
"BE IT RESOLVED that the Alaska State Legislature
respectfully requests that the Alaska Energy Authority
evaluate methods by which private sector interests with
experience in acquisition, ownership, operation, and
maintenance of hydroelectric facilities may propose to
purchase the Four Dam Pool power projects in a manner
that honors the existing power sales agreement and
indemnifies the State of Alaska for its current
ownership liabilities."
Representative Austerman stated that he would like to
address the issues raised by the committee substitute
separately. Co-Chair Therriault stated that it would be his
intention to adopt the proposed committee substitute and
allow amendments. Representative Austerman WITHDREW his
objection. There being NO OBJECTION, committee substitute
for HCR 10, 1-LS0844\K, 5/7/99 was adopted.
WALTER, SAPP, PRESIDENT, BOARD OF DIRECTORS, KODIAK
ELECTRICAL ASSOCIATION and, TREASURE, FOUR DAM POOL PROJECT
MANAGEMENT COMMITTEE, KODIAK testified via teleconference in
support of HCR 10. He maintained that the projects would
supply long-term economic stability to the communities they
serve. He observed that electrical utilities served by the
Four Dam Pool are cooperatives or municipal utilities. He
emphasized that 100 percent of the savings would remain with
the people of Alaska.
Co-Chair Therriault asked if Mr. Sapp would object to
language that was added regarding "due consideration to the
prospective purchaser's commitment to Alaska hire." Mr. Sapp
stated that he did not object to the change. Co-Chair
Therriault added that the committee substitute asks the
Alaska Industrial Development and Export Authority (AIDEA)
to evaluate methods by which a private sector party could
participate. Existing power sales agreements would have to
be honored and the state of Alaska would have to be
indemnified for its current ownership liabilities. He noted
that the state would be faced with the issue of
participation of private interests under a proposal. He
maintained that the question needs to be resolved.
Mr. Sapp spoke against private sector participation. He
stressed that the projects were built to support communities
that the projects serve. He expressed concern that profits
would leave the state of Alaska under private ownership.
Co-Chair Therriault pointed out that the resolve calling for
a request for participation (RFP) to go out to the
communities remains. The added resolve only asks for advice
as to whether a private entity could potentially
participate. The RFP would not be thrown wide open. Mr. Sapp
reiterated concern that participation only be open to the
communities served by the Four Dam Pool.
Representative Austerman explained that the new resolve does
not open it up to the private sector. He referred to
language removed from the committee substitute on page 1,
lines 12 - 15. Mr. Sapp questioned why it was necessary to
remove the language.
Co-Chair Therriault explained that the intent is to identify
liabilities and if there is a way the state could be
indemnified.
Representative Austerman noted that the removed language was
included in legislation offered in 1998.
ROBERT WILKINSON, CHIEF EXECUTIVE OFFICER, COPPER VALLEY
ELECTRIC ASSOCIATION, AND MEMBER, FOUR DAMN POOL provided
information on the legislation. The Cooper Valley Electric
Association operates a hydro-electrical project, which is
part of the Four Dam Pool. He emphasized that times have
changed. He maintained that the arrangement is not a good
deal for the state of Alaska. The state has a huge financial
risk from uninsured failures, substandard performance,
shortfalls to the renew and replacement fund and operates
with a fixed debt service. The risk of owning the projects
is likely to increase and the revenue sharing is not likely
to grow beyond the risk. He maintained that it is a good
opportunity to revisit discussions with the state. He noted
that there is an opportunity to purchase the projects, which
would result in local ownership and control. Public power
would benefit from the projects. Utilities have renewed
interest. He stressed that the risk involved would reduce
the purchase price. He observed that discussions with Randy
Simmons have attempted to determine the price. He stressed
that the utilities in the Four Dam Pool pay high rates. The
average across the pool is 12.3 cents a kilowatt-hour. The
statewide average is 10.4 cents a kilowatt-hour. He
expressed support for the legislation. He testified against
the amendment to research private a sale or a request for
proposal. He pointed out that municipal utilities have to
deal off the table in the public process. He stressed that
the public process would be difficult for Wrangell,
Petersburg and Ketchikan. Any proposed purchaser should have
capital, credibility and commitment. He stressed that they
have all.
In response to a question by Representative J. Davies, Mr.
