HOUSE BILL NO. 304 "An Act relating to issuance and sale of revenue bonds to fund drinking water projects, to creation of an Alaska clean water administrative fund and an Alaska drinking water administrative fund, to fees to be charged in connection with loans made from the Alaska clean water fund and the Alaska drinking water fund, and to clarification of the character and permissible uses of the Alaska drinking water fund; amending Rule 3, Alaska Rules of Civil Procedure; and providing for an effective date." Co-Chair Therriault provided members with a proposed committee substitute 1-GH2031\G, Cook 3/17/00 (copy on file). MIKE TIBBLES, STAFF, REPRESENTATIVE THERRIAULT provided information on the proposed committee substitute. The title was amended to include "to the Alaska Clean Water Fund". This reflects changes in the legislation. References to AS 46.03.032 and AS 46.03.036 were added on page 1, lines 11 and 12: AS 46.03.032 refers to the Clean Water Fund, which is waste water and AS 46.03.06 refers to Alaska Drinking Water Fund (Safe Water). A technical change was made on page 2, line 18: "for each program" was deleted. This was no longer needed because both programs are added under subsection (a). Mr. Tibbles noted that "as appropriate" replaces "respectively" in a number of places in the bill. Section 18 is a new section; it amends the definition of "other qualified entity". This addresses the Clean Water Fund and brings in private entities approved under federal statute 33. U.S.C. 1383. There are no private entities currently approved under this section. The Drinking Water Fund was amended in 1996, to allow loans to private entities. The legislation makes both programs consistent. In response to a question by Representative Grussendorf, Mr. Tibbles explained that the intent is to cover privately owned economically regulated utilities. There are 600 privately owned utilities. Only 24 of them are economically regulated. The intent is to only cover the economically regulated privately owned utilities. Page 9, subsection 1(b) refers to the Alaska Drinking Water Fund and includes economically regulated organizations that are not exempt from regulation under AS 42.05.711(d). Language was added on page 10, line 3 - 6 to allow the Department of Environmental Conservation to establish different loan terms, charges and rates. This addresses concerns that higher risk entities would have a greater impact. (TAPE CHANGE, HFC 00 - 72, SIDE 2) Mr. Tibbles noted that language was also added on page 10, lines 17 and 18: "a loan may not be made to an organization that is not a municipality to refinance debt of that organization" There is also is a delayed effective date. Co-Chair Therriault noted that the ability to charge different rates was requested by the Commissioner of the Department of Natural Resources. DAN EASTON, DIRECTOR, DIVISION OF FACILITY CONSTRUCTION AND OPERATION, DEPARTMENT OF ENVIRONMENTAL CONSERVATION provided information on HB 304. He noted that the original intent of HB 304 was to give the department the same bonding authority for drinking water as the they currently have for waste water projects. There are two loan programs: the Clean Water Fund for wastewater projects and the Drinking Water Fund for drinking water projects. The department has bonding authority for the Clean Water Fund. The department did not have bonding authority for the Drinking Water Fund. Bonding authority allows the department to use bonding revenues to add more money to the Fund and make more money available for loans. Bonding mechanisms can be used to pay for the state match requirement. Mr. Easton explained that the legislation was also intended to provide a long-term mechanism to pay for the program's operational expenses. The program's operational expenses have been paid with federal funding that will cease. When federal grants cease an alternative mechanism will be needed. House Bill 304 allows the department to divert money, paid back by communities, into another account that could be used for operating costs through the capital and operating budgets. The proposed committee substitute makes privately owned utilities eligible for loans for the Drinking Water Program. Federal law currently prohibits loans for sewage and wastewater projects to privately owned utilities. He emphasized that the proposed committee substitute would improve drinking water through financial improvements. Mr. Easton referred to the department's request for authorization to charge different rates on loans. He observed that if loans to private utilities cost more to make and are higher risk than the department can apportion interest rates so that higher risk and entities with higher costs pay more. Municipalities that are lower risk and cost less would not have to pay the burden of the privately owned utilities. He spoke in support of the delayed effective date. Co-Chair Therriault pointed out that only privately owned utilities are economically regulated. He quoted from a letter by the Regulatory Commission of Alaska: Generally, all economically regulated expenses are reviewed according to these criteria. Accordingly, any reduction in debt-service expense associated with allowed costs would generally be of benefit to the ratepayers of the utility. The ratepayers would benefit through rates lower than would otherwise be required to allow the utility to recover its debt-service expense. Co-Chair Therriault pointed out that the legislation allows privately owned companies to lower their customer rates. The benefit flows to the ratepayer. Representative J. Davies suggested that a reasonable portion could benefit the operators. He questioned if the legislation would cover private drinking water and sewage projects. Discussion ensued regarding the legislation's coverage of drinking water and wastewater projects. ANDY WARWICK, CHAIRMAN, BOARD OF DIRECTORS, UTILITIES SECURITIES OF ALASKA spoke in support of the legislation. He observed that the program replaces general fund monies with loan dollars and allows the program to expand. The proposed committee substitute makes the program available to public utilities regardless of whether they are municipal or investor owned, as long as the investor owned utilities are economically regulated. All benefits of the program would be passed on to the customers. Customers would be on a level playing field. He maintained that the legislation would improve the quality of life for all Alaskans. In response to a question by Representative J. Davies, Mr. Warwick stated that it is his understanding that federal law allows privately owned utilities to participate in drinking water but not the wastewater programs. The legislation, as it stands, follows the federal law; it does not allow participation in the wastewater portion. If private utilities become eligible under federal law than money from the federal government would allow participation. He observed that the intent is to participate in whatever is allowed under federal law. Money is coming from the federal government with the intent to benefit all utilities. Representative J. Davies expressed concern that the federal law could be written in a general way to permit a wide range of privately owned utilities to participate. He wanted state statutes to reflect the need that private utilities be economically regulated (to be eligible for the loan programs.) Mr. Warwick thought that the legislation addressed Representative J. Davies' concerns. Co-Chair Therriault observed that the legislation specifically addresses drinking water. He noted that an amendment would be needed to specifically add wastewater. Mr. Easton concluded that the restriction that private utilities must be economically regulated only applies to the drinking water loan program and agreed that an amendment would be needed to address wastewater. Representative J. Davies MOVED to ADOPT a conceptional amendment: add a condition that when sewage programs become available under federal statutes, that they be allowed, but that a further requirement be added that they would be regulated by the RCA and economically regulated in the manner parallel to the water funds. There being NO OBJECTION, it was so ordered. Representative Foster MOVED to ADOPT the proposed committee substitute work draft, 1-GH2031\G, Cook 3/17/00. There being NO OBJECTION, it was so ordered. Representative Foster MOVED to report CSHB 304 (FIN) out of Committee with the accompanying fiscal note. There being NO OBJECTION, it was so ordered. CSHB 304 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with a fiscal impact note by the Department of Environmental Conservation, dated 1/21/00; and zero fiscal note by the Department of Revenue, dated 1/21/00.