Legislature(2021 - 2022)ADAMS 519

05/09/2022 01:30 PM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ SB 243 PWR COST EQ: RAISE, ENDOW FUND INVESTMENT TELECONFERENCED
Heard & Held
-- Public Testimony --
+ HB 5 SEXUAL ASSAULT; DEF. OF "CONSENT" TELECONFERENCED
<Pending Referral>
Scheduled but Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 170 ENERGY INDEPENDENCE PROGRAM & FUND: AIDEA TELECONFERENCED
Moved CSHB 170(FIN) Out of Committee
                  HOUSE FINANCE COMMITTEE                                                                                       
                        May 9, 2022                                                                                             
                         1:32 p.m.                                                                                              
                                                                                                                                
1:32:22 PM                                                                                                                    
                                                                                                                                
CALL TO ORDER                                                                                                                 
                                                                                                                                
Co-Chair Merrick called the  House Finance Committee meeting                                                                    
to order at 1:32 p.m.                                                                                                           
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Neal Foster, Co-Chair                                                                                            
Representative Kelly Merrick, Co-Chair                                                                                          
Representative Dan Ortiz, Vice-Chair                                                                                            
Representative Ben Carpenter                                                                                                    
Representative Bryce Edgmon                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Bart LeBon                                                                                                       
Representative Sara Rasmussen                                                                                                   
Representative Steve Thompson                                                                                                   
Representative Adam Wool                                                                                                        
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative DeLena Johnson                                                                                                   
                                                                                                                                
ALSO PRESENT                                                                                                                  
                                                                                                                                
Tim   Grussendorf,  Staff,   Senator  Lyman   Hoffman;  Nils                                                                    
Andreassen,  Executive  Director, Alaska  Municipal  League;                                                                    
Curtis Thayer, Executive  Director, Alaska Energy Authority,                                                                    
Department of Commerce, Community and Economic Development.                                                                     
                                                                                                                                
PRESENT VIA TELECONFERENCE                                                                                                    
                                                                                                                                
John  Handeland,  Mayor of  Nome,  Nome;  Morgan Neff,  CIO,                                                                    
Alaska   Industrial   Development  and   Export   Authority,                                                                    
Department of Commerce, Community and Economic Development.                                                                     
                                                                                                                                
SUMMARY                                                                                                                       
                                                                                                                                
HB 170    ENERGY INDEPENDENCE PROGRAM & FUND: AIDEA                                                                             
                                                                                                                                
          CSHB 170(FIN) was REPORTED out of committee with                                                                      
          one "do pass" recommendation, two "do not pass"                                                                       
          recommendations,    four    "no    recommendation"                                                                    
          recommendations,      and       three      "amend"                                                                    
          recommendations  and with  one  new fiscal  impact                                                                    
          note  by  the  House  Finance  Committee  for  the                                                                    
          Department  of  Commerce, Community  and  Economic                                                                    
          Development;  one new  fiscal impact  note by  the                                                                    
          Department  of  Commerce, Community  and  Economic                                                                    
          Development;  and one  new fiscal  impact note  by                                                                    
          the    House    Finance   Committee    for    Fund                                                                    
          Capitalization.                                                                                                       
                                                                                                                                
CSSB 243(FIN)                                                                                                                   
          PWR COST EQ: RAISE, ENDOW FUND INVESTMENT                                                                             
                                                                                                                                
          CSSB 243(FIN) was HEARD and  HELD in committee for                                                                    
          further consideration.                                                                                                
                                                                                                                                
Co-Chair Merrick reviewed the meeting agenda.                                                                                   
                                                                                                                                
CS FOR SENATE BILL NO. 243(FIN)                                                                                               
                                                                                                                                
     "An Act relating to the power cost equalization                                                                            
     endowment fund; relating to power cost equalization;                                                                       
     and providing for an effective date."                                                                                      
                                                                                                                                
1:32:55 PM                                                                                                                    
                                                                                                                                
Co-Chair Merrick discussed the meeting agenda.                                                                                  
                                                                                                                                
TIM  GRUSSENDORF, STAFF,  SENATOR LYMAN  HOFFMAN, introduced                                                                    
the legislation. He explained that  SB 243 raised the number                                                                    
of kilowatt-hours  for each  residential customer  per month                                                                    
from  500   to  750  kilowatt-hours  (kWh).   The  provision                                                                    
returned Power Cost Equalization (PCE)  to its 1985 level of                                                                    
support. The  bill also changed  the investment  strategy of                                                                    
the  Power Cost  Equalization Endowment  Fund from  the four                                                                    
percent nominal target return  to using the prudent-investor                                                                    
rule. He noted that  the historic consumption limits between                                                                    
1985  to 1993  funded 750  kilowatt-hours and  from 1993  to                                                                    
2000 the  amount was decreased  to 700kWh and since  2000 it                                                                    
has remained  at the 500kWh  level. He furthered that  in FY                                                                    
2021, 176  communities were eligible  for PCE  payments. The                                                                    
additional  250kWh would  add approximately  $16 million  in                                                                    
Designated General  Funds (DGF)  to the annual  payment. The                                                                    
PCE program  supported communities across the  state and the                                                                    
PCE fund totaled $1.1 billion as of March 31, 2022.                                                                             
1:35:14 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster  asked  what the  average  residential  PCE                                                                    
usage was. Mr. Grussendorf replied  that he did not know the                                                                    
answer. He offered that the  most recent Institute of Social                                                                    
and Economic Research (ISER) study  of the PCE program found                                                                    
that the  rural residents used  about 40 percent of  the kWh                                                                    
amount  urban  Railbelt   customers  used.  Co-Chair  Foster                                                                    
restated  that the  additional 250kWh  would  add about  $16                                                                    
million  DGF annually  from the  PCE  fund. He  communicated                                                                    
that  the PCE  fund  had  an excess  amount  going into  the                                                                    
waterfall  equation for  Community Assistance  and Renewable                                                                    
Energy.  He   emphasized  that  the  $16   million  was  not                                                                    
Undesignated  General Funds  (UGF).  He  indicated that  the                                                                    
full  $16 million  was  based on  all  households using  the                                                                    
extra 250kWh, which  would likely not be the  case. He asked                                                                    
if he was correct. Mr. Grussendorf answered affirmatively.                                                                      
                                                                                                                                
