HOUSE BILL NO. 338 An Act relating to the power project fund and the bulk fuel revolving loan fund; authorizing the Alaska Energy Authority to borrow money from the power project fund for the bulk fuel revolving loan fund and to repay money borrowed; and providing for an effective date. Vice-Chair Stoltze MOVED to ADOPT work draft 25-LS1332\E, Kane, 2/22/08, as the version of the bill before the Committee. There being NO OBJECTION, it was adopted. 2:10:42 PM REPRESENTATIVE MARY NELSON, SPONSOR, explained that the bill would allow the Alaska Energy Authority (AEA) to borrow from the Power Project Fund (PPF) for use in the Bulk Fuel Revolving Loan Fund (BFRLF). The PPF has a balance of $10.8 million. Due to the ever-increasing cost of energy throughout the state, especially in remote rural villages, the ability of AEA to offer loans has been hindered because larger loans are required to buy the same quantity of fuel. Representative Nelson said that Rural Alaska Fuel Services is often asked to provide loans to communities that would otherwise be unable to get loans. The payback rate is 100%. Although the bridge loan program has been functioning well since 2004, HB 338 is necessary because there is no statutory authorization for AEA to operate the program. Communities have struggled to purchase bulk fuel because of significant decreases in or total elimination of municipal assistance and revenue sharing. The loans help communities purchase fuel at the beginning of the cold season. The fiscal note is small and for contractual services. The Department of Commerce, Community and Economic Development is optimistic that the demand for the program will fall with the reinstatement of state revenue sharing (Statement on File). 2:14:52 PM Co-Chair Meyer opened public testimony. SARAH FISHER-GOAD, DEPUTY DIRECTOR OF OPERATIONS, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT (DCCED), said the BFRLF provides a financing source for communities of 2,000 or less to purchase an annual supply of fuel. She said AEA only commits to loans based on cash available. The bill provides a backstop source of funds to allow AEA to better meet the needs of borrowers. There is an intense demand and repayment cycle. The bill limits the lending ability by restricting the amount based on the June 30 cash balance for the PPF, to $2 million or 10% of the available cash balance. The current cash balance of the PPF is approximately $10.8 million, limiting loans to approximately $1 million. If the balance goes below $5 million, the BFRLF would be suspended (Statement on File). Representative Thomas asked if AEA can garnish a community's revenue sharing if that community has outstanding debt. Ms. Fisher-Goad answered that although AEA has the ability to collateralize the loans and request payments, a community would not eligible for a new loan until the balance was paid off. Representative Thomas pointed out that the history sheet (Copy on File) shows several communities with three or four years of unpaid balance. Representative Kelly asked if the interest rate changed over time. Ms. Fisher-Goad replied that the first time an entity borrows the interest rate is zero percent. The rate then changes to the municipal rate of approximately 4.5%. CHRIS ANDERSON, DEPUTY DIRECTOR OF CREDIT, ALASKA ENERGY AUTHORITY, added that delinquencies are averaging less than 3% and tend to be seasonal. 2:22:25 PM DEL CONRAD, CEO, RURAL ALASKA FUEL SERVICES, has been managing the Bulk Fuel Bridge Loan Program on behalf of DCCED since its inception. The bridge loan program was set up with a $500,000 grant from the Denali Commission in 2004 when the first price shock hit rural Alaska. A significant number of communities had been turned down for loans by AEA. The Denali Commission made a grant to the State. The State, in conjunction with the Alaska Village Electrical Cooperative (AVEC) and Rural Alaska Fuel Services (RAFS), set up a loan program which has been run by RAFS. Mr. Conrad explained that in order to be eligible, a community or borrowing entity has to be turned down by AEA. This could happen for a variety of reasons, such as an outstanding debt or an IRS lien. At that point the entity becomes eligible for the bridge loan program. If the community repays on a timely basis, they can get the loan for another two years at zero percent interest. The goal is to help high risk, financially unsustainable communities move back into the regular borrowing process. About $6.5 million has been loaned over the past four years. 2:27:38 PM Representative Kelly asked if Mr. Conrad functions primarily as a banker in relation to the program. Mr. Conrad answered that related to the fuel provision, he is primarily a banker. Related to the bridge loan, he is part banker and part consultant. He meets with community administrators and helps them sort through costs. The largest issue is typically that a community will keep prices too low and not enforce collections in an attempt to help its residents. Representative Kelly asked if the responsibility stays with the utility. Mr. Conrad said yes, but added that he assists the community in problem-solving. PUBLIC TESTIMONY CLOSED. Vice-Chair Stoltze MOVED to report CS HB 338 (FIN) out of Committee with individual recommendations and with the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CS HB 338 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with attached new zero fiscal note by the Department of Commerce, Community and Economic Development and new fiscal note by the Department of Commerce, Community and Economic Development. 2:31:33 PM