Legislature(1999 - 2000)

04/17/2000 09:30 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                 SENATE FINANCE COMMITTEE                                                                                     
                      April 17, 2000                                                                                          
                          9:30 AM                                                                                             
SFC-00 # 94, Side A and Side B                                                                                                  
CALL TO ORDER                                                                                                               
Co-Chair   John   Torgerson    convened   the   meeting   at                                                                    
approximately 9:30 AM.                                                                                                          
PRESENT  Co-Chair  John  Torgerson, Co-Chair  Sean  Parnell,                                                                
Senator Al  Adams, Senator Pete Kelly,  Senator Loren Leman,                                                                    
Senator  Gary  Wilken,   Senator  Phillips,  Senator  Green,                                                                    
Senator Donley.                                                                                                                 
Also   Attending:   REPRESENTATIVE  LISA   MURKOWSKI;   JOHN                                                                  
SHERWOOD,  Division  of  Medical Assistance,  Department  of                                                                    
Health and Social Services;  LISA KIRSCH, Assistant Attorney                                                                    
General, Department of Law.                                                                                                     
Attending via  Teleconference: STEVEN WEISE, ABA  Advisor to                                                                  
Article 9,  Involved in drafting  Revised Article  9, Heller                                                                    
Ehrman White  & McAuliffe, Los Angeles,  California; LEONARD                                                                    
ANDERSON,  Representing the  State  of  Alaska, Third  Party                                                                    
Recovery  Agent   in  Medicaid  Matters,   Anchorage;  Keith                                                                    
Lauffer,   Financial  &   Legal   Affairs  Manager,   Alaska                                                                    
Industrial   Development   &   Export   Authority   (AIDEA),                                                                    
Department of Community & Economic Development, Anchorage.                                                                      
SUMMARY INFORMATION                                                                                                         
HB 239-UCC SECURED TRANSACTIONS                                                                                                 
Co-Chair  Torgerson  noted that  HB  239  would be  HELD  in                                                                    
Committee for further consideration.                                                                                            
HB 325-MEDICAL ASSISTANCE: LIENS & CLAIMS                                                                                       
Co-Chair  Torgerson advised  that HB  325 would  be HELD  in                                                                    
Committee for further consideration.                                                                                            
HB 446-PCE FUND/SALE OF 4 DAM POOL/ENERGY FUND                                                                                  
HB 447-PCE APPROPRIATION                                                                                                        
Co-Chair  Torgerson stated  that HB  446 &  HB 447  would be                                                                    
HELD in Committee for further consideration.                                                                                    
     CS FOR HOUSE BILL NO. 239(FIN)                                                                                             
     "An  Act  relating  to  the  Uniform  Commercial  Code;                                                                    
     relating  to secured  transactions;  amending Rule  79,                                                                    
     Alaska Rules  of Civil Procedure; and  providing for an                                                                    
     effective date."                                                                                                           
Co-Chair Torgerson reported that  objections had been raised                                                                    
about the bill from the State Bond Counsel.                                                                                     
REPRESENTATIVE  LISA MURKOWSKI  explained that  trillions of                                                                    
dollars of  commercial and consumer credit  are granted each                                                                    
year in secured transactions under  Article 9 of the Uniform                                                                    
Commercial Code  (UCC).  UCC Article  9-Secured Transactions                                                                    
provide a  statutory framework that governs  transactions in                                                                    
which  a  creditor takes  a  security  interest in  specific                                                                    
property  of a  debtor, allowing  the creditor  to take  the                                                                    
property  in the  event  the debtor  defaults  on the  debt.                                                                    
Article 9  of the UCC  has been  adopted in every  state and                                                                    
was last revised  in 1972.  Major revisions to  Article 9 by                                                                    
the Uniform  Law Commissioners were  completed in  1998. The                                                                    
revisions will bring Article 9 into the 21 Century.                                                                             
Representative  Murkowski  outlined  the  reasons  that  the                                                                    
revised Article 9 should be adopted:                                                                                            
     ·    Technology                                                                                                            
     ·    Volume                                                                                                                
     ·    New Collateral                                                                                                        
     ·    Certainty of Perfection                                                                                               
     ·    New Liens                                                                                                             
     ·    Clarification of Rules                                                                                                
     ·    Simplified Filing                                                                                                     
     ·    Consumer Impact                                                                                                       
     ·    Commitment to Uniformity                                                                                              
Co-Chair  Torgerson referenced  Page 121,  Lines 18-21,  the                                                                    
"retroactivity clause" and asked what that would do.                                                                            
