04/23/2021 01:30 PM Senate LABOR & COMMERCE
| Audio | Topic |
|---|---|
| Start | |
| SB26 | |
| SB17 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 17 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| += | SB 26 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
April 23, 2021
1:30 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Joshua Revak, Vice Chair
Senator Peter Micciche
Senator Elvi Gray-Jackson
MEMBERS ABSENT
Senator Gary Stevens
COMMITTEE CALENDAR
SENATE BILL NO. 26
"An Act repealing the certificate of need program for health
care facilities; making conforming amendments; and providing for
an effective date."
- HEARD & HELD
SENATE BILL NO. 17
"An Act relating to the retrofitting of certain public
facilities and community facilities; relating to the performance
of energy audits on schools and community facilities; relating
to the duties of the Alaska Energy Authority and the Alaska
Housing Finance Corporation; creating a rapid economic recovery
office in the Alaska Industrial Development and Export
Authority; and relating to the state energy policy and energy
source reporting by state agencies."
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: SB 26
SHORT TITLE: REPEAL CERTIFICATE OF NEED PROGRAM
SPONSOR(s): SENATOR(s) WILSON
01/22/21 (S) PREFILE RELEASED 1/8/21
01/22/21 (S) READ THE FIRST TIME - REFERRALS
01/22/21 (S) HSS, L&C
03/25/21 (S) HSS AT 1:30 PM BUTROVICH 205
03/25/21 (S) Heard & Held
03/25/21 (S) MINUTE(HSS)
04/07/21 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/07/21 (S) Scheduled but Not Heard
04/08/21 (S) HSS AT 1:30 PM BUTROVICH 205
04/08/21 (S) Moved SB 26 Out of Committee
04/08/21 (S) MINUTE(HSS)
04/09/21 (S) HSS RPT 1DP 3NR
04/09/21 (S) DP: HUGHES
04/09/21 (S) NR: BEGICH, REINBOLD, COSTELLO
04/21/21 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
04/21/21 (S) Heard & Held
04/21/21 (S) MINUTE(L&C)
04/23/21 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
BILL: SB 17
SHORT TITLE: ENERGY EFFICIENCY & POLICY: PUB. BLDGS
SPONSOR(s): SENATOR(s) BEGICH
01/22/21 (S) PREFILE RELEASED 1/8/21
01/22/21 (S) READ THE FIRST TIME - REFERRALS
01/22/21 (S) CRA, L&C, FIN
02/25/21 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg)
02/25/21 (S) Heard & Held
02/25/21 (S) MINUTE(CRA)
03/30/21 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg)
03/30/21 (S) Heard & Held
03/30/21 (S) MINUTE(CRA)
04/08/21 (S) CRA AT 3:30 PM BELTZ 105 (TSBldg)
04/08/21 (S) Moved CSSB 17(CRA) Out of Committee
04/08/21 (S) MINUTE(CRA)
04/09/21 (S) CRA RPT CS 1DP 2NR SAME TITLE
04/09/21 (S) NR: HUGHES, MYERS
04/09/21 (S) DP: GRAY-JACKSON
04/23/21 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
JAIMIE CAVANAUGH, Attorney
Institute for Justice
Minneapolis, Minnesota
POSITION STATEMENT: Testified in support of SB 26.
ANGELA ERICKSON, Strategic Research Director
Pacific Legal Foundation
Lexington, Kentucky
POSITION STATEMENT: Testified in support of SB 26.
STEVE FRANK, Member
Fairbanks Memorial Hospital Board
Fairbanks, Alaska
POSITION STATEMENT: Testified in opposition to SB 26.
RYAN SMITH, CEO
South Peninsula Hospital
Homer, Alaska
POSITION STATEMENT: Testified in opposition to SB 26.
JESSICA OSWALD, CEO
St. Elias Specialty Hospital
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to SB 26.
RICK DAVIS, CEO
Central Peninsula Hospital
Soldotna, Alaska
POSITION STATEMENT: Testified in opposition to SB 26.
MONIQUE MARTIN, Director
Government Relations & Regulatory Navigation
Alaska Regional Hospital
Anchorage, Alaska
POSITION STATEMENT: Testified in opposition to SB 26.
ROGER STARK, MD, Retired; Health Care Policy Analyst
Washington Policy Center
Seattle, Washington
POSITION STATEMENT: Testified in support of SB 26.
LESLIE BECKER, representing self
Ketchikan, Alaska
POSITION STATEMENT: Testified in support of SB 26.
PORTIA NOBLE, representing self
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 26.
SENATOR TOM BEGICH
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Sponsor of SB 17
LOKI TOBIN, Staff
Senator Tom Begich
Juneau, Alaska
POSITION STATEMENT: Presented a PowerPoint overview of SB 17.
