Legislature(2017 - 2018)SENATE FINANCE 532
02/06/2017 09:00 AM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB30 | |
| SB39 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 30 | TELECONFERENCED | |
| + | SB 39 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE FINANCE COMMITTEE
February 6, 2017
9:02 a.m.
9:02:31 AM
CALL TO ORDER
Co-Chair MacKinnon called the Senate Finance Committee
meeting to order at 9:02 a.m.
MEMBERS PRESENT
Senator Anna MacKinnon, Co-Chair
Senator Click Bishop, Vice-Chair
Senator Mike Dunleavy
Senator Peter Micciche
Senator Donny Olson
Senator Natasha von Imhof
MEMBERS ABSENT
Senator Lyman Hoffman, Co-Chair
ALSO PRESENT
Jim Shine, Commercial Manager, Division of Oil and Gas,
Department of Natural Resources; Senator John Coghill,
Sponsor; Rynnieva Moss, Staff, Senator Coghill; Gene
Therriault, Deputy Director, Statewide Energy Policy
Development, Alaska Energy Authority, Department of
Commerce, Community and Economic Development.
PRESENT VIA TELECONFERENCE
Doug Chapadose, President and CEO, Petro Star, Anchorage;
Sean Skaling, Deputy Director, Alternative Energy and
Energy Efficiency, Alaska Energy Authority, Department of
Commerce, Community and Economic Development; Chris Rose,
Executive Director, Renewable Energy Alaska Project,
Sutton; Brittany Smart, Fairbanks North Star Borough,
Fairbanks.
SUMMARY
SB 30 APPROVAL: ROYALTY OIL SALE TO PETRO STAR
SB 30 was HEARD and HELD in committee for further
consideration.
SB 39 MUNI ENERGY IMPROVEMNT ASSESSMNTS/BONDS
SB 39 was HEARD and HELD in committee for further
consideration.
SENATE BILL NO. 30
"An Act approving and ratifying the sale of royalty
oil by the State of Alaska to Petro Star Inc.; and
providing for an effective date."
9:03:38 AM
JIM SHINE, COMMERCIAL MANAGER, DIVISION OF OIL AND GAS,
DEPARTMENT OF NATURAL RESOURCES, discussed the
presentation, "Proposed Sale of the State's Royalty Oil to
Petro Star: Senate Bill 30; Senate Finance Committee" (copy
on file).
Co-Chair MacKinnon stated that Mr. Chapadose was online for
questions.
Mr. Shine looked at slide 2, "Royalty In-kind Versus
Royalty In-value":
The State has a choice to take its royalty in-kind
(RIK) or in-value (RIV).
When the State takes its royalty as RIV, the lessees
who produce the oil also market the State's share
along with their own production and pay the State the
value of its royalty share.
When SOA takes its royalty share as RIK, the SOA
assumes ownership of the oil, and the DNR Commissioner
disposes of it through the sale procedures prescribed
by AS 38.05.183.
The SOA has regularly taken royalties of ANS oil as
RIK (starting in 1979).
The State will receive between $29 to $37 million in
additional revenue over what the state would receive
if the contracted volumes were taken RIV.
Petro Star contract has been through public review and
Royalty Board processes.
Mr. Shine addressed slide 3, "Non-competitive RIK Sale
Process":
Before taking RIK, the DNR Commissioner must find it
is in the State's best interest.
DNR must decide whether to sell RIK pursuant to a
competitive auction or a non-competitive, negotiated
sale.
Solicitation of Interest issued January 2015 to
prospective purchasers to gauge market interest.
DNR determined that there was not competition allowing
for a competitive sale, and proposed to enter into two
negotiated contracts with Petro Star.
The first contract, in effect for the period January -
December 2017, did not need legislative approval under
AS 38.06.055(a) and (b)(1), received recommendation of
the Royalty Board and was entered into in August 2016.
The second contract, effective for the period January
2018 -December 2021, received the recommendation of
the Royalty Board, but requires Legislative approval.
Co-Chair MacKinnon acknowledged Senator Micciche.
9:08:44 AM
Senator Olson looked at slide 2. He queried the period that
the increase of $29 million to $37 million took place. Mr.
Shine replied that it included the current one-year
contract and the four-year contract contained in the
legislation. The one-year contract did not need legislative
approval. The $29 million to $37 million included the one-
year and four-year contracts through calendar year 2021.