Representative Murkowski  explained that was a  reference to                                                                    
a  complicated  flow  chart.    It  refers  to  an  existing                                                                    
security interest and  does not mean that  anyone would need                                                                    
to refile.                                                                                                                      
STEVEN WEISE, (Testified via  Teleconfernce), ABA Advisor to                                                                    
Article 9,  Involved in drafting  Revised Article  9, Heller                                                                    
Ehrman  White &  McAuliffe, Los  Angeles, California,  added                                                                    
that in the uniform version,  there was another section that                                                                    
deals more  directly with the  issue, Section 705(c).   That                                                                    
section clarifies that  if a person filed  under the current                                                                    
Article 9,  the filing  would remain  valid and  that person                                                                    
would not be at risk.                                                                                                           
Co-Chair  Torgerson questioned  why  that  section had  been                                                                    
included in the bill.                                                                                                           
Mr. Weise  replied that  the bill needs  to address  the old                                                                    
and  new Article  9 and  how to  go about  guaranteeing that                                                                    
there are not misunderstandings  regarding the old financing                                                                    
Co-Chair  Torgerson argued  that section  does not  indicate                                                                    
that concern.                                                                                                                   
Mr.  Weise  replied  that there  is  another  section  which                                                                    
identifies  the  security  issues  perfected  under  current                                                                    
Article  9.    He  suggested   that  would  be  one  of  the                                                                    
alternatives for keeping the security issue in place.                                                                           
Co-Chair  Parnell  asked  why one-section  states  that  the                                                                    
security  interest becomes  unperfected and  then Subsection                                                                    
(c) stipulates that it does not render effective.                                                                               
Mr. Weise clarified that the  first clause of Subsection (a)                                                                    
would  not  apply  when  there  is a  filing  of  a  finance                                                                    
statement.   In that situation, Subsection  (c) would apply.                                                                    
He agreed that the system was quite complex.                                                                                    
Co-Chair Torgerson referenced a  letter included in member's                                                                    
files  from Cynthia  Weed  at the  State  Bond Counsel.  The                                                                    
letter  states  that  the  exemption  would  not  provide  a                                                                    
comprehensive exclusion to exempt  pledges and liens granted                                                                    
by  the State  and local  government issuing  revenue bonds.                                                                    
The letter  indicates that  the language  in the  bill would                                                                    
impact  future  bond issues  and  would  place revenue  bond                                                                    
issues that are outstanding in the hands of investors.                                                                          
Co-Chair  Torgerson recommended  further  work  done on  the                                                                    
bill in regards  to the impact of  outstanding revenue bonds                                                                    
in the hands of investors.                                                                                                      
Representative  Murkowski   interjected  that   the  project                                                                    
originated  during an  interim  committee.   She noted  that                                                                    
Cynthia  Weed had  been present  at that  Committee meeting.                                                                    
The conversation  at that time  indicated that this  was not                                                                    
significant  in  the event  of  creating  or continuing  the                                                                    
extension.   She  stated that  this was  the first  time the                                                                    
issue had  arisen.   Representative Murkowski  urged members                                                                    
to pass the bill, suggesting  the issue could be resolved as                                                                    
an exemption next year.                                                                                                         
Co-Chair   Torgerson  maintained   that  the   language  was                                                                    
"strong" and  that the  issue must  be addressed  before the                                                                    
bill moves from the Senate Finance Committee.                                                                                   
Co-Chair  Torgerson stated  that  HB 239  would  be HELD  in                                                                    
Committee for further consideration.                                                                                            
     CS FOR HOUSE BILL NO. 325(JUD)                                                                                             
     "An Act  relating to priorities, claims,  and liens for                                                                    
     payment  for  certain   medical  services  provided  to                                                                    
     medical  assistance recipients;  and  providing for  an                                                                    
     effective date."                                                                                                           
JOHN  SHERWOOD, Division  of Medical  Assistance, Department                                                                    
of Health  and Social Services, commented  that the proposed                                                                    
legislation has two main purposes.                                                                                              
     ·    To improve the third party recovery effort for                                                                        
          medical assistance; and                                                                                               
     ·    Changes to the claim filing provisions.                                                                               
Mr. Sherwood mentioned  that HB 325 was a  companion bill to                                                                    
