Legislature(2023 - 2024)ADAMS 519
03/16/2023 01:30 PM House FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| Presentation: Alaska Housing Finance Corporation Dividend Program | |
| Presentation: Alaska Industrial Development and Export Authority/alaska Energy Authority Dividend and Power Cost Equalization Programs | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE FINANCE COMMITTEE
March 16, 2023
1:31 p.m.
1:31:43 PM
CALL TO ORDER
Co-Chair Johnson called the House Finance Committee meeting
to order at 1:31 p.m.
MEMBERS PRESENT
Representative Neal Foster, Co-Chair
Representative DeLena Johnson, Co-Chair
Representative Julie Coulombe
Representative Mike Cronk
Representative Alyse Galvin
Representative Sara Hannan
Representative Andy Josephson
Representative Dan Ortiz
Representative Will Stapp
Representative Frank Tomaszewski
MEMBERS ABSENT
Representative Bryce Edgmon, Co-Chair
ALSO PRESENT
Randy Ruaro, Executive Director, Alaska Industrial
Development and Export Authority.
PRESENT VIA TELECONFERENCE
Bryan Butcher, Chief Executive Officer and Executive
Director, Alaska Housing Finance Corporation, Department of
Revenue; Geoffrey Johns, Chief Investment Officer, Alaska
Industrial Development and Export Authority; Curtis Thayer,
Executive Director, Alaska Energy Authority, Department of
Commerce, Community and Economic Development.
SUMMARY
PRESENTATION: ALASKA HOUSING FINANCE CORPORATION DIVIDEND
PROGRAM
PRESENTATION: ALASKA INDUSTRIAL DEVELOPMENT AND Export
Authority/ALASKA ENERGY AUTHORITY DIVIDEND and POWER COST
EQUALIZATION PROGRAMS
Co-Chair Johnson reviewed the meeting agenda.
^PRESENTATION: ALASKA HOUSING FINANCE CORPORATION DIVIDEND
PROGRAM
1:33:03 PM
BRYAN BUTCHER, CHIEF EXECUTIVE OFFICER AND EXECUTIVE
DIRECTOR, ALASKA HOUSING FINANCE CORPORATION, DEPARTMENT OF
REVENUE (via teleconference), provided a PowerPoint
presentation titled "Alaska Housing Finance Corporation
Presentation" dated March 16, 2023 (copy on file). He began
with information about Alaska Housing Finance Corporation
(AHFC). The corporation ran all of the public housing in
Alaska as well as vouchers. The corporation also operated a
number of other federal and state programs. He detailed
that two-thirds of AHFC's budget was comprised of federal
funds for the public housing component and one-third was
made up of corporate receipts earned by the corporation.
The AHFC dividend was determined by funds earned on the
mortgage side. The corporation provided mortgage programs
for the benefit of Alaskans.
Mr. Butcher explained that every state had a housing
finance agency due to a federal law passed 50 to 60 years
ago allowing state housing finance agencies to sell tax
exempt debt to fund purchases of mortgages. He detailed
that it meant AHFC borrowed money by selling bonds on Wall
Street and used the funds to buy mortgages for Alaskans.
The tax exempt aspect lowered the interest rates because
investors purchasing tax exempt bonds did not have to pay
federal taxes on earnings off the bonds. He stated it gave
housing finance agencies a unique niche. He elaborated that
tax exempt bonds could only be sold to fund first time
homebuyer loans. He noted that loans specific to first time
homebuyers were the "meat and potatoes" of AHFC's work.
There were five states that could sell tax exempt debt for
veterans' loans including Alaska, Oregon, Wisconsin, Texas,
and California.
Mr. Butcher relayed the loans were originated by AHFC's
partners including banks, credit unions, and mortgage
companies. He expounded that homebuyers went to one of the
aforementioned entities to ask about mortgage rates and may
see an AHFC interest rate as most attractive depending on
their circumstances. He explained that the banks, credit
unions, and mortgage companies sold the mortgages to the
secondary market where AHFC operated. The agency's
competition in the secondary market was Fannie May and
Freddie Mac, government sponsored enterprises (GSEs) in
Washington D.C. He explained that a mortgage going to AHFC
benefitted Alaska by keeping the dollars in the state and
benefitted Alaskans by providing an interest rate that was
frequently lower. He elaborated that AHFC was focused on
working with Alaskans to keep them in their homes rather
than what may be seen from Fannie May and Freddie Mac.
1:37:11 PM
Mr. Butcher moved to slide 3 titled "AHFC Transfer Plan
Dividend." He discussed that in the late 1980s/early 1990s
the price of oil dropped to $10 per barrel, there had been
massive shortfalls in state government, and there had been
substantial stresses to the housing market. He relayed that
AHFC had been well capitalized and in a position to help
the state out with dividends. The corporation began paying
out a dividend to the state comprised of AHFC's entire net
income as negotiated between the governor, policy makers,
and corporation. He relayed that after a couple of years,
the dollar amount being taken in the dividend exceeded
AHFC's net income. As a result, the credit rating agencies
(Standard and Poor, Fitch, and Moody's) gave AHFC a warning
that it was at risk of a downgrade because the action was
eating into the equity of the corporation. The whole
business model and opportunity to sell bonds depended on a
high credit rating. He expounded that if the credit rating
dropped, the interest the corporation had to pay on bonds
would increase, meaning the interest rates charged to
Alaskans would increase, which would take AHFC out of the
game. Consequently, there had been great concern by the
legislature, governor, and AHFC about the potential risk to
the corporation.
Mr. Butcher relayed that House Bill 256 had passed in 2003
to put a sustainable dividend in statute. The first year,
95 percent of the corporation's net income went to the
dividend, the second year 85 percent went to the dividend,
and the third year 75 percent went to the dividend. The
dividend remained at 75 percent going forward. Upon passage
of the bill, the corporation received immediate rating
upgrades from all three credit rating agencies. The bond
rating had increased, which reduced the corporation's cost
of capital and benefited Alaskans. He explained that at the
time of the rating increase, all three rating agencies
communicated their concern was whether the 75 percent
dividend would be honored over time. The statute had been
honored by the governor and legislature in the 20 years
since the bill's passage. Since the late 1980s, AHFC had
transferred more than $2.1 billion in dividends to the
state and AHFC's financial strength had remained strong.
1:40:52 PM
Mr. Butcher provided a 10-year historical snapshot of the
agency's dividend on slide 4. The dividend had been $7.4
million when he had started the job in FY 13. Over the
years the corporation had effectively increased the
dividend, which had helped Alaskans increase mortgages, in
addition to benefiting the state and AHFC. The dividend
steadily increased from FY 14 to FY 19 and dipped a little
in FY 20 before dropping considerably in FY 21 and FY 22 as
a result of the pandemic and borderline recession where
interest rates had been very low. The situation meant AHFC
had been able to offer very low interest rates to Alaskans.
Additionally, Fannie May and Freddie Mac had artificially
low interest rates to help prop up the economy; therefore,
much of AHFC's mortgage portfolio had refinanced out. He
added that the situation also meant that AHFC's short-term
investment rates had made very little. He remarked that
although the dividend rate was very healthy compared to ten
years ago, the decline in recent years, although
inevitable, was not an exciting report to give to the
legislature. He relayed that AHFC expected the dividend to
recover and increase as soon as the coming year.
1:43:10 PM
Representative Tomaszewski looked at slide 4 and asked for
the slide to be reconciled with slide 3. He highlighted the
$2.1 billion in dividends shown on slide 3 and pointed out
that slide 4 showed about $290 million in dividends for the
past 10 years. He asked if the $1.8 billion discrepancy was
transferred prior to 2013.
Mr. Butcher agreed. He explained the agency had been paying
a dividend since the late 1980s/early 1990s and he offered
to provide the committee with the entire history of the
dividends. Slide 4 was intended to provide a more recent
10-year snapshot.
Mr. Butcher reviewed the agency's capital budget request on
slide 5. He explained that numerous programs had been added
to AHFC's list of responsibilities over the years ranging
from programs AHFC managed like state match to federal
dollars coming for public housing to the Rural Professional
Housing Loan Program (teacher, healthcare, and public
safety professional housing). In October of every year, the
AHFC board determined the dividend based on 75 percent of
the agency's net income and what the dividend to the state
would be. The agency subtracted debt service sold on behalf
of the state. He pointed to the top of the slide and
highlighted that AHFC had sold debt for the University of
Alaska Anchorage (UAA) student housing for dorms in FY 99
and had done a number of bond deals for state capital
projects totaling $100 million to $200 million over the
years. The agreement added in statute was that the dividend
would pay for the debt service on the bonds into the future
until paid off (in FY 24 for UAA and FY 34 for state
capital project bonds). The debt service was subtracted
from the available dividend of $23.445 million for
appropriation.