Senator Dunleavy stressed that the proceeds were deposited
into the Permanent Fund. Mr. Shine agreed.
Co-Chair MacKinnon noted that 50 percent of revenue was
deposited into the Permanent Fund; 45 percent went to the
general fund; and 5 percent went to the Public School Trust
Fund. Mr. Shine agreed.
Mr. Shine looked at slide 4, "Commissioner's Decision
Criteria":
AS 38.05.183(e) states that the commissioner must sell
the State's royalty oil to the buyer who offers
"maximum benefits to the citizens of the state." In
making this determination, the commissioner must
consider:
1. The cash value offered;
2. The projected effects of the sale on the
economy of the state;
3. The projected benefits of refining or
processing the oil in state;
4. The ability of the prospective buyer to
provide refined products for distribution and
sale in the state with price or supply benefits
to the citizens of the state; and
5. The eight criteria listed in AS 38.06.070(a),
as reviewed by the Royalty Board.
In considering these criteria, the commissioner will
state which criteria apply to the proposed disposition
and discuss the weight given to the applicable
criteria in determining the maximum benefits to the
state.
Mr. Shine highlighted slide 5, "Approval Process for the
RIK Sale":
DNR must make a Best Interest Finding (BIF) in support
of the sale.
Preliminary BIF issued July 2016.
Final BIF issued in September 2016.
DNR presented the proposed sale to the Royalty Board
on August 31, 2016.
The Board reviewed the Preliminary BIF and the
proposed contracts, and unanimously voted to recommend
the Legislature approve the sale of ANS royalty oil to
Petro Star.
The Board issued a Report to the Alaska
Legislature and Resolution 2016-2 stating that
the proposed disposition of ANS royalty oil to
Petro Star meets the requirements of AS
38.06.070.
Prior to finalizing the RIK contract, the Legislature
must pass a bill ratifying the contract with Petro
Star (HB 70; SB 30).
Mr. Shine addressed slide 6, "Royalty Board's Decision
Criteria":
AS 38.06.070(a) states that the Alaska Royalty Oil and
Gas Development Advisory Board must consider:
1. The revenue needs and projected fiscal condition of
the state;
2. The existence and extent of present and projected
local and regional needs for oil and gas products;
3. The desirability of localized capital investment,
increased payroll, secondary development and other
possible effects of the sale;
4. The projected social impacts of the transaction;
5. The projected additional costs and responsibilities
which could be imposed upon the state and affected
political subdivisions by development related to the
transactions;
6. The existence of specific local or regional labor
or consumption markets or both which should be met by
the transaction;
7. The projected positive or negative environmental
effects related to the transactions; and
8. The projected effects of the proposed transaction
upon existing private commercial enterprise and
patters of investment.
Senator Dunleavy looked at number 7, and wondered who
oversaw that criteria. Mr. Shine replied that the Division
of Oil and Gas oversaw that criteria, but he did not know
how much consultation was done with other state agencies.
He stated that the report indicated that there would be no
negative environmental impacts. He stated that it was
existing status quo operations for Petro Star.
9:13:46 AM
Mr. Shine discussed slide 7, "Petro Star RIK Contract
Terms":
Quantity
1-year contract: from 18,800 bpd to 23,500 bpd
for Jan. 2017 -Dec. 2017
4-year contract: from 16,400 bpd to 20,500 bpd
for Jan. 2018 -Dec. 2018 from 13,200 bpd to
16,500 bpd for Jan. 2019 -Dec. 2019 from 10,800
bpd to 13,500 bpd for Jan. 2020 -Dec. 2020 from
8,400 bpd to 10,500 bpd for Jan. 2021 -Dec. 2021
Price: the contracts use a netback formula and
provides higher revenue to State compared to RIV.
Quantity flexibility
Petro Star may nominate zero barrels up to 3
consecutive months if "turnaround clause" is
used, otherwise the contract terminates.
The State can cap its delivery amounts to 95
percent of the total ANS royalty oil if the
nominations from all RIK buyers is greater than
the 95 percent threshold.
Provided that the supply of ANS royalty oil
exceeds demand from both RIK buyers, the State
can sell Additional Sale Oil as long as the total
deliveries are not greater than the 95 percent
threshold.
Security
Petro Star's guarantor (ASRC) shall provide a
letter of opinion from a financial analyst or a
stand-by letter of credit or surety bond equal in
value to 50 days of delivery.
