Legislature(2005 - 2006)HOUSE FINANCE 519

02/03/2005 01:30 PM House FINANCE

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01:41:13 PM Start
01:41:22 PM HB46
02:33:09 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
Bills Previously Heard/Scheduled
                  HOUSE FINANCE COMMITTEE                                                                                       
                      February 3, 2005                                                                                          
                         1:41 p.m.                                                                                              
CALL TO ORDER                                                                                                                 
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 1:41:13 PM.                                                                                                          
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Eric Croft                                                                                                       
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Jim Holm                                                                                                         
Representative Mike Kelly                                                                                                       
Representative Carl Moses                                                                                                       
MEMBERS ABSENT                                                                                                                
Representative Reggie Joule                                                                                                     
Representative Bruce Weyhrauch                                                                                                  
ALSO PRESENT                                                                                                                  
Tom Wright,  Staff, Representative  John Harris;  Dan Easton,                                                                   
Director,  Division  of Water,  Department  of  Environmental                                                                   
Conservation; Ben  Brown, Legislative Liaison,  Department of                                                                   
Environmental Conservation                                                                                                      
PRESENT VIA TELECONFERENCE                                                                                                    
Steve Thompson, Mayor, City of  Fairbanks; Kara Moriarty, CEO                                                                   
Fairbanks  Chamber of  Commerce;  Jim Strandberg,  Regulatory                                                                   
Commission of Alaska;  Patrick Cole, Chief of  Staff, City of                                                                   
Fairbanks;  George   Gordon,  Utility  Services   of  Alaska;                                                                   
Charlie   Walker,   CEO,   Fairbanks   Economic   Development                                                                   
HB 46     "An Act permitting grants to certain regulated                                                                        
          public utilities for water quality enhancement                                                                        
          projects and water supply and wastewater systems."                                                                    
          HB 46 was heard and HELD in Committee for further                                                                     
1:41:22 PM                                                                                                                    
HOUSE BILL NO. 46                                                                                                             
     "An Act permitting grants to certain regulated public                                                                      
     utilities for water quality enhancement projects and                                                                       
     water supply and wastewater systems."                                                                                      
TOM  WRIGHT,  STAFF,  REPRESENTATIVE JOHN  HARRIS,  spoke  on                                                                   
behalf of  the sponsor  in support  of HB  46.  He  explained                                                                   
that  the   bill  was   introduced  by   request  to   expand                                                                   
eligibility  for  municipal  water, sewer,  and  solid  waste                                                                   
matching grants, which are administered  by the Department of                                                                   
Environmental Conservation (DEC),  to include privately owned                                                                   
water  and sewer  utilities.   The bill  also requires  these                                                                   
utilities  to be regulated  by the  Regulatory Commission  of                                                                   
Alaska (RCA).  He offered to answer questions.                                                                                  
Vice-Chair  Stoltze referred  to  a controversial  bill  last                                                                   
year  concerning  the  removal of  Regulatory  Commission  of                                                                   
Alaska control for  Anchorage.  He asked Mr.  Wright if there                                                                   
is any  intent to advance  this bill  and for his  opinion on                                                                   
it.  Mr. Wright replied that there  has been no discussion on                                                                   
it and  he said he  does not believe  there is any  intent to                                                                   
resurrect it.  Vice-Chair Stoltze  noted that he would not be                                                                   
in support of such a bill.                                                                                                      
Mr.  Wright related  that the  Senate  has adopted  SB 32,  a                                                                   
companion bill  to HB 46.   SB 32 includes an  amendment that                                                                   
the  Committee would  like  to  consider in  this  bill.   He                                                                   
indicated that  the language,  "utilities owned and  operated                                                                   
by  a   political  subdivision  of   the  state  that   is  a                                                                   
municipality"  is acceptable  to  the sponsor  as a  proposed                                                                   
amendment to HB 46.                                                                                                             
1:45:40 PM                                                                                                                    
STEVE THOMPSON, MAYOR,  CITY OF FAIRBANKS, spoke  in favor of                                                                   
HB 46,  noting that  on January  31, 2005,  the city  council                                                                   
passed  Resolution 4149  in favor  of the bill.   He  related                                                                   
that  Fairbanks is  currently  having difficulty  encouraging                                                                   
economic development.   He emphasized  that the law  needs to                                                                   
be changed because, as a progressive  community, Fairbanks is                                                                   
being  penalized for  privatizing  utilities.   He termed  it                                                                   
unfair  that other  communities  served by  a public  utility                                                                   
receive  an advantage  because grant funds  are available  to                                                                   
them.   He  emphasized that  HB  46 would  level the  playing                                                                   