Mr. Butcher continued to discuss the capital budget
summary. He explained that the AHFC board submitted a
request of the corporation's capital needs at the same time
it announced the dividend each year. As lower dividends had
occurred, the board historically tended to not ask for more
money than the agency was providing in the dividend. He
elaborated that in big years of $45 million to $50 million,
about half the funds tended to be used for AHFC's capital
projects and about half for anything the legislature chose
to appropriate in the capital budget. As things tightened,
the funds were primarily used for AHFC's capital budget
requests. There was no magic to using the dividend to
specifically fund an AHFC project rather than any other
project in the budget. Although, it was easier for AHFC to
spend its money on its projects and for the state to spend
its general funds on state projects rather than using the
dividend to fund a Department of Transportation and Public
Facilities project for example.
1:47:50 PM
Representative Josephson asked how much of the $23 million
request was in the governor's capital budget.
Mr. Butcher answered that the entire amount was included.
He pointed to slide 5 and explained that the total capital
budget dividend request matched the total AHFC dividend
available for FY 24.
Representative Josephson asked if the agency had
historically needed any special appropriations from the
state to pay its bills and to advance a specific agenda. He
clarified he was referring to requests outside of capital
projects.
Mr. Butcher answered that the agency had never needed any
state funds for its operating budget. There had been
occurrences when AHFC needed state funds for its capital
budget. For example, when the dividend had been only $7
million in FY 13, it had not been nearly enough for the
funding of AHFC's capital project programs. He explained
that AHFC had requested the funds through the Office of
Management and Budget and ultimately through the
legislature. He noted it was unfortunate that AHFC had been
in the situation, but fortunately it had only been a couple
of years. The corporation had also had requests for taking
on a much bigger size program than it could normally fund
through its dividend. For example, in 2008 and 2009 when
the state had been flush with money and the price of oil
had exceeded $100 per barrel, energy dividends had been
sent out [to individual Alaskans] and there had been
discussions about what would be a way to help Alaskans with
the difficulty of paying their energy costs. He detailed
that the finance committees had asked the agency to ramp up
its low income weatherization program and a home energy
rebate program for individuals making over 100 percent of
median income. The corporation had received $300 million in
state general funds that year and $700 million over the
course of ten years for the program. He shared that the
programs had been highly effective with an average energy
reduction of 30 percent per home. The agency was always
happy to entertain situations where a program was needed
that did not fit into the size of the dividend.
1:50:59 PM
Representative Ortiz referenced AHFC's $2 million capital
budget request for energy home weatherization. He asked if
the increment in the budget was standard in recent years.
He asked if it was sufficient in terms of demand for the
program.
Mr. Butcher answered the requested increment was "more or
less" what was typical. He detailed that the federal piece
had grown from $1 million (20 years earlier) to $3 million.
He elaborated that there were very low per house caps the
federal government required of about $8,000 per home;
therefore, the federal dollars were primarily used in urban
Alaska. He explained that $8,000 per house in rural areas
was not sufficient due to the cost of shipping, materials,
and labor. The dividend funds were necessary to broaden the
program to rural areas.
Representative Ortiz asked if the demand was much higher
than AHFC could meet with federal and state dollars.
Mr. Butcher replied affirmatively. The need in rural and
urban Alaska was great. The need was greatest in rural
Alaska based on the condition of the housing stock. Another
aspect of the work pertained to life, health, and safety
issues. He elaborated the program was not only about making
a home more energy efficient, it was also about looking at
the furnace and some of the things that could potentially
be catastrophic to a family if the work was not done right.
He confirmed that the need was far greater than the dollars
available.
Representative Ortiz relayed that the legislature had been
hearing loudly about workforce issues around the state
including problems with childcare and lack of affordable
housing. He asked if there was anything more AHFC could do
to help the state address the issue of housing.
1:54:44 PM
Mr. Butcher confirmed that the topic was within AHFC's
purview. He explained that nationally about 20 years ago
there was substantial workforce housing and high end
housing provided by the private sector. Additionally, there
had been affordable housing and senior housing for
individuals with limited budgets who needed help through
low income housing tax credits through the IRS and
administered by AHFC and other current programs. In the
past five years workforce housing and housing for the
average Alaskan was unattainable (for purchase and for
construction) due to increasing costs. The corporation had
been increasingly focused on the issue. He had a meeting
earlier in the day about what AHFC could possibly do. The
corporation had spoken with the state's congressional
delegation, and he understood that Congress was looking at
what could be done to help spur workforce housing.
Additionally, AHFC had conversations with the governor in
recent months. He explained that it got to a point where
the issue was not only about Alaskans being unable to
afford housing, it was also stifling economic development.
There were companies all across the state that could expand
but were unable to do so due to a lack of housing. It was a
relatively new focus for AHFC, but it was absolutely trying
to figure out a way to improve the situation.
Representative Hannan referenced the mental health bill
request for beneficiary and special needs housing. She
asked how long it had been since the increment had been
increased.
Mr. Butcher responded that the numbers for the two programs
were higher in total. He clarified the budget summary on
slide 5 only included the portion coming from AHFC's
dividend request and did not include federal and other
funds. He stated that in the past the number had been
fairly steady at $3.75 million, but there had been years
where it had decreased and increased. The special needs
housing program also worked in concert with the Homeless
Assistance Program. There had been years where one program
had increased and the other had decreased, but the total of
the two had remained about the same. The corporation would
provide details showing the funding for the two programs
over the past ten years.
1:58:00 PM
Representative Hannan asked if the demand was much higher
than the funding available. She asked if there would still
be a need if there was twice as much money allocated to
beneficiary and special needs housing and homeless
assistance. She wondered if they were anywhere close to
meeting the current need.
Mr. Butcher replied that funding for the two programs was
not adequate to meet the current need related to
homelessness. The corporation did the best it could with
the available funding split out between its programs.
Co-Chair Johnson asked Mr. Butcher to review the mental
health homeless program and special needs housing. She
asked how it interrelated with the caregivers and homes
they may have.
Mr. Butcher replied that the primary purpose of the
homeless assistance program was to keep homeless shelters
open. He stated the amount was substantial and in rural
areas the majority of the budget came from the program. The
program funds accounted for a substantial piece of the
operating cost (but not all) for larger communities. There
was a bit more flexibility around how to spend the funding
for beneficiary and special needs housing. Much of the new
construction, such as the Housing First program and
projects in Fairbanks, Anchorage, Nome, and Mat-Su came
from the program. In general, the Homeless Assistance
Program was operational dollars for shelters to remain open
and the beneficiary and special needs was focused on the
capital side such as housing units for those in need.
Mr. Butcher thanked the committee for the opportunity to
discuss the program.
Co-Chair Johnson thanked Mr. Butcher.
2:01:31 PM
AT EASE
2:02:57 PM
RECONVENED
^PRESENTATION: ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT
AUTHORITY/ALASKA ENERGY AUTHORITY DIVIDEND AND POWER COST
EQUALIZATION PROGRAMS
2:03:14 PM
RANDY RUARO, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY, provided a PowerPoint
presentation titled "Alaska Industrial Development and
Export Authority Overview," dated March 16, 2023 (copy on
file). He discussed Alaska Industrial Development and
Export Authority's (AIDEA) statutory mission to fight
poverty and advance jobs and economic development. The
mission was based on the legislative findings in AS
44.88.010(a)(1) and (a)(2), in which the legislature found
there were areas of the state where seasonal and
nonseasonal unemployment exist and that the unemployment
was a serious menace to the health, safety, and general
welfare of the people throughout the state. He relayed that
jobs and economic development were the agency's key focus
in the fight against poverty. He detailed that AIDEA was a
financially sustaining public corporation of the state. He
explained the agency was a political subdivision and it did
not receive any general fund support by statute; the agency
was self-supporting and independent.
2:05:35 PM
Mr. Ruaro advanced to the Loan Participation Program on
slide 5. The program was AIDEA's most significant financial
program with $422 million of program loans outstanding. The
loan program had increased 34 percent over the past five
years. There was a zero percent delinquency rate on the
program, which had been extremely successful and well run
over the decades.
Mr. Ruaro discussed Alaska's Ship Home-Porting for
Improvements Program (AK SHIP) on slide 6. The program was
designed to bring maritime industry work back to Alaska.
The program was fairly new, and he would be working with
CDQ groups and others to try to bring significant amounts
of maritime work currently going to Seattle and Portland
- back to Alaska.
