HB 166-BULK FUEL REVOLVING LOAN FUND  8:41:14 AM CO-CHAIR NAGEAK announced that the final order of business would be HOUSE BILL NO. 166, "An Act relating to the bulk fuel revolving loan fund." 8:41:29 AM REPRESENTATIVE FOSTER, speaking as sponsor of HB 166, explained that HB 166 addresses who qualifies for the bulk fuel revolving loan fund. Currently, the bulk fuel revolving loan fund applies to communities with populations that fall below 2,000, but doesn't make a distinction between communities that are on or off the road system. This legislation maintains the aforementioned for communities connected by the road system, but also allows for communities with populations that are less than 4,000 to qualify as well. The legislation also increases the maximum amount requested [from the bulk fuel loan] from $750,000 to $1,500,000. 8:42:32 AM PAUL LABOLLE, Staff, Representative Foster, Alaska State Legislature, highlighted that communities with a population of less than 4,000 only qualify if the community is located off the interconnected state road system otherwise the population cap of 2,000 remains. Therefore, that expansion in population would capture those living off the Rail Belt. 8:43:01 AM CO-CHAIR LEDOUX inquired as to what communities the [expansion] would include. MR. LABOLLE referred to the list entitled "All incorporated places in State of Alaska." The green highlights in the list are those communities with a population above 2,000 but below 4,000 [and not on the interconnected state road system] that would be included were HB 166 to pass. Those communities are Cordova, Dillingham, Kotzebue, Nome, Petersburg, and Wrangell- Petersburg, Seward, and Wrangell. REPRESENTATIVE FOSTER pointed out that the population specifications are a policy call. Representative Foster noted that although he may have considered a higher population cap that would include Barrow, he took into consideration that Barrow has natural gas and the bulk fuel revolving loan program is likely not used in Barrow. CO-CHAIR NAGEAK acknowledged that is the case for Barrow. REPRESENTATIVE DRUMMOND inquired as to why Seward is included since it is located on the road system. MR. LABOLLE clarified that the list highlights per population and doesn't take into consideration whether the community is on the road system. He agreed that Seward would not be included under the provisions of HB 166. 8:45:42 AM REPRESENTATIVE DRUMMOND requested an explanation of the bulk fuel revolving loan fund. MR. LABOLLE explained that it's a capitalized fund from which money is loaned to communities at a low interest rate of 4 percent for the purchase of fuel. Those communities pay back into the fund, and thus it's a self-sustaining loan program; it's very similar to the various Alaska Housing Finance Corporation (AHFC) programs. 8:46:30 AM REPRESENTATIVE DRUMMOND surmised then that communities use the bulk fuel revolving loan fund to purchase fuel and over the winter as [residents] use the fuel and pay for it, the community pays back the loan. MR. LABOLLE replied yes, adding that most rural communities purchase fuel prior to freeze up because flying in fuel after the freeze is cost prohibitive. 8:47:41 AM REPRESENTATIVE REINBOLD inquired as to the current discount and what a standard loan would be at this time. 8:47:59 AM SCOTT RUBY, Director, Division of Community & Regional Affairs, answered that it would be what commercial banks would charge. Because many of these communities are in a unique situation, they have to purchase large amounts of fuel. He related that with many of these loan programs, the smaller communities don't have the ability to go to a bank and capitalize a large loan of $600,000-$750,000. Under the previous iteration of [the bulk fuel revolving loan fund] AEA charged a market rate that varied between 4-6 percent. Last year, when reviewing the interest rate, it was determined not to penalize communities for borrowing to provide fuel for their residents. Therefore, 4 percent was determined to be a rate that was low enough to be sustainable while still paying all the costs of the program. 8:49:57 AM REPRESENTATIVE REINBOLD inquired as to what the communities would pay if they sought a loan from a bank. MR. RUBY responded that he didn't know, but did recall that Akiachuk did borrow from a bank in past years and offered to provide that information to the committee. REPRESENTATIVE REINBOLD asked if the division is well-funded and would be able to cover this legislation were it to pass. MR. RUBY, referring to the document entitled "Effects of HB 166 on Bulk Fuel Loan Accounts," informed the committee that although six new communities would qualify for loans under [the bulk fuel loan account or the bulk fuel bridge loan account], it's likely that three of them wouldn't seek loans from the loan fund because they can receive large amounts of fuel periodically delivered by barge. The three that might participate in the [bulk fuel loan program] would be Dillingham, Kotzebue, and Nome. He then informed the committee that if all the loans were funded it could potentially amount to $10 million more needed to capitalize the fund, which would cover the cost of the potential loans as well as provide a buffer to avoid running out of funds. Without the aforementioned capitalization, the division will have to scrutinize applicants such that those that can fund it would either be denied or reduce the amount that they could borrow in order to ensure that the funds are available for those with the most necessity. 