AMBER MCDONOUGH, Account Executive
Siemens Industry, Inc.
Anchorage, Alaska
POSITION STATEMENT: Testified on SB 17 by invitation.
CHRISTOPHER HODGIN, Energy Program Manager
Statewide Public Facilities
Division of Facility Services
Department of Transportation & Public Facilities
Anchorage, Alaska
POSITION STATEMENT: Testified that the administration supports
the concepts discussed in SB 17.
CURTIS THAYER, Executive Director
Alaska Energy Authority
Department of Commerce, Community & Economic Development (DCCED)
Anchorage, Alaska
POSITION STATEMENT: Answered questions about AEA's fiscal note
for SB 17.
ACTION NARRATIVE
1:30:34 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:30 p.m. Present at the call to
order were Senators Revak, Gray-Jackson, and Chair Costello.
Senator Micciche arrived during the course of the meeting.
SB 26-REPEAL CERTIFICATE OF NEED PROGRAM
1:31:09 PM
CHAIR COSTELLO announced the consideration of SENATE BILL NO. 17
"An Act relating to the retrofitting of certain public
facilities and community facilities; relating to the performance
of energy audits on schools and community facilities; relating
to the duties of the Alaska Energy Authority and the Alaska
Housing Finance Corporation; creating a rapid economic recovery
office in the Alaska Industrial Development and Export
Authority; and relating to the state energy policy and energy
source reporting by state agencies."
1:31:52 PM
CHAIR COSTELLO opened public testimony on SB 26.
1:32:19 PM
JAIMIE CAVANAUGH, Attorney, Institute for Justice, Detroit,
Michigan, stated that the Institute is a national nonprofit
public interest law firm that for decades has worked to end CON
laws through litigation and legislation. She shared the stories
of two clients. The first was a man from Nepal who opened a CPA
practice in Louisville, Kentucky. He noticed that there were no
home healthcare services for Nepali speakers and decided to open
an agency himself. When he filed his CON application, a large
incumbent intervened and successfully argued that there was no
need for an additional home healthcare agency. He was unable to
get a CON certificate. The second story is about an
ophthalmologist from North Carolina who wanted to perform
surgery out of the facility he owned. The cost of surgery at
that doctor's office was under $1,800 whereas the local hospital
charges a $6,000 facility fee plus the cost of the surgery. Yet
the state of North Carolina said there was no need for an
additional surgery center so the doctor's patients pay the
higher hospital prices.
MS. CAVANAUGH said the foregoing examples highlight how CON laws
harm patients and empower incumbent CON holders. She suggested
that instead of stacking the deck against new business, Alaska
should welcome new healthcare providers. She asked the committee
to support SB 26.
1:35:07 PM
ANGELA ERICKSON, Strategic Research Director, Pacific Legal
Foundation, Lexington, Kentucky, stated that this public
interest law firm has a strong history of opposing and helping
to strike down CON laws across the country. She referenced
testimony during the last hearing from a government official who
challenged the notion of Alaska potentially having an additional
12 hospitals [if the state repealed its CON laws]. She argued
from a central planning standpoint and wanted all current
hospitals to figure out the cost.
MS. ERICKSON provided an example of what might happen in the
absence of CON laws. In 2017, somebody saw a used ambulance and
decided to launch Legacy Medical Transport in Ohio. This non-
emergency ambulance transports people to and from doctor
appointments and facilities. Within two years, the enterprise
grew to seven ambulances. Because the office is just a mile from
the Kentucky state line, the business gets many requests to take
Ohioans to appointments in Kentucky. However, Kentucky is a CON
state and the company cannot operate there without a CON
certificate. When the owner applied for a certificate,
incumbents protested claiming he would steal business and the
application was denied. He is currently suing the state of
Kentucky with help from Pacific Legal Foundation.
MS. ERICKSON argued that CON laws are in direct violation of the
14th Amendment that guarantees that people will not be deprived
of a liberty without due process of law. That essentially means
that laws must pursue a legitimate public health and safety goal
rather than favoring entrenched businesses. She said the
committee heard in testimony on Wednesday how CON laws fail that
test. She said everyone appreciates what hospitals and
healthcare workers have done during the COVID-19 pandemic and
repealing Alaska's CON laws acknowledges the expertise and
knowledge each has to respond to new conditions.