Mr. Ruaro turned to the Conduit Revenue Bond Program on
slide 7. The program had done over 300 projects and had
close to $1.5 billion in bond issuances. There had been no
delinquencies and the program had been successful over the
years. The agency was working with communities and others
on possible additional issuances. He highlighted recent
work with the Tanana Chiefs to expand their healthcare
facilities at a cost of $126 million.
2:07:33 PM
Mr. Ruaro moved to project financing on slides 8 and 9. He
highlighted the Red Dog Mine as AIDEA's most successful
project. He relayed that in 1985, the legislature passed SB
297 and SB 298 that created the Economic Development Fund
and approved bonding for $175 million. Without the funds,
there would not have been a Red Dog Mine. He explained that
at the time the company Cominco did not have the fiscal
ability to start the mine without the funds provided by
AIDEA. The funds had been used to build the road and port.
He relayed that the mine ran into trouble in 1990 with low
commodity prices. He elaborated that AIDEA stepped up to
save the mine with $85 million in bonding for expansion.
The expansion enabled high enough volume levels to allow
the mine to remain in business. The mine was located on
NANA land and involved a partnership between AIDEA, Nana,
and Teck-Cominco. There were significant amounts spent
operating the mine and the average salary at the mine was
close to $100,000. He believed the mine had 65 percent
shareholder hire. Additionally, the mine contributed 7(i)
payments (a provision of the Alaska Native Claims
Settlement Act (ANCSA) requiring regional corporations to
share their profits from resource development with other
ANCSA corporations). The 7(i) payment spread across the
state and circulated into the economy.
2:09:41 PM
Representative Ortiz stated his understanding that the
state had been involved in financing the Red Dog Mine and
the road to the mine. Additionally, he believed AIDEA's
consultant Stanford Research Institute had suggested AIDEA
needed to look at starting to charge fees for the use of
the road in order to recoup some of the state's investment
in the road project. He asked if Mr. Ruaro had a comment on
the topic.
Mr. Ruaro replied that the state received a 6.5 percent
return on the bonding for the project. The state was
receiving net revenue from the road and the port.
Representative Ortiz asked if it had always been the case.
He wondered why the Stanford Research Institute would not
have addressed the particular issue.
Mr. Ruaro replied that the state had always received fees
from the port and road as written in the bill passed in
1985. He did not know why the institute had stated
otherwise.
2:11:32 PM
Mr. Ruaro highlighted the FedEx hangar at the Anchorage
airport as another AIDEA project on slide 10. The project
had been very successful in anchoring a tenant at the
airport. He relayed that AIDEA was preparing to make some
improvements that would be rolled into the lease payments.
The agency was also looking to work with FedEx on any
expansion opportunities. He turned to the Ambler access
project on slide 11. The project was in the permitting and
development stage. He detailed that in the 1980 Alaska
National Interest Lands Conservation Act (ANILCA) bill,
Congress had granted Alaska an easement for the project as
recognition of the significant mineral deposits in the
Ambler mining district. The project was a 211-mile road
east off the Dalton Highway into the Ambler mining district
through the Gates of the Arctic National Park and Preserve.
He explained there was current litigation [in opposition
to] the project. The state was trying to work through the
situation to result in a decision to move forward. The
agency anticipated a decision in the next 90 days that
could enable the project to move forward with a more
significant fieldwork plan. Currently the fieldwork plan
was at $24 million, and Ambler Metals paid for half. There
were over 3,000 mining claims in the area along the base of
the Brooks Range offering significant opportunities.
Representative Josephson asked for verification that Mr.
Ruaro had stated Ambler Mining [Metals] would pay half of
the cost of the fieldwork.
Mr. Ruaro agreed. He detailed that AIDEA had an MOU
[memorandum of understanding] with Ambler Metals outlining
the company would pay half of the cost.
Representative Josephson asked if the state would pay for
the other half through AIDEA.
Mr. Ruaro agreed.
Representative Josephson asked if AIDEA could do so without
the approval of the legislature.
Mr. Ruaro believed the legislature appropriated a
significant amount of funds for the Ambler project. He
would have to follow up to see if there were additional
funds remaining. He noted there were some appropriations
when former Governor Sean Parnell was in office.
2:14:19 PM
Representative Hannan stated her understanding that when
the Red Dog Mine was built, the economic viability of the
mine was already known. She remarked that the Ambler Mine
was still in the exploration stages. She observed that
3,000 mining claims did not guarantee there would be 3,000
mines or that any of the claims would go into production.
She asked what would happen if a road was built and there
was never a mine that could pay back any of the investment
costs.
Mr. Ruaro replied that AIDEA would take steps to not build
the road until it was certain the costs would be covered.
He stated it was the approach taken on the Red Dog Mine and
had been written into the bill that authorized the bonding.
The bill specified that the mining companies would be
responsible for the cost of the road to go forward before
it would proceed.
Representative Hannan asked if the $24 million referenced
by Mr. Ruaro was associated with the engineering of putting
in the road.
Mr. Ruaro agreed.
Representative Stapp remarked that at the beginning of the
presentation Mr. Ruaro had described AIDEA as a self-
supporting entity. He thought he had heard Mr. Ruaro state
that the legislature was appropriating funds to enable
AIDEA to issue bonds.
Mr. Ruaro responded that at times the legislature had
provided funding to AIDEA for projects.
Representative Josephson asked for verification that the
Susitna Watana Dam was an AIDEA and Alaska Energy Authority
(AEA) project.
Mr. Ruaro replied that the project was much more on the AEA
side.
Representative Josephson thought the state spent $190
million on the project in 2013 and 2014. He asked for
verification that the dam had not been built.
Mr. Ruaro confirmed the dam had not been constructed.
2:17:08 PM
Mr. Ruaro turned to AIDEA's West Susitna Access Project on
slide 12. The project was for a road of approximately 100
miles with significant recreation and mineral values. The
project was in fairly early development and AIDEA was
working with the Army Corps of Engineers on a permit and
EIS [environmental impact statement]. There had been no
litigation on the project to date; however, moving forward
it was possible.
Co-Chair Johnson asked members to hold their questions to
the end of the section on page 14.
Mr. Ruaro moved to slide 13 titled "Future Project
Development ANWR 1002 Leases." He shared that AIDEA held
several leases in the 1002 federal area pursuant to
congressional action in the 2017 Tax Cut and Jobs Act that
required the Department of Interior to offer at least two
lease sales. He elaborated that AIDEA had bid on some of
the leases to preserve the opportunity for development in
Alaska National Wildlife Refuge (ANWR). The potential mean
estimate of barrels of recoverable oil on federal lands was
7.7 billion. There was an estimated 3 billion additional
barrels of recoverable oil in the adjacent state waters to
ANWR and on Kaktovik Corporation lands inside ANWR. He
detailed that the potential return to the state treasury
ran in the tens of billions of dollars if developed.
2:19:43 PM
Representative Hannan asked about the West Susitna Access
Project [slide 12]. She stated that there was an economic
matrix for other projects to gauge their economic
viability. She highlighted Mr. Ruaro's statement that the
particular road was a recreation opportunity. She asked how
that particular characteristic was valued and evaluated in
the construct of economic development. She asked if it
implied the road would go forward for its recreational
opportunities exclusively even if there were no mineral
developments or alternative energy projects.
Mr. Ruaro replied that the economics of recreation were
valued as well as mining. There was a possibility there
would be value in opening recreational opportunities and
moving forward with a road even without the mines. He noted
the road would likely be much shorter.
Representative Hannan asked if AIDEA had ever participated
in a project purely for recreational opportunities.
Mr. Ruaro answered that AIDEA had invested in hotels for
tourism. He noted that nothing came to mind in terms of
recreational activities. He would follow up on the
question.
Co-Chair Johnson referenced the [Wasilla] Extreme Fun
Center and did not know whether it was an AIDEA investment.
Representative Josephson referenced the West Susitna Access
Project and relayed he had been told it was unclear that
the mineral deposit was viable. He asked if they were
putting the cart before the horse. He wondered if they were
building a road that may not serve mining because of a lack
of true economic feasibility.
Mr. Ruaro answered that AIDEA would track all of the
exploration activity and filing of reports required. The
agency would be talking with the companies and would make
an informed decision before moving forward on any road
construction. He stated that AIDEA would take into account
if the mines were not moving forward. He noted there were
several years before the permitting process was complete.
The agency would not make any rash decisions.
2:23:12 PM
Mr. Ruaro provided financial highlights on slide 15. In
2022, AIDEA's net income was $35.8 million with over 28
consecutive years of positive annual net income. He
detailed it was a 45 percent increase over the previous
five-year average and a 26 percent increase in the previous
ten-year average. The annual dividend was $17.9 million in
2022. The agency had declared $463 million in dividends
since 1996, reflecting a 67 percent increase in the
previous five-year average and a 47 percent increase in the
previous 10-year average.
