HB 294-POWER COST EQUALIZATION  3:12:46 PM CO-CHAIR FOSTER announced that the first order of business would be HOUSE BILL NO. 294, "An Act relating to the power cost equalization program." 3:13:48 PM REPRESENTATIVE LYNN moved to adopt HB 294 as the working document. There being no objection, HB 294 was before the committee. 3:14:31 PM REPRESENTATIVE LYNN moved to adopt the two fiscal notes attached to HB 294, one of which was identified as HB294-DCCED-AIDEA-02- 10-12. There being no objection, the fiscal notes were adopted. 3:15:12 PM REPRESENTATIVE BRYCE EDGMON, Alaska State Legislature, prime sponsor of HB 294, introduced the bill, saying that HB 294 proposes to return the power cost equalization (PCE) program to its pre-1999 form. At that time, the program offered subsidies to all users in rural communities with the exception of federal facilities. Today, the PCE program provides subsidies to consumers up to the level of 500 kilowatt (kW) hours of use per month, and is largely limited to residential users in eligible communities. The bill will expand the monthly cap to 700 kW hours and will also return more non-residential users back into the program. Although discussion about HB 294 will focus on the PCE program, Representative Edgmon expressed his intent to also discuss the immediate issue of the high cost of energy in rural communities that rely on diesel fuel for almost any activity. Representative Edgmon observed that the PCE program is already in place and, with expansion, could provide immediate relief from the high cost of energy to rural Alaska. He acknowledged that the bill has supporters and detractors and testimony will cover the fiscal impact and weaknesses of the program - he welcomed the debate. The legislature has taken a lot of action regarding energy issues recently because of the increase in oil prices; in fact, the state has spent a considerable amount of money for weatherization, home energy rebate, low-income home heating assistance, and community revenue sharing programs, and $400 million has been directed to the PCE endowment, yet it has not had much effect on the utility bills in rural areas. Representative Edgmon urged for a vigorous discussion of the bill, and a focus on the rising costs of energy in rural Alaska. 3:20:01 PM REPRESENTATIVE PETERSEN asked whether grocery stores would qualify for PCE with the changes to the program authorized by HB 294. REPRESENTATIVE EDGMON indicated yes, and pointed out that the increase from 500 kW hours to 700 kW hours would not make a difference in Dillingham or Bethel, but would make a difference in the energy costs of a business in a small village, and thereby in the overall cost structure of rural Alaska. 3:22:06 PM SARA FISHER-GOAD, Executive Director, Alaska Energy Authority (AEA), discussed the fiscal impact of the legislation. She directed attention to the fiscal note identified as HB294-DCCED- AEA-02-10-12, and said the estimated increase in the cost of the program is approximately $33,126,000. On page 2 of the fiscal note the estimate is divided into three sections: $15,140,000 represents the 40 percent increase in customers' reimbursement from 500 to 700 kW hours per month - this estimate is based on the assumption that all customers will use 700 kW hours for 12 months, although this may not be true; $17,900,000 represents the annual cost to include commercial and public school customers as eligible customers - this estimate was based on 1999 statistics for commercial customers and two public school buildings per community; and $86,000 represents an annual increase of one additional PCE clerk to manage the program and verify eligibility. Ms. Fisher-Goad said page 3 indicated out- year estimates broken down to the PCE endowment fund and the $400,000,000 coming to the program in future years. The PCE endowment is based on a three-year average market value so AEA's projections are for earnings to 7 percent of the market value. She advised that the second fiscal note reflects the new clerk position at the Alaska Industrial Development and Export Agency (AIDEA), because AIDEA has the positions that carry out AEA programs. 3:26:27 PM MEERA KOHLER, President and Chief Executive Officer, Alaska Village Electric Cooperative (AVEC), said AVEC is a nonprofit member-owned utility serving 54 villages. She advised AVEC is showing a decline in population for the first time since 1968, which is a reflection of the exodus from the villages that began in 2008. She expressed AVEC's support of HB 294, and recalled that PCE was established in 1984 to bring the cost of electricity in rural Alaska to a level equal to that of urban Alaskans. At the time of inception, the benefit of up to 700 kW hours was extended to all nongovernment consumers. The program has been trimmed back several times in different ways and the result is that eligible kW hours have been reduced by about one- half. The bill seeks to restore additional eligible hours and eligibility to commercial customers. Ms. Kohler opined the restoration of eligibility is a meaningful benefit for the thousands of Alaskans who are commercial customers. The members of AVEC account for about one-third of the state's PCE benefits - $11.3 million - and restoring the benefits as directed by HB 294 will result in an additional $4,280,000 in PCE credits to its members. Further, adding school facilities in AVEC's villages adds $227,000, and brings the total to a 40 percent increase. Ms. Kohler acknowledged these numbers are different than what was presented by AEA, because AEA assumed customers would claim 700 kW hours for 12 months. Also, the actual average consumption of PCE-eligible electricity by residential consumers is currently 284 - not - 500, kW hours. Her organization estimates that its customers' average consumption would go up from 380 to about 600 kW hours, or less. According to AEA's report, FY 10 total cost of electricity