1:37:35 PM
STEVE FRANK, Member, Fairbanks Memorial Hospital Board,
Fairbanks, Alaska, stated that he is a free market Republican
who worked on the Medicaid budget years ago when he served as
co-chair of the Senate Finance Committee. He related that the
Fairbanks Memorial Hospital is a nonprofit community-owned
hospital that offers behavioral health and hospice care in
addition to running an emergency department and all the usual
services a hospital provides 24/7. This is the only hospital in
Fairbanks, but the community also has an ambulatory surgery
center. The center operates regular business hours and does not
worry about staffing for emergencies or uncompensated care. The
hospital has lost about 30 percent of its surgery business to
the center leaving it with excess surgery capacity. He said the
hospital worries about its viability if additional medical
businesses come into the community and take more of the
hospital's profitable business without having to offer the low
profit or uncompensated care that hospitals are required to
maintain. The CON process prevents such unnecessary facilities
from entering the market.
MR. FRANK suggested the legislature look at two things as it
considers SB 26. First, a comparison to anything in the free
market like groceries is irrelevant because the healthcare a
hospital provides is not free market. Hospitals are totally
regulated. Second, a large percentage of the state's budget
already goes to pay for Medicaid and that will increase if
another unnecessary healthcare facility comes in and the
hospital loses more business. The state compensates the hospital
on a fee per service basis for Medicaid and if the same
population is spread over two facilities, the cost per procedure
will go up and so will the Medicaid budget. He urged the
legislature to carefully look at what eliminating CON will do to
the Medicaid budget and what it will do to sole community
hospitals. He offered his understanding that since 2016, six CON
applications were approved, none denied, and 22 facilities fell
under the $1.5 million threshold. He urged the committee to look
at the issue carefully and avoid getting swept up in the
rhetoric of the free market.
1:46:32 PM
RYAN SMITH, CEO, South Peninsula Hospital and Long Term Care,
Homer, Alaska, testified in opposition to SB 26. He stated that
healthcare is complex and highly regulated. CON laws are one way
it is regulated. After the passage of the National Health
Planning and Resources Development Act, CON programs established
a review process to promote responsive health facility and
service development, rational health planning, healthcare
quality, access to healthcare, and healthcare cost containment.
He asked the committee to hold SB 26 and refer the matter to the
Department of Health and Social Services (DHSS) commissioner or
an appropriate individual to convene a negotiated rule making
process to find solutions and consensus on CON reforms that
would stabilize healthcare access in small communities and
critical access hospitals. He related that in 2007 he was the
CEO of Central Peninsula Hospital in Soldotna and participated
in the CON negotiated rule making committee that did reach
consensus on needed CON program reforms without repealing the
law altogether. He urged the legislature to allow stakeholders
to work as Alaskan partners in healthcare to propose needed
reforms to Alaska's CON laws.
1:48:57 PM
JESSICA OSWALD, CEO, St. Elias Specialty Hospital, Anchorage,
Alaska, stated that she was testifying in opposition to SB 26.
She expressed concern about oversimplifying Alaska's continuum
of care issues and warned against relying on outside lawyers and
think tanks to advocate for Alaskans and develop healthcare
policies for the state. She posited that the existing CON
process in Alaska allows for careful consideration of the need
and impact of proposed changes to the healthcare system to avoid
unintended consequences that could increase costs, reduce
access, and further destabilize the system.
MS. OSWALD said St. Elias provides care for acutely, chronically
ill patients from ICU through rehabilitation. As federally
required, the length of stay is 25 days or longer. One third of
their patients generally have no safe discharge in Alaska
because a significant portion of their care is unfunded. St.
Elias absorbs those unfunded costs of care with limited offset
so destabilizing the existing care model would mean that many of
their patients would remain in short term ICUs for months or be
sent out of state for care. She also pointed out that when
Alaska's trauma centers fill with critical care long stay
patients, Alaskans wait longer in emergency rooms and the
overall availability of care is further reduced across the
continuum. Ending the CON program without understanding the
unintended consequences could drive up the cost of care and
further limit access.
1:51:55 PM
RICK DAVIS, CEO, Central Peninsula Hospital, Soldotna, Alaska,
related that he has worked in hospital administration in Alaska
for 29 years and repealing the CON program has been debated
throughout his healthcare career. Proponents always suggest that
removing all barriers will allow the free market to work and
reduce healthcare costs, but the reality is that healthcare in
the U.S. is not a free market. He reported that 70 percent of
CPH's patients receive care that is paid for at a fixed rate
that is dictated by Medicaid, Medicare, or another government
payer. He reminded the committee that hospitals are required by
law to see all patients 24X7X365 and accept as full payment what
the government chooses to pay. Of the remaining 30 percent of
patients, about 10 percent are charity or no pay and 20 percent
are workers compensation, other government payers, or insured
patients. That 20 percent of patients is what might be called
free market and is what hospitals and independent imaging and
surgery centers compete for. He pointed out that even then the
competition is only for the high margin, elective, 8-5 Monday-
Friday care. After hours, weekend, and holiday care is at a
hospital and most likely in the emergency room.