Co-Chair Johnson asked members to hold their questions
through slide 18.
Mr. Ruaro moved to slide 16 titled "Where Does AIDEA Get
its Money?" The agency received its money through the loan
participation program, successful project investments, and
externally managed AIDEA-owned funds. He moved to a FY 22
financial summary on slide 17 showing AIDEA's end of year
net position of $1.4 billion. He described AIDEA's FY 24
operating budget as fairly benign (on slide 18). There was
some increase largely due to the significant amount of
federal funds AEA would receive under the Infrastructure
Investment and Jobs Act (IIJA) and in competitive grants.
He believed the amounts were potentially in the hundreds of
millions of dollars. He explained that AEA would need some
additional staff to manage the funds.
2:25:50 PM
Representative Josephson looked at securities and cash of
$611 million and assets of $1.4 billion on slide 17. He
noted that Mr. Butcher had told the committee that the
state received 75 percent of AHFC's net income. He asked
what percentage of AIDEA's net income was received by the
state.
Mr. Ruaro answered that AIDEA's dividend was set in statute
as an amount between 25 and 50 percent of its annual net
income. He elaborated that AIDEA's board of directors
decided on the amount within the aforementioned range.
Representative Galvin looked at the 1002 leases on slide
13. She thought AIDEA had been the only bidder. She asked
how AIDEA had decided it would not be risky [to bid on the
leases]. She asked if the intention was to do some
development. She noted that the slide indicated a USGS
estimate that ANWR had 7.7 billion barrels of oil. She
asked if AIDEA had bid on the leases because it had the
data to prove the viability of the area.
Mr. Ruaro replied that the USGS had made a number of
assessments over the years. The 2005 estimate was relied on
by the Congressional Research Service and others. He
believed it represented a fair estimate of recoverable oil
in ANWR.
Representative Galvin asked if the agency still felt that
way even though no other companies had submitted a bid.
Mr. Ruaro replied, "Absolutely."
2:28:46 PM
Representative Hannan asked if AIDEA could evaluate what
the carbon sequestration value would be on the leases if a
carbon sequestration program was created in Alaska.
Mr. Ruaro responded the analysis had not been performed. He
would be surprised if it would come anywhere close to the
value of billions of barrels of oil. He relayed that AIDEA
had run some preliminary numbers and the value would run in
the tens of millions of dollars and possibly more.
Representative Ortiz asked how much it cost the state to
keep leases viable moving forward on an annual basis.
Mr. Ruaro answered that currently the federal government
was currently refusing the state's annual lease payments
because it had had put the leases in suspension.
Representative Ortiz asked for details.
Mr. Ruaro responded that shortly after President Biden took
office he had issued a directive to suspend the leases
while the Department of Interior reviewed the leases and
the process to see if additional analysis was needed prior
to moving forward with the oil and gas program.
Representative Cronk looked at the West Susitna Access
Project on slide 12. He thought it would open up thousands
of acres of agriculture land.
Mr. Ruaro recalled that the estimated state acreage was
over 200,000 acres of state land.
Representative Cronk remarked that there were also 700,000
acres of forest timber and possible fire suppression acres
in the area.
Mr. Ruaro answered there were a lot of positive uses for
the area including fire suppression, timber, minerals, and
recreation. He noted it was a significant area of the
state.
Mr. Ruaro turned to slides 20 and 21 related to AIDEA's
annual dividend. He relayed that revenue generated by AIDEA
was issued as dividends and reinvested in AIDEA projects
and programs. Slide 21 showed an overview of the annual
dividend payments. He believed AIDEA had declared a
positive dividend for 28 consecutive years. On average, the
dividend declared by the board was 47 percent of the net
income, which was 3 percent short of the maximum.
2:32:24 PM
Mr. Ruaro moved to slide 22 and relayed that the 2022
declared AIDEA dividend was unique because it included a
value for the Mustang Road. The dividend broke down to
roughly $4 million in cash and $13.9 million in value
attributable to the Mustang Road. The budget amendment had
been delivered to the legislature by the governor's office
and the Office of Management and Budget (OMB).
Representative Josephson remarked that Mr. Butcher had
talked about spending half of the AHFC dividend on capital
projects in many years and the state was free to do what it
wanted with the other half, which was often $20 million. He
asked for verification that AIDEA's proposal was to invest
most of its dividend in the Mustang Road and give the state
$3 million or $4 million.
Mr. Ruaro clarified that the proposal was not to invest
$13.9 million into the Mustang Road, it was to take into
account the value of the Mustang Road at $13.9 million as
the asset was transferred back to the state. The proposal
was asking for the approval of a credit to the dividend in
the amount of $13.9 million associated with the road.
2:34:44 PM
GEOFFREY JOHNS, CHIEF INVESTMENT OFFICER, ALASKA INDUSTRIAL
DEVELOPMENT AND EXPORT AUTHORITY (via teleconference),
discussed the Mustang Project on slides 25 through 31.
Slide 25 showed a map of the North Slope including the
Southern Miluveach Unit (SMU) circled in red (approximately
55 road miles to the west of Dead Horse). He noted there
was year-round access to infrastructure through the Prudhoe
Bay Unit, Kuparuk River Unit, and the SMU area as well. He
highlighted that AIDEA had involvement with the former
working interest owner/operator Brooks Range Petroleum
since 2009. Slide 26 showed a satellite image of the
Mustang Road shown in blue. The image showed a faint curved
line indicating the ~4.5 mile Mustang Road, terminating at
the Mustang pad on the left of the image.
Mr. Johns discussed the Mustang Road timeline on slide 27.
In calendar year 2012, the AIDEA board approved a $20
million investment (through resolution G12-08) to construct
the Mustang Road and pad. He relayed that at the time, the
total cost of construction had been estimated at $25
million and the Brooks Range Petroleum Corporation was to
fund the residual $5 million and any cost overruns. The
road had come in near budget at $26 million. In 2013,
efforts related to the road and pad had been completed.
Later in 2013 AIDEA had approved a cost reimbursement
agreement with Brooks Range Petroleum related to the
development of SMU (specifically, the Mustang Project
located on the unit). He noted that the Department of
Natural Resources (DNR) also granted Brooks Range Petroleum
a five-year early entry authorization related to the
development.
2:38:10 PM
Mr. Johns continued to address the Mustang Road timeline on
slide 28. He relayed that in 2015 and 2016 the project had
suffered from the precipitous decline in commodity prices
and was ultimately placed into a standby status. In 2017,
the assignment of the Mustang Road easement to AIDEA was an
effort to reorganize the ownership structure of the project
and ultimately taking efforts to get it into production.
The AIDEA board approved acquisition of Mustang Road LLC
(MR LLC), a minor working interest owner in the
development. In an effort to recover capital, Brooks Range
Petroleum and the AIDEA owned MR LLC entered into a road
and pad use agreement where usage on the road ultimately
accrued back to MR LLC. In 2018, Brooks Range and Oil
Search Alaska (and the Pikka development) entered into a
month-to-month SMU infrastructure agreement. He explained
that the Mustang Road was the only source of year round
access into the Pikka unit to the west of SMU.
Mr. Johns continued to review the Mustang Road timeline on
slide 29. In 2019, Brooks Range Petroleum was granted a 20-
year private non-exclusive easement for the 4.5 mile
Mustang Road. Shortly after the granting of the easement,
Oil Search Alaska applied for an easement covering the
entire length of the Mustang Road and 14 miles of the road
constructed from the terminus of the Mustang Road out to
the west related to the Pikka development. In the third
quarter of 2019, Brooks Range Petroleum provided a letter
to DNR stating that the easement application overlying the
4.5-mile portion of the Mustang Road was in conflict with
the previously granted easement to Brooks Range Petroleum.
2:41:37 PM
Mr. Johns turned to slide 30 and continued to discuss the
Mustang Road timeline. In 2020, DNR granted Oil Search
Alaska a five-year entry authorization based on its
determination that the overriding easement presented long-
term economic benefit to the state and access to resources.
Subsequently, Brooks Range Petroleum filed an appeal based
on the argument that the granting of the overriding
easement took private property (the Mustang Road) without
consideration, consent, or cooperation to the
owner/operator of the road. He explained that the appeal
automatically stayed the easement decision; however, the
DNR commissioner removed the stay causing the appeal to
remain in adjudication status. In the second quarter of
2020, AIDEA and Oil Search Alaska entered into an MOU and
cost reimbursement agreement to develop a financing plan
for surface infrastructure including access roads and pads
for the development of the Pikka Unit.