field and  encourage economic  development.   He pointed  out                                                                   
that in  2002, Fairbanks  supported SB 280,  as shown  by the                                                                   
passage of Resolution  3976.  Fairbanks has been  in favor of                                                                   
utility  grants  going  to  privately   held  businesses  for                                                                   
several years.                                                                                                                  
In response  to a  question by  Co-Chair Meyer, Mr.  Thompson                                                                   
clarified  that the Fairbanks  utilities  were sold in  1997.                                                                   
Co-Chair  Meyer asked  if Mr.  Thompson knew  there would  no                                                                   
longer  be access  to  grant funds  when  the utilities  were                                                                   
sold.  Mr. Thompson related that  the sale happened before he                                                                   
became  involved in  politics, but  at the  time it was  felt                                                                   
that  citizens would  be better  served by  a privately  held                                                                   
utility.   He  said he  did not  know  about the  discussions                                                                   
concerning grant availability.   Co-Chair Meyer noted that at                                                                   
the time of privatization, that was a risk that was taken.                                                                      
Vice-Chair Stoltze  pointed out that in order  to be eligible                                                                   
for grants, the rates would have  to be regulated by RCA.  He                                                                   
asked  if Mr.  Thompson  believes  that Fairbanks  wants  RCA                                                                   
oversight and  regulation to continue.  Mr.  Thompson replied                                                                   
that he believes  that would be necessary with  grants coming                                                                   
Co-Chair Meyer observed that if  HB 46 passes, there would be                                                                   
more  utilities competing  for  the same  pot  of money.  Mr.                                                                   
Thompson replied  that he would  hope that the pot  would get                                                                   
larger, the  playing field would  become more level,  and the                                                                   
ratepayers would benefit.                                                                                                       
1:51:46 PM                                                                                                                    
Vice-Chair Stoltze  related that the selling  of utilities in                                                                   
Anchorage  was very contentious.   He  asked Mr. Thompson  to                                                                   
share  some  history  of  the   Fairbanks  process  when  the                                                                   
proposal was made  to privatize.  Mr. Thompson  recalled that                                                                   
the proposal  was approved the  "first time out"  even though                                                                   
it was controversial.   In response  to a question as  to who                                                                   
owned  the  private  utilities  in  Fairbanks,  Mr.  Thompson                                                                   
replied, "Golden Hard Utilities, all-Fairbanks owned."                                                                          
PATRICK COLE,  CHIEF OF STAFF,  CITY OF FAIRBANKS,  continued                                                                   
to discuss  the history  of the  utility sale.   The  city of                                                                   
Fairbanks entered  the utility business only after  a fire in                                                                   
the  1940s,  which  caused  the  failure  of  private  firms.                                                                   
Throughout the 70s and 80s, the  city council wondered if the                                                                   
city should be  involved in the utility business.   In 1995 a                                                                   
group willing  to purchase the utilities approached  the city                                                                   
and the council  agreed that the city would  be better served                                                                   
by a private owner.   The sale closed in 1997  after vigorous                                                                   
debate for over  a year.  He stated his belief  that the sale                                                                   
served the  public well,  the money obtained  was put  into a                                                                   
permanent fund  which the city still  has, and it has  been a                                                                   
win-win situation for the community.                                                                                            
Vice-Chair  Stoltze asked  for  information  about grants  as                                                                   
they related  to Fairbanks.   Mr.  Thompson replied  that the                                                                   
city qualified  for them and they  served the public  well by                                                                   
enabling  new sewer  and water  lines to be  extended to  new                                                                   
areas.  He opined that current  residents could still benefit                                                                   
from  a grants  program.   Vice-Chair  Stoltze  asked if  top                                                                   
dollar was received.   Mr. Thompson related  that the council                                                                   
had a number of goals:  there  would be no rate increases for                                                                   
three years,  current  employees would  be retained,  and all                                                                   
utilities would be sold as a unit.   Some of those conditions                                                                   
may have  meant that  the top  dollar was  not achieved.   He                                                                   
emphasized that top dollar was not the only goal.                                                                               
2:00:51 PM                                                                                                                    
Co-Chair Meyer  asked if, at the  time of the sale,  the city                                                                   
was aware  that they would be  losing the ability to  use the                                                                   
grant program.  Mr. Thompson replied  that they were aware of                                                                   
it,  and that  for a  long time  the council  has wanted  the                                                                   
program to be amended to allow for grants.                                                                                      
Representative Holm  said he did not remember  the discussion                                                                   
as  being  the  city not  wanting  to  participate  as  grant                                                                   
receiver.   He pointed out that  it was done for  the purpose                                                                   
of making the  utility solvent during an  extremely difficult                                                                   
time.   The  idea was  that the  City of  Fairbanks would  do                                                                   
better if  it were not involved  in the utility  business, he                                                                   