MR. DAVIS said he understands the financial reasons for
independent imaging and surgery centers limiting access to the
80 percent of the population that is no pay or government
sponsored. However, he said there is no way a hospital can
survive if it depends solely on that segment of the population
and is not able to augment care with elective procedures on
insured patients. Allowing independent facilities to cherry-pick
care will damage small community hospitals and cause some to
close. At the least, it would result in reduction of low margin
services such as psychiatric, emergency, and obstetrics, all of
which community hospitals generally provide in small
communities. He said the CON law helps keep community hospitals
open but he supports the suggestion to convene a negotiated rule
making committee to improve, not repeal, Alaska's CON laws.
1:56:19 PM
MONIQUE MARTIN, Director, Government Relations & Regulatory
Navigation, Alaska Regional Hospital, Anchorage, Alaska, stated
that she was speaking in opposition to SB 26. She refuted the
testimony from the last hearing from outside experts who
purported to know best about Alaska's healthcare delivery
system. She maintained that Alaskans know best about Alaska and
its healthcare providers and they are concerned about repealing
Alaska's CON program because of what they know about the state's
healthcare delivery system.
MS. MARTIN highlighted the work that Alaskans and the
legislature have done since 2014 to reduce the cost of
healthcare in the state. From 2014 to 2018, uncompensated care
decreased 48 percent from nearly $113 million to $58.2 million.
Additionally, from FY2015 to FY2020 Medicaid covered 54,000 more
Alaskans and reforms to the program resulted in the state
spending $89.3 million fewer state general funds dollars. She
said this came from working together and through Alaskan-grown
innovations such as Alaska's innovative 1332 waiver and the
tribal claiming program that allows increased federal
participation. She said Alaskan healthcare providers and patient
advocacy groups have ideas to reduce healthcare costs in the
state and the hospital association has a list of improvements to
the CON program. She encouraged the committee to look to Alaska-
grown ideas because of what Alaskans working together have
already accomplished.
1:59:39 PM
ROGER STARK, MD, Retired; Senior Fellow, Washington Policy
Center (WPC), Seattle, WA, advised that WPC is a free market
think tank that has offices in Olympia, Seattle, Spokane, and
Tri-Cities Washington. He said he listened to all the testimony
on SB 26 and wanted to make four points. The most important
point is that the federal government repealed the federal
requirement for CON in 1987 because it was not saving money in
its Medicaid and Medicare programs. Second, those who testified
against SB 26 represent existing facilities that do not want
competition. He noted previous testimony that two facilities in
a small community operate at 50 percent capacity but his
perspective is that it offers patients choices. Third is the
argument that healthcare is not a free market. That is somewhat
accurate but the trend is for patients to use more of their own
dollars through high deductible health plans, health savings
accounts, and cash only transactions for things like lasik eye
surgery. He said patients need choices in this developing free
market. Fourth, the fiscal note for SB 26 indicates that
repealing Alaska's certificate of need program would save
$250,000 per year.
1:59:52 PM
SENATOR MICCICHE joined the committee.
2:02:15 PM
LESLIE BECKER, representing self, Ketchikan, Alaska, stated that
she is a semi-retired healthcare executive with more than 30
years senior management experience working with large hospitals
and diagnostic providers in both CON and non-CON states. She
said her experience is that CON is a huge detriment to managing
healthcare costs, improving quality of care, and enhancing
patient access to services. In her view, the free market is
critical for any product or service. Competition raises the bar
on the level of service provided, lowers costs, and levels the
playing field to allow greater access for everyone.
She offered her perspective that logistics ensures that
healthcare will always cost more in Alaska. However, the costs
do not need to be as high as they are today. She identified CON
as one of the key drivers in the exponential growth in
healthcare expenses and emphasized that repealing it will not
drive up costs. She predicted that if CON is not repealed,
medical tourism will continue to flourish throughout the state
and a significant number of diagnostic imaging studies and
elective surgery cases will continue to be redirected to more
efficient and cost-effective centers that happen to be in non-
CON states. She advised that the cost of a diagnostic MRI in
Ketchikan is $5,000 compared to under $1,000 in the Seattle
area. This difference compels patients to fly to Seattle for the
30-minute service.
MS. BECKER said that without competition there is no incentive
for cost management, efficiency, or patient satisfaction. She
pointed out that a high percentage of patients leave Alaska for
elective services. She warned that without free market
competition, Alaska's level of care will decline and patients
will seek lower cost options outside the state for elective
care. This will heavily affect the difficult issue of physician
recruitment and retention. She said it is time to repeal
Alaska's CON laws and let the free market determine success.
CHAIR COSTELLO mentioned that written testimony was welcome.