2:43:38 PM
Mr. Johns advanced to slide 31 and continued to review the
Mustang Road timeline. In 2021, following the September 23,
2020 nonjudicial foreclosure in which the AIDEA owned
entity Mustang Holding LLC became the 90.1 percent working
interest owner of SMU. The entity also became the operator
and party of record on the Mustang Road easement and
easement appeal. He explained that Mustang Holding LLC was
granted the opportunity to provide a supplement to the
appeal and Oil Search Alaska (now Santos) was granted a
rebuttal to the supplement. More recently, Santos applied
to DNR for an export pipeline right of way parallel to the
Santos portion of the road system in addition to the 4.5-
mile Mustang Road. Subsequently, DNR granted a right of way
to Santos. Pursuant to AIDEA board resolution G22-15, AIDEA
declared a $17.9 million dividend for FY 24, of which,
$13.9 million reflected the value of the Mustang Road.
2:45:46 PM
Representative Josephson referenced Mr. Ruaro's testimony
that AIDEA would not move forward with a road until the
economic benefit was confirmed. He thought it was
entanglement in complication after complication.
Mr. Ruaro asked for clarification on the question.
Representative Josephson highlighted the information shown
on the slides indicated that the issue was repeatedly in
court or administrative hearings with DNR.
Mr. Ruaro confirmed that the issue was before DNR in an
administrative hearing.
Representative Josephson remarked that the investment the
state had made over the last 40 years was $300 million of
public funds to support economic development through AIDEA.
He estimated it was more than $50 million per year. He
noted that the Department of Environmental Conservation's
budget was $23 million. He referenced a report from MB
Barker/LLC Erickson & Associates suggesting that if the
state had put the money in the Permanent Fund instead, it
would be worth $11 billion. He assumed AIDEA took issue
with the analysis.
Mr. Ruaro confirmed that he took issue with the analysis
and many other points in the report. He relayed that AIDEA
was preparing a rebuttal that would be made public and
shared with the House Finance Committee when complete.
Representative Ortiz referenced the 2022 AIDEA dividend and
components including $4 million in cash and the assets of
$13.9 million for the Mustang Road. He asked if assets had
ever been used as part of the dividend payment in the past.
Mr. Ruaro answered it was the first time he that was aware
of.
2:49:02 PM
Representative Stapp remarked that there had been
discussion during the meeting about AIDEA's successes but
not about its failures. He referenced the study mentioned
by Representative Josephson that concluded 50 percent of
AIDEA's investments had been failures and had not produced
any economic value to the state despite initial capital of
$300 million. He asked how to make AIDEA better. He
highlighted a couple of good projects and noted there had
been plenty of bad ones.
Mr. Ruaro replied that AIDEA had a bond level limit and
exceeding that limit required legislative approval. When
legislative approval was required, it enabled the
legislature to get involved in the process. In the case of
the Red Dog Mine, there had been conditions placed on the
bonding authority by the legislature. He explained that
requiring legislative approval was a check and balance
opportunity for the legislature before projects could move
forward. He welcomed legislative involvement in the larger
projects. He noted in the past the bond limit had been $25
million. He believed a robust review by the legislature
before a project could move forward was helpful. He
remarked it had been helpful in the Red Dog case and should
likely continue to be in place.
Representative Stapp relayed that the Interior Gas Utility
(IGU) in Fairbanks recently signed a contract with Hilcorp
to get gas trucked from the North Slope. He stated that in
the past there had been a gravel pad that IGU had looked at
assuming. There had been some issues several years back
relative to DNR and some federal entities. He believed
AIDEA had ended up taking over the pad. He believed it
would be used to truck the gas to Fairbanks. He stated that
somehow AIDEA was going to end up charging Fairbanks to
ship gas from a pad it used to own. He asked Mr. Ruaro to
elaborate.
Mr. Ruaro responded that he was not familiar with the
details. He knew the pad existed and was in use. He
believed AIDEA had been supportive of IGU over the years.
He would follow up with details.
Representative Cronk asked where the legislature would go
to get funding for the projects if AIDEA did not exist. He
thought AIDEA had been created to avoid digging into the
Permanent Fund.
Mr. Ruaro agreed. He believed there had been a conscious
decision made by the legislature that "these sorts of
projects" for economic development and jobs would be
managed by AIDEA as opposed to being funded by the
Permanent Fund. He believed it had been consciously decided
by the legislature to place the risks on AIDEA.
Representative Cronk thought the legacy projects were more
valuable. He remarked that community-based projects were
pulling people out of poverty. He asked for details.
Mr. Ruaro replied that Red Dog was the best example. He
detailed that shareholder hire in a very rural area was 65
percent or higher and average wages were $100,000 per year,
which enabled employees to support a family. He believed a
health impact assessment had been done, which found that
the income made it possible for individuals to live a
subsistence lifestyle. The project had health and economic
benefits. The number was closer to $2 billion now and
revenue spread out across the state from the project.
Representative Cronk stated there had been a road built in
Sitka for recreation that would likely cost over $60
million. He stated the road under discussion for possible
recreation was located in an area with 100,000 residents
and providing access to another 200,000. He remarked that
the road would benefit at least half the state's
population. He thought it was a good road to build.
Mr. Ruaro agreed. He believed there was a good reason to
build the road. He added that AIDEA would still monitor the
development of the mines prior to moving forward with a
mining road. He noted there was significant value in the
area.
2:56:05 PM
Representative Cronk stated the Permanent Fund was not
pulling people out of poverty. He underscored that resource
development was pulling people out of poverty. He stressed
that without resource development there was not sufficient
money to fund the state. He thanked AIDEA for being part of
the larger vision for Alaska. He noted there was a legacy
project in his district and when it was complete there
would be senior housing for the future. He noted it may not
bring instant money back to the state, but it brought
immediate value to local communities. He remarked that
commercial fishing was the same. The state only received a
finite amount of the revenue, but the industry provided
substantia benefit to communities.
Mr. Ruaro responded that he had grown up in Ketchikan and
the timber industry had provided resource development jobs
for the community. There had been thousands of jobs in the
timber industry. He noted there had been large and small
businesses and property tax revenue. He stated it had
anchored the southern Southeast region. He explained that
Ketchikan had been a different type of town after the
businesses were lost.
Representative Josephson corrected his earlier statement
regarding the total state investment to AIDEA. He estimated
that if the total state investment was $300 million over 40
years, the annual amount would be much lower than he had
indicated earlier. However, he observed there was a $200
million request for Ambler Road.
Co-Chair Johnson thanked the presenters for the
presentation.
2:58:39 PM
AT EASE
3:03:47 PM
RECONVENED
CURTIS THAYER, EXECUTIVE DIRECTOR, ALASKA ENERGY AUTHORITY,
DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT
(via teleconference), provided a PowerPoint presentation
titled "AEA Overview Presentation," dated March 16, 2023
(copy on file). He shared that the Alaska Energy Authority
(AEA) had been created in 1976 by the legislature as a
public corporation similar to AHFC and AIDEA. The agency
was governed by a board of directors. The agency's mission
was to reduce the cost of energy in Alaska, but it was
growing into resilience and redundancy on the power systems
in Alaska.
Mr. Thayer moved slide 3 titled "What We Do." He
highlighted AEA programs including Railbelt energy, Power
Cost Equalization (PCE), rural energy, renewable energy and
energy efficiency, grants and loans, and energy planning.
Slide 4 included a map of Alaska reflecting all of AEA's
active projects including things like renewables, PCE,
rural training, and storage and transmission lines. He
relayed that AEA touched over 197 rural communities, the
complete Railbelt, and Southeast.
Mr. Thayer moved to slide 5 and discussed urban energy and
the Bradley Lake Hydroelectric Project northeast of Homer.
The project had been energized in 1991 and was Alaska's
largest renewable energy project. The project was paid off
(there was debt associated with upgrades to the project,
but not on the project itself). The project provided low
cost energy to over 500,000 Alaskans and 10 percent of the
Railbelt energy at 4.5 cents, which was the cheapest on the
Railbelt. The project electrified about 54,000 homes,
saving the Railbelt approximately $20 million per year. He
highlighted the Dixon Diversion Project currently in AEA's
capital budget. The project was located five miles from
Bradley Lake. He explained it was a similar
glacier/lake/river and AEA was looking at diverting the
water towards Bradley to electrify more than 28,000 homes.
The project would increase the capacity of Bradley by about
50 percent.
3:07:36 PM
Mr. Thayer turned to slide 7 and continued to discuss the
Bradley Lake project. The project was managed by the
Bradley Lake Project Management Committee. He detailed that
AEA owned Bradley and partnered with the five utilities on
the Railbelt. The slide indicated the percentage of water
or power the utilities received from the project. He
highlighted that Golden Valley Electric Association (GVEA)
received almost 17 percent of the power from Bradley Lake
even though it was close to 600 miles away. The partners
worked together to determine how the project should be
managed and what type of upgrades were needed.