Vice-Chair   Ortiz   asked   for   verification   that   the                                                                    
sustainability of the  PCE fund would remain  solid with the                                                                    
adoption  of  the  bill. Mr.  Grussendorf  answered  in  the                                                                    
affirmative.   Vice-Chair   Ortiz   requested   an   average                                                                    
breakdown per household of the additional support.                                                                              
                                                                                                                                
1:37:30 PM                                                                                                                    
                                                                                                                                
Mr. Grussendorf responded  that he did not  have a breakdown                                                                    
available. He elucidated that 500kWh  per month was minimal.                                                                    
He remarked  that at Christmas  time there were  not holiday                                                                    
lights up in many villages  because they could not afford to                                                                    
exceed the  500kWh per month  limit. Vice-Chair  Ortiz asked                                                                    
if the situation he described  may be alleviated if the bill                                                                    
was adopted.  Mr. Grussendorf guessed that  recipients would                                                                    
be able  to keep a bit  more heat on or  increase some other                                                                    
electrical usage, but  people tend to stay  within the usage                                                                    
limit.                                                                                                                          
                                                                                                                                
1:38:50 PM                                                                                                                    
                                                                                                                                
Representative Wool  asked if  many people  used electricity                                                                    
for heat.  Mr. Grussendorf answered  that that some  did but                                                                    
the  majority used  diesel. Representative  Wool appreciated                                                                    
the goal  of the bill.  The only concern  he had was  if the                                                                    
increase disincentivized  installing solar panels  to reduce                                                                    
electric bills  or some other alternative  measure. He asked                                                                    
if  the   legislation  would  disincentivize  the   idea  of                                                                    
renewable energy. He asked how  the $16 million affected the                                                                    
cascade of  PCE funding for  the Renewable Energy  Fund. Mr.                                                                    
Grussendorf replied  that the  waterfall was  based strictly                                                                    
on the earnings of the  endowment and the increase would not                                                                    
affect  the renewable  energy piece.  He explained  that the                                                                    
endowment prioritized  the 5 percent  of the  fund available                                                                    
for the PCE  program. Currently, the PCE  program used about                                                                    
2.2  percent and  the remainder  was returned  to the  fund.                                                                    
Under the bill,  4.6 percent of the 5 percent  draw would be                                                                    
used for  PCE. The waterfall  was entirely dependent  on the                                                                    
earnings  of  the  fund  separate from  the  PCE  5  percent                                                                    
payout.  He deduced  that the  fund could  lose 2.6  percent                                                                    
from passage of the bill, but  that amount was so minimal it                                                                    
did not measurably affect the endowments earnings.                                                                              
                                                                                                                                
1:41:35 PM                                                                                                                    
                                                                                                                                
Representative  Wool shared  that he  paid about  0.26kWh in                                                                    
Fairbanks. He imagined  that even with the  PCE increase the                                                                    
rural  cost  of  power  would  remain  high  enough  to  not                                                                    
disincentivize  alternative energy  solutions.  He asked  if                                                                    
the  rural   power  costs  would  still   remain  high.  Mr.                                                                    
Grussendorf responded  that power  costs were  likely around                                                                    
the  amount  paid in  Fairbanks.  He  deemed that  if  rural                                                                    
energy  consumers could  find a  way to  use solar  or other                                                                    
sources  that would  be cheaper,  they  would likely  choose                                                                    
that option  to save  money for other  bills. Representative                                                                    
Wool guessed  the bill would  be good for sources  like heat                                                                    
pumps that used electricity and did not require diesel use.                                                                     
                                                                                                                                
1:43:41 PM                                                                                                                    
                                                                                                                                
Representative   Josephson   referenced  Mr.   Grussendorf's                                                                    
mention  that in  the 1980s  the PCE  program provided  more                                                                    
subsidy. He  wondered why it was  decreased. Mr. Grussendorf                                                                    
replied  that in  2000,  the PCE  endowment  was formed.  He                                                                    
elaborated  that one  reason the  subsidy was  decreased was                                                                    
because the  fund was  unable to support  the PCE  payout at                                                                    
750kWh and  every year supplemental General  Funds (GF) were                                                                    
necessary.  The program  needed General  Fund support  until                                                                    
2014, when the endowment matured.  The fund had paid for PCE                                                                    
without any  additional GF since  2014. He  highlighted that                                                                    
the  other  reason  for  the  reduction  was  to  allow  the                                                                    
endowment to grow.                                                                                                              
                                                                                                                                
