HB 197-HOME ENERGY RATING SYSTEM  3:04:50 PM CO-CHAIR PRUITT announced that the first order of business would be HOUSE BILL NO. 197, "An Act recognizing the Alaska Housing Finance Corporation as the authorizing agency to approve home energy rating systems for the state; and providing for an effective date." 3:05:31 PM JEREMIAH CAMPBELL, Staff, Representative Lance Pruitt, Alaska State Legislature, introduced HB 197 on behalf of Representative Pruitt, sponsor. Mr. Campbell stated HB 197 recognizes the Alaska Housing Finance Corporation (AHFC) as the state's Home Energy Rating System (HERS) authorizing agency for the purpose of approving home energy rating systems for use in the state. This legislation is needed because non-governmental, for-profit, third-parties are attempting to be identified in federal legislation as the HERS agency in the state, in order to control state policy on the issue, and to compete for funds that are available to the state. Alaska has made an investment in AHFC through its rating system software called AkWarm, and he opined it is appropriate for Alaska to run the program, and not a third-party. The AkWarm software has been used continuously since 1996, and is designed specifically for Alaska. In addition, AkWarm is directly tied to AHFC programs such as the home energy rebate and weatherization programs, interest rate reduction for home loans, and Alaska Building Energy Efficiency Standards (BEES). This bill would enable AHFC to ensure that any HERS utilized in Alaska would be appropriate for Alaska climates. REPRESENTATIVE SADDLER asked what organizations are attempting to get certification and compete with AHFC. 3:08:13 PM JOHN ANDERSON, Weatherization Officer, Alaska Housing Finance Corporation (AHFC), Department of Revenue, informed the committee that currently the organization recognized by the Internal Revenue Service (IRS) and the U.S. Department of Energy (DOE) is the Residential Energy Services Network (RESNET). REPRESENTATIVE PETERSEN noted DOE uses the Smart Home Scale, and the Environmental Protection Agency (EPA) uses Energy Star ratings, both of which are administered by RESNET. He asked whether the standards in Alaska would be equivalent, so that these programs would be recognized by AHFC. 3:09:44 PM MR. ANDERSON confirmed that AkWarm is also recognized by DOE for AHFC's weatherization purposes in Alaska. He opined AkWarm is far more sophisticated than the other programs, and AHFC wants it to be the standard; in fact, AHFC has invested $1 million in the software and upgrades since 1992. In addition, AHFC is developing a commercial model for its public facility building revolving loan fund. REPRESENTATIVE PETERSEN surmised that the bill creates a new regulatory function for AHFC. 3:10:42 PM MR. ANDERSON explained that AHFC has administered the program and authorized energy raters since 1992. Although independent software may be adequate, AHFC's stance is to require other programs to be equivalent to AkWarm. REPRESENTATIVE PETERSEN asked whether the intent of the bill is to ensure that all federal funding available for energy rating programs goes to AHFC. MR. ANDERSON clarified that the main focus is to protect the state's investment in the AHFC program. The federal government has named a for-profit private entity, but AHFC is experienced, and is leading the nation on residential energy efficiency. 3:12:26 PM REPRESENTATIVE PETERSEN asked whether any municipal building codes will be affected by the bill. MR. ANDERSON opined no, except for IRS tax credits, because AkWarm is not recognized by the IRS. He pointed out that IRS guidelines defer to the RESNET organization; however, this legislation will help AHFC achieve IRS status. Once IRS status is achieved, Alaska homebuilders will be able to use AHFC AkWarm ratings to qualify for tax credits for building energy efficient homes. REPRESENTATIVE SADDLER asked whether there are different energy rating systems, and for the purpose of authorizing agencies. 3:14:08 PM MR. ANDERSON stated that an authorizing agency sets certain criteria for software to meet before it can be utilized. The RESNET organization provides information that is applicable to Alaska, but AkWarm is a superior product. In further response to Representative Saddler, Mr. Anderson said the software provides an energy analysis of a home by measuring the resistance to heat flow (R) value of walls, roofs, doors, windows, and heating systems, and accounting for all of the energy use in a home, followed by a report for improvement options to raise a home to the building energy efficiency standard (BEES). REPRESENTATIVE SADDLER asked whether the bill sets the agency or the standard. MR. ANDERSON said the bill gives AHFC the authority to set standards in its regulations. 3:16:38 PM DAN FAUSKE, CEO/Executive Director, Alaska Housing Finance Corporation (AHFC), Department of Revenue (DOR), called attention to the fact that AHFC is nationally renowned in this issue, and must ensure Alaska's right to regulate what comes into the state. He predicted that as the economy improves, other mortgage companies will return to Alaska and use different software with lower standards of weatherization; the intent of the legislation is to prevent the federal government from mandated changes to a program in which the state has invested $360 million. Alaska Housing Finance Corporation wants to see a benchmark for regulations on rating systems. 3:18:31 PM CO-CHAIR PRUITT asked how this situation would impact a contractor. MR. ANDERSON said a contractor does not need to do anything new right now. However, proposed federal legislation - known as Home Choice - names RESNET as the governing body of home system software. As a matter of fact, the Home Choice program mimics AHFC's home energy rebate program, and the only problem is that for Alaska, it creates the threat of competing HERS software that does not meet AkWarm standards. He pointed out that the AkWarm software database is free to contractors, but others are not. 3:20:19 PM CO-CHAIR PRUITT surmised the bill should streamline mortgage applications and energy programs. MR. ANDERSON said correct. MR. FAUSKE reminded the committee that BEES is state law, and AHFC cannot purchase a mortgage unless an improvement meets BEES; therefore, if new software is introduced in Alaska with a lesser standard, AHFC's status in the housing industry is weakened. 