SB 233.                                                                                                                         
Mr. Sherwood  proceeded to explain  the second  provision of                                                                    
the bill.   He noted  that currently, the  Department allows                                                                    
health care providers six months  to make payments on claims                                                                    
for medical  assistance from the  date of service  or twelve                                                                    
months,  as the  provider  must bill  the private  insurance                                                                    
company  first.   The legislation  would  extend the  filing                                                                    
deadline  to twelve  months for  all  claims, elevating  the                                                                    
Department to the industry standard.                                                                                            
Additionally,  the bill  would allow  the Department  to pay                                                                    
100%  of a  late claim  if the  Commissioner finds  that the                                                                    
provider  has  "good  cause" for  missing  a  timely  filing                                                                    
LISA KIRSCH, Assistant Attorney  General, Department of Law,                                                                    
explained  the third  party recovery  provision.   She noted                                                                    
that  the second  part of  the bill  addresses strengthening                                                                    
the existing rights in which  Medicaid must recover payments                                                                    
of  those  that have  been  made.    Currently, there  is  a                                                                    
subrogation right,  which has been  difficult to  enforce as                                                                    
it is not explicitly in statute.                                                                                                
Co-Chair Torgerson  inquired if  that was  Section 8  of the                                                                    
Ms. Kirsch  stated the  provision in  Section 8  would allow                                                                    
the State  to waive  the right  if there  were a  case where                                                                    
work would cause a hardship  against the Medicaid recipient.                                                                    
The  primary section  that changes  authority  to provide  a                                                                    
lien right would be to Section 9,  Pages 3 & 4.  The changes                                                                    
requested would  allow the Department flexibility  to adjust                                                                    
the claims.                                                                                                                     
Ms. Kirsch advised  that as it stands,  there are references                                                                    
made  to  the  civil  rule, which  is  intended  to  clarify                                                                    
existing law.                                                                                                                   
Senator Phillips  referenced Section  1.   He asked  to what                                                                    
extent would  the involvement be contained  in that process.                                                                    
He  was  trying  to  determine  if  he  had  a  conflict  of                                                                    
Ms. Kirsch stated that Section  1 deals with the priority of                                                                    
the lien.   A lien right was created for  the Department and                                                                    
the Division of  Medical Assistance had to be  placed in the                                                                    
list  of existing  liens.   She suspected  that the  concern                                                                    
would  not come  up often.   She  interjected that  Medicaid                                                                    
does pay the hospital.                                                                                                          
Senator Phillips  asked for  consent that  he be  allowed to                                                                    
refrain from voting because of a conflict of interest.                                                                          
Co-Chair Parnell admitted  that he could have  a conflict of                                                                    
interest also.  He voiced  concern that the Department would                                                                    
be  receiving   priority  over  the  hospital,   nurses  and                                                                    
physicians.   He warned  that there  is much  Medicaid money                                                                    
that needs  to be  recovered.   Co-Chair Parnell  asked when                                                                    
the priority would come into play.                                                                                              
Ms.  Kirsch replied  that the  placement in  the list  would                                                                    
depend on the  type of placement coming up.   She noted that                                                                    
a  number one  placement would  be  to the  list of  medical                                                                    
services.    In  most  cases, if  the  person  was  Medicaid                                                                    
eligible, they  would be covered  and the provider  would be                                                                    
Co-Chair Parnell questioned why  that language was necessary                                                                    
in the legislation.                                                                                                             
Ms. Kirsch  replied that the  State has to  place themselves                                                                    
somewhere, a  vacuum can  not be left.   She  understood the                                                                    
problem to be  that when the State has  a subrogation right,                                                                    
the  argument is  that you  have no  right at  all once  the                                                                    
plaintiff recovers 100%.                                                                                                        
Co-Chair  Parnell  believed  that requesting  a  right  lien                                                                    
priority was the most extreme way to address the concern.                                                                       
LEONARD    ANDERSON,    (Testified   via    Teleconference),                                                                    
Representing  the  State  of Alaska,  Third  Party  Recovery                                                                    
Agent in  Medicaid Matters, Anchorage, testified  that there                                                                    
are general  problems with the  present statute.   The first                                                                    
concern is the  notice problem.  Currently,  when a Medicaid                                                                    
recipient  requests Medicaid,  they have  already signed  up                                                                    