If guarantor's credit rating falls below
investment grade level, then guarantor shall
provide a stand-by letter of credit or surety
bond described previously.
In-state processing: Petro Star to use "commercially
reasonable efforts" to manufacture refined products
in-state from the ANS royalty oil.
Employment of Alaska residents: no discrimination
against AK companies and residents.
9:19:01 AM
Mr. Shine addressed slide 8, "RIK Contract Price":
ANS Spot Price -$1.95 -Tariff Allowance +/-Quality
Bank Adjustments -Line Loss
ANS Spot Price= Average US West Coast Price for Alaska
North Slope oil (reported by industry trade
publications Plattsand Reuters)
$1.95 RIK Differential
This is a deduction used to calculate the price
of ANS oil sold in Alaska.
The deduction is applied to the price of ANS oil
at its most common destination market (the U.S.
West Coast).
It resembles the deduction used in sales of ANS
oil in Alaska between North Slope producers and
between North Slope producers and in-state
refineries.
In contrast, for the ANS royalty oil that is sold
outside of Alaska and that is taken in-value,
producers use a deduction that approximates the
marine transportation cost.
Since deduction that represents the marine
transportation cost is generally higher than the
value of the RIK differential, the State has the
potential to obtain a higher price for its ANS
royalty oil by taking it in-kind and selling it
in Alaska.
Senator Micciche queried the range of ANS spot prices for
the calculation. Mr. Shine replied that the actual spot
price was not included. He remarked that the local in-state
differential gave the approximate $1.50 per barrel benefit
over RIV. He stated that the starting point was the same
regardless of the price of oil.
Co-Chair MacKinnon wondered if it was fair to consider the
revenue from the one-year contract. Mr. Shine replied that
the one-year contract did not require legislative approval,
so it was not included in the fiscal note. The $29 million
to $37 million did include the benefit that the state would
receive with the four-year contract and one-year contract.
Senator Olson noted the volatility of the oil price market,
and queried the advantage of a four-year contract versus a
year-to-year contract. Mr. Shine replied that the benefit
the state received was that it was not subject to a $3.50
per barrel deduction for marine transportation from the
Valdez Marine Terminal to its west coast destination.
Senator Olson announced that the price did not matter. Mr.
Shine agreed.
Mr. Shine continued to discuss slide 8:
Tariff Allowance= Tariffs for TAPS and pipelines
upstream of Pump Station 1 (PS-1).
Quality Bank Adjustments= adjustments reported by TAPS
Quality Bank Administrator.
Line Loss= loss or mismeasurement of volume between
PS-1 and the Valdez Marine Terminal (VMT). It is
calculated as 0.09 percent of the amount resulting
from the formula above, excluding "Line Loss."
Senator Micciche noted that the differential between $29
million and $37 million was the transportation difference
between the take-or-pay quantity and the max-quantity of
the contract. Mr. Shine agreed. He stated that the $29
million would represent the benefit to the state if the
minimum volumes were nominated in each contract month,
versus the $37 million the state would receive if the
maximum volume was nominated each month.
9:24:37 AM
Mr. Shine looked at slide 9, "Contract is in the State's
Best Interest":
The State will receive between $29 to $37 million in
additional revenue over what the state would receive
if the volume of ANS royalty oil the contracts is
taken in-value.
1-year contract (Jan. -Dec. 2017): from $7.6 to
$9.5 million
4-year contract (Jan. 2018 -Dec. 2021): from
$22.3 to $27.9 million
On average, producers selling ANS royalty oil outside
Alaska for the 5-year period of the proposed RIK
contracts with Petro Star are expected to deduct from
$3.37 to $3.70 per barrel as a "marine transportation
cost" in arriving at the price for RIV.
This is the deduction used to adjust the price of
ANS oil from the U.S. West Coast to Alaska.
The proposed contracts with Petro Star will deduct
only $1.95 as a "location differential" from the west
coast ANS value.
The proposed sale provides crude to Petro Star's
refineries at North Pole and Valdez with the
associated economic and social benefits to Alaska's
economy:
Petro Star employs approximately 44 people in its
refining operations.
Maximum throughput capacity
North Pole refinery: 22,000 barrels per day
(bpd). Valdez refinery: 60,000 bpd.
Of the throughput amounts, approximately 25
percent-30 percent will be refined products.
Petro Star refineries' estimated contribution to
the local economy in 2014 was $25mm
Vice-Chair Bishop felt that the four-year contract was a
national security issue. He wanted comments on his concern.