Representative   Edgmon  referenced   Representative  Wool's                                                                    
question. He  noted that part two  of the bill was  to allow                                                                    
the endowment to  be invested similar to  the Permanent Fund                                                                    
(PF) and not  cap the earning potential.  He delineated that                                                                    
the endowment  had started out  with a 7  percent investment                                                                    
return target rate that was  decreased to 5 percent in 2016.                                                                    
The endowment  was managed for long-term  growth rather than                                                                    
in  a more  aggressive manner.  He ascertained  that if  the                                                                    
fund was managed like the PF  and earned as much as possible                                                                    
in high earing years,  the earnings could easily accommodate                                                                    
the increased demands  of the bill and  the waterfall paying                                                                    
PCE  costs first,  then  community  assistance, and  finally                                                                    
renewable  energy. He  pointed to  communities like  Kipnuk,                                                                    
Stebens,  Gustavus,  or  Togiak   and  maintained  that  the                                                                    
 equalization   had an  impact  due to  the  cost of  diesel                                                                    
driving  the cost  of electricity  causing some  communities                                                                    
electricity costs  to be much higher  than other communities                                                                    
using  hydropower or  supplemental alternative  wind energy.                                                                    
He  reminded the  committee that  PCE was  part of  a  grand                                                                    
bargain   for Bradley  Lake,  the Four  Dam  Pool and  other                                                                    
power  projects.   He  strongly   supported  the   bill.  He                                                                    
referenced the  decreases in the  subsidy and noted  that in                                                                    
some years in  the 1990s PCE was not funded  and created the                                                                    
need to  start an endowment  in 2000. He  strongly supported                                                                    
the  bill. He  favored changing  the investment  strategy to                                                                    
help the fund  pay for the increase in the  bill. He thanked                                                                    
the sponsor for the bill.                                                                                                       
                                                                                                                                
1:48:36 PM                                                                                                                    
                                                                                                                                
Representative  Carpenter  referenced  the  concept  of  the                                                                    
prudent-investor rule versus the 4  percent target rate.  He                                                                    
asked  about  the  commiserate  increase  in  risk  for  the                                                                    
principle  of the  fund. Mr.  Grussendorf  replied that  the                                                                    
prudent-investor  rule  allowed  investors to  look  at  the                                                                    
markets  and   adjust  accordingly.  He  pointed   out  that                                                                    
currently the fund  took a 5 percent draw  but was investing                                                                    
at a  4 percent  nominal return.  The Department  of Revenue                                                                    
(DOR) was  struggling to figure  out the best way  to invest                                                                    
the fund. He noted that  the Higher Education Endowment Fund                                                                    
had a  7 percent  target and outperformed  the PCE  fund. He                                                                    
detailed that the PCE fund  earned 14.4 percent the previous                                                                    
year compared  to 27.2 percent  for the  education endowment                                                                    
fund.  He   deduced  that  the  4   percent  nominal  return                                                                    
investing  strategy cost  the PCE  endowment $20  million to                                                                    
$30 million.  Representative Carpenter  asked if  there were                                                                    
examples when the  PCE fund did not lose as  much when other                                                                    
funds  lost more.  Mr. Grussendorf  responded that  when the                                                                    
target was set at 7 percent  there were some years where the                                                                    
fund had struggled,  which was the impetus  for lowering the                                                                    
target  to   5  percent,  which  was   an  overreaction.  He                                                                    
reiterated that  the bill  enabled the  fund to  invest with                                                                    
the same guidelines  as the Permanent Fund  and related that                                                                    
there  always would  be risk.  He voiced  that the  fund was                                                                    
currently healthy  enough and had  mechanisms in  place over                                                                    
time to make up for bad years.                                                                                                  
                                                                                                                                
1:52:16 PM                                                                                                                    
                                                                                                                                
Representative LeBon  stated that the prudent  investor rule                                                                    
worked  two  ways;  investing money  and  spending  from  an                                                                    
endowment.  He asked  if investing  expectations were  unmet                                                                    
whether there  was flexibility  to return  to the  lower per                                                                    
kilowatt hour  rate if  lower returns  were realized  on the                                                                    
endowment. He  asked if  the bill  locked the  higher number                                                                    
in. Mr.  Grussendorf answered that  the bill would  lock the                                                                    
increase in.  He detailed that  currently, if the  5 percent                                                                    
draw was not sufficient to pay  for the full cost of the PCE                                                                    
program the subsidy and DORs   cost to manage the fund would                                                                    
be  prorated equally.  Representative  LeBon clarified  that                                                                    
the flexibility  existed if  the financial  variables caused                                                                    
the  department   to  take  that  action.   Mr.  Grussendorf                                                                    
answered in the  affirmative and added that  the subsidy was                                                                    
prorated to the amount available.                                                                                               
                                                                                                                                
Co-Chair Merrick OPENED public testimony.                                                                                       
                                                                                                                                