8:52:18 AM REPRESENTATIVE REINBOLD asked whether this legislation will have any impact on power cost equalization (PCE) or the Low Income Home Energy Assistance Program (LIHEAP). MR. RUBY replied yes because it subsidizes the cost of the fuel. He pointed out that one of the primary borrowers of this is electric utilities. If [the proposal in HB 166] reduces the cost of the fuel [for communities that used the bulk fuel revolving loan] over other possibilities, it would have a direct relationship on PCEs because one of the pieces of the calculation is the cost of fuel. REPRESENTATIVE REINBOLD inquired then as to whether there could be cost shifting. MR. LABOLLE characterized it more as saving shifting rather than cost sharing because while the fund would need to be capitalized, it would be a separate appropriation. Furthermore, it's a self-sustaining fund into which a community pays back. Therefore, if a new community uses the fund and reduces its fuel costs, when the utility starts to burn fuel to make electricity it's burning cheaper fuel. Although the consumer won't see a lower electric rate, the PCE subsidy would decrease and would save funds. For example, if the cost of generating power is $.30 and PCE rates were $.20 to the consumer, PCE would be in place at a 10 percent subsidy. In fuel savings, if $.25 per Kilowatt hour (KWh) power can be generated, they will pay $.20 and PCE will only have to pay $.05. 8:54:47 AM CO-CHAIR LEDOUX asked what the interest rate is. MR. RUBY specified that for loans under the bulk fuel loan account, the interest rate is 4 percent for the first-time borrowers who are in good standing. There is the option for those in good standing in the second year to receive a discount such that the interest rate is reduced to 3 percent. If the borrower continues to be in good standing there is a discount such that the interest rate is reduced to 2 percent. 8:55:21 AM CO-CHAIR LEDOUX inquired as to whether it's common for [communities] using the bulk fuel loan account to default. MR. RUBY answered that it isn't common. He pointed out that all of these loans are intended to be paid back in less than one year. There have been a couple of entities that have [applied] for financial hardship and paid back the loans over the course of more than one year or via a payment plan. Technically, there haven't been any defaults and all loans have been repaid, save those that are on multi-year re-payment schedules. CO-CHAIR LEDOUX asked whether the division would provide a loan to an entity that is in default [for a prior year's loan]. MR. RUBY said that in certain cases under the bulk fuel bridge loan program, the division has loaned funds to an entity that is in default the prior year in order to avoid the community turning off its electric utility. However, that has not been the case for [loans] for residential heating as it has primarily been the case for electric generation to keep the plant operating and to protect public facilities. 8:56:47 AM MR. LABOLLE explained that the increase from $750,000 to $1.5 million directly corresponds with the increase in the maximum population of the possible community on the system, which maintains it at $370 per person. He reiterated that the numbers, both the population and the loan amount, are starting points for which the committee's input would be appreciated. In response to Co-Chair Nageak, Mr. LaBolle said [changes] could be accomplished through the amendment process or the adoption of a committee substitute. 8:57:59 AM CO-CHAIR LEDOUX inquired as to how the sponsor decided on the $1.5 million. MR. LABOLLE explained that first the sponsor decided on the population of 4,000 as a place holder and then divided the current fund of $750,000 by the 2,000, which amounted to about $370 per person. That per person amount was then multiplied by the [population number of] 4,000, which amounted to $1.5 million. REPRESENTATIVE FOSTER said simply stated the population and the loan eligibility were doubled. Using Nome as an example, he offered that the company that does most of the residential heating has storage capacity of about 4 million gallons. If those tanks are filled twice, that's 8 million gallons and if the fuel costs $3.00 per gallon that amounts to about $24 million. Therefore, the increase to $1.5 million would be a small portion of what the community uses and doesn't even include the utilities. Still, Representative Foster expressed the need to periodically review the bulk fuel loan program and make adjustments to it more often than every 10 years in order to avoid large adjustments. 9:00:46 AM MR. LABOLLE pointed out that on the document entitled "All incorporated places in the State of Alaska" it only considered communities under 5,000. He noted that Bethel isn't included on the list because it has a population of 6,219, and thus Representative Herron may be interested in the population factor. 9:01:28 AM REPRESENTATIVE REINBOLD said she would like to hear from Representative Herron on the matter. 9:01:49 AM The committee took a brief at-ease. 9:02:20 AM CO-CHAIR NAGEAK announced that HB 166 would be held over. 9:02:42 AM REPRESENTATIVE FOSTER related his understanding that because this legislation may have financial implications, it may be referred to the House Finance Committee. However, the House Finance Committee won't take up HB 166 this session. Therefore, he offered to consult with Representative Herron and revisit this legislation next session. 9:03:13 AM REPRESENTATIVE DRUMMOND questioned then whether in the meantime there will be a handful of communities that won't have access to the revolving loan fund or will have access at a higher rate or to commercial loans. MR. LABOLLE stated that all communities on the list have access through commercial loan funds. 9:03:45 AM REPRESENTATIVE FOSTER noted that if all the communities took advantage of the loan, $10 million would be necessary. He expressed the need to avoid a situation in which a well- organized community such as Nome or Kotzebue files their application first and then there are no funds left for smaller communities, such as Teller, that really need the assistance. The aforementioned is another component that will be reviewed over the interim. MR. LABOLLE interjected that independent of the population parameters, there has been discussion regarding whether the $370 per person is realistic. 9:05:05 AM REPRESENTATIVE REINBOLD suggested that a committee visit to [Nome] should also include further education regarding the fuel and energy situation in the area. REPRESENTATIVE FOSTER said he would like to do so. 9:05:52 AM CO-CHAIR NAGEAK restated that HB 166 would be held over.