HOUSE BILL NO. 495 An Act relating to the four dam pool joint action agency; and providing for an effective date. Co-Chair Harris MOVED to adopt work draft version #23- LS168\H, Craver, 3/2/02, as the version of the legislation before the Committee. There being NO OBJECTION, it was adopted. PETE ECKLUND, STAFF, REPRESENTATIVE BILL WILLIAMS, stated that the main purpose of HB 495 is to allow the Four Dam Pool Power Agency (FDPPA), the first agency formed under the statute allowing the joint action agencies (JAA's) to refinance approximately a $73 million dollar loan owed to the Alaska Industrial Development and Export Authority (AIDEA). Mr. Ecklund stated that HB 495 would clarify existing JAA statute to explicitly defined that joint action agencies are political subdivisions of the State for the purpose of securities law. That action is necessary if the Four Dam Pool Power Agency (FDPPA) is to avoid certain expensive and damaging hurdles having to do with registration of securities under bond sale circumstances. The legislation also allows the agency to mortgage the Four Dam Pool assets. The assets are presently mortgaged to AIDEA. The legislation re-states the important principal established by the Legislature that the Four Dam Pool assets might not be sold to a party outside the FDPPA without legislative approval. It does clarify that mortgaging the assets or a foreclosure, under the terms of that mortgage, would not constitute a sale under the restriction, providing that certain requirements are met. TAPE HFC 04 - 38, Side B  Mr. Ecklund pointed out that when the refinancing occurs and the AIDEA loan is retired, the State and consumers in a large part of Alaska would benefit by: · Allowing the FDPPA to return approximately $73 million dollars to AIDEA for other uses; and · Helping consumers of Four Dam Pool power by lowering interest rates and administrative costs associated with the acquisition. Co-Chair Harris asked if the legislation would allow JAA bonding agency to go out and get financing or bonding at a lower rate than they are currently getting from AIDEA, making them "out from under the State's ownership umbrella". He thought that savings could be passed on to the consumer. Mr. Ecklund agreed. The purpose is to allow refinancing at a lower rate. They, currently, are paying AIDEA, 6.5%. Co-Chair Harris inquired what the "downside" could be. TOM LOUVAS, CHIEF EXEUCTIVE OFFICER, FOUR DAM POOL JOINT ACTION AGENCY (JAA), ANCHORAGE, explained that the intent is to be able to go into the open market, issue a tax-exempt debt and pay off or refinance the existing AIDEA loan. The proceeds would be a cash infusion to the State of Alaska through AIDEA and would allow a lower debt service rate on an annualized basis. Estimates range upwards from $1 to $1.5 million dollars per year in revenue requirements. The reduction in debt service costs would flow to the benefit of the ratepayers, jointly participating in the Four Dam Pool Power Agency. Mr. Louvas listed points for refinancing: · Reducing annual debt service costs for owning and operating the units; · Removing certain operating restrictions that the Agency faces; and · Providing more financial flexibility into the future. Mr. Louvas noted that the intent of the Board indicates that the lower interest rate could be passed on to ratepayers after the adjustment. Co-Chair Harris asked if an agreement had been reached from all four utilities. Mr. Louvas stated that the participants in the power agency are the cooperatives of Kodiak Electric Association, Copper Valley Electric Association and three municipalities, Ketchikan, Wrangell and Petersburg. The Board of Directors has been informed of the proposed action and they "strongly" support it. Vice Chair Meyer noted that the current rate with AIDEA was 6.85%. Mr. Louvas reported that they think they can get a 4.8% - 4.9% rate for an insured issuance, which would be a significant interest reduction during a twenty-five year borrow. Mr. Louvas understood from information provided by AIDEA that there had been a recent AIDEA issue at 5%. He emphasized that time is of the essence when dealing with the interest market. Vice Chair Meyer