2:06:26 PM
PORTIA NOBLE, representing self, Anchorage, Alaska, stated
support for SB 26. She said certificate of need laws have
limited the supply of facilities and services nationwide. She
expressed concern that the CON approval process relies on
healthcare planners rather than the needs of Alaskans and those
who work in the field. The result is that governments are
lobbied by large healthcare monopolies and the free market model
is forgotten. She listed what CON laws have done for consumers
so far. They have driven up costs to the consumer, lowered the
quality of care, eliminated the availability of needed services,
and blocked competition in the healthcare market.
MS. NOBLE emphasized that healthcare providers should not need
the permission of government to expand their size and scope of
practice. She noted that during the pandemic, more than 22
states suspended their CON laws related to hospital beds and
essential services. She suggested that it should not take a
pandemic for a state to realize that CON laws threaten public
health. She concluded that it is time to eliminate laws that
harm patients and the spirit of competition.
2:08:01 PM
CHAIR COSTELLO closed public testimony on SB 26.
2:08:07 PM
At ease
2:09:34 PM
CHAIR COSTELLO reconvened the meeting and stated she would hold
SB 26 in committee. She reiterated that written testimony was
welcome.
SB 17-ENERGY EFFICIENCY & POLICY: PUB. BLDGS
2:09:50 PM
CHAIR COSTELLO announced the consideration of SENATE BILL NO. 17
"An Act relating to the retrofitting of certain public
facilities and community facilities; relating to the performance
of energy audits on schools and community facilities; relating
to the duties of the Alaska Energy Authority and the Alaska
Housing Finance Corporation; creating a rapid economic recovery
office in the Alaska Industrial Development and Export
Authority; and relating to the state energy policy and energy
source reporting by state agencies."
[CSSB 17(CRA) was before the committee.]
2:10:19 PM
SENATOR TOM BEGICH, Alaska State Legislature, Juneau, Alaska,
sponsor of SB 17 introduced the legislation paraphrasing the
sponsor statement that read as follows:
The State of Alaska is responsible for over $650
million in energy costs associated with close to 5,000
state owned public facilities. With significant
economic headwinds visible on the horizon, reducing
the state's energy costs through sound investments in
clean energy not only makes good fiscal sense; it also
fulfills a legislative promise of bringing renewable
energy to Alaskan communities.
In 2010, the Alaska State Legislature passed HB 306,
which established a State goal of obtaining 50 percent
of our State energy needs from renewable energy by
2025. With some of the highest energy costs in the
nation, increasing the share of renewable electricity
and heat will save the State money and help insulate
costs from volatility in fuel pricing. Also, in 2010,
the Alaska Sustainable Energy Act set forth a goal of
retrofitting 25% of the state's buildings over 10,000
square feet for energy efficiency by 2020,
successfully achieving that goal in 2014.
Building on the successes of the Alaska Sustainable
Energy Act, SB 17 extends the energy efficiency
retrofit program to schools and community centers
which are eligible for the Power Cost Equalization
Program. This creates incentives to reform retrofits
for buildings which receive State support for their
energy bills, which will save the State, school
districts, and communities' money.
However, single retrofit projects may not be
attractive or profitable to private retrofit
enterprises. SB 17 also directs the Alaska Industrial
Development and Export Authority (AIDEA) to establish
a rapid economic recovery office to facilitate state
energy policy and encourage private investment. This
new office will review energy audits, identify
retrofit and other clean energy projects to be
bundled, marketing those projects to and engage with
Department of Transportation and Public Facilities to
contract with private investors. This will ensure the
benefits of the state's energy policy, clean energy,
and energy retrofitting will proliferate into rural
communities, rather than just reaching the goal
through one large Railbelt project.
SB 17 will provide rapid economic recovery by bringing
in new investment to support an Alaska based clean
energy industry and reduce the challenges and barriers
that may prevent private companies from investing in
Alaska's infrastructure development.
2:14:42 PM
LOKI TOBIN, Staff, Senator Begich, Juneau, Alaska, presented a
PowerPoint as an overview of SB 17. She explained that the bill
amends existing statute to extend the authority of the
Department of Transportation and Public Facilities (DOTPF) to
use energy performance contracting to help reduce energy costs
in public facilities. The legislation will leverage state
capacity and expertise to assist the Alaska Industrial
Development and Export Association (AIDEA) in establishing an
economic recovery office that will help to bundle, market, and
support small projects and retrofits that may not be
economically viable on their own. Additionally, she said SB 17
asserts an energy policy that will move the state toward the use
of more renewable energy resources by 2026.