Mr. Thayer turned to slide 8 and highlighted the need for
transmission upgrades and battery storage. He explained
that the 40-year-old line from Bradley to Anchorage was at
capacity. He detailed that if AEA looked at introducing
renewable energy whether to expand Bradley or add wind,
solar, or tidal the state did not have the power line to
move the power. He underscored the need to focus on
resilience and upgrade transmission lines. The agency and
its utility partners had identified four different areas of
work including transmission upgrades between Bradley Lake
to Soldotna, Soldotna to Sterling, and Sterling and Quartz
Creek and battery energy storage systems for grid
stabilization. He relayed that AEA had bonded $166 million
in December 2022 to start the upgrades. He estimated the
cost would likely be closer to $500 million to $600 million
with inflation. When the $166 million bonds were paid off,
there was a provision in the power sales agreement that
allowed AEA to use any remaining funding on required
project work. The project work listed on slide 8 was
identified as required project work by the Department of
Law (DOL) with independent analysis by an outside
engineering firm. Currently, 35 percent of the $166 million
would be dedicated to battery energy storage and 65 percent
would be used to begin the upgrades.
3:10:14 PM
Mr. Thayer turned to a map showing Railbelt upgrades on
slide 9. He detailed that Bradley was shown in yellow
(located outside of Homer), the Chugach was shown in
purple, the Matanuska Electric Association was shown in
orange, and GVEA was shown in blue. The numbers shown on
the map signified areas of the upgrades and the battery
storage systems were labeled "3."
Mr. Thayer highlighted the AEA owned Alaska Intertie on
slide 10. The intertie was 170 miles long from Willow to
Healy and brought power from Southcentral Alaska to
Fairbanks. The benefit was $37 million in cost savings to
GVEA customers in Fairbanks because they were able to buy
power at a cheaper rate and ship it north at a lower cost.
He noted the area also received power from Bradley. He
asked members to keep the $37 million [in savings] in mind
moving forward in the presentation.
Mr. Thayer moved to rural energy beginning with PCE on
slide 12. He relayed that the PCE program had been
established in the mid-1980s and in the past 10 to 15 years
it had been aggressively funded in an endowment to help
subsidize rural Alaska. He explained that the Regulatory
Commission of Alaska (RCA) looked at the cost of energy in
Fairbanks, Anchorage, and Juneau and established a floor.
The floor was approximately 19.9 cents in the current year.
There was a statutory ceiling of 75 cents. He elaborated
that rural Alaska would basically have Railbelt prices
because the state subsidized the 19.9 cents up to 75 cents.
He noted it had previously applied to the first 500
kilowatts and the legislature had raised the amount to the
first 750 kilowatts in 2022. The program included 91
utilities and 82,000 Alaskans. In FY 22, AEA distributed
$27.4 million with the program. He relayed that AEA
anticipated the amount to increase and had raised the
kilowatt by 50 percent. The agency did not necessarily
think the cost would increase by 50 percent, but it was the
first year of the 750 kilowatts. He highlighted that the
Fairbanks economy saved $37 million because the state
invested in infrastructure and in rural Alaska, earnings on
the endowment helped subsidize and provide the balance in
rural Alaska. He added that public facilities in rural
communities were also eligible for PCE.
3:13:42 PM
Representative Stapp referenced the 19 cents per kilowatt
as the floor. He believed he was paying 25 or 26 cents per
kilowatt. He asked for an explanation.
Mr. Thayer answered that the statutory formula was the
weighted average cost between Fairbanks, Juneau, and
Anchorage. Fairbanks was the outlier with the higher cost
and Juneau was closer to 9 to 10 cents per kilowatt. The
amount was adjusted annually by the RCA.
Representative Stapp stated that he wished Mr. Thayer had
not told him how much Juneau paid for electricity.
Mr. Thayer answered that Juneau had hydro, which was
cheaper. The older the hydro was, the cheaper it became. He
highlighted that Bradley was 4.5 cents, which was the
cheapest on the Railbelt.
Mr. Thayer turned to slide 13 titled "Who is Eligible to
Participate in PCE?" He relayed that PCE eligibility was
determined by the RCA in accordance with Alaska statues.
The program applied to residential and community facilities
including water, sewer, public lighting, etcetera. State
and federal facilities and commercial customers were
ineligible for the program.
Co-Chair Johnson looked at the Dixon Diversion Project on
slide 6 and asked how much it would cost to build.
Mr. Thayer answered AEA was in the beginning stages of
analyzing the cost. The agency had done some initial work
and shared it with utilities. The agency felt confident
enough to request $5 million in capital funds to continue
the studies. The agency estimated the project came in
around 6 cents per kilowatt. He noted that Bradley was 4
cents per kilowatt and natural gas was around 8 to 9 cents
per kilowatt. He explained that AEA was requesting funding
to perform the geotechnical and LiDAR [light detection and
ranging] work and the engineering. The agency's utility
partners on the Railbelt believed the project was
economically viable, but it had not yet been proved out. He
noted the project was located five miles from Bradley and
AEA would divert water from the project into Bradley. He
relayed it was an amendment to the Federal Energy
Regulatory Commission (FERC) license. He added that AEA
would not necessarily need to be involved in a lot of the
studies and issues because it would be diverted to Bradley
to the power plant.
3:17:29 PM
Representative Tomaszewski believed GVEA bought into the
Bradley Lake project. He thought the GVEA members had paid
for 17 percent of the power production. Separately, he
remarked that some utilities were not able to call hydro
renewable energy. He asked why.
Mr. Thayer replied that Bradley was a state-owned project.
He clarified that the utilities agreed to bond at $12.8
million per year for 30 years. The state had put additional
capital appropriations exceeding $100 million into the
project. He explained that GVEA had paid for roughly 17
percent of the bonds. He elaborated that GVEA and the other
utilities continued to buy 4 cent power, which enabled the
bonding to occur. He noted the bonding payments went to
excess payments of $12.8 million. He relayed that AEA had
also done the Battle Creek diversion a couple of years ago.
Four of the utilities had participated in the project,
which had added about 5 percent more power to Bradley. He
relayed that GVEA had not participated in the project. Only
in the last year had there been a buy-in provision enabling
GVEA to buy in on Battle Creek to receive a bit of
additional water. He clarified that all five utilities had
participated in the original construction of Bradley. He
explained that GVEA had not initially bought into the
Battle Creek diversion, but the utility subsequently bought
in and is receiving power from the project. He detailed
that the Dixon Diversion was similar to Battle Creek and
was diverting more water into Bradley to produce more
power.
Mr. Thayer addressed the second portion of Representative
Tomaszewski's question. He stated that some circles in the
federal government did not recognize hydro as renewable. He
noted that had not been the state's position. He stated
that in the past two to three years the idea that hydro was
not renewable was starting to be dismissed by the
Department of Energy. He highlighted that as California had
experienced issues, hydro and pumped hydro had stepped in
to help save California and other states from being in the
dark. He believed the idea that hydro was not a renewable
energy was a bureaucracy terminology thing. He thought
everyone else recognized that hydro was renewable energy.
3:21:21 PM
Co-Chair Foster thanked Mr. Thayer for pointing out the
balance between rural and urban regarding PCE and how it
came about. He remarked that sometimes people asked why
rural Alaska received a subsidy for electricity and
sometimes there was a push or movement by members of the
legislature to raid the $1 billion in the PCE Fund. He
referred to the grand bargain in the past when Bradley Lake
and the Intertie system had been constructed. He stated
that when it was all added together, along with the tax
credits in Cook Inlet, it amounted to around $2 billion. He
remarked that sometimes people saw the $1 billion in the
PCE program as a "freebie" for rural communities; however,
PCE was the state's effort to try to provide energy
assistance to rural or urban Alaskans. Unfortunately, the
PCE program was more susceptible because it was money
sitting in an endowment, whereas it was not possible to
take down a hydroelectric program, take back tax credits,
or disassemble an intertie. He remarked that he was
sensitive about the issue.
Representative Cronk echoed the sentiments of Co-Chair
Foster. He considered the cost associated with providing
relatively cheap energy in some urban areas. He wanted to
ensure people understood PCE was not giving free money to
rural areas. He had more communities on PCE than any other
district in rural Alaska. He underscored the importance of
PCE for rural Alaska. He thanked Mr. Thayer.
3:23:58 PM
Representative Coulombe asked about the fund source of the
$5 million for the Dixon Diversion project.
Mr. Thayer answered the increment was in the governor's
proposed budget under undesignated general funds (UGF).
Representative Coulombe asked if it was possible to pay for
the item with PCE funds.