2:04:02 PM                                                                                                                    
KARA MORIARTY,  CEO, FAIRBANKS CHAMBER OF COMMERCE,  spoke in                                                                   
support of HB 46.  She stressed  that all utilities should be                                                                   
on  the same  playing  field  and  eligible for  state  grant                                                                   
funds.  Currently,  the only utilities that  are eligible for                                                                   
these grants are publicly owned  utilities and the grants are                                                                   
primarily used  for infrastructure development  and upgrades.                                                                   
She emphasized that based on the  regulations set by RCA, the                                                                   
shareholders of  privately owned utilities cannot  generate a                                                                   
return  on   investments  or  receive  depreciation   expense                                                                   
credits for any  grant funds they receive.   She related that                                                                   
all utilities in  Fairbanks are owned either  privately or by                                                                   
a cooperative,  which  puts the residents  at a  disadvantage                                                                   
compared to other Alaska residents.   She stressed high costs                                                                   
for  new  businesses  due  to  lack  of  infrastructure,  and                                                                   
suggested  that being  able to  have access  to grants  would                                                                   
level the playing field.  She  urged the committee to look at                                                                   
HB 46 as a fairness issue.                                                                                                      
Vice-Chair Stoltze  asked if all utilities should  be treated                                                                   
equally.    Ms. Moriarty  replied  that  they should  all  be                                                                   
treated equally,  regardless of their ownership,  and be able                                                                   
to apply for grants, especially  if they are a privately held                                                                   
utility because the rate payers  benefit.  Vice-Chair Stoltze                                                                   
pointed out that if they can expand  their utilities it would                                                                   
affect their bottom line.                                                                                                       
2:09:05 PM                                                                                                                    
JIM  STRANDBERG,   COMMISSIONER,  REGULATORY   COMMISSION  OF                                                                   
ALASKA, in response to a question  from Representative Croft,                                                                   
replied  that  he is  familiar  with  the letter  about  cost                                                                   
recovery  from  RCA (copy  on  file.)   Representative  Croft                                                                   
voiced a concern about the possibility  of state money from a                                                                   
grant  being transferred  to a  private entity  if a  utility                                                                   
were  sold.    He  stated his  belief  that  if  RCA  retains                                                                   
jurisdiction, that would be unlikely  to happen.  He asked if                                                                   
it would be  contributed capital, unlikely to end  up being a                                                                   
private benefit  to the  new buyer.   Mr. Strandberg  replied                                                                   
that a  sale agreement  of a  regulated public  utility  is a                                                                   
commercial  agreement,  which   is  separate  from  any  rate                                                                   
decision but  linked in  the following manner:   a  buyer can                                                                   
purchase a  utility for any amount,  but rates will  be based                                                                   
on  the   book  value  of   the  utility,  less   accumulated                                                                   
depreciation  and less  any grant  funds.   He explained  the                                                                   
process of determining the rate  base when a utility is sold.                                                                   
Representative  Croft asked  if  a grant  could end  up as  a                                                                   
state grant to  a private entity if there were  a proposal to                                                                   
take a  utility out of RCA  jurisdiction or regulation.   Mr.                                                                   
Strandberg agreed that it is a possibility.                                                                                     
2:15:04 PM                                                                                                                    
DAN  EASTON,  DIRECTOR,  DIVISION  OF  WATER,  DEPARTMENT  OF                                                                   
ENVIRONMENTAL CONSERVATION  responded to a question  from Co-                                                                   
Chair Chenault about Fiscal Note  DEC #2, which totals $132.2                                                                   
thousand.   He  explained  that  the fund  source  is in  CIP                                                                   
receipts  rather than  in program receipts  because it  makes                                                                   
the  most sense  and is  the simplest  method.   As in  other                                                                   
grant programs, a separate allocation  for the amount of what                                                                   
it  costs to  run a  program for  a  year is  in the  capital                                                                   
budget, along  with all  of the  different projects  that the                                                                   
program  would fund  in  the fiscal  year.    If the  capital                                                                   
budget   passes,  then   money   is  transferred   into   the                                                                   
department's operating budget,  which shows the CIP receipts.                                                                   
Co-Chair  Chenault  used,  as  an example,  an  oil  industry                                                                   
program that is  tied into a fee or cost which  helps pay for                                                                   
the program, and asked why a utility  program wouldn't be the                                                                   
same.    Mr.  Easton replied  that  fees  are  not  typically                                                                   
charged for programs where funding  is provided, instead, the                                                                   
cost  is  taken  off  the  top   first.    Co-Chair  Chenault                                                                   
commented that once a program  is started, it costs the state                                                                   
and contributes to the budget  deficit.  He emphasized a need                                                                   
to  be frugal  and  suggested  that there  be  a buy-in  from                                                                   
municipalities.   Mr. Easton  opined that it  is not  a large                                                                   