MS. TOBIN reviewed the history of energy efficient policies
leading to SB 17. She related that a goal of House Bill 306
[Chapter 82 SLA 2010] and the Alaska Sustainable Energy Act (AS
44.42.067) was for 25 percent of public facilities [10,000
square feet and larger] to be retrofitted to meet energy goals.
The state achieved that goal in 2014.
2:16:01 PM
MS. TOBIN pointed to the graphic on slide 4 that offers an
overview of energy service performance contracting. Under SB 17,
the Alaska Energy Authority (AEA) or DOT&PF will perform a
public facility audit to identify retrofit projects that would
result in energy cost savings. The agency would hire an energy
service performance company (ESCO) to perform an investment
grade audit to guarantee those savings. The agency then will
identify a third party lender to fund the retrofit projects. The
realized savings will repay the loan and potentially result in
real time savings.
MS. TOBINS reviewed the savings realized from energy retrofits
bulleted on slide 5. She related that energy retrofits of more
than 75 public facilities 10,000 square feet and larger have
resulted in [more than $30 million] in real savings. SB 17
models New Mexico's program that authorized the New Mexico
Finance Authority to bundle small projects to achieve economies
of scale and take advantage of low interest rates and the tax-
exempt bond market for financing.
2:17:40 PM
MS. TOBIN paraphrased the following sectional analysis for SB
17, version B.
Section 1. Establishes legislative intent to outfit
public buildings, facilities, and schools with new
energy upgrades to ultimately reduce net energy costs
by 2026.
Section 2. Amends AS 18.56 by adding a section, AS
18.56.865, authorizing the Alaska Energy Authority
(AEA) to conduct energy audits of public facilities
upon request.
Section 3. Amends AS 42.45.110 by adding a new
subsection permitting owners of public facilities that
use power cost equalization to allow the AEA, the
Alaska Housing Finance Corporation, or the Department
of Transportation and Public Facilities (DOT&PF) to
perform energy audits and retrofits.
Section 4. Amending AS 44.42.065 by adding public
school buildings to the list of community facilities
that the DOT&PF must perform energy audits for every 7
years.
Section 5. Amends AS 44.42.06 by including the
definition of public school as defined by AS
14.25.220, but not including a charter school as
defined by AS 14.03.290.
Section 6. Amends AS 44.42.065 by adding a new
subsection which authorizes the DOT&PF to coordinate
with the AEA to conduct energy audits by request.
2:19:28 PM
Section 7. Amends the date under AS 44.42.067 to which
DOT&PF shall retrofit at least 25% of all public
facilities to no later than January 1, 2026.
Section 8. Amends AS 44.42.067 to include education
facilities as well as government and public use
facilities in the definition of public facilities and
reduces the square foot requirement to 5,000 for
public use facilities.
Section 9. Adds a new section under AS 44.83, AS
44.83.088 which directs the Alaska Industrial
Development and Export Authority (AIDEA) to coordinate
with DOT&PF for energy audits on public facilities
that use power cost equalization as defined by AS
42.45.110(b). Directs AEA to perform these audits at
least once every seven years. Allows the AEA to work
with entities that own public facilities to identify
sources of funding for audits or retrofits.
Section 10. Amends AS 44.88 by inserting a new
section, AS 44.88.179, which directs the AIDEA to
establish a rapid economic recovery office to
facilitate state energy policy and encourage private
investment. Directs this new office of rapid economic
recovery to review energy audits, identify energy
retrofit projects to be bundled, market bundled
projects, and engage with DOT&PF to support with the
contracting of private investors.
Section 11. Adds a new subsection under AS 44.99.115
which establishes a state energy policy target date of
2026 to have at least 50 percent of total energy used
by the state to come from clean energy sources and
authorizes the AEA to request periodic updates from
state facilities on the estimated percent of total
energy used obtained from renewable energy sources.
This section also includes the previously used
definitions of renewable energy, power cost
equalization and a state-funded public facility which
includes a public school building but excludes a
charter school.
2:22:03 PM
CHAIR COSTELLO asked if the facility must be involved with the
Power Cost Equalization (PCE) program.
SENATOR BEGICH answered no. The bill qualifies school district
buildings of 5,000 square feet or larger and community or public
buildings that are receiving PCE and are 5,000 square feet or
larger. The existing statute identifies facilities of 10,000
square feet or larger.
CHAIR COSTELLO asked if there was a reason for excluding charter
schools from participation.
SENATOR BEGICH explained that Legislative Legal Services opined
that charter schools are excluded because the constitution
prohibits the use of public funds for private institutions and
charter schools may receive money from private entities. He
noted that the same law excludes private schools from
participation.
CHAIR COSTELLO asked for confirmation that the public charter
schools in Anchorage would not qualify for the program.