Mr. Thayer responded that the Dixon Diversion project was
an urban power project to benefit the Railbelt. He
clarified that the $1 billion in the PCE fund was for the
197 rural communities. He relayed that a couple of years
ago the legislature had implemented a waterfall mechanism
where the first earnings went to PCE and the second portion
went to community assistance primarily in rural Alaska. He
explained that if the earnings reached a certain point, up
to $25 million could be used for the Renewable Energy
Program, powerhouses in rural Alaska, and the Revolving
Loan Program. The PCE endowment by statute was aimed at
benefitting rural Alaska. He confirmed that Co-Chair Foster
was correct that the tax credits in Cook Inlet to benefit
the Railbelt were $1.3 billion. He highlighted the
additional cost of building the transmission lines and
Bradley Lake. He pointed out that when Fire Island came
online, the state put $25 million into a transmission line.
When AEA's budget request had been made, it was to make
sure the funds were UGF as it pertained to a certain
segment of Alaska.
3:26:46 PM
Mr. Thayer returned to the map on slide 13 showing who was
eligible for PCE. He moved to rural power system upgrades
on slide 14. He highlighted that of the 197 communities,
the state had more of a moral obligation to help upgrade
powerhouses in the smaller rural communities. He elaborated
that the powerhouses were basically built and were 14 feet
by 46 feet, most with three generators. The agency had a
$7.5 million capital request, which leveraged up to $25
million in federal funds primarily through the Denali
Commission to help with maintenance, improvement, and
emissions reduction. He relayed that the deferred
maintenance in powerhouses in rural Alaska was over $300
million. The slide showed two images of before and after
upgrades.
Mr. Thayer discussed bulk fuel upgrades on slide 15. There
were over 400 rural bulk fuel upgrades with an associated
capital request of $5.5 million, which would leverage $7.5
million in federal funds. The goal was code compliant fuel
storage facilities and prevention of spills. There were
currently eight active projects and 18 maintenance projects
over the next two years. The agency had only received
funding the past three years for the program and the funds
leveraged Coast Guard regulatory efforts to capture
assessments to prioritize projects. He explained that the
tank farms were located on the coast and rivers and the
state could not afford a failure where thousands of gallons
of diesel were dumped into the waterway. The deferred
maintenance on the program was $800 million. The capital
request was the same as the prior year.
3:29:46 PM
Representative Cronk looked at slide 14 related to rural
power system upgrades. He asked if AEA tracked whether the
upgraded power systems were maintained and how long they
lasted. He remarked that if the state was investing
substantial money, it was important for communities to
ensure the systems were being maintained.
Mr. Thayer replied affirmatively. The agency had done an
assessment and inventory of all 193 communities with the
upgrades. He noted that AEA also provided training. He
elaborated that AEA had 3D modeling on every power plant;
therefore, if there was an issue at a power plant, AEA
could work with the operator to help identify the issue and
concern. Some of the power plants were associated with
rural utilities and about 45 or 50 were on their own; when
their power went out, AEA was the emergency responder. He
stated that maintenance was key on the projects. He
remarked that the training component was one of the largest
issues because once someone was trained in a small
community and they had an opportunity to go to a larger
community to make more money, it resulted in a revolving
door. The agency used the Alaska Vocational Technical
Center (AVTEC) training center in Seward as one of its
primary training areas on a regular basis.
Representative Cronk looked at slide 15 related to bulk
fuel. He asked if AEA only upgraded bulk fuel for power
plants. Alternatively, he wondered whether AEA also
replaced tanks for regular gas as well.
Mr. Thayer answered that the upgrades were primarily for
the power plants, but AEA would do others depending on the
circumstances. There were 197 rural communities with
powerplants and over 400 rural bulk fuel facilities. He
noted that schools could have their own bulk fuel
facilities in rural Alaska; therefore, there may be two or
three facilities in a community.
Co-Chair Johnson had heard that in villages typically the
big consumers of fuel oil set the price. For example, if a
barge company selling fuel oil named a price to a school or
other large public consumer, it set the fuel price for the
entire community. She noted it meant the price could be
high because there were no other places to purchase the
fuel. She wondered how the fuel purchase in a community had
an impact on home fuel cost.
3:34:30 PM
Mr. Thayer replied that the topic was outside of AEA's
wheelhouse. When new bulk fuel facilities were constructed,
AEA aimed to ensure they were appropriately sized for the
community. Typically, if a community bought fuel in bulk,
the price was lower. There were at lease three distributors
of fuel oil or diesel in rural Alaska. He explained that
the distributors had negotiated rates that AEA was not part
of. He explained that AEA wanted to avoid situations where
a bulk fuel facility was not sized appropriately and
communities had to fly in fuel at an extremely expensive
cost. The Division of Community and Regional Affairs [under
the Department of Commerce, Community and Economic
Development] had a bulk loan program and may have better
statistics.
Co-Chair Johnson wanted to ensure the state was not
inadvertently causing a higher price for individuals.
Representative Stapp observed that the deferred maintenance
shown on slides 14 and 15 totaled $1.1 billion. He believed
the figure was on top of the state's other deferred
maintenance obligations. He asked if there was a long-term
strategy to deal with the obligations. He assumed the cost
reflected the liability of the local power utilities (i.e.,
Nushagak Electric and Telephone Cooperative in Dillingham).
Mr. Thayer answered it was a policy call by the legislature
in terms of funding powerhouses and bulk fuel in rural
Alaska. He detailed that in the past several years, the
current administration had been aggressive in making
certain there was funding available for both items;
however, when the state had been lean with funding, there
had been no money for rural Alaska in the two areas. The
agency prioritized a list of communities for powerhouses
and bulk fuel by statute, which fluctuated. The agency had
identified the most critical facilities for either
replacement or maintenance and improvement. He highlighted
that the construction on a powerhouse typically took about
18 months; however, the timeline was being stretched out
due to current supply chain logistics.
3:38:36 PM
Mr. Thayer discussed the Power Project Fund (PPF) loan
program on slide 17. The program provided loans to
communities, independent power producers, and others for
power projects. The program currently had $6.7 million
available in lending and offered a competitive lending rate
currently set in statute at 4.86 cents. The program offered
low cost financing tailored to the project and borrower. He
highlighted success stories beginning on slide 18 with the
Hiilangaay hydroelectric project located on Prince of Wales
Island. The community received a power project loan of $19
million from AEA and a Renewable Energy Fund grant of $4
million. As a result, Prince of Wales Island was about 95
percent renewable in the past three years.
Mr. Thayer turned to slide 19 and highlighted the South
Fork Hydroelectric Project located in Eagle River. He
detailed the project was a "mom and pop" operation on an
old homestead. The project had an original loan of $2
million; the total project cost was $4 million and AEA had
loaned approximately half of the total. The project
produced power for MEA and electrified 800 homes at 7 cents
per kilowatt. He relayed that AEA had recently refinanced
the loan and the operation hoped to increase capacity to
1.76 megawatt, an increase of 47 percent.
Mr. Thayer moved to the Willow Solar Farm expansion project
on slide 20. He detailed that AEA had loaned $800,000,
which represented about half of the total project cost. The
borrower was Alaska Renewable Energy Partners/Renewable
IPP. He informed the committee that the project was so
successful, there was a second project under construction
in Houston, Alaska that was 10 times the size; AEA had
provided financing for close to $5 million. The second
project was producing at slightly less than 8 cents per
kilowatt, which was referred to as the avoided cost as it
reflected less than what the utilities paid for energy on
average.
Mr. Thayer discussed the Renewable Energy Fund Grant
Program on slide 21. He noted the legislature had recently
passed a bill related to the Renewable Energy Fund. The
fund was a grant program that helped AEA develop
competitive projects in rural Alaska. The agency looked at
the feasibility and early design and construction stages of
the projects. He noted that two of the last three projects
started in the Renewable Energy Fund. Thus far, AEA awarded
271 grants totaling $300 million. There were over 100
projects in operation with 44 currently in development. He
relayed that round 15 had just been completed with 31
applicants. He detailed that the applications went through
a public review process including four legislators and five
members of the public with AEA acting as staff providing
recommendations to the legislature. The request for round
15 would be $30 million for 31 applicants. The program had
saved over 30 million gallons of diesel in rural Alaska to
date. He noted the number was out of date and AEA had
contracted with a third-party economist to update the
figures. The program had been heavily funded by the
legislature in 2013 and 2014, but with the dip in oil
prices there had been no funding provided for the following
five years. In the past two years, the governor and
legislature had funded $20 million for 38 projects. He
underscored the success of the program. He highlighted that
over 90 percent of the funding went to rural Alaska and the
cost of energy to the community was part of the weighted
average. He remarked that in the past couple of rounds,
GVEA had secured a $1 million grant to study wind on Ester
Dome [in Fairbanks]. Additionally, Homer Electric received
funding to help look at wind and Chugach Electric was
looking at additional hydroelectric opportunities.