NILS  ANDREASSEN,   EXECUTIVE  DIRECTOR,   ALASKA  MUNICIPAL                                                                    
LEAGUE, felt that  he was  between a rock and  a hard place                                                                     
with  his opinion  of the  legislation. He  spoke about  the                                                                    
importance of PCE  to many AML members  and rural residents,                                                                    
which  did  offset in  parallel  investments  made to  urban                                                                    
residents. He  believed that the  value of the  increase for                                                                    
rural communities was significant.  He weighed the potential                                                                    
unintended impacts of  SB 243 on AML's  entire membership of                                                                    
165  cities and  boroughs on  community assistance  that was                                                                    
one  of  the  eligible  programs   funded  out  of  the  PCE                                                                    
endowment.  He related  that  it was  worth  noting how  the                                                                    
support  intersected.  He noted  that  for  rural and  small                                                                    
communities,  community assistance  could be  as much  as 80                                                                    
percent  of  a  community's annual  budget.  The  assistance                                                                    
helped in delivering things like  power, water, and sewer to                                                                    
residents. He  added that  the community  assistance program                                                                    
contributed to  washeterias, and  the bill  did not  add any                                                                    
funding for  items like  that. He  relayed that  his biggest                                                                    
concern was the bill did  good things for many Alaskans, but                                                                    
the broader  concern was  it did  not safeguard  against the                                                                    
possibility  if  funds  were  not  available  for  community                                                                    
assistance.  He suggested  some  modeling  to understand  at                                                                    
different levels  how community assistance may  be impacted.                                                                    
He acknowledged that  there was no surety, but  he wanted to                                                                    
feel confident  that an  increase in  the PCE  program could                                                                    
fund the community assistance and  the renewable energy fund                                                                    
under a variety of fiscal scenarios.                                                                                            
                                                                                                                                
1:58:40 PM                                                                                                                    
                                                                                                                                
Mr.  Andreassen referenced  the conversation  just prior  to                                                                    
public  testimony   and  offered  that  a   range  could  be                                                                    
considered so  the waterfall affect could  be continued, and                                                                    
the proposed  increase would go into  effect after community                                                                    
assistance and  renewable energy fund payouts.  He commented                                                                    
that the prudent-investor rule  did not automatically result                                                                    
in higher returns.  He added that both  the prudent investor                                                                    
rule and investment target could  co-exist. He believed that                                                                    
the  PF   and  pension  assets  were   invested  under  both                                                                    
investment strategies.                                                                                                          
                                                                                                                                
Representative Wool referenced the  chart ["State of Alaska:                                                                    
Alaska Energy  Authority Analysis based  on FY 21  PCE Data"                                                                    
provided  by AEA  dated June  30, 2021  (copy on  file)] and                                                                    
noted that  communities charged  different amounts  and were                                                                    
given a PCE  reduction, so the resulting  rates were varied.                                                                    
He asked Mr. Andreassen  to explain the legislations  effect                                                                    
on the waterfall. He wondered  if the waterfall payouts were                                                                    
covered under the 5 percent draw.                                                                                               
                                                                                                                                
2:01:26 PM                                                                                                                    
                                                                                                                                
Co-Chair  Merrick  wanted  to  address  the  question  after                                                                    
public testimony.                                                                                                               
                                                                                                                                
Mr. Andreassen  deferred the  answer to  investment experts.                                                                    
He believed that if the  endowments earnings were inadequate                                                                    
the waterfall payouts were not funded.                                                                                          
                                                                                                                                
Vice-Chair  Ortiz  restated  Mr.  Andreassens   concern.  He                                                                    
asked  if there  were  many communities  that would  benefit                                                                    
from  the bills   increase and  also be  negatively impacted                                                                    
because  the  municipality  did not  receive  the  community                                                                    
assistance   payment.  He   asked   if  it   was  a   likely                                                                    
possibility. Mr. Andreassen believed  it was the concern. He                                                                    
agreed  that  there  was   overlap  between  residents  that                                                                    
benefitted but the  community might have to  close its doors                                                                    
or cities  would not  be able  to operate.  Vice-Chair Ortiz                                                                    
deduced  that   the  scenario  could  get   translated  into                                                                    
specific  services  that  the communities  could  no  longer                                                                    
provide  by losing  community assistance  for the  residents                                                                    
benefitting  from  the  increase  in the  PCE  subsidy.  Mr.                                                                    
Andreassen  answered in  the affirmative  and agreed  it was                                                                    
the concern.                                                                                                                    
                                                                                                                                
2:04:05 PM                                                                                                                    
                                                                                                                                
Representative   Edgmon   appreciated   the   position   Mr.                                                                    
Andreassen  was in  and understood  his  dilemma. He  stated                                                                    
that  an increase  in PCE  was far  more beneficial  for his                                                                    
constituents.  He  noted that  the  village  of Kipna  would                                                                    
receive $288 thousand under the  bill and received much less                                                                    
community assistance. He pointed  to a larger community like                                                                    
Dillingham that  would still get  more from the bill  in PCE                                                                    
than from  community assistance,  which if fully  funded was                                                                    
$30 million  per year  in total. He  pointed to  much larger                                                                    
communities that likely  did not participate in  PCE but did                                                                    
receive community assistance. He understood the tradeoffs.                                                                      
                                                                                                                                
2:05:41 PM                                                                                                                    
                                                                                                                                
JOHN HANDELAND,  MAYOR OF  NOME, NOME  (via teleconference),                                                                    
spoke  in  support of  the  cap  increase  in the  bill.  He                                                                    
relayed that he also managed  the water, sewer, and electric                                                                    
utilities for  the city. He  lacked an opinion on  the other                                                                    
components   of  the   bill   in   relation  to   investment                                                                    
strategies.  Currently, Nomes   customers  paid 0.40kWh  and                                                                    
the  PCE  rate paid  0.16kWh  with  a  net of  0.24kWh.  The                                                                    
increase  would assist  the  customers  that struggled  with                                                                    
rising costs  due to  ever increasing costs  of fuel  in the                                                                    
community. He urged the committee  to adopt the provision to                                                                    
increase the cap.                                                                                                               
                                                                                                                                