and  contractually agreed  to  include  any Medicaid  amount                                                                    
that  they received  as part  of the  claim against  a third                                                                    
party.  Part  of the problem is getting the  notice and then                                                                    
action when the notice is received.                                                                                             
Typically, it is  well into a tort case before  the State of                                                                    
Alaska ever  finds out  that there  is potentially  a liable                                                                    
third party out  there.  It is not uncommon  that the notice                                                                    
of  that fact  is received  after the  settlement has  taken                                                                    
place.   He  stated that  the  new bill  would address  that                                                                    
issue.   The legislation  places into statute  a requirement                                                                    
that  the  Medicaid recipient  or  his  attorney notify  the                                                                    
Department  of  any  claim  that is  being  made  against  a                                                                    
potentially liable third party.                                                                                                 
Mr.  Anderson  added,  a  second  portion  of  the  proposed                                                                    
legislation would  address the subrogation issue.   The real                                                                    
issue  is  that  attorneys privately  argue  that  equitable                                                                    
principles  of subrogation  apply.   That means  that if  an                                                                    
injured third  party is  not made whole,  then the  State of                                                                    
Alaska can not  get anything until the party  is made whole.                                                                    
The lien  will require  dialogue between the  injured party,                                                                    
their  attorney  and  the  State  of Alaska.    There  is  a                                                                    
"hardship" waiver  provision in the bill  which will provide                                                                    
some flexibility to it.                                                                                                         
Co-Chair Parnell  questioned the  position of  the insurance                                                                    
companies.   He used the example  of a child hit  on a bike.                                                                    
He reiterated why should the  State have a higher right than                                                                    
any other party trying to recover their fees.                                                                                   
Mr. Anderson  did not agree that  the State was on  a "level                                                                    
playing field".   Various courts  have found that  there are                                                                    
different  policy reasons  for where  the insurance  company                                                                    
sets.  The  courts that have addressed the  issue have found                                                                    
that based  upon that insurance  company's base  "risk" into                                                                    
the rates  charged, they are  different than the  State that                                                                    
does not use  the risk factor.  He hesitated  to compare the                                                                    
State and the insurance company.                                                                                                
Tape: SFC - 00 #94, Side B    10:17 am                                                                                          
Co-Chair  Torgerson understood  that there  would only  be a                                                                    
couple cases a year that this clause would apply to.                                                                            
Mr.  Anderson argued  that was  inaccurate.   He noted  that                                                                    
weekly,  he   is  involved  in   subrogation  issues.     He                                                                    
interjected, the  Plaintiff's Bar  is not happy  with Alaska                                                                    
in  the  recovery  of  funds.    Based  on  current  statute                                                                    
weakness, they  are waiting for  the right case to  bring it                                                                    
to the Supreme  Court.  If that were to  happen, the outcome                                                                    
would not be  good.  Mr. Anderson believed that  was part of                                                                    
the  reason that  State had  made  it a  priority to  settle                                                                    
Co-Chair Torgerson  suggested that  the most  important part                                                                    
of the  bill was from Sections  3 on.  He  proposed removing                                                                    
Sections 1 & 2.                                                                                                                 
Representative Murkowski stated that  there needs to be some                                                                    
standing in the list, otherwise,  the lien right would cause                                                                    
a great deal of confusion.                                                                                                      
Senator Green  declared a conflict  of interest.   She asked                                                                    
if the  legislation would address mainly  the person covered                                                                    
by Medicaid and/or private insurance.                                                                                           
Representative Murkowski stated that  was a possibility.  It                                                                    
could also be a circumstance  where a Medicaid recipient was                                                                    
not  covered by  any  other insurance  but  instead a  third                                                                    
party who was responsible for their injury.                                                                                     
Senator  Green asked  if the  person had  no coverage  or no                                                                    
secondary  coverage  would  Medicaid  then  be  designed  to                                                                    
Representative  Murkowski  stressed  that  this  was  "third                                                                    
party" recovery.                                                                                                                
Senator Green inquired if the  State could require a payment                                                                    
from a Medicaid recipient.                                                                                                      
Representative Murkowski  mentioned that  a couple  of years                                                                    