9:25:54 AM
DOUG CHAPADOSE, PRESIDENT AND CEO, PETRO STAR, ANCHORAGE
(via teleconference), stated that Petro Star was the
largest supplier of fuel to the Defense Logistics Agency,
which was the federal agency responsible for supplying
energy in all forms to the Department of Defense (DOD). He
stated that the fuel supplied by Petro Star was essential
to the war-fighting capabilities of the Pacific forces
located in Alaska. He stressed that it was a large factor
in determination to base the F-35 fighters at Eielson Air
Force Base.
Senator von Imhof noted that Golden Valley Electrical
Association felt that the contract would provide a 10
percent or more reduction for the cost of power for
approximately 35,000 Interior Alaska residence, because of
the new fuel blend. Mr. Shine agreed. He acknowledged the
letter of support in the bill packet.
Senator von Imhof queried plans to expand beyond 35,000
customers. Mr. Shine deferred to Mr. Chapadose.
Co-Chair MacKinnon shared that the public testimony portion
of the meeting might address that concern.
Co-Chair MacKinnon stressed it a contract which the state
had made with Petro Star. She noted that the bill mentioned
the Arctic Slope Regional Corporation, and queried the
relationship and its inclusion in the statutory bill. Mr.
Shine replied that Arctic Slope Regional Corporation was
the parent wholly-owned subsidiary was Petro Star Refining.
Mr. Chapadose thanked the efforts in drafting the contract.
He stated that it was a long period to come to a
resolution, and felt that it was a rewarding period. He was
pleased with the contracts.
9:30:33 AM
Senator von Imhof noted that Golden Valley Electrical
Association (GVA) had entered into a contract with Petro
Star to provide NAPTHA fuel costs, which resulted in a 10
percent decrease in costs. She remarked that GVA provided
power to approximately 35,000 Interior Alaska members. She
wondered if there were further plans for Petro Star to
expand their footprint to provide natural gas to more
residents. Mr. Chapadose responded that the 35,000
referenced the number of account holders of Golden Valley
Electrical Association. Those individuals would receive the
benefit of the new contract; therefore, the lower cost fuel
was passed onto the consumers. He could not speak to
expanding the GVA membership.
Senator Micciche wondered why the availability of royalty
oil to the refineries was not only beneficial to the parent
company of the refinery. He queried its importance to the
overall economy in Alaska. Mr. Chapadose replied that Petro
Star operated the only refinery in the interior. The Flint
Hills refinery was currently being demolished. He stressed
that Petro Star was the only source of refined products
within the interior region, including Valdez. The oil from
the Trans-Alaska Pipeline System (TAPS) was the only oil
available to refine. He stressed that the ability to source
crude was critical to the Petro Star operation. He remarked
that acquiring crude from producers was becoming more
difficult, as production had decreased on the North Slope.
He stated that the source of crude from the state was
essential to remain in business.
9:35:09 AM
Co-Chair MacKinnon CLOSED public testimony.
9:35:09 AM
AT EASE
9:36:38 AM
RECONVENED
9:36:40 AM
Vice-Chair Bishop detailed the fiscal note.
9:37:05 AM
AT EASE
9:37:16 AM
RECONVENED
Vice-Chair Bishop readdressed the fiscal note.
SB 30 was HEARD and HELD in committee for further
consideration.
9:38:25 AM
AT EASE
9:40:00 AM
RECONVENED
SENATE BILL NO. 39
"An Act adopting the Municipal Property Assessed Clean
Energy Act; authorizing municipalities to establish
programs to impose assessments for energy improvements
in regions designated by municipalities; imposing
fees; and providing for an effective date."
9:40:29 AM
Co-Chair MacKinnon read the title of the bill.
9:40:58 AM
SENATOR JOHN COGHILL, SPONSOR, gave a high-level overview
of the legislation.
9:42:29 AM
RYNNIEVA MOSS, STAFF, SENATOR COGHILL, discussed the
Sectional Analysis (copy on file):
Sec. 1. Adds C-PACE financing to powers of Home Rule
municipalities.
Sec. 2. Adds C-PACE financing to powers of First Class
Boroughs.
Sec. 3. Adds C-PACE financing to powers of Second
Class Boroughs on a non-areawide basis.
Sec. 4. Adds C-PACE financing to powers of Second
Class Boroughs on an areawide basis.