Co-Chair Merrick CLOSED public testimony.                                                                                       
                                                                                                                                
Co-Chair Merrick asked for a review of the fiscal note.                                                                         
                                                                                                                                
CURTIS THAYER, EXECUTIVE  DIRECTOR, ALASKA ENERGY AUTHORITY,                                                                    
DEPARTMENT OF COMMERCE,  COMMUNITY AND ECONOMIC DEVELOPMENT,                                                                    
reviewed  the published  fiscal impact  fiscal note  for the                                                                    
Department of  Commerce, Community and  Economic Development                                                                    
(DCCED) appropriated  to the  Alaska Energy  Authority (AEA)                                                                    
(FN1 (CED).  He explained that the  increased kilowatt hours                                                                    
amounted to  approximately $15.7 million based  on PCE costs                                                                    
of the  current year.  He elaborated  that AEA  budgeted $32                                                                    
million for 500  kilowatts and increasing that  amount by 50                                                                    
percent added the  $15.7 million. The total  PCE program was                                                                    
anticipated to cost $46 million.                                                                                                
                                                                                                                                
Representative Edgmon  shared that there were  many villages                                                                    
that did not have the ability  to graduate up to the 750kWh.                                                                    
He asked  whether that scenario  had been factored  into the                                                                    
fiscal note.  He deduced that  the fiscal note was  based on                                                                    
speculation.  Based  on  his familiarity  of  rural  Alaska,                                                                    
smaller  communities  would  not  use the  full  750kWh.  He                                                                    
thought the fiscal note was  based on a linear straight line                                                                    
analysis where all communities rise  to the level of 750kWh.                                                                    
He requested  that Mr. Thayer  comment. Mr.  Thayer answered                                                                    
that  AEA  had  assumed  that  the  total  increase  of  all                                                                    
communities  using   the  750kWh  was  a    high  end   cost                                                                    
estimate. He noted  that there were 193  PCE communities and                                                                    
AEA looked at the average  PCE community and used an average                                                                    
based  on  750kWh.  He  furthered   that  there  were  other                                                                    
complicating  factors for  determining the  fiscal note.  He                                                                    
explained that PCE paid $0.20 to  $0.75 over a base rate and                                                                    
not   all  communities   use  the   subsidy  at   $0.75.  He                                                                    
exemplified that for some communities  PCE paid 0.10 and for                                                                    
others PCE  paid the  full 0.55  difference. The  factor was                                                                    
accounted for to help approximate the high end fiscal note.                                                                     
                                                                                                                                
2:10:35 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon ascertained  that  the actual  fiscal                                                                    
impact  would  not  be  as  high as  what  the  fiscal  note                                                                    
projected.                                                                                                                      
                                                                                                                                
Co-Chair Foster  cited the AEA  document and  referenced the                                                                    
chart  showing  totals  of  the  FY  21  residential  energy                                                                    
consumption  by  community.  He asked  for  a  summation  of                                                                    
column K  that listed the  proposed PCE maximum in  order to                                                                    
compare  the  actual  consumption  in  2021.  He  wanted  to                                                                    
determine  if the  numbers were  under or  above the  fiscal                                                                    
note projection  and it  the full 750kWh  would be  used. He                                                                    
asked for the  information prior to the next  meeting on the                                                                    
bill.                                                                                                                           
                                                                                                                                
Mr.  Thayer  replied  that  AEA would  follow  up  with  the                                                                    
information.                                                                                                                    
                                                                                                                                
Representative  Wool asked  how  a  community qualified  for                                                                    
PCE. Mr. Thayer answered that  one of the qualifications was                                                                    
rural  communities   not  connected  by  the   road  system,                                                                    
communities off the grid, and  the size of the community. He                                                                    
furthered that the reimbursement  amount is calculated based                                                                    
on the cost  (base rates were established  by the Regulatory                                                                    
Commission of Alaska  (RCA)) for a similar  level of service                                                                    
in Anchorage,  Fairbanks, and Juneau.  He detailed  that for                                                                    
some communities like Lime Village the cost was $0.75kWh.                                                                       
                                                                                                                                
2:13:51 PM                                                                                                                    
                                                                                                                                
Mr.  Grussendorf  referenced  a question  by  Representative                                                                    
Wool whether the 5 percent  contributed to the waterfall. He                                                                    
emphasized  that  the 5  percent  was  the payout  from  the                                                                    
endowment solely for  the PCE program. He  reiterated how it                                                                    
worked. He furthered that the  waterfall was strictly funded                                                                    
through  extra earnings  over the  PCE payment.  He noted  a                                                                    
year when the fund made  $180 million in earnings, which was                                                                    
the impetus  for the waterfall earnings  model for community                                                                    
assistance  by  Senator  Hoffman.  He  delineated  that  the                                                                    
community assistance payout was  still based on the original                                                                    
model of 3 years at $30  million out of a $90 million total.                                                                    
Lacking sufficient funding,  the community assistance payout                                                                    
would be one-third  of the amount available.  He addressed a                                                                    
question  by  Vice-Chair  Ortiz about  whether  a  community                                                                    
could   benefit   via   PCE  but   lose   services   through                                                                    
underpayment of  community assistance. He answered  that the                                                                    
scenario  could  happen.  However,  even  if  the  community                                                                    
assistance payout  was $20 million most  smaller communities                                                                    
received  the base  payment of  $100 thousand.  He indicated                                                                    
that  at  a  certain  population  limit  per  capita  larger                                                                    
communities benefitted by receiving over the base rate.                                                                         
                                                                                                                                