SENATOR BEGICH restated his understanding that charter schools
are able to receive private funds, which disqualifies them from
participation in this program. He noted that the requirement for
the building to be 5,000 square foot or larger would also be a
limitation. He offered to get a memo from Legislative Legal
Services confirming the foregoing and to look for creative
solutions to legally include public charter schools if any meet
the size limitation.
CHAIR COSTELLO moved to invited testimony.
2:24:37 PM
AMBER MCDONOUGH, Business Development Manager - Pacific Zone,
Siemens Industry, Inc., Energy Performance & Services,
Anchorage, Alaska, paraphrased her written testimony that read
as follows:
[Original punctuation provided.]
1. Greetings Madam Chair and members of the committee,
for the record, my name is Amber McDonough. I am based
in Anchorage and am representing Siemens Industry,
Inc. I appreciate the opportunity to provide testimony
on SB-17 at the invitation of Senator Begich's Office.
2. Background Info:
a. I'm an Account Executive for Siemens Industry
Inc., Energy & Performance Services; I've been
with Siemens 22 years and supported their energy
service company (ESCO) business in AK for 13
years. During this time we have implemented
approx. $40M of energy saving performance
contracts (ESPC) in Alaska.
b. An ESCO is a company like Siemens that
develops and implements ESPC work. This includes
energy efficiency projects as well as distributed
energy solutions including renewable power,
energy storage and microgrids.
c. An ESPC is at its core a procurement vehicle
to fund facility & infrastructure improvements
whose savings pay for themselves over time; ESPCs
are designed to be budget neutral where the costs
of design, development, construction, financing,
and the savings guarantee are all funded by
energy & operational savings.
d. Guaranteed annual savings are confirmed each
year using a formal Measurement & Verification
(M&V) Program performed by the ESCO. Should
verified savings not be met the ESCO will pay the
difference to their clients payout rates are
historically less than 1% of all savings
guaranteed.
2:26:20 PM
CHAIR COSTELLO asked if she had experience with this type of
financing in any other state.
MS. MCDONOUGH replied she represents Siemens' business in
Alaska, Hawaii, and Guam and she is part of the Pacific group
that handles this type of service on the coast from California
to Alaska. Siemens Industry provides ESCO services nationally
and internationally.
MS. MCDONOUGH continued her testimony:
3. I reviewed and testified on this bill in February
and was happy to see some of my suggestions
incorporated, especially regarding the type of high-
level preliminary audits (ASHRAE Level 1) prescribed
by this bill. This will allow energy savings
opportunities to be qualified and quantified prior to
engaging the services of an ESCO or incurring the
costs of more detailed "investment grade" audits
needed to secure bank funding.
2:28:21 PM
4. I have three comments on the current version of SB-
17:
a. Sec 3 & 9 of the bill seem to limit the
beneficiaries of this legislation to schools and
facilities that served by utilities that receive
power cost equalization (PCE) payments; Would the
committee consider opening services up to all
communities and public buildings regardless of
their PCE status?
MS. MCDONOUGH noted that Senator Begich clarified that the bill
includes but does not require PCE participation.
b. Sec. 7. AS 44.42.067(a) is amended to read:
(a) Not later than January 1, 2026 [JANUARY 1,
2020], the department shall work with other state
agencies to retrofit at least 25 percent of all
public facilities, starting with those it
determines are the least energy efficient, if the
department determines that retrofitting the
public facilities will result in a net savings in
energy costs to the state within 15 years after
completion of the retrofits for a public facility
and if funding for the retrofits is available.
This is a big "if". Bundling loans or authorizing
a single bond sale which all community facilities
could tap into would address the problem of
trying to secure private investors for rural
communities and rural education attendance area
(REAA) schools; This has been a challenge due to
their lack of tax base and revenue sources needed
guarantee their ability to repay any debt on
their own. If the project bundling is truly
intended to create one larger agreement between
the State of AK and the financier this would be a
big help. For example: I recently investigated
viability of providing a supplemental financing
for a City of Galena microgrid project, but
traditional ESPC lenders felt the community was
too small and the lending risk too great to
participate.
c. Sec. 10. AS 44.88 is amended by adding a new
section to read: Sec. 44.88.179. Rapid economic
recovery office. (a) The authority shall create a
rapid economic recovery office to facilitate the
state energy policy described in AS 44.99.115(b)
and encourage private investment in energy
upgrades at state facilities and public schools.
What's the best way to do that efficiently?