ago,  there had  been  a legislative  change  made to  allow                                                                    
people who  are disabled to go  back to work, and  by virtue                                                                    
of  going back  to work,  they  loose their  coverage.   The                                                                    
legislation  would  allow  the  disabled  to  enter  into  a                                                                    
Mr. Sherwood stated that the  Department is allowed and that                                                                    
they  do  charge nominal  co-payments.    Under federal  law                                                                    
those payments  are restricted  to 5%  of the  persons total                                                                    
Senator  Green  argued  that  it  is  difficult  to  compare                                                                    
Medicaid to private insurance.                                                                                                  
Representative Murkowski  stressed that  Medicaid is  not an                                                                    
insurer.   That relationship  is contractual  and it  is not                                                                    
meant to offset insurance.                                                                                                      
Co-Chair Parnell  clarified that creating a  lien would have                                                                    
other  ramifications.   Giving  the  State  a lien  priority                                                                    
impacts  the collectability  of  the other  claims by  other                                                                    
private  parties and  also  puts the  State  in priority  of                                                                    
bankruptcy setting over unsecured creditors.                                                                                    
Representative Murkowski stated that  the lien created would                                                                    
be to  a third party  and responsible for  medical expenses.                                                                    
That would be in the context  of a third party recovery in a                                                                    
tort action if medical expenses were to be considered.                                                                          
Co-Chair Torgerson  advised that the  bill would be  held in                                                                    
Committee for  further consideration.   He  recommended that                                                                    
Sections 1  & 2  be reworked. Co-Chair  Torgerson questioned                                                                    
Section 5  and asked why  it had  not been reflected  in the                                                                    
fiscal note.                                                                                                                    
Mr.  Sherwood explained  that  provision  related to  timely                                                                    
filings.  In that situation,  the statute would limit pay of                                                                    
50% of the  claim, which would allow the entire  claim to be                                                                    
paid.  He  advised that this was an equity  issue for timely                                                                    
filing.  Mr.  Sherwood noted that the fiscal  costs were not                                                                    
considered "material".                                                                                                          
HB 325 was HELD in Committee for further consideration.                                                                         
     CS FOR HOUSE BILL NO. 446(FIN) am                                                                                          
     "An  Act establishing  and relating  to the  power cost                                                                    
     equalization  endowment  fund;  relating to  the  power                                                                    
     cost  equalization  and rural  electric  capitalization                                                                    
     fund;   relating   to   the   Railbelt   energy   fund;                                                                    
     authorizing and  relating to the  sale of the  four dam                                                                    
     pool hydroelectric  project; establishing  and relating                                                                    
     to  joint action  agencies  created  to purchase  power                                                                    
     projects; and providing for an effective date."                                                                            
     CS FOR HOUSE BILL NO. 447(FIN) am                                                                                          
     "An Act  making appropriations  relating to  power cost                                                                    
     equalization  and  the  sale   of  the  four  dam  pool                                                                    
     hydroelectric project  and to capitalize  funds; making                                                                    
     appropriations  under art.  IX, sec.  17©, Constitution                                                                    
     of the State of  Alaska, from the constitutional budget                                                                    
    reserve fund; and providing for an effective date."                                                                         
Keith Lauffer,  (Testified via Teleconference),  Financial &                                                                    
Legal  Affairs  Manager,  Alaska  Industrial  Development  &                                                                    
Export   Authority  (AIDEA),   Department  of   Community  &                                                                    
Economic Development, provided an overview  of the bill.  He                                                                    
stated that the bill would do three things:                                                                                     
     ·    Authorize   the  sale   of  the   Four  Dam   Pool                                                                    
          facilities to an entity to be formed by                                                                               
          purchasing utilities;                                                                                                 
     ·    Establish a power cost equalization (PCE)                                                                             
          endowment  and  utilitize  the sales  proceeds  to                                                                    
          capitalize the  endowment, while allows  for other                                                                    
          contributions of the  endowment from federal funds                                                                    
          or other sources; and                                                                                                 
     ·    Uses the endowment and other funds to provide for                                                                     
          a mechanism  for the annual  financing of  the PCE                                                                    
         program at a $15.7 million dollar level.                                                                               
Mr. Laufer addressed the perimeters  of the sale transaction                                                                    
of the  Four Dam  Pool.   The negotiations  for the  sale of                                                                    