2:16:37 PM                                                                                                                    
                                                                                                                                
Representative  Wool stated  his  understanding  of how  the                                                                    
endowment fund  paid out for  the three programs.  He deemed                                                                    
that using most or all of  the 5 percent for the PCE program                                                                    
affected  the extra  earnings for  community assistance  and                                                                    
renewable energy.  He surmised  that the PCE  increase could                                                                    
affect  the earnings  of the  fund, which  would impact  the                                                                    
waterfall  going  forward  and  it  would  impact  community                                                                    
assistance because  more than  5 percent  would be  used for                                                                    
PCE.  He  asked  whether  he was  correct.  Mr.  Grussendorf                                                                    
replied that  considering the earnings,  the fund  would not                                                                    
earn a lot  more lacking $16 million with the  corpus of the                                                                    
fund at $1  billion. He thought that the fund  would have to                                                                    
lose a  lot more for  a number of years  in a row  to affect                                                                    
the waterfall. Representative Wool  thought that it would be                                                                    
interesting to  know what the  total consumption was  in PCE                                                                    
communities.                                                                                                                    
                                                                                                                                
Co-Chair Foster stated that he  supported the bill. He asked                                                                    
for a  simple example  of a calculation.  He did  some quick                                                                    
calculations for the village of  Wales and estimated a total                                                                    
maximum  of   228,000/kilowatt  hours.  He  noted   the  AEA                                                                    
document  showed that  Wales used  156224/kWh. He  wanted to                                                                    
understand the calculation and why  his numbers were skewed.                                                                    
He  requested  historical data  on  the  fund regarding  its                                                                    
earnings and payout  over the prior 5  years. He underscored                                                                    
the earlier comment about  community assistance. He reported                                                                    
that in the House  Operating Budget the community assistance                                                                    
was restored  to $90  million so  there would  be less  of a                                                                    
need  for the  waterfall  because  the community  assistance                                                                    
fund would be self-sustaining.                                                                                                  
                                                                                                                                
2:21:22 PM                                                                                                                    
                                                                                                                                
Representative  Josephson   referenced  2014   reforms  that                                                                    
funded  community  assistance  off  of  the  UGF  books.  He                                                                    
wondered  why  the  state  could  not  supplement  community                                                                    
assistance with extra funding.  Mr. Grussendorf replied that                                                                    
when   Senator  Hoffman   offered  the   original  community                                                                    
assistance program  it was funded  at $180 million  and one-                                                                    
third was used totaling $60 million, which was all GF.                                                                          
                                                                                                                                
Representative Carpenter  asked for a couple  of projections                                                                    
from  the  Legislative Finance  Division  (LFD)  on the  PCE                                                                    
payment   and   the   waterfall   projection   compared   to                                                                    
projections of the proposal in the bill going forward.                                                                          
                                                                                                                                
Co-Chair Merrick asked her staff to reach out to LFD.                                                                           
                                                                                                                                
Representative   Wool    requested   historical    data   on                                                                    
consumption.                                                                                                                    
                                                                                                                                
2:24:40 PM                                                                                                                    
                                                                                                                                
CSSB 243(FIN)  was HEARD and  HELD in committee  for further                                                                    
consideration.                                                                                                                  
                                                                                                                                
2:24:52 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
                                                                                                                                
2:29:06 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
HOUSE BILL NO. 170                                                                                                            
                                                                                                                                
     "An  Act establishing  the  Alaska energy  independence                                                                    
     program and the Alaska  energy independence fund in the                                                                    
     Alaska  Industrial  Development and  Export  Authority;                                                                    
     and providing for an effective date."                                                                                      
                                                                                                                                
2:29:12 PM                                                                                                                    
                                                                                                                                
Co-Chair  Merrick  indicated  that the  meeting  marked  the                                                                    
fifth hearing on HB 170. She  announced that there was a new                                                                    
Fund Capitalization  fiscal note.  She explained  that there                                                                    
had been  an initial $10 million  Fund Capitalization fiscal                                                                    
note by the  administration (FN2 (Fund Cap).  The amount had                                                                    
been  increased  to  $30  million by  the  House  Labor  and                                                                    
Commerce Committee  (HLC). The new  fiscal note was  for $20                                                                    
million as a compromise between the two prior amounts.                                                                          
                                                                                                                                
Representative  Wool applauded  the  effort to  meet in  the                                                                    
middle between  $10 million and  $30 million. He  thought an                                                                    
increase was good. He supported the fiscal note.                                                                                
                                                                                                                                
Co-Chair  Merrick asked  for any  further discussion  on the                                                                    
fiscal  note.  The  new  fiscal  note  was  adopted  without                                                                    
objection.                                                                                                                      
                                                                                                                                