Lately the biggest challenge seems to be
perceived risk, even with the more common ESPC
projects for state agencies. For example during a
typical ESPC development for a state agency
process:
i. The technical viability of Agency ESPC
projects are jointly developed by the DOT&PF
Energy Office Project Managers, the Agency
Facility Managers and the ESCO, but each
agency's financial Administrative Services
Director (ASD) director must ultimately
rd
agree to sign off on 3 party loan. [Current
State ESPC financing requires 4 signatures
in the OMB approval process: DOT&PF Project
Manager, client department leader (Agency
ASD or Commissioner), Dept. of Revenue, and
OMB Director]
ii. The individual Agency Finance Director
must be educated on how ESPC works and
accept the metrics of the ESCO's savings
guarantee. However, beyond that that they
must also weigh the risk of whether or not
the State will continue to fund their
facility's utility budget at the same level
for the term of the repayment period.
iii. This has sometimes been a tough sell
with the Finance Director putting the go/no
go decision responsibility back on the
Facility Manager who may then hesitate to
approve the much needed upgrades.
2:31:30 PM
iv. One solution would be for this bill to
provide authorization for State OMB to
secure a large bond (say $200M) or set aside
a state-wide appropriation budget to fund
these future improvements. This would
achieve structural efficiencies such as:
1. Paper work reduction fewer individual
loan contracts and legal fees would be
required for each ESPC project; perhaps
AIDEA/AEA could manage smaller in-state
intra-agency or public community loans
from the larger pot of secured funding?
2. Lower anticipated interest rates - one
rd
larger transaction with a 3 party
lender would result in better value
than lots of smaller loans with
entities of varying credit ratings.
3. Lower perceived risk this funding
would provide a backstop the State's
current ESPC program as well as give
public Finance Directors, School
Superintendents, and Facility Mangers
in these smaller PCE communities the
confidence they need to tap into these
programs. This would also mitigate the
individual organization's repayment
risk for private lenders.
2:32:52 PM
CHAIR COSTELLO asked the sponsor if he would like to respond to
the testimony.
2:33:02 PM
SENATOR BEGICH answered yes. He said his office talked about
what to do with risk. He noted that a Governor's bill that the
committee heard last week has a section about building bonding
capacity. Conversations on how to combine the approaches are
ongoing. With regard to the "if" clause in bill Section 7, he
said that can be fixed. He said the previous committee of
referral raised the question about the PCE requirement and he
agrees that the provision needs clarification. He said he did
not believe the bill prohibits any public or community school
buildings larger than 5,000 square feet. The intention is to
include PCE funded community buildings because of the direct
state-funding connection. He believes that Ms. McDonough was
focused on ensuring there are enough projects to bundle to make
the financing cost effective. He voiced support for that concept
and noted that some of the concepts in SB 17 are addressed more
broadly in the Governor's energy independence bill. He offered
to work with the committee to mesh the concepts.
CHAIR COSTELLO thanked the sponsor and Ms. McDonough.
2:35:12 PM
CHRISTOPHER HODGIN, Energy Program Manager, Statewide Public
Facilities, Division of Facility Services, Department of
Transportation & Public Facilities, Anchorage, Alaska, stated
that he did not have prepared testimony but he was available to
answer questions.
2:35:30 PM
CHAIR COSTELLO asked if the administration had a position on SB
17.
MR. HODGIN replied the administration supports the concepts
discussed in the legislation.
2:36:17 PM
CHAIR COSTELLO opened public testimony on SB 17; finding none,
she closed public testimony.
CHAIR COSTELLO stated her intention to hold SB 17 for further
consideration. She asked the sponsor if he had any closing
comments.
SENATOR BEGICH highlighted that Sydney Lindeman provided written
testimony and copies were in the packets. He said he looks
forward to working with the committee staff, and the
administration to move the concepts forward in a well-crafted
bill.
SENATOR MICCICHE asked if he talked to AEA about absorbing
positions without a fiscal note on the plan. He noted that his
support for the bill might hinge on the response.
CHAIR COSTELLO asked Mr. Thayer to respond to Senator Micciche.
2:38:15 PM
CURTIS THAYER, Executive Director, Alaska Energy Authority,
Anchorage, Alaska, advised that AEA's fiscal note identified two
new range 16 to 18 analysist positions to monitor the PCE
communities in addition to the work in rural Alaska. He said he
understands Senator Micciche's position; he too does not want to
grow government but in this instance, AEA would need the
positions to complete the audits called for in the bill.
SENATOR BEGICH said he looks at it as an investment that will
save money over time like putting new windows in a building. He
noted that the state saved $40 million in the last decade under
the existing law for buildings 10,000 square foot or greater.
That is a quantifiable savings and he anticipates similar levels
of savings with SB 17. The ESCOs guarantee that. He said he
looks forward to working with the committee staff and the
administration to identify the appropriate process to
potentially save tens of millions of dollars more than the cost
of the legislation in the long run.
[CHAIR COSTELLO held SB 17 in committee.]
2:41:27 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 2:41 p.m.