Sec. 5. Creates a new chapter (Chapter 55) of law
under Title 29 - Municipal Government which
establishes the Municipal Property Assessed Clean
Energy Act, sets the requirements for establishing the
program:
(b)(1) Adopt a resolution of intent with
findings, intent, description of eligibility of
property owners and projects, repayment, third-
party financing, municipal debt servicing
procedures for third-party financing.
(2) Provide a notice of the report regarding
assessment program with location of the report,
time and place of public hearing, name of local
administrator of program, and name of the
assessor.
(3) Hold a public hearing taking public comment.
(4) Adopt an ordinance establishing the program
and the terms of the program.
(c) A municipality may hire a program
director or contract for professional
services to administer the program.
(d) A municipality may set an application
fee, an interest rate, or a combination of
both to offset costs of administrating the
program.
Sec. 29.55.105. (a) Allows for an assessment to
be imposed to repay the financing of qualified
projects on commercial real property in the
municipality that adopts the program.
(b) All parties to the loan must have a
written contract.
(c) Identifies qualifying costs.
(d) Qualified projects do not include
undeveloped lots or lots undergoing
development at the time of assessment or the
purchase of products or devises that are not
a permanent part of the property.
(e) Provides that a municipality can create
programs in more than one region of the
municipality.
Sec. 29.55.110. To create a program a
municipality must prepare a report with the
following items:
(a)
(1) A map showing the boundaries of each
region of the municipality in the program.
(2) A form for written contracts between
municipality and property owner.
(3) A form for written contracts between the
municipality and third-party financers.
(4) A description of qualified projects.
(5) A plan ensuring third-party financing
sources(s) and, if applicable, raising
capital for municipal funding (such as
bonding).
(6) Setting perimeters for issuance of
bonds.
(7) Justifying the period of assessment.
(8) Description of application process and
eligibility for funding.
(9) Solvency requirements for applicant.
(10) Process municipality will use to assess
the property and collect assessments.
(11) Method of notice to mortgage holder
required for participation.
(12) Method of review by third party.
(13) Description of marketing and
participant education provided by the
municipality.
(14) Description of quality assurance and
antifraud measures.
(b) The report will be made available on the
Internet website of the municipality and at
the primary administrative office of the
municipality.
Sec. 29.55.115. Requires the municipality to give
30-day notice to any mortgage holder on the
property and obtain written consent from them to
enter into a written contract with the property
owner.
Sec. 29.55.120. Requires the property owner to
hire an independent third party to prepare:
(1)
(A) a review of the baseline
conditions, savings;
(B) outline the projected reduction in
energy costs, energy consumption or
demand, or a reduction in emissions
affecting local air quality; and
(2) verification of completion of project.
Sec. 29.55.125. Allows property owner to purchase
equipment and materials directly; and contract
directly for services.
Sec. 29.55.130. Requires the municipality to
record in the appropriate recording district
details of a C-PACE assessment.
Sec. 29.55.135.
(a) C-PACE assessments are paramount to all
other liens except municipal tax liens and
other special assessments.
(b) Assessment liens run with the property
and remaining balances are not eliminated by
foreclosure.
(c) Penalties and interest can be added to
delinquent installments.
(d) Allows municipalities to recover costs
and expenses of a lawsuit to collect
delinquent PACE assessments.
Sec. 29.55.140. Allows a municipality to issue
bonds or notes to finance PACE projects.
Sec. 29.55.145. Allows a municipality to enter
into an agreement with a third party or one or
more municipalities to administer a C-PACE
program.
Sec. 29.55.150. A municipality may not coerce a
property owner by making the issuance of a
permit, license, or other authorizations from the
municipality contingent on that property owner
entering into a PACE contract.
Sec. 29.55.155. Applicability section.
Sec. 29.55.160. Definitions.
Sec. 29.55.165. Short title.
Sec. 6. Immediate effective date.
Co-Chair MacKinnon remarked that the current version of the
bill was version J.
Senator Micciche looked at 29.55.150, and noted that a
municipality could only use it as a "carrot and not as a
stick" on other municipal processes. He asked that the
issue be addressed. Ms. Moss asked for a repeat of the
concern.
9:47:12 AM
Senator Micciche looked at page 3, Section 29.55.150.
Co-Chair MacKinnon wondered if Senator Micciche was
referring to the Sectional Analysis. Senator Micciche
replied in the affirmative.
Co-Chair MacKinnon queried the page number of the bill.