inquired if they could refinance through AIDEA. BOB LERESCHE, FINANCIAL ADVISOR, FOUR DAM POOL JOINT ACTION AGENCY, JUNEAU, noted that the agency had asked AIDEA if they could refinance and AIDEA was not willing. An additional reason for going outside AIDEA is that it would allow moving outside present restrictions of the loan. He emphasized that they are "properly" strict. Mr. LeResche pointed out that it represents an actual financial cost. At present time, there is $30 million dollars in reserved funds invested in securities earning 2%, while at the same time, paying 6.5% on that to AIDEA. That amount adds up to $1.2 - $1.4 million dollars per year for those restrictions. Vice Chair Meyer understood that this was one of the "better loans that AIDEA had made" and he thought that they would regret loosing it. Representative Fate noted that AIDEA distributes a dividend that involves Power Cost Equalization (PCE) funds with about $3 million dollars accruing in interest off of the $73 million dollars. He asked what would happen if the $73 million dollars went to AIDEA and was not directed to the full benefit of PCE. RON MILLER, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY, (AIDEA), ANCHORAGE, introduced Ms. Goade and requested that she answer questions of the Committee. SARAH FISHER-GOADE, (TESTIFIED VIA TELECONFERENCE), ALASKA ENERGY AUTHORITY (AEA) & ALASKA INDUSTRIAL DEVELOPMENT AND EXPORT AUTHORITY (AIDEA), ANCHORAGE, noted that there is confusion regarding the relationship between the Four Dam Pool and the PCE program. Proceeds of the sale were deposited into the PCE endowment; there was no additional anticipation that extra funds would go to the PCE endowment. Representative Fate asked if there would be no more accrual and if then, the endowment would "dry up". Ms. Fisher-Goade explained that the Four Dam Pool was an asset of AEA. When the project was sold, the proceeds then went to another AEA program through the PCE endowment. That loan was financed through AIDEA. If there were a pay-off of the loan, that would become AIDEA funds. There is no additional relationship to the PCE program at this point. Co-Chair Harris noted that when the Four Dam Pools were sold to the utilities, some of that money went into the PCE endowment fund. The State uses a portion of those earnings to fund PCE, subsidized with general funds to make up the roughly $15 million dollar expenditure. The money spent on PCE comes from two sources, earning of the PCE endowment and the general fund. The intent was for the PCE fund to be large enough to fund PCE. He advised that has not yet been the case and that it is usually subsidized each year with general funds. BRIAN BJORKQUIST, (TESTIFIED VIA TELECONFERENCE), ASSITANT ATTORNEY GENERAL, DEPARTMENT OF LAW, ANCHORAGE, offered to answer questions of the Committee. ERIC YOULD, (TESTIFIED VIA TELECONFERENCE), EXECUTIVE DIRECTOR, ALASKA POWER ASSOCIATION (APA), REPRESENTING THE ELECTRIC UTILITY INDUSTRY IN THE STATE OF ALASKA, ANCHORAGE, spoke in strong support of HB 495. He stated that the legislation would help to lower rates to the consumers of the Four Dam Pool. He clarified that any financing or easing of debt of the Four Dam Pool agency would have no impact on the Power Cost Equalization Program. The proceeds from the sale of the Four Dam Pool have already gone into a trust fund for PCE along with $100 million dollars from the Constitutional Budget Reserve (CBR) distributed two years ago. The combination of those two make up a trust fund, which added with some general funds, comprise roughly $15.7 million dollars for Power Cost Equalization. He reiterated that APA strongly supports the proposed bill. Representative Foster MOVED to report CS HB 495 (FIN) out of Committee with individual recommendations and attached fiscal note. Representative Croft OBJECTED for a comment. He indicated that of all the bills addressing the Four Dam Pool, this one is the best one. Representative Croft WITHDREW his OBJECTION, and the bill moved from Committee. CS HB 495 (FIN) was reported out of Committee with a "do pass" recommendation and with a new zero note by the Department of Community & Economic Development.