Representative  Edgmon was  of  two minds  on  the bill.  He                                                                    
provided  his comments  about  the  legislation. He  related                                                                    
that the  concept of a  green bank  appealed to him.  He had                                                                    
concerns that  the legislation was not  properly vetted, and                                                                    
the banking  community had not  fully embraced the  idea. He                                                                    
supported the  provisions allowing  use of fossil  fuels but                                                                    
felt it  was not aligned with  the concept of a  green bank.                                                                    
He did not  like the terminology "independence"  in the bill                                                                    
and  thought that  it was   misleading.   He discerned  that                                                                    
energy  independence meant  that  rural  residents were  not                                                                    
burdened under the staggering cost  of diesel energy. He did                                                                    
not believe the  bill was an ideal product.  He had concerns                                                                    
about  the  program  housed   under  the  Alaska  Industrial                                                                    
Development and  Export Authority  (AIDEA) and  would prefer                                                                    
to  see  it under  the  Alaska  Housing Finance  Corporation                                                                    
(AHFC). He underscored  that green bank meant  green bank in                                                                    
other  states,  but   they  had  to  use   the  term  energy                                                                    
independence  in  Alaska  because  it  was  not  politically                                                                    
palatable.  He believed  green banks  were the  wave of  the                                                                    
future. He  speculated that the transition  away from diesel                                                                    
in rural  Alaska would be  a long  slow process. He  did not                                                                    
support the bill.                                                                                                               
                                                                                                                                
2:33:08 PM                                                                                                                    
                                                                                                                                
Co-Chair  Merrick  noted  there  were  representatives  from                                                                    
AIDEA and AEA online.                                                                                                           
                                                                                                                                
Representative Wool  shared some of  Representative Edgmon's                                                                    
concerns.  He  countered  that  something  was  better  than                                                                    
nothing.  He  also had  concerns  about  having the  program                                                                    
under  AIDEA and  suggested that  the  committee might  have                                                                    
investigated  moving it  to  AHFC. He  believed  that the  1                                                                    
megawatt  limit  was  relatively  small, and  the  bill  was                                                                    
targeted for  residential and commercial use.  He hoped that                                                                    
it would help residents transition  away from diesel use. He                                                                    
recalled  Representative Josephsons   amendment to  call the                                                                    
bill the Green  Bank bill. He pointed  to adopted amendments                                                                    
that  prioritized energy  efficiency,  renewable, and  clean                                                                    
energy. He  believed that the bill  was a step in  the right                                                                    
direction.                                                                                                                      
                                                                                                                                
2:35:44 PM                                                                                                                    
                                                                                                                                
Representative  LeBon  shared   concerns  about  the  Alaska                                                                    
banking  community buying  into the  program and  wanting to                                                                    
participate. He  asked AIDEA how  they imagined  the banking                                                                    
community participating in the program.                                                                                         
                                                                                                                                
MORGAN NEFF,  CIO, ALASKA INDUSTRIAL DEVELOPMENT  AND EXPORT                                                                    
AUTHORITY,  DEPARTMENT OF  COMMERCE, COMMUNITY  AND ECONOMIC                                                                    
DEVELOPMENT (via teleconference),  appreciated the question.                                                                    
He noted that the program  could only survive if the banking                                                                    
community supported it. He emphasized  that there was no way                                                                    
to circumvent the  banking communities  participation, since                                                                    
mobilizing  private capital  was an  essential component  of                                                                    
the bill that could  only be accomplished via collaboration.                                                                    
He was focused on conversations with the banking community.                                                                     
                                                                                                                                
2:37:19 PM                                                                                                                    
                                                                                                                                
Representative  LeBon referred  to credit  approval process.                                                                    
He asked if there was a  vision in the approval process that                                                                    
required a  banks  participation at a  certain dollar amount                                                                    
or whether theoretically, any amount  could be funded by the                                                                    
green bank.  Mr. Neff  answered that the  idea was  to fully                                                                    
leverage private  sector capital  to produce  the multiplier                                                                    
effect and  offer more attractive financing  and programs to                                                                    
all  communities in  the state.  He delineated  that through                                                                    
the green bank  there were many tools that  could be offered                                                                    
to  private  investors  such   as  credit  enhancement,  co-                                                                    
investment, and technical expertise.  He maintained that the                                                                    
program  was designed  to incentivize  and mobilize  private                                                                    
capital to  get as  much capital  out to  communities within                                                                    
the state. Representative LeBon asked  if the green bank was                                                                    
independent in  its credit  underwriting process  from AIDEA                                                                    
and  AEA.  Mr.  Neff   answered  that  would  ultimately  be                                                                    
established by  regulation. He  envisioned that  there would                                                                    
be a standalone committee and  process driven by the private                                                                    
investors to  leverage their capital  by the ratio of  $7 to                                                                    
$8  dollars to  $1  dollar. Representative  LeBon asked  who                                                                    
would write the credit policy for the green bank.                                                                               
                                                                                                                                
2:39:33 PM                                                                                                                    
                                                                                                                                
Mr.  Neff  answered that  the  policy  would be  written  in                                                                    
collaboration with the advisory  committee. He expected that                                                                    
the financial  institutions would play  a large role  in the                                                                    
committee.  Representative  LeBon  encouraged  Mr.  Neff  to                                                                    
ensure the banking community was  at the table when drafting                                                                    
the credit policy.                                                                                                              
                                                                                                                                
Representative Carpenter opined that  the bill was not ready                                                                    
for passage  or consideration by  the House. He  deemed that                                                                    
there was  some risk  and some value.  He thought  there was                                                                    
enough  uncertainty that  the committee  should do  its  due                                                                    
diligence before passing the bill out of committee.                                                                             
                                                                                                                                
2:40:55 PM                                                                                                                    
AT EASE                                                                                                                         
                                                                                                                                
2:41:57 PM                                                                                                                    
RECONVENED                                                                                                                      
                                                                                                                                