Ms. Moss explained that the issue was on page 10, line 7.
She stated that it was a coercive clause that outlined that
a municipality may not issue a permit, license, or other
authorization to a person on the condition that they enter
into the PACE program.
Senator Dunleavy wondered if there were any anticipated
costs to the state. Ms. Moss replied in the negative. She
noted that page 7, line 16, which stated that if there was
a mortgage on the property the mortgage holder must sign
off on the loan as they were waiving some of their rights
for collection.
Senator von Imhof wondered whether the act could create a
fund that could be comingled with other sources of money
other than bond money such as federal or private grant
money. Ms. Moss replied in the affirmative, and declared
that there were federal loan and grant programs. She stated
that there was a speaker from the Alaska Energy Association
(AEA) who would address loans and grants available from the
USDA and rural utilities programs that had zero interest
and other programs at approximately 3 percent interest.
Senator von Imhof wondered whether the program could be
comingled with municipal bond money for one program; or
were there separate programs that a homeowner could use on
each source of funds. Ms. Moss deferred to AEA.
Co-Chair MacKinnon asked whether municipalities could
access the State Municipal Bond to provide similar loans.
Ms. Moss replied in the affirmative.
Co-Chair MacKinnon queried a requirement that the
applicants have a good credit rating. Ms. Moss responded
that she assumed that would be a requirement. She stated
that the banks required good credit.
Co-Chair MacKinnon announced that she wanted clarification
from AEA as to how potential borrowers met a credit
standard. She wondered whether there could be a
manipulation to a construction loan to someone who would
not otherwise qualify. Ms. Moss replied that the
municipality would create the rules for the loans.
9:51:46 AM
AT EASE
9:54:25 AM
RECONVENED
9:54:29 AM
Co-Chair MacKinnon noted that there was a similar bill in
the previous session, which included a letter dated March
16, 2015. She wondered if there was a letter from the
Alaska Bankers Association on the current legislation. Ms.
Moss replied that there was not yet a letter, but they had
met the week prior and anticipated sending a new letter.
Senator Dunleavy wondered whether the bill put an existing
lienholder in a lower position. Ms. Moss replied in the
affirmative. She looked at page 7, line 16, which noted
that the mortgage holder was required to approve the loan
before the loan was issued. The value of the investment of
the loan-held property would increase.
Co-Chair MacKinnon felt that the issue may speak to the
credit worthiness issue. She remarked that the remaining
consideration would be related to the maximum dollar value
of a loan. Ms. Moss looked at page 7, line 3, and noted
that there had been appropriate ratio between the amount of
the assessment and the assessed value of the property.
Co-Chair MacKinnon queried an appropriate ratio, and
wondered if that was approved by the local municipality.
Ms. Moss replied that it was approved by the municipality.
Co-Chair MacKinnon felt that there should be work with the
Alaska Energy Authority (AEA) to streamline some best
practices, rather than a variety of best credit practices
adopted individually by multiple municipalities.
9:58:22 AM
GENE THERRIAULT, DEPUTY DIRECTOR, STATEWIDE ENERGY POLICY
DEVELOPMENT, ALASKA ENERGY AUTHORITY, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT, introduced
himself.
SEAN SKALING, DEPUTY DIRECTOR, ALTERNATIVE ENERGY AND
ENERGY EFFICIENCY, ALASKA ENERGY AUTHORITY, DEPARTMENT OF
COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (via
teleconference), discussed the presentation, Commercial
Property Assessed Clean Energy (C-PACE)" (copy on file).
Mr. Skaling addressed slide 2, "Commercial Property
Assessed Clean Energy":
C-PACE is a financing mechanism for cost-effective
energy improvements to commercial building.
Energy improvement loans are repaid through a
separate, voluntary line on the property tax bill.
Mr. Skaling looked at slide 3, "C-PACE Scenario." He
remarked that AEA had provided partial reimbursement for
commercial energy audits to commercial building owners, and
many took advantage of that program. He stated that the
scenario was typical of the businesses that received an
energy audit.
10:03:27 AM
Senator Micciche stressed that the four-year payback
challenged the cash flows of a commercial property owner
and provided an appropriate ratio between the amount of the
assessment and the assessed value of the property. He
asserted that the bill did not define an appropriate ratio.
He queried a definition of an appropriate ratio. Mr.
Skaling replied that the typical investments in PACE
programs in the country were all cost-effective measures.