Wilkinson reiterated that the state of Alaska retains
significant liability, including uninsured facility failure,
substandard performance and deficiencies in the reserve and
replacement fund under the power sales agreement.
In response to a question by Representative Austerman, Mr.
Wilkinson questioned if any one would be interested in
purchasing Four Dam Pool if they had to assume the
obligations under the long-term power sales agreement. The
long-term powers sales agreement retains all the risk of
ownership without the benefits or awards. That is why the
revenue stream off the debt service does not match the risk
of ownership. He gave example of risk factors.
Representative Austerman questioned if the power sales
agreement could be broken or sold without agreement of the
utilities. Mr. Wilkinson responded that the Four Dam Pool
could be sold by the state and the agreement assigned. The
obligations of the state of Alaska could not be eliminated
by virtue of the fact that did enter into the agreement with
the purchasing utility. The terms of the power sales
agreement would have to be honored unless all of the five
purchasing utilities and the state agreed to modify the
agreement.
In response to a question by Vice-Chair Bunde, Mr. Wilkinson
stressed that the issue is a sale price that would allow
economic benefits. He noted that the Cooper Valley and
Kodiak Electric are member-owned cooperative organizations.
Ketchikan Public Utilities, Wrangell Municipal Power and
Light, and Petersburg Power and Light are all municipal
facilities.
Co-Chair Therriault questioned Mr. Wilkinson's concern with
the open public process. Mr. Wilkinson explained that under
the RFP process, the municipal utilities could not
participate in a confidential and private manner. Co-Chair
Therriault asked if they would have the same problem if the
wording were changed from a RFP to "negotiate". Mr.
Wilkinson stated that the utilities would like a negotiated
sales price. The purchasing utilities could meet in closed
session, but any purchase offer or sale would have to be
approved by the public in the case of municipal utilities.
In the case of the Cooperatives, their board of directors
could approve the deal.
Representative J. Davies thought that the RFP language was
included for the possibility of different proposals within
the community of cooperatives and municipal utilities.
Representative Austerman explained that the language was
included to allow proposals from different entities within
the utilities.
Co-Chair Therriault referred to the fiscal note. He noted
that the RFP process could result in $120 thousand dollars
for the Alaska Industrial Development and Export Authority
(AIDEA).
Representative Williams expressed concern with the language
that required that the sale would ensure that the power
projects provide adequate power to the communities. Co-Chair
Therriault noted that it would be difficult for the state to
ensure that the power projects provide adequate power in the
future. Representative Austerman agreed that it would be up
to the communities involved to make sure that adequate power
is provided. Representative J. Davies emphasized that a
credible proposal would provide assurance that there would
be adequate power. Representative Austerman pointed out that
AIDEA has a due diligence process.
Co-Chair Therriault referred to the resolve on page 2, lines
8 - 13, which asks for an evaluation of whether a private
entity could indemnify the state. Mr. Wilkinson felt that
the projects should be sold to the public that they
constructed to benefit.
RANDY SIMMONS, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY provided information on the
legislation via teleconference. He explained that it would
cost $100 to $120 for an RFP. He further explained that if
the RFP only went to the communities there would be zero
fiscal note. A RFP to the communities could be handled with
a one or two page letter with very little work. If it were
open further there would be a formal RFP. Co-Chair
Therriault clarified that the process would be a negotiation
with the communities. Mr. Simmons agreed.
Representative Austerman referred to the following language
contained in the original version: "WHEREAS the Alaska
Energy Authority retains, under the power sales agreement,
significant liabilities relating to the power projects,
including responsibility for uninsured facility failure,
substandard performance, deficiencies in the reserve and
replacement fund, and loss of power sales." He asked if the
state has the liability because of the power sales agreement
for uninsured facility failure, substandard performance and
deficiency. Mr. Simmons replied that the state would have
liability.
KEITH LAUFER, MANAGER, FINANCE AND LEGAL AFFAIRS, ALASKA
INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA)
explained that under the power sales agreement the state
would retain liability for a few specified categories. These
categories include uninsured facility failure, design-
related problems and deficiencies in the reserve and
replacement fund. In response to a question by
Representative J. Davies, Mr. Laufer observed that under the
power sales agreement there would be no revenues if there
were no production of power. The state would have liability
based on production of power.