3:21:25 PM REPRESENTATIVE PETERSEN asked whether federal legislation on this issue would take precedence over Alaska's AkWarm program. MR. ANDERSON indicated yes, and agreed with Representative Petersen that AkWarm should be adopted as the federal standard. 3:22:05 PM REPRESENTATIVE SADDLER affirmed that HB 197 would give AHFC the sole authority to decide whether a particular energy rating software can be used in Alaska. MR. ANDERSON said correct. In further response to Representative Saddler, he confirmed that AHFC will only use AkWarm, unless a better program is developed. In response to Representative Petersen, Mr. Anderson said AHFC has unsuccessfully attempted to get an exclusion clause from the IRS. 3:23:52 PM REPRESENTATIVE TUCK questioned whether the bill applies only to energy rating software and not to energy rating procedures, "above and beyond software." 3:24:19 PM MR. ANDERSON opined the bill refers to the system because there is a training component and monitoring of the energy auditors and raters. MARY ELLEN BEARDSLEY, Assistant Attorney General, Commercial/Fair Business Section, Civil Division (Anchorage), Department of Law (DOL), agreed with Mr. Anderson that the software is the AkWarm program that has been copyrighted by AHFC, but the system is not just the program itself. 3:25:40 PM REPRESENTATIVE TUCK compared this process to certificates of fitness issued by the Department of Labor & Workforce Development (DLWD) for electrical licenses. Because the program establishes an authority, and is more "than just reviewing software," he asked whether certificates will be issued to workers after training, and how individual contractors will be monitored and audited. 3:26:16 PM MR. ANDERSON affirmed that AHFC authorizes energy raters and requires certificates that are renewed every three years; however, if a new entity enters the state, AHFC would review the new entity's entire process and software. MR. FAUSKE added that AHFC is trying to protect consumers; in fact, 126 energy raters have been certified by the corporation. Although the raters are not employees of AHFC, they visit homes and offer advice; thus, a governing system is necessary, and AHFC has filled that role for several years. 3:28:06 PM REPRESENTATIVE TUCK suggested that another software company may have a procedure that is more efficient. He asked whether a conflict would arise if a contractor applied for an IRS tax credit, but was not permitted to work in Alaska because AHFC's program is not approved. 3:29:05 PM MS. BEARDSLEY restated that AHFC has submitted its application to the IRS to be an alternate agency. In fact, IRS regulations indicate that RESNET is the authorization entity, "or [that] an equivalent rating network" is acceptable. She said she was unsure of the outcome if the matter was referred to the court system. MR. ANDERSON explained that at this time there are certified RESNET auditors in the state "that do some types of tax credits right now, on the residential ...." This would not change, but the bill helps get AHFC's software to the same status. REPRESENTATIVE TUCK asked how the AkWarm software is superior, and for the difference between them. 3:31:22 PM MR. ANDERSON reported that RESNET does not own software, but approves the software systems, and the four systems approved nationwide are mostly an "input point system" using blank fields that are filled with information from the home. In contrast, the AHFC program uses mathematic science to calculate the insulating properties of walls and windows, ventilation, and boilers. In further response to Representative Tuck, Mr. Anderson said AHFC's application process began eight months ago; in fact, AHFC received DOE's five-year approval to use AkWarm on single-family homes and duplexes, even though the IRS has not responded to its application for approval. He acknowledged that the federal Home Choice bill died, but he expected similar legislation to surface soon, and restated that AHFC would not disallow another rating system, as long as it is equivalent. REPRESENTATIVE PETERSEN asked if there are consequences for the other rating companies; for example, whether the homes rated by them are eligible for the state weatherization or energy rebate programs. MR. ANDERSON indicated there are no consequences; in fact, some builders are paying for an additional rating with the software approved by RESNET, in order to qualify for the IRS tax credit. 3:35:17 PM PAT LUBY, Advocacy Director, AARP in Alaska, informed the committee AARP has 93,000 members in Alaska, and wholeheartedly supports AHFC. Mr. Luby said the weatherization and rebate programs have proven to be historic in that thousands of Alaskans have benefitted from the programs. He relayed a story of how successful energy improvements to homes are, with the resulting lower utility bills showing that energy is being saved. Mr. Luby expressed AARP's support of HB 197, for the benefit of consumers. REPRESENTATIVE TUCK agreed that the energy programs are beneficial; however, he questioned how the bill will expand or provide better service to consumers. MR. LUBY said AARP does not have the expertise to determine that, but the testimony today indicated there is a problem with the IRS. CO-CHAIR PRUITT closed public testimony. 3:39:06 PM CO-CHAIR FOSTER moved to report HB 197, 27-LS0628\A, out of committee with individual recommendations and the accompanying fiscal note. There being no objection, HB 197 was reported from the House Special Committee on Energy.