in PCE communities was about $157,600,000, and PCE provided less than 20 percent. She concluded that restoring the benefits will result in an increase of program cost to about 27 percent of the cost of delivering electricity in rural Alaska, and she strongly encouraged the committee to support the bill. 3:31:26 PM BRAD REEVE, General Manager, Kotzebue Electric Association, said his company is in favor of reexamining the program to seek a reduction in the high cost of power in rural areas. The average usage in Kotzebue is about 560 kW hours per month, and the winter seasonal use is the most difficult for families to manage. He acknowledged there has been past opposition to the "government paying government for relief," as addressed by the bill; however, the benefits to schools and businesses in small villages could "make or break" them. Mr. Reeve suggested continuing conservation and taking a close look at the details of the program. He expressed his wish for a similar program for heating fuel due to the very high prices for diesel in Kotzebue. Mr. Reeve closed, saying any assistance is appreciated. 3:34:47 PM JODI MITCHELL, Chief Executive Officer, Inside Passage Electric Cooperative (IPEC), informed the committee IPEC is a regulated, member-owned, nonprofit, electric cooperative that serves five rural service areas in Southeast with primarily diesel-generated power. She spoke in support of the bill, and opined that energy costs are a quality-of-life issue. Ms. Mitchell cautioned that the 500 kW hours limit in the winter causes the utility to have a higher rate because of lesser economies of scale. Further, she had heard from her members that businesses are failing in the face of uncertain energy costs, and because customers are devoid of disposable income. Members of her cooperative have also seen out-migration, especially in Kake, and this is very disturbing because of the potential loss of its culture. 3:39:13 PM JOHN HANDELAND, General Manager, Nome Joint Utility System, advised that the City of Nome has been interested in changes to the program for a number of years. Nome is also experiencing record-breaking cold and an increased cost of fuel, thus the city council and utility board have made energy issues a higher priority. He said the increase to 700 kW hours is beneficial and the addition of businesses and commercial customers will provide assistance to small businesses. Mr. Handeland pointed out that the 70 kW per month eligible for community facilities in each residential community is the limit at least since 1999, but there have been changes... 3:41:43 PM Due to technical difficulties, the committee took an at-ease from 3:41 p.m. to 3:46 p.m. 3:46:30 PM MR. HANDELAND continued to say that the number of kilowatts that are available for local community facilities is an area that should be reviewed as the legislature works on the bill. He disagreed that the change in the PCE eligibility rate impacts residents' efforts toward conservation; in fact, customers are fully aware of the level at which PCE is available and use electricity out of necessity, not out of luxury. Regarding AEA's assumption on the use of electricity to compute the cost of the program, he pointed out that people need assistance during the winter, and suggested kilowatts could be banked like "roll-over minutes," against the need for higher use in the winter for supplemental heat. This would not be difficult to monitor using modern day accounting systems. Finally, Mr. Handeland stated that the City of Nome, because of the extreme cold, is seeing a substantial increase in its accounts receivable, and is recommending that the effective date of HB 294 be retroactive to the start of the current state fiscal year - 7/1/11 - for the benefit of consumers who need help. 3:53:03 PM GENE STRONG, Board Member, IPEC, said he supports the increase to 700 kW hours as this will help rural communities and stop out-migration to urban areas. He also encouraged seasonal billing, instead of monthly billing, because by the time PCE papers arrive the oil bills are past due. Mr. Strong noted that the economies of the small communities are tight, and nonexistent in winter. His utility covers a large area of five communities that are not connected, although there are some hydroelectric projects that will be underway in the future with legislative support. 3:56:18 PM PETER ANDREW, President of the Board of Directors, Nushagak Electric & Telephone Cooperative, Inc., expressed his support of HB 294. Nushagak is in the Bristol Bay region and provides electricity, telephone, cable TV, and internet service. Mr. Andrew explained that like Nome, Dillingham serves as a hub to provide for many smaller communities, and restoring the increase in kW hours will enhance economic growth and will help Alaskans. His area has also suffered from record cold and he urged support for the bill. 3:57:46 PM REPRESENTATIVE EDGMON asked how the aftermath from the cold winter will impact the Bristol Bay region and IPEC utility customers. 3:58:28 PM MR. ANDREW said he has seen Alaskans buying heating oil five gallons at a time. This bill "frees them up a little bit more to buy a little more fuel." In addition, Dillingham residents have been using wood for heat and the weatherization program has helped rural Alaskans stretch their dollars. 4:00:01 PM ANDREW GUY, President and Chief Executive Officer, Calista Corporation, spoke in support of HB 294, specifically for the provision to include commercial businesses. The Alaska Native Claims Settlement Act (ANCSA) corporations were formed 40 years ago to benefit shareholders and descendants, and to improve socioeconomic standards. One of the best ways to do that is to start new businesses that provide jobs; however, it is very hard to start and operate a business in rural Alaska because of the cost of electricity. In his travels around his region, he sees people going to Bethel and Anchorage to shop, due to the higher cost of local goods. Mr. Guy said this is wrong and stops growth in the local economy. He urged consideration of HB 294 as it will help village corporations grow by lowering the cost of doing business. He expressed his belief that urban businesses have benefited from energy programs in the Railbelt, and rural Alaska deserves parity. 