Representative J. Davies asked if there are savings or
advantages from the fact that AIDEA has had similar
experience. Mr. Simmons acknowledged that AIDEA would not be
starting from scratch. He observed that any proposal would
be brought back to the legislature
(Tape Change, HFC 99 - 120, Side 2)
Representative Austerman questioned if the power sales
agreement could be broken or sold without agreement of the
utilities.
Mr. Laufer responded that the projects could be sold and the
state's interest assigned to a third party. The state would
have secondary liability in the event that the buyer did not
make payments. Co-Chair Therriault questioned if the buyer
could be indemnified. Mr. Laufer that a letter of credit
could be used. Mr. Simmons added that AIDEA would recommend
that the third party be indemnified.
Co-Chair Therriault noted that the resolution calls for the
Alaska Energy Authority evaluate methods by which a private
sector person could structure a deal that would assure that
the power sales agreements are honored and how the state of
Alaska or its entities could be indemnified. Mr. Simmons
noted that AIDEA could evaluate a third party's ability to
successfully bid and indemnify the state.
DAVE CARLSON, PETERSBURG, testified via teleconference in
support of the legislation. He noted that on page 1, line 8
"40" year power sales agreement should read "45" years. He
observed that it would be difficult to respond to a RFP
because of the open meeting law practice. He suggested that
a negotiated settlement be reached. An agreement on a sales
price would be approved in an open session.
CHRIS HOCKER, VICE PRESIDENT, CHI ENERGY STANFORD
CONNECTICUT stated that CHI Energy would like to have an
opportunity to make a proposal for a cash purchase of the
Four Dam Pool facilities. He explained that CHI Energy is an
independent power producer with a portfolio of 79 hydro
projects. He noted size range of CHI's projects. He stressed
that CHI has dealt with a variety of risks. He noted that
they are a portfolio owner. He emphasized CHI's experience
and noted that CHI is familiar with ownership risks.
Mr. Hocker stressed that CHI has reached the following
conclusions:
1. They are prepared to pay at least $80 million dollars
in cash for acquisition of the facilities, subject to a
due diligence finding;
2. Transferring the facilities to private ownership need
not have any impact on the existing power sales
agreement or day-to-day operations for the facilities;
3. The acquisition could be down by conventional project
financing in the private sector, without exposing the
state of affected communities to any financial risk;
4. The acquisition could provide more certainty for
wholesale power rates for the remaining 30 years,
without the need for rate reopeners.
Mr. Hocker stressed that they would intend to involve
Alaskan based entities and local interest in any ownership
or operation of the facilities. He asked for an opportunity
to make a proposal to acquire the facilities.
Representative Austerman questioned if it would be a
straight cash outlay. Mr. Hocker stated that it would be a
straight cash outlay. He stated that the value would be in
the range of $80 million dollars.
Representative Foster stated that the resolution would not
allow a buyout by a private entity. Representative J. Davies
maintained that even if a private purchase were feasible it
would not be permissive under the resolution.
Representative Williams suggested that the purchase by an
outside entity not be discussed at this time. Co-Chair
Therriault stated that he wanted to have discussion on the
possibility of private entity involvement.
Representative Grussendorf stated that the communities want
to charge the lowest possible power rates. He agreed with
Representative Williams that private entities should not be
included in the current debate.
Co-Chair Therriault stated that he is not likely to support
any sale to the community without an evaluation of the
mechanisms that should be considered. He maintained that
there should be discussion about the private industry.
Representative Williams stressed that the last proposal did
not advance. He maintained that it did not work to involve
the private sector.
Representative Williams spoke in support of the original
resolution. Co-Chair Therriault pointed out that the last
resolution included a completely open RFP process.
Representative Grussendorf stated that it is impossible for
the Four Dam Pool communities to consolidate with outside
entities competing for the projects.
Co-Chair Therriault stressed that the resolve asks for
details on how a package could be structured to take away
the state's liability. Representative G. Davis spoke in
support of the resolve. He questioned how proposals would be
compared.
BRIAN ROGERS, FINANCIAL ADVISOR, CHI ENERGY provided
information. He noted that a transaction requires a willing
buyer and a willing seller. He stressed that it is not worth
the cost of a full due diligence finding if the state is not
a willing seller. He acknowledged that the state cannot and
should not walk away from the power cost agreement. He
reiterated that CHI is open to working with public. He
stated that CHI is looking for a signal. In response to a
question by Representative Williams, Mr. Rogers stated that
he was aware of previous offers.