The energy cost savings would pay back the loan period.
Co-Chair MacKinnon stressed that Senator Micciche's
comments were a concern for the committee.
10:05:07 AM
Mr. Skaling looked at slide 4, "How C-PACE Works":
Voluntary
Long-term financing
Attractive loan terms
Less Risk
Positive cash flow
Seamless transfer if building sold
Repayment attached property
Mr. Skaling addressed slide 5, "C-PACE Eligible
Improvements":
Energy efficiency
Heating/Cooling system
Lighting
Controls
Building envelope/insulation
Motors/pumps
Mr. Skaling addressed slide 6, "C-PACE Eligible
Improvements":
Alternative energy
Heat pumps
Solar
Fuel switching with efficiency
Mr. Skaling looked at slide 7, "Cash Flow from Energy
Improvements." He explained that the green was the energy
cost that the building owner was paying. He noted the
energy efficiency improvements, and noted a roughly 30
percent savings in the energy costs of the building. He
noted that, through the savings, a loan could be repaid as
long as the loan was stretched out long enough to provide
positive cash flow in the yellow area. He explained that
they were trying to achieve a loan repayment that was cash-
flow positive after the improvements.
Mr. Skaling highlighted slide 8, "PACE: How Loan is
Repaid." The slide showed how the program functioned. He
noted the property owner in the middle. The property owner
made improvements to the building, therefore hiring the
supplier community. The funding was made by the investors,
banks, or financial institutions. The property owner paid
back the loans through a voluntary line on the property tax
payment to the city or local government, which then paid
the investor.
Mr. Skaling addressed slide 9, "33 States Enabled PACE." He
stated that Alaska's PACE program was modeled after Texas,
which had continued success. He stated that Texas had a
program called, "PACE in A Box" which helped Texas
communities to quickly establish uniformed programs between
communities.
Co-Chair MacKinnon wondered which states originated the
program. Mr. Skaling deferred to Mr. Therriault.
Mr. Therriault agreed to provide that information.
10:11:39 AM
Co-Chair MacKinnon wanted to know best practices on whether
the program was misused by commercial buildings in
depressed areas. She queried the unintentional consequences
of the program. She wondered if the bill could be improved.
Mr. Therriault replied that the first PACE program was
established in California in 2008. He stated that there was
advice from the nationwide group, PACE Nation, who tried to
pull information and education from all the involved states
to determine the best practices. He felt that the abuse
would drive default rates, but the default rates were less
than one percent.
Senator von Imhof wondered whether there were any programs
that were rescinded. Mr. Therriault replied that was not
aware of any programs, but agreed to provide information.
He stated that there were some initiated programs that did
not see any uptake, and those programs were amended.
Senator von Imhof noted that Texas had requested uniform
rules to apply to all the municipalities, but there would
be flexibility in each municipality under the legislation.
She queried a better best practice. Mr. Therriault replied
that the language was adopted straight from the Texas
statute. The uniformity was related to the community's
establishment of the program, and how it communicated with
banks and businesses. It also outlined a broad framework of
the interworking of the program.
10:16:30 AM
Senator von Imhof assumed that there would be an evaluation
of the loan-to-value, debt-to-equity ratio, ability to pay
credit, etc. She stressed that there would be an assumption
that the municipality had done its own due diligence in
providing the loan. She wondered if the municipality would
be in a second position. Mr. Therriault replied in the
affirmative. The PACE repayment obligation was an
assessment on the tax bill. All property tax and
assessments were superior liens to mortgages.
Senator von Imhof surmised that no signature meant no deal.
Mr. Therriault agreed.
Senator Micciche noted that line 2 said "obtain written
consent from the holder of a mortgage lien on the
property." He noted that there could be two lenders on one
piece of property, and the ratio could be satisfied by one
lender. He wondered if there should be clarification that
each holder of a mortgage must approve. He felt that it
could put the primary lender as a secondary payee, and they
may increase the loan with a secondary lender. He wanted to
ensure than each mortgage holder have approval.
Co-Chair MacKinnon encouraged Senator Micciche to
communicate his concerns with the sponsor of the bill.
Senator Micciche understood that there was recommended
ratio recommended by the PACE program. He stressed that
there were energy policies that were often based on hope or
political rhetoric rather than established science on the
proven practices to improve efficiencies.