4:03:46 PM HENRICH KADAKE SR, Mayor, City of Kake, said he whole-heartedly supports the bill because the population in Kake has decreased almost 45 percent - from over 900 residents to 510. The decrease in population is due to the small businesses in Kake that cannot operate because they cannot afford energy, and because houses are not kept warm. Ninety percent of the population lives on a fixed income, and even the tribal corporations cannot stay in business. Mr. Kadake urged the committee to support the bill saying, "it's a good thing for the people in the rural communities and Southeast too." 4:05:28 PM ANDY VARNER, Executive Director, Southwest Alaska Municipal Conference (SWAMC), said SWAMC is the Alaska Regional Development Organization Region (ARDOR) representing Bristol Bay Borough, Lake & Peninsula Borough, Kodiak Island Borough, and the Aleutian and the Pribilof Islands. He expressed his appreciation to Representative Edgmon for introducing the legislation. One of the major objectives of SWAMC is to increase economic and business development in its region; however, rural Alaska is a challenging environment in which to operate a business. The high costs of energy, infrastructure, and long distances to markets combine to stifle economic development, particularly when the full cost of energy is passed on to consumers in a vicious cycle. Mr. Varner agreed that many businesses are on the verge of closing because of fuel costs, and observed that schools need to put their money into curricula. In times of high oil prices, the state "rides on the back of residents and businesses," and HB 294 is a good start to a conversation on the goal of keeping people in business in rural Alaska. He advised that PCE is critical to rural Alaskans - as are the other programs supporting energy efficiency, renewable energy, and weatherization - but HB 294 would directly impact businesses. 4:09:32 PM ROBERT VENABLES, Energy Coordinator, Southeast Conference, stated that Southeast Conference is the state's regional development organization for Southeast Alaska, and the federally recognized economic district. He thanked the legislature for its efforts to bring about the long-term improvements that are needed to develop regional and renewable energy resources that will diminish and displace the dependency on diesel fuel, as well as the need for PCE. At this time, however, communities have devastated economies and businesses are hurting in communities like Hoonah, and disappearing in communities like Angoon and Kake. In Southeast, the cost of operating schools continues to increase although federal support has diminished. The bill does not seek to establish a new program, but restores the original intent of PCE, and gives rural businesses a future. Mr. Venables said that HB 294 can help as everyone works for better long-term solutions. 4:12:24 PM TARA BOURDUKOFSY, Director, Human Services, Aleutian Pribilof Islands Association, Inc. (APIA), said APIA represents 13 of the federally recognized tribes in its region. Ms. Bourdukofsy supervises the federal Head Start, Administration for Children and Families, Department of Health and Human Services programs in Sand Point, St. Paul, Unalaska, and King Cove, and she introduced the Head Start coordinator. She said APIA is very encouraged by the bill and urged that it be moved forward. 4:14:19 PM MARK WASIERSKI, Coordinator, Head Start, APIA, informed the committee of the importance of including Head Start programs as part of the school system in Alaska so PCE can be available to rural programs whether they are housed alone, within a school district, or are in another facility, such as a tribal community building. Rapidly increasing power costs have drastically impacted the Head Start program's ability to provide the basic program needs of health, safety oversight, and nutritional services, as money is diverted to pay for power costs of up to $2,000 per month. The inclusion of Head Start programs into PCE will free money to more adequately provide for the basic required services that Head Start provides to Alaska's most needy children. Mr. Wasierski expressed his full support of the bill and a return to the "1998 levels." 4:15:49 PM ANGELA MORGAN, Executive Director, Middle River, Interior Rivers Resource Conservation & Development Council, Inc. (Interior Rivers RC&D), Natural Resource Conservation Service (NRCS), U.S. Department of Agriculture, and a representative of the Aniak Traditional Council, said Interior Rivers RC&D council represents eleven villages on the middle Kuskokwim River and four villages on the Yukon River. She said she was also speaking on behalf of the Aniak Traditional Council. One of the main goals of Interior Rivers RC&D council is to seek economic development for the villages, therefore, she expressed her support of HB 294, and the increase from 500 to 700 kW hours. Her region has also suffered from extremely cold weather, especially in the middle Yukon River and middle Kuskokwim River areas, and residents are having broken pipes and difficulties caring for their families and elders during power outages. Even with the current level of PCE, residents are paying over $1,000 per month for fuel and electricity, and are worried about being disconnected for nonpayment of their bills. Ms. Morgan stressed that small businesses also need to be eligible for PCE, and acknowledged the past work by legislators that has helped the region. 4:20:39 PM CO-CHAIR FOSTER said HB 294 would be held for further consideration.