CS FOR HOUSE BILL NO. 338(FIN) "An Act relating to the bulk fuel bridge loan fund and program, 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 REPRESENTATIVE MARY NELSON, SPONSOR, related that the bill was an idea brought forth by the Alaska Energy Authority (AEA). She reported that old statutes needed updating. The primary idea in the bill is in Section 2, which authorizes AEA to make loans from the Power Project Fund (PPF) to the Bulk Fuel Revolving Loan Fund (BFRLF). Presently, there is a lot of pressure on AEA due to the high price of fuel to provide more loans from BFRLF. The bill would limit the amount AEA could borrow from PPF to the BFRLF to the lesser of $2 million, or 10 percent of the PPF cash balance on June 30 of the preceding fiscal year. It provides that AEA can not borrow from PPF if the cash balance of PPF is less than 5 million. Representative Nelson reported that the bill also deleted references to nonprofit marketing cooperatives as potential borrowers and deletes PPF loan provisions for potable water supply projects. Representative Nelson related that Section 3 provides that power projects are subject to the same limitations on interest and other restrictions as are loans for power projects. Section 1 establishes the BFRLF as statutorily able to make loans to communities. It is a separate loan program established in 2004 by the Denali Commission, especially for communities that are struggling administratively. She explained the problems surrounding statutory authority and third party contract relationships. Representative Nelson reported on the successes of the BFRLF. 12:14:21 PM SARAH FISHER-GOAD, DEPUTY DIRECTOR OF OPERATIONS, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY AND ECONOMIC DEVELOPMENT testified via teleconference that HB 338 authorizes AEA to make loans from PPF to BFRLF. She related that the BFRLF provides communities of 2,000 or less a financing source to purchase an annual supply of fuel. AEA currently only commits to loans based on the cash available and does not consider loans receivable prior to committing a loan. HB 338 would provide a backstop source of funds to allow AEA to better meet the needs of the borrowers. Ms. Fisher-Goad reported that two years ago there was a delay in committing funds until loan repayments - the actual cash - was received by AEA. This made it difficult to be able to provide the commitments for borrowers to plan for fuel delivery. HB 338 does limit the lending ability by restricting the amount based upon the June 30 cash balance of PPF and is limited by the lesser of $2 million or 10 percent. On 2/29 the cash balance in the PPF was $10.8 million. If the bill were in effect today there would be a little over $1 million as a backstop funding source. If PPF falls below $5 million, AEA would suspend the borrowing capability. Ms. Fisher-Goad reported on housekeeping measures in the bill. 12:16:36 PM Senator Huggins asked if the bill increases risk to AEA. Ms. Fisher-Goad said she believed it was risk neutral. The loans are short term and the delinquency rate is very low. 12:17:24 PM DEL CONRAD, CEO, RURAL ALASKA FUEL SERVICES (RAFS), said that since the inception of the BFRLF in 2004, about 12 communities were unable to fund their fuel purchases due to an increase in fuel costs. The Department of Commerce, Community and Economic Development contracted out to manage the loans and work with the communities. The Rural Alaska Fuel Services purchases fuel on behalf of the community. If the loan is paid back on a timely basis, the money is loaned for three years interest free. In addition, RAFS goes to out to the communities to review the books, establish pricing, and build budgets. He described how he sets up the programs. Mr. Conrad reported that RAFS has made loans to 26 communities throughout rural Alaska in the last four years for a total of $6.5 million. He described the successes of the program and the fund sources. 12:23:25 PM Senator Olson MOVED to ADOPT Amendment 1: Insert new Section 4 that amends AS 42.45.250(e)(1) to read: "(1) may not exceed $500,000 [$400,000], or, if the borrower is a cooperative corporation organized under AS 10.15 or an electric cooperative organized under AS 10.25 and uses the loan to purchase bulk fuel on behalf of more than one community, may not exceed the lesser of $500,000 [$400,000] multiplied by the number of communities on whose behalf the bulk fuel is to be purchased, $1,800,000 [$1,500,000]. Senator Olson explained that the amendment would increase the loan limits for the Bulk Fuel Revolving Loan Fund to better match the increased cost of fuel. Co-Chair Stedman OBJECTED. Senator Olson noted the current loan has been inadequate in some communities. He spoke of high transportation costs. He added that the Department is in support of the amendment. 12:25:31 PM Ms. Fisher-Goad confirmed that the Department is in support of the amendment. It aligns the long-existing BFRLF with the proposed limit for the Bridge Loan program. She addressed the increased demand for loans. Co-Chair Stedman WITHDREW his OBJECTION. There being NO OBJECTION, Amendment 1 was adopted. Representative Nelson worried about communities that would need more monetary support. 12:27:07 PM Mr. Conrad noted requests for three loans for $500,000 through the Bridge Loan program. He voiced concern that if communities are short funded, then it will create a case of flying in fuel in February with a significant increase in cost. He predicted that it is unlikely that there will be requests for loans in the $750,000 range in the next year, but for the communities in that situation, there is significant cost if fuel needs to be flown in. Representative Nelson said the cost gets passed on to the consumer at $11 or $12 per gallon when fuel is flown in. 12:29:12 PM Co-Chair Hoffman MOVED to REPORT CSHB 338 (FIN), as amended, from Committee with individual recommendations and the accompanying fiscal notes. There being NO OBJECTION, it was so ordered. CSHB 338 (FIN) was REPORTED out of Committee with a "do pass" recommendation and with zero fiscal note #1 by the Department of Commerce, Community and Economic Development, and with fiscal note #2 by the Department of Commerce, Community and Economic Development.