those facilities has  been in the making for  about 5 years.                                                                    
The negotiations have been long  and difficult and the final                                                                    
agreement was  just made.   He added  that there  were three                                                                    
goals in approaching the final negotiations.                                                                                    
     ·    The State needed to receive fair value for the                                                                        
          project and  be relieved of all  liability related                                                                    
          to the project.                                                                                                       
     ·    The sale needed to benefit the local communities                                                                      
          by  providing them  with  local  control of  their                                                                    
          generation   resources  and   stabilize  long-term                                                                    
          power rates.                                                                                                          
     ·    It was important that any sale transaction would                                                                      
          help  to solve  the problem  of long  term funding                                                                    
          for PCE.                                                                                                              
Mr. Laufer was  pleased to report that the bill  met all the                                                                    
He explained  the perimeters  of the sale.   The  sale price                                                                    
for the project  was $73 million dollars.   That price falls                                                                    
within the  range of reasonable value  that AIDEA determined                                                                    
was a fair value for the  projects.  The manner in which the                                                                    
internal  fair value  was determined  was to  recognize that                                                                    
the projects  are only worth  what revenues the  State could                                                                    
generate  over   the  long  term.     Recognizing   that,  a                                                                    
calculation was  based on the  present value of  the State's                                                                    
revenue  and those  were used  as  the terms  for the  power                                                                    
sales  agreement.   That  amount  was  then reduced  by  the                                                                    
present value of  the State's risk.  He  reiterated that the                                                                    
sales  price was  well  within the  range  that AIDEA  found                                                                    
reasonable, utilizing the long-term assumptions.                                                                                
Mr.  Laufer   expounded  that  there  were   other  elements                                                                    
involved in the sale.  The  reason that the sale will not be                                                                    
consummated   immediately   is   that  there   are   federal                                                                    
regulatory commission licenses that  needs to be transferred                                                                    
and land interests which make it more complex.                                                                                  
Mr. Laufer  commented that AIDEA believes  a reasonable time                                                                    
frame for closing  the sale would be December 2001.   In the                                                                    
interim, the utilities will be  required to continue to make                                                                    
their power  sales agreement payments.   Under the  terms of                                                                    
the  Memorandum of  Understanding (MOU)  with the  State and                                                                    
the  utilities, the  utilities will  be responsible  for all                                                                    
repairs and the payments will  be 100% available for the PCE                                                                    
program.  The  utilities do have a termination  right in the                                                                    
event that significant losses occur in the interim period.                                                                      
Mr. Laufer  noted that the  next element of  the transaction                                                                    
involves  the State  insurance fund.    The State  currently                                                                    
holds a $13 million dollar  insurance fund for the projects.                                                                    
That fund is used by the  State to cover uninsured risks and                                                                    
the  deductibles.    The  State has  a  $10  million  dollar                                                                    
deductible  on the  insurance  procured  on these  projects.                                                                    
That fund is projected at  about $13 million dollars.  Those                                                                    
monies would be freed up as of the sale date.                                                                                   
Mr. Laufer continued,  the next monies involved  in the sale                                                                    
are the  monies set aside  for a  3% low interest  loan from                                                                    
the State  to the  utilities participating in  the Southeast                                                                    
intertie.  Those funds were  appropriated in 1993.  The fund                                                                    
consists of  $20 million  dollars.   In the  transaction, it                                                                    
was recognized that  the $20 million dollars  loan funds had                                                                    
a significant  subsidy element.   The subsidy value  of that                                                                    
loan  was  in excess  of  $5  to  $6  million dollars.    In                                                                    
recognition  of  that,  the utilities  were  provided  a  $5                                                                    
million dollar credit  as of the close  against the purchase                                                                    
Mr. Laufer stated that there  were two other elements of the                                                                    
sale  that should  be addressed.    He noted  that the  sale                                                                    
completely  relieved   the  State  of  all   ongoing  future                                                                    
liabilities as an owner of the  projects.  He noted that was                                                                    
a crucial  element for AIDEA.   The MOU authorized  AIDEA to                                                                    
finance the  sale but it  would be subject to  AIDEA's Board                                                                    
approval  at  an  interest rate  of  6.5%  under  commercial                                                                    