Co-Chair Therriault clarified that the intent of the resolve
is to provide technical assistance.
Representative Austerman stated that as the resolution is
written the purchase is not open to the private sector. He
asked if the information could be provided from AIDEA
without inclusion in the resolution. He stated that the
resolve did not prevent the resolution from accomplishing
its intent.
ED KOZAK, GENERAL MANAGER, KODIAK ELECTRICAL ASSOCIATION
(KEA) testified via teleconference in support of HCR 10. He
noted that KEA is a cooperative that has been in business
for 57 years. He spoke in support of local ownership. He
maintained that the local ownership provides what is best
for the state and the communities. Local control would allow
increased economic development opportunities. He pointed out
that savings would stay within the communities. He observed
that KEA has returned $3 million dollars back to its
membership. He stressed that hydro-projects last 50 to 100
years if they are properly maintained. He estimated that
communities would receive energy from the projects with zero
debt service at the end of 45 years. He asserted that there
would never be an end to debt service under private
ownership.
Vice-Chair Bunde questioned why there hasn't been a proposal
from the communities. Representative Williams explained that
discussions have been complicated by other factors. Vice-
Chair Bunde pointed out that it has been two years. He
questioned at what point the obstacles would be resolved.
Representative Williams replied that he hoped that there
would be a resolution by the end of next
Co-Chair Therriault MOVED to ADOPT Amendment 1, change "40"
to "45" on page 1, line 8. There being NO OBJECTION, it was
so ordered.
Co-Chair Therriault MOVED to ADOPT Amendment 2 as a
conceptional amendment to replace "request for proposal"
with "negotiations for" on page 1, line 15 and page 2, line
7. Representative Austerman emphasized that "open only to
the electric utilities" should be retained. Co-Chair
Therriault agreed. There being NO OBJECTION, it was so
ordered.
Representative Austerman MOVED to ADOPT Amendment 3, delete
on page 2, lines 8 - 13. Co-Chair Therriault OBJECTED.
Representative Austerman suggested that a request for
information regarding a private sector acquisition could be
given to ADIEA without additional language in the
resolution.
Representative Grussendorf spoke in support of Amendment 3.
Representative G. Davis stressed that the language does not
preclude a competitive effort. Co-Chair Therriault spoke in
support of retaining the language. A roll call vote was
taken on the motion.
IN FAVOR: Grussendorf, Williams, Austerman, Davies
OPPOSED: Kohring, Moses, Bunde, Davis, Therriault, Mulder
The MOTION FAILED (4-7).
Representative Austerman MOVED to ADOPT Amendment 4 (copy on
file). He explained that the amendment would add language
stating that "WHEREAS the Alaska Energy Authority retains,
under the power sales agreement, significant liabilities
relating to the power projects, including responsibility for
uninsured facility failure, substandard performance,
deficiencies in the reserve and replacement fund, and loss
of power sales". Co-Chair Therriault OBJECTED. A roll call
vote was taken on the motion.
IN FAVOR: Moses, Williams, Austerman, J. Davies, G. Davis,
Grussendorf
OPPOSED: Kohring, Bunde, Foster, Mulder, Therriault
The MOTION PASSED (6-5).
(Tape Change, HFC 99 -121, Side 1)
Co-Chair Mulder MOVED to report CSHCR 10 (FIN) out of
Committee with the accompanying fiscal note. Vice-Chair
Bunde OBJECTED. He stressed that the state should look at
privatization. He maintained that the resolution encourages
the communities to slow down their negotiations.
Representative Austerman spoke in support of moving HCR 10
from Committee. He stressed that the state should get out of
the liability of the Four Dam Pool.
Representative Grussendorf spoke in support of the
legislation.
A roll call vote was taken on the motion.
IN FAVOR: Moses, Williams, Austerman, J. Davis, Davis,
Foster, Grussendorf, Kohring, Mulder, Therriault,
OPPOSED: Bunde
The MOTION PASSED (10-1).
CSHCR 10 (FIN) was REPORTED out of Committee with a "do
pass" recommendation and with a zero fiscal note by the
House Special Committee on Utility Restructuring for the
Department of Commerce and Economic Development dated
4/29/99.
ADJOURNMENT
The meeting adjourned at 4:30 p.m.
House Finance Committee 12 5/7/99
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