SB 284 FOUR DAM POOL & POWER DEVELOPMENT FUND  SENATOR LEMAN announced SB 284 to be up for consideration. TAPE 96-25, SIDE A Number 001 RANDY SIMMONS, Development Finance Manager for Alaska Industrial Development Export Authority, said that the Four Dam Pool is made up of four hydroelectric projects and the State currently owns these facilities and they are operated through a long term power sales agreement by the utilities. Under the agreement the State(AEA) has obligations for uninsured facility failures and for substandard facility performance. Under that same agreement the utilities have the obligations to operate the hydro-projects and to also pay an annual debt service that is roughly $8 - $11 million per year. That debt service is allocated by AS42.45.050 three different ways. Forty percent of it goes to PCE and the rural electrification funds; forty percent goes to the Southeast intertie grant program; and twenty percent to DCRA's power project fund. The bill addresses specific State responsibilities for repairs to two of the projects. Those projects are the Tyee Project and the Terror Lake Project. Right now their best estimate for the Tyee repairs to the transmission line is $17 million. It is imperative that the Tyee transmission line be repaired as soon as possible. There have been three occasions when that line has been out of operation. This bill also addresses approximately $3.5 million worth of repairs that are needed to the Terror Lake tunnel. They are now in engineering to come up with the final numbers and that should be completed within the next several months. Last session they understood they had these obligations and worked out an agreement with the utilities where they would use their self help right under the power sales agreement to withhold some of that $8 - $11 million to start the repairs. That agreement fell through in the last days of the session and the utilities sued the State for full self help. They were able to reach agreement with the utilities to withhold $4 million out of the amount of money that comes into the debt service to start the engineering on the repairs. Their proposal is that AEA will issue up to $25 million worth of bonds to make the repairs. The bond term could be no more than 25 years and the debt service payments must begin by July 1, 1998. They don't know what the length of the bonds would be or whether they would defer the full two years. To float those bonds, AEA has two requirements that need to be met. The first requirement is that the utilities had to waive their self help rights for the amount of debt service that has to be paid on these bonds. Their self help rights come from the power sales agreement that basically allows them to withhold their debt service to the State if the State is not fulfilling its obligations. The first agreement is in place. SENATOR HALFORD asked what was the legal case to withhold the money. MR. SIMMONS answered that it was provision 5(d) of the power sales agreement. SENATOR HALFORD asked if the State contracted away its authority to collect the money which is required by statute? MR. SIMMONS replied that the State contracted away, if they didn't uphold their obligations that they were signing to under the agreement, that the utilities could withhold that debt service to fulfill the State's obligations. SENATOR HALFORD commented that wasn't a part of the statute and he wanted to know what was the legal trail of that obligation. MR. SIMMONS said that the State had fulfilled its first requirement. They have reached agreement with the utilities to limit their self help rights. Under that agreement they have agreed with the utilities that they would not bond for any longer than 25 years and that the amount will not be more than $25 million. They have also agreed that before the State makes a decision as to the final length or term of the bonds, they would consult with them. The bill before them today takes care of the second requirement by making a revenue stream available to pay for the debt service on the bonds. The bill also clarifies that AEA may use the money in the power development fund for repairing the projects. The benefits they see for floating the bonds is that the State will meet its obligations on the power sales agreement; and if the bonds are issued this year and payments aren't made until July 1, 1998, that's basically a two year deferral which will allow the State to come up with a long term solution to financing the projects without affecting PCE or the Southeast intertie or the power development fund in that two year period. If the State has to start making payments, MR. SIMMONS said, on July 1, 1998 depending on what the length and size of the bond is, the payments could run anywhere from $3 - $5 million. If the payments are $3 million, the amount of money that will be withheld from PCE and the Southeast intertie will be roughly $1.2 million per year each and about $600,000 from the power project fund. The reason the Administration is introducing this bill is they figure there are three alternatives to financing these repairs: one is a general fund appropriation which they don't think is a great idea; two is floating bonds; and three is letting the utilities come in for their full self help rights and try to withhold the full $11 million payment this year and next year which would basically withhold close to $9 million in those two years from the Southeast intertie and PCE. Number 160 DENNIS LEWIS, Power and Light Superintendent in Petersburg, Chairman of the Four Dam Pool Project Management