Co-Chair MacKinnon stressed that the case previously made
sense because of the previous high energy costs. She
stressed that Fairbanks had air quality issues, whether the
prices were high or not. She stressed that the program
could benefit the Interior for other reasons than costs.
She wondered how active the programs were in the country
now that energy prices were decreased.
10:21:19 AM
Senator Olson wondered how the communities who were
suffering with a debt load would take advantage of the
program. He remarked that Galena was facing financial
strain, and wondered whether that community could take
advantage of the PACE program. Mr. Therriault replied that
the program would not be available in Galena. He explained
that the legislation allowed for a local government that
levied a property tax to use the bill to collect to repay a
PACE loan. The statute would apply across the state, but
only be available to those municipalities that levied a
property tax.
Senator Olson wondered if a community with great strain
would be able to use the program. Mr. Therriault responded
that the mechanism allowed for the community to use the
existing relationship with the property owner to collect a
PACE.
Co-Chair MacKinnon noted that there were approximately 11
or 12 of the 33 states did not have programs established,
but had passed enabled legislation. She noted that there
were even more. She wondered if the comparison to Texas
only showed one program. Mr. Therriault replied that there
were 12 municipalities in Texas who had initiated the
program under the refresh of the program.
Co-Chair MacKinnon surmised that there were many states in
the starting stages of the program.
10:26:07 AM
Mr. Skaling looked at slide 10, "Time to Add Alaska to the
Map." He stressed that there was no cost to the state and
the program was voluntary.
Mr. Skaling discussed slide 11, "C-PACE is a Win-Win-Win":
Property owners
Lenders
Contractor, vendors
Energy auditors
Alaska economy
Mr. Skaling highlighted slide 12, "Easy Win for Alaska":
Fully vetted last session
Strong support
Completely voluntary
No cost to state
Mr. Therriault addressed slide 13, "Financing Options":
Bank loan
Muni revenue bond
Energy Efficiency and Conservation Loan Program
(EECLP)
Rural Energy Savings Program (RESP)
Other federal sources
10:33:24 AM
Senator Micciche remarked that he would examine other
legislation, and compare the other programs in the country.
Co-Chair MacKinnon noted that the bill would benefit
private sector ownership. Mr. Therriault agreed.
Co-Chair MacKinnon announced that school districts could
not qualify, because they were not paying property taxes.
Mr. Therriault agreed.
Co-Chair MacKinnon wondered whether school districts or
other government owned buildings could qualify for the
Energy Efficiency and Conservation Loan Program or for the
Rural Energy Savings program. Mr. Therriault replied that
he was not sure. He explained that the funds were available
to help with efficiency.
Co-Chair MacKinnon noted that there were schools in climate
regions that were suffering from lack of weatherization or
energy efficient opportunities. She was curious about
programs that schools, or other government organizations
could use to lower the energy use and consumption.
Senator von Imhof wondered who paid for and conducted the
energy audits. Mr. Therriault replied that the customer
would pay for that expense, but it could be rolled into the
financing.
Senator Olson stressed that the auditors were the general
raters in the winterization program, so those people could
be qualified to conduct the assessment. Mr. Therriault
agreed.
Mr. Skaling furthered that the commercial properties
required an additional certification for the auditors.
10:37:34 AM
CHRIS ROSE, EXECUTIVE DIRECTOR, RENEWABLE ENERGY ALASKA
PROJECT, SUTTON (via teleconference), spoke in support of
the bill.
Co-Chair MacKinnon wondered whether they both served on the
Alaska Energy Advisory. Mr. Rose replied in the
affirmative.
BRITTANY SMART, FAIRBANKS NORTH STAR BOROUGH, FAIRBANKS
(via teleconference), testified in support of the bill.
Co-Chair MacKinnon CLOSED public testimony.
Vice-Chair Bishop discussed the fiscal note.
Co-Chair MacKinnon announced that amendments were due by
5pm the following day. She discussed the following day's
schedule.
SB 39 was HEARD and HELD in committee for further
consideration.
ADJOURNMENT
10:44:04 AM
The meeting was adjourned at 10:44 a.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 30 PPT to SFIN 02.06.17.pdf |
SFIN 2/6/2017 9:00:00 AM |
SB 30 |
| SB 39 C-PACE Senate Finance 02.06.17.pdf |
SFIN 2/6/2017 9:00:00 AM |
SB 39 |
| SB 39 Sectional for CRA CS.pdf |
SFIN 2/6/2017 9:00:00 AM |
SB 39 |