terms,  and  would  be  available   if  they  were  publicly                                                                    
financed.    Importantly,   the  purchasing  utilities  were                                                                    
required  to subordinate  all their  rights under  the power                                                                    
sales  agreement.    If  the  loan was  to  default  to  the                                                                    
utilities, the  State should not  be in a position  in which                                                                    
it could  again receive  ownership of the  projects, subject                                                                    
to  the  existing  owner's  power   sales  agreement.    The                                                                    
utilities will  be subordinating  their rights and  power in                                                                    
the sales agreement to the AIDEA lien.                                                                                          
Co-Chair Torgerson asked if that  agreement would need to be                                                                    
ratified by the voters.                                                                                                         
Mr. Laufer understood  that the agreement would  not have to                                                                    
be ratified by the individual owners.   A new entity will be                                                                    
created so  that the power  sales agreement, other  than the                                                                    
subordination   agreement  would   not  be   altered.     No                                                                    
individual utility would be incurring the debt.                                                                                 
Mr. Laufer  continued, the MOU  recognizes that there  are a                                                                    
number of conditions,  which will need to be  satisfied.  It                                                                    
will be necessary for the  governing body of each utility to                                                                    
approve  the transaction  as well  as the  Legislative Body.                                                                    
He added that  there are a number of  other detailed issues,                                                                    
which will need  to be completed before the  transfer can be                                                                    
The second part  of the bill addresses  the establishment of                                                                    
the  PCE endowment.   That  is where  the money  goes.   The                                                                    
payment made in  August 2000 will be deposited  into the PCE                                                                    
Rural Capitalization  Fund.  The other  funds identified for                                                                    
payment are for  power sales, which would  be deposited into                                                                    
the  PCE Endowment  Fund.    The net  sale  proceeds in  the                                                                    
insurance  fund  would  also   be  deposited  into  the  PCE                                                                    
Endowment Fund.   The  bill provides for  a transfer  out of                                                                    
the  Constitutional  Budget  Reserve   (CBR)  into  the  PCE                                                                    
Endowment Fund.                                                                                                                 
Mr. Laufer continued, annual PCE  funding over the long-term                                                                    
will  come   from  the  amounts  made   available  from  the                                                                    
endowment.  Under  the bill, 7% of the  average market value                                                                    
of the previous fiscal year  would be made available for PCE                                                                    
funding.   In the interim,  the PCE Endowment Fund  will not                                                                    
be full until  the sales proceeds come in.   The earning for                                                                    
the endowment  of approximately $13.6 million  dollars would                                                                    
be made available for PCE, then  interest on the PCE and the                                                                    
Rural  Capitalization  Fund  would be  available  and  other                                                                    
funds including the AIDEA dividend  would be made available.                                                                    
The bill  provides that on July 1,   2004, use  of the AIDEA                                                                    
dividend would be deleted.                                                                                                      
Mr. Laufer mentioned that  the appropriation bill stipulates                                                                    
that the  $20 million dollars Southeast  Intertie loan would                                                                    
lapse  back into  the Railbelt  Energy Fund  from whence  it                                                                    
came.  In  addition, amounts made available  for the Sutton-                                                                    
Glennallen Intertie would lapse  back to the Railbelt Energy                                                                    
Fund.    An  appropriation  will   be  made  for  the  sales                                                                    
transaction costs.  Any remaining  costs would lapse through                                                                    
the PCE Endowment Fund.                                                                                                         
Mr.   Lauffer  referenced   the  handouts   he  distributed.                                                                    
[Copies not on File].                                                                                                           
In response  to Senator Phillips, Mr.  Laufer explained that                                                                    
AIDEA  financing would  be paid  off over  20-25 years  at a                                                                    
6.5%  interest.    The  terms of  that  financing  would  be                                                                    
commercial and would require the  normal security that AIDEA                                                                    
Senator Phillips thought  that there could be a  risk to the                                                                    
Mr.   Laufer   advised  that   was   the   intent  for   the                                                                    
subordination of the power sales agreement.                                                                                     
Senator  Phillips understood  that following  the sale,  the                                                                    
State would then  be done with this concern.   He questioned                                                                    
the money drawn from the CBR.                                                                                                   
Mr.  Laufer  explained  that the  proceeds  and  money  made                                                                    
available  from the  sale are  not sufficient  to cover  the                                                                    
$50.7  million dollar  annual PCE  payment.  Under the  bill                                                                    