Committee, and Commissioner on the Thomas Bay Power Authority (Tyee Project), said he was here on behalf of all the purchasing utilities of the Four Dam Pool. On January 25, 1996 they signed an agreement with the State supporting their efforts in this bonding which would take care of the immediate repairs for the Tyee and the Terror Lake Project. Number 199 DICK OLSON, President, Thomas Bay Power Authority, said they have an obligation to make sure this facility continues to operate. He said it is evident that there will be a catastrophic failure in the not too distant future. They support the concept AIDA presented to the Committee. SENATOR TAYLOR asked when the Thomas Bay Power Authority start requesting the State to do repairs to the Tyee line. MR. OLSON answered about 10 years ago. SENATOR TAYLOR asked how much money the Four Dam Pool had collectively paid back to the State since they signed the power sales agreement. MR. OLSON replied $100 million. SENATOR TAYLOR noted that they now needed $30 million and he asked what had happened to the $100 million that should have gone for repairs. MR. OLSON said he couldn't answer that. SENATOR TAYLOR said it got squandered away on the Alaska Energy Authority that have 50 some employees at very high rates of pay, on PCE costs to the bush; it was used for general fund obligations and a whole lot of things, but not for their obligation which the State signed up with you to take on, and they had to exercise self help last year to even get their attention. MR. OLSON replied that was correct. SENATOR TAYLOR asked why 25 years for a bond reimbursement was considered short term. MR. SIMMONS replied there is nothing in the agreement saying the bond term will be 25 years; it says up to 25 years. There is also a provision that will consult with the utilities prior to issuing any bonds. The 25 year period was to give maximum flexibility to the State because they don't know what the final amount of dollars is going to be. At that point in time they were in divestiture discussions with the utilities. SENATOR TAYLOR asked if they had any veto power over the length of term they came up with. MR. SIMMONS replied that the money they are using isn't their money. It comes to the State first and then gets appropriated back out. If the utilities were not to accept these bonds long term, the cost would be a little bit higher. The only affect to the utilities is that their self help rights are limited for a little bit longer for the additional cost of financing. SENATOR TAYLOR noted if they exercise self help, they could cash the entire repair projects out in a little over three years. He asked what the cost to the subscribers was going to be if the payment time were stretched out. MR. SIMMONS replied that they don't pay a penny more, because this is a payment they have already made and it comes into the State treasury. The only thing that happens is that the utilities limit their self help right. They can't use the portion of their self help right that's going to pay for these bonds to use after this other repair. If the legislature fails to make the statutory change and they cannot come up with another way to make the repairs, at that point in time they will have a self help right that they can exercise. SENATOR LEMAN said his counsel would be to bond for considerably fewer than 25 years. SENATOR TAYLOR said from the State's general fund perspective or from the cost to the subscribers in the utilities, since they would not be receiving back 40/40/20, it will be diminished by the cost of that indebtedness. MR. SIMMONS agreed and said the real effect would be the longer the bond, the higher the cost will be and it's that differential that will affect it. He said now they have no intent to bond for 25 years. SENATOR TAYLOR noted that even with 6% bonds that would double the amount of the indebtedness every twelve years. That's close to $50 million that will have to be paid for $25 million worth of repairs that are necessary today. That's to say nothing of the repair bill that might accrue during the next 12 years. Why should we want to do that when we can cash these people out by utilizing that income stream in a little over two years. SENATOR TAYLOR wanted to know what happened in divestiture. MR. SIMMONS replied that they came to the critical point where they were going to talk about price. They had jointly funded a risk assessment by HARSA who gave them their information a month ago. The State proposed a price the utilities thought was very excessive. The utilities threw out some numbers the State thought was way too low. They mutually agreed to step away from the table and to hopefully reconvene later, but no time was set. SENATOR TAYLOR asked if the agreement was premised on the fact that there would be good faith negotiations toward divestiture? MR. SIMMONS replied yes and he thought there were good faith negotiations, but there wasn't agreement on the value of the projects. Number 334 SENATOR HOFFMAN followed up with a question about paying it off early from the revenue stream asking if there would basically be fewer dollars in allocation under the formula. MR. SIMMONS replied that was correct. In the short term they are hurt quicker, in the long term they are hurt more. SENATOR TAYLOR asked when they could expect their next meeting on divestiture. MR. SIMMONS replied that they didn't have plans for the near future. Number 359 MR. LEWIS noted that he had given a letter from all the purchasers to their offices and hoped they would review that to understand this issue better.