3:44:05 PM
Mr. Thayer highlighted other successful projects on slides
22 through 24 including the Banner Peak Wind Farm expansion
in Nome, Whitman Lake Hydroelectric Project in Ketchikan,
and the Terror Lake Hydroelectric expansion project on
Kodiak that had helped Kodiak go to 98 percent renewable
energy.
Mr. Thayer moved to the federal Infrastructure Investment
and Jobs Act (IIJA) on slide 26. He detailed that AEA
qualified for $60 million in federal receipt authority from
the statewide grid resilience and reliability IIJA formula
grant program. He turned to slide 27 and relayed that AEA
and the Department of Transportation and Public Facilities
(DOT) partnered together on the Alaska Electric Vehicle
(EV) plan to receive $52 million. Slide 28 showed an
alternative fuel corridor from Anchorage to Fairbanks,
Fairbanks to Tok, and Homer and Seward. He noted the Alaska
Marine Highway System (AMHS) also qualified. There would be
work over the coming five years to install EV charging
stations across the state along the highway corridor.
Mr. Thayer looked at slide 29 showing AEA's IIJA related
requests in the FY 24 capital budget. Requests included
$12.1 million ($50 million over five years) for statewide
grid resilience, $3.8 million for an Energy Efficiency
Revolving Loan Fund, $2.9 million for a state energy
program, $1.67 million for rural electric vehicles,
$318,000 for auditor training, $37.2 million for the Alaska
High Efficiency Home Rebate Program (in partnership with
AHFC), $37.4 million for the Inflation Reduction Act Alaska
Hope for Homes program (in partnership with AHFC), and
$12.8 million (in partnership with GVEA) for a Department
of Defense Community Infrastructure Pilot Program to take
the Black Rapids Military Training Site from diesel to
electric. The agency's total capital budget request was
$175 million, of which $140 million was federal funding. He
stated it was likely the largest amount of money AEA had
received at one time on top of $166 million in bonding and
$202 million in actively managed projects statewide.
3:47:11 PM
Mr. Thayer spoke to a grid resilience and innovation
partnership (GRIP). The agency had done four applications
including three with urban utilities and one with rural
Alaska. He stressed that the grants were highly
competitive. He stated the grants had potential to bring
over $600 million to the state; however, Alaska was
competing for the federal funding with the 49 other states.
He noted that AEA was not requesting federal receipt
authority until the applications had been approved.
3:48:00 PM
Mr. Thayer showed staffing needs on slide 31. The agency's
operating budget was flat with the exception of five new
positions needed to help with IIJA funding and a PCE
position to help with salary adjustments and rural
assistance.
Co-Chair Foster thanked Mr. Thayer and AEA on a job well
done.
Representative Cronk asked how much it would cost to
complete the Road Belt from Delta, Tok, Glennallen to
Palmer.
Mr. Thayer answered that the Road Belt was approximately
$1.5 million per mile for a total of about $600 million. He
explained that the first part of the upgrades was related
to resilience including upgrading existing transmission
lines between Anchorage, Homer, and Fairbanks. It was also
necessary to look at the redundancy, including a secondary
line to move power more freely, especially with renewables.
He elaborated that AEA was looking at redundancy on the
peninsula and outside of Wasilla diverting to Glennallen,
Delta, Tok, and Fairbanks as a secondary route. He stated
it was part of the plan.
Representative Cronk stated that it was necessary to pay
cash for some of the projects instead of bonding. He
reasoned that if the goal was to reduce the rate to 8 cents
per kilowatt, it would not happen if the state was
constantly borrowing money. He wondered how to break it
down into phases to realize savings.
Mr. Thayer replied that AEA had started out the bonding
because it had a window to do so under the power sales
agreement. The agency was applying for substantial IIJA
funding, some of which would require state match. The
utilities had proposed approximately $25 million per year
in upgrades for a minimum of five years and $125 million
going forward after that. He noted that the receipt of
federal or state dollars would lower the cost that
consumers would see. He relayed that lowering the cost in
the Railbelt would benefit rural Alaska because there would
be more money available for PCE in the program. He stated
it was a needed conversation in terms of how to pay for the
work and what made the most economic sense. He pointed out
that the Bradley line could have been upgraded 30 years
earlier, but the work had not been done. He elaborated that
a line serving Homer had been used to reverse power north;
the line was not capable of transmitting all of Bradley's
power.
Representative Cronk asked how the baseline for the PCE
worked. He provided a scenario where substantial money was
invested in hydro, the Road Belt was completed, and PCE was
down to 12 cents per kilowatt in Tok. He asked how it would
impact the rest of rural Alaska.
Mr. Thayer replied that currently under statute, the PCE
program formula used the mean cost of energy between
Juneau, Anchorage, and Fairbanks. The current cost was 19.9
cents. He explained that lowering the cost of energy on the
Railbelt would lower the floor, meaning more money would be
available. He believed if substantial infrastructure
upgrades were considered for urban Alaska, it was also
necessary to see what was needed to help bring down the
$1.1 billion in deferred maintenance for rural Alaska. The
agency would continue to invest a lot in renewable energy
in rural Alaska to reduce cost. He added that the wind did
not blow, and the sun did not shine in some locations. He
relayed that the most successful hydro projects were
located in coastal communities.
3:53:37 PM
Representative Tomaszewski asked for the kilowatt per hour
on the Banner Peak Wind Farm expansion.
Mr. Thayer answered he would follow up.
Representative Stapp shared that most of his constituents
in Fairbanks were being bled dry due to the cost of energy
and the cost of living increases, especially related to the
cost of power. He remarked there was an opportunity in the
IIJA funding. He stated that infrastructure meant cheap
power to him. He asked for the long-term vision and
strategy to drive down utility and energy cost for the
state to ensure individuals had the ability to feed their
families and invest in communities. He asked how to get
more Bradley Lakes.
Mr. Thayer replied that the governor was forming an energy
taskforce (through an administrative order) that AEA would
be part of. The taskforce would look at the costs. He noted
that the Susitna-Watana project had been on the books since
the 1950s and the state was $100 million away from
receiving a Federal Energy Regulatory Commission (FERC)
license. The project could make the Railbelt 56 percent
renewable at 6 cent power. He noted the figures had been
calculated in 2014 and needed to be updated. He stated it
was a doable project by engineering standards and the
project had run out of money to complete the study in 2015.
There were some opportunities for renewables and AEA was
looking at diversions. He stated it was not big, but it
could increase the Bradley Lake output by 50 percent. There
was also a project outside of Seward that needed review.
The agency was also working to analyze where the best solar
and wind could be as well. He added that the efficiency
rate for renewables was not great. He elaborated that a 90
megawatt solar farm was needed to get 30 megawatts of power
out of it on a regular basis. He highlighted it was also
necessary to look at natural gas. He noted there were
dwindling supplies in Cook Inlet, and he considered whether
a bullet line off of the North Slope was an answer to
helping bridge to renewables. The agency was actively
working with all of the utilities on the questions.
3:57:13 PM
Representative Cronk considered how effective micronuclear
would be, how much cheaper it would be than the Susitna-
Watana project, and how much would be needed to produce the
needed amount of electricity.
Mr. Thayer answered that micronuclear was a conversation.
He shared that he had visited the Idaho National Laboratory
with members of the Senate. He stated that looking at the
option could be looked at for Nome, Kotzebue, and
Dillingham in larger hub communities; however, the specific
technology was likely 20 years away from being commercially
viable. He added that once it was available, Alaska would
want to wait a few years to see how it produced. He noted
that an energy plan could look at the five-year, 15-year,
and 20 to 25-year horizon. He stated that small nuclear
energy fit in the 20 to 25-year horizon. He shared that AEA
was working with the university and national labs to see
what it would look like and how it could change the energy
picture.
Mr. Thayer thanked the committee for its time. He planned
to meet with individual members of the committee in Juneau
in the near future.
3:59:11 PM
AT EASE
3:59:28 PM
RECONVENED
Co-Chair Foster reviewed the schedule for the following
day.
ADJOURNMENT
4:00:37 PM
The meeting was adjourned at 4:00 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| 3.16.23_AIDEA House Finance FINAL.pdf |
HFIN 3/16/2023 1:30:00 PM |
|
| 2023.03.14 AEA Overview Presentation to House Finance Committee (Final).pdf |
HFIN 3/16/2023 1:30:00 PM |
|
| AHFC_ HFIN Presentation 3.16.2023.Final .pdf |
HFIN 3/16/2023 1:30:00 PM |