program.  Co-Chair  Chenault argued that $132,000  is a large                                                                   
amount of money.                                                                                                                
Co-Chair  Meyer  inquired  if  another person  is  needed  to                                                                   
review 8  or 9 more  grants.  Mr.  Easton replied that  it is                                                                   
slightly  more   complex  than  that.    He   explained  that                                                                   
currently,  there  are 7  to  12 million-dollar  grants,  and                                                                   
there would be  a potential shift from making  a small number                                                                   
of large  grants to  a larger  number of  smaller grants,  as                                                                   
well as  expanding to new  clients, which requires  more help                                                                   
from the department.                                                                                                            
2:22:57 PM                                                                                                                    
Representative  Holm asked if  another full-time  employee is                                                                   
necessary if  only one grant  per month  is being done.   Mr.                                                                   
Easton responded that the workload  could potentially double.                                                                   
He  stressed  that  the  fiscal   note  was  approached  very                                                                   
frugally.   Representative Holm  said he is confused  because                                                                   
the  fiscal  note is  for  $132  thousand  and yet  only  $83                                                                   
thousand is shown for personal  services.  He asked where the                                                                   
other $50  thousand is going.   Mr. Easton replied  about $30                                                                   
thousand  is  for  support  costs  such  as  computers,  copy                                                                   
machines and overhead,  and $20,000 is for  contractual money                                                                   
to purchase audits.                                                                                                             
Representative Hawker  expressed a belief that  the committee                                                                   
is justified  in amending  the fiscal note  to a  zero fiscal                                                                   
note.  Co-Chair  Meyer agreed that this is  the direction the                                                                   
bill is headed, and he announced  that it would be held over.                                                                   
Vice-Chair Stoltze suggested taking a comprehensive view.                                                                       
Representative Holm  asked where the  pot of money  will come                                                                   
from  and how  large the  grants  are.   Mr. Easton  replied,                                                                   
primarily from state funds and  some federal grant funds.  He                                                                   
related that  the amount  has varied:  $9.4 million  in 2004,                                                                   
$6.4 in 2005, and $11 million  proposed for 2006.  Mr. Wright                                                                   
noted  that  the  figures  are   available  in  the  handout,                                                                   
"Municipal Water,  Sewerage and  Solid Waste Matching  Grants                                                                   
Program Description" (copy on file.)                                                                                            
2:29:53 PM                                                                                                                    
Representative Kelly explained  that the focus of the program                                                                   
is to benefit  the consumer of a large state  with relatively                                                                   
little infrastructure.   He related that RCA is  aware of how                                                                   
to handle  grants  and how to  make sure  that they  directly                                                                   
benefit  the   consumer.    He  stressed  that   an  existing                                                                   
municipality fully  qualified today  for these funds  is just                                                                   
as likely to make a sale to someone  who could then advantage                                                                   
this in  the future, or might  if they were deregulated.   He                                                                   
pointed out  that the  benefit would go  to the consumer  and                                                                   
stated his support for the bill.                                                                                                
Representative  Hawker commented  that a  premier example  of                                                                   
public funds  being used to  support private interests  might                                                                   
very well be the permanent fund.                                                                                                
Representative  Holm responded that  it could be  argued that                                                                   
government-owned  utilities  are thereby  competing  unfairly                                                                   
with privately owned utilities.                                                                                                 
2:33:09 PM                                                                                                                    
CHARLIE   WALKER,   CEO,   FAIRBANKS   ECONOMIC   DEVELOPMENT                                                                   
CORPORATION, encouraged support of the bill.                                                                                    
Co-Chair  Meyer closed  public testimony  and noted that  the                                                                   
bill would be held over.                                                                                                        
Representative  Croft  noted  that  after  listening  to  the                                                                   
testimony  he  changed proposed  Amendment  1  to read:  "Any                                                                   
grant to a public utility that  is not a municipality must be                                                                   
repaid with  interest from the  date the grant was  issued if                                                                   
the public utility  ceases to be regulated by  the RCA within                                                                   
five years of receipt of the grant."                                                                                            
Co-Chair  Meyer replied  that  Amendment 1,  as  well as  the                                                                   
amendment from  SB 32,  would be incorporated  into a  new CS                                                                   
for the next meeting.                                                                                                           
Mr. Wright reread  the proposed amendment from SB  32 for the                                                                   
committee to think about.                                                                                                       
HB  46   was  heard  and   HELD  in  Committee   for  further                                                                   
The meeting was adjourned at 2:39 PM                                                                                            

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