that the  House approved,  depositing additional  funds into                                                                    
the Endowment  Fund sufficient to produce  revenues that are                                                                    
close to the amount necessary  on an annual basis to provide                                                                    
for full funding would fill the gap.                                                                                            
Senator  Phillips acknowledged  that he  had a  problem with                                                                    
Senator  P. Kelly  asked  the amount  of  the current  AIDEA                                                                    
Mr.  Laufer  replied  that the  AIDEA  dividend  depends  on                                                                    
revenues and  that it can  be anywhere from  $18-$20 million                                                                    
dollars annually.                                                                                                               
In  response to  Senator P.  Kelly, Mr.  Laufer stated  that                                                                    
under the proposed scenario, it  would be approximately $1.4                                                                    
million dollars annually.                                                                                                       
Senator P. Kelly asked the amount of the CPR draw.                                                                              
Mr. Laufer advised that the  previous amount coming from the                                                                    
CBR was  $20 million dollars.   The AIDEA dividend  draw was                                                                    
between $7-$8 million dollars.                                                                                                  
Senator P. Kelly inquired the counter offer.                                                                                    
Mr.  Laufer explained  that the  current offer  has been  in                                                                    
negotiation for  over a five-year  period.  The  most recent                                                                    
utility offer  that was in  writing was made in  January for                                                                    
the amount of $60 million dollars.                                                                                              
Senator Adams acknowledged that  the CBR draw eliminated the                                                                    
long-term draw from AIDEA.                                                                                                      
Senator  Leman  commented  that last  year's  settlement  of                                                                    
$15.7 million  dollars was a  compromise with  the assurance                                                                    
from Senator  Adams that  there would  be money  coming from                                                                    
National   Petroleum  Reserve-Alaska   (NPRA).     Had  that                                                                    
assurance not  been there, Senator Leman  was confident that                                                                    
the  Senate Finance  Committee would  have pushed  for other                                                                    
changes  in  the PCE,  establishing  the  level at  somewhat                                                                    
less.    He  suggested   revisiting  some  of  the  previous                                                                    
Committee actions.                                                                                                              
Senator  Leman  asked  why  the  sale was  not  put  out  to                                                                    
competitive bid  and if the  State would have  done "better"                                                                    
having done that.                                                                                                               
Senator  Adams  responded to  the  first  concern voiced  by                                                                    
Senator  Leman.   He pointed  out that  the $12  million CBR                                                                    
dollars  had  been  included.   The  impact  of  the  issues                                                                    
returned those  funds.  Out  of the $12 million  dollars, $3                                                                    
million was  placed into  the Permanent  Fund.   The balance                                                                    
goes into the  School Public Trust.  Future  NPRA money goes                                                                    
to the impacted communities.                                                                                                    
Mr.  Laufer addressed  the other  concern voiced  by Senator                                                                    
Leman.   He  agreed that  it was  not known  what the  price                                                                    
could have been  received with a bid.  However,  it is clear                                                                    
that only  the purchasing  utilities have the  legal ability                                                                    
to relieve  the State  of its risks.   AIDEA  is comfortable                                                                    
that the  price committed  to is  within a  reasonable range                                                                    
that the State could get from any third party buyer.                                                                            
Mr.  Laufer highlighted  the distributed  charts.   [Not  in                                                                    
Co-Chair  Torgerson  questioned  if  it  could  be  balanced                                                                    
without an AIDEA dividend.                                                                                                      
Mr. Laufer  advised that it  is anticipated that  there will                                                                    
be federal funds coming available  for the endowment itself,                                                                    
to grow the amount in order to cover the AIDEA dividend.                                                                        
Co-Chair Torgerson  inquired what  would happen if  the fund                                                                    
were to under or over perform.                                                                                                  
Mr.  Laufer  suggested that  there  would  be a  7%  nominal                                                                    
return  long-term basis.   Over  or  under performing  funds                                                                    
would remain  in the endowment.   The provision of  the bill                                                                    
provides that  7% of  the market value  of the  endowment is                                                                    
the amount transferred  on an annual basis.   Over the long-                                                                    
term, the endowment should be able to maintain.                                                                                 
Co-Chair  Torgerson stated  that HB  446 &  HB 447  would be                                                                    
HELD in Committee for further consideration.                                                                                    
Senator Torgerson adjourned the meeting at 11:04 A.M.                                                                           

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