Representative  Carpenter voiced  that  his biggest  concern                                                                    
was  creating  a  program  and  setting  aside  state  money                                                                    
without any  idea that the banking  community was supportive                                                                    
of the program. He thought the bill was premature.                                                                              
                                                                                                                                
Representative Wool guessed  that if the program  was set up                                                                    
to attract  banks and offer credit  enhancement products, he                                                                    
hoped it  would entice lenders  and borrowers to  take loans                                                                    
out  for energy  efficiency or  renewable energy.  He stated                                                                    
that  if the  concept was  not attempted  the outcome  would                                                                    
remain unknown. He characterized  the green bank as offering                                                                    
risk reduction  to the banking community.  He recounted that                                                                    
the  other  green  banks  testified  to  the  extremely  low                                                                    
default rate.  He recognized  the bill  was not  perfect. He                                                                    
strongly believed that  the bill would help  move the needle                                                                    
away  from diesel  use and  that it  was  worth  a try.   He                                                                    
recounted that  the committee included an  amendment that $7                                                                    
million would be  set aside to underwrite  projects in rural                                                                    
Alaska.                                                                                                                         
                                                                                                                                
Representative LeBon  stated they had just  heard from AIDEA                                                                    
that  it  would  reach  out to  the  banking  community  and                                                                    
collaborate  while the  program was  developing. He  deduced                                                                    
that if  the banks had  a say in  how the credit  policy was                                                                    
written the  program could be  designed to win the  banks on                                                                    
board and achieve success.                                                                                                      
                                                                                                                                
2:45:14 PM                                                                                                                    
                                                                                                                                
Representative Wool noted that  green bank programs had been                                                                    
done successfully in  other states where there was  a lot of                                                                    
banking  involvement. He  reminded  the  committee that  the                                                                    
committee  removed  the  potential  for  large  fossil  fuel                                                                    
involvement.                                                                                                                    
                                                                                                                                
Representative Josephson added that  he supported moving the                                                                    
bill out of  committee, but he would not  be disappointed if                                                                    
it  did  not move  forward.  He  thought  that the  type  of                                                                    
institution would happen invariably.  He did not think AIDEA                                                                    
was the best  place to house the new program.  He noted that                                                                    
the Renewable Energy Program supported  the bill, and it had                                                                    
his great respect, which mattered to him.                                                                                       
                                                                                                                                
2:47:03 PM                                                                                                                    
                                                                                                                                
Representative  Edgmon  noted  there was  $18.5  million  in                                                                    
weatherization funds  in the capital budget  through federal                                                                    
funds. He  thought it would  be interesting to  know whether                                                                    
some of  the Infrastructure  Investment and Jobs  Act (IIJA)                                                                    
funding could be  available for residents without  a loan to                                                                    
repay.  He stood  behind his  earlier  comments stating  his                                                                    
skepticism  that the  program would  not do  much for  rural                                                                    
Alaska.  He  opined  that  some aspects  of  the  bill  were                                                                    
beneficial  but  restated  his  reservations  regarding  the                                                                    
bill. He reiterated his opposition to the bill.                                                                                 
                                                                                                                                
2:48:50 PM                                                                                                                    
                                                                                                                                
Co-Chair  Foster  MOVED  to  REPORT  CSHB  170(FIN)  out  of                                                                    
committee   with   individual    recommendations   and   the                                                                    
accompanying fiscal notes.                                                                                                      
                                                                                                                                
Representative Edgmon OBJECTED.                                                                                                 
                                                                                                                                
A roll call vote was taken on the motion.                                                                                       
                                                                                                                                
IN FAVOR: Josephson,  LeBon,   Ortiz,  Rasmussen,  Thompson,                                                                    
Wool, Merrick                                                                                                                   
OPPOSED: Carpenter, Edgmon, Foster                                                                                              
                                                                                                                                
The MOTION PASSED (7/3).                                                                                                        
                                                                                                                                
There being NO OBJECTION, CSHB  170(FIN) was REPORTED out of                                                                    
committee  with one  "do pass"  recommendation, two  "do not                                                                    
pass"    recommendations,     four    "no    recommendation"                                                                    
recommendations, and three  "amend" recommendations and with                                                                    
one new  fiscal impact note  by the House  Finance Committee                                                                    
for  the  Department  of Commerce,  Community  and  Economic                                                                    
Development; one  new fiscal impact  note by  the Department                                                                    
of  Commerce, Community  and Economic  Development; and  one                                                                    
new fiscal  impact note by  the House Finance  Committee for                                                                    
Fund Capitalization.                                                                                                            
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
2:50:22 PM                                                                                                                    
                                                                                                                                
The meeting was adjourned at 2:50 p.m.                                                                                          
                                                                                                                                
                                                                                                                                

Document Name Date/Time Subjects
SB 243 AEA Response to Question HFIN 050922.pdf HFIN 5/9/2022 1:30:00 PM
SB 243
SB 243 Response toQ HFIN PCEAnalysis-LegReq-IncFrom500To750.pdf HFIN 5/9/2022 1:30:00 PM
SB 243
CSSB 243 Fin sectional.pdf HFIN 5/9/2022 1:30:00 PM
SB 243
SB 243 Supporting Document - AEA PCE Analysis from 500 to750.pdf HFIN 5/9/2022 1:30:00 PM
SB 243
HB 170 Public Testimony Rec'd by 050922.pdf HFIN 5/9/2022 1:30:00 PM
HB 170