HB 357-AIDEA SUSTAINABLE ENERGY PROGRAM  3:12:18 PM CO-CHAIR FOSTER announced that the first order of business would be HOUSE BILL NO. 357, "An Act establishing the sustainable energy transmission and supply development program in the Alaska Industrial Development and Export Authority." [Although the proposed CS for HB 357 was identified as Version I, Version M was adopted during the hearing on 3/13/12, and was before the committee.] 3:12:27 PM REPRESENTATIVE LANCE PRUITT, Alaska State Legislature, explained that today's hearing was a continuation of the discussion on HB 357, which expands the power of the Alaska Industrial Development and Export Authority (AIDEA) to facilitate the financing of energy projects through a new fund within AIDEA known as the sustainable energy transmission and supply development (SETS) fund. Representative Pruitt highlighted five key components of the bill that grant AIDEA the ability to: ensure project obligations and guarantee loans or bonds for projects; defer principal payments and capitalize interest; offer financing terms up to 30 years for energy projects and 50 years for transmission and hydroelectric (hydro) projects; offer sales lease-back agreements, build-operate-transfer agreements, and other agreements to finance energy projects; and offer reduced interest rates for renewable projects, projects in rural areas, or projects that promote economic development. 3:14:48 PM DIRK CRAFT, Staff to Representative Lance Pruitt, Alaska State Legislature, reminded the committee he had presented a sectional analysis of the bill at a previous meeting. He pointed out that HB 357 is a companion bill to SB 25, which empower and create a new fund within AIDEA that puts a portion of state savings to work financing the construction and development of energy projects within Alaska. The bill authorizes AIDEA to facilitate the financing of energy projects, through which rates would repay the loans or investments from AIDEA. The agency would also have the authority to use capital markets to "backfill the fund" by using loans as an asset, thereby establishing a perpetual investment vehicle. Thus, 20 years or 30 years from now, there will be funding available for the replacement of infrastructure. Mr. Craft stressed that the principal and interest payments from these funds will remain in-state, as opposed to the current practice of placing loans out-of-state. He referred to previous testimony heard by the committee on the future capital energy needs of Southeast and the Railbelt - which will cost billions of dollars - and said the intent of the bill is to fill the financing gap between what the utilities can bond for, and what is needed. Furthermore, to address concerns about limitations on financing, he called attention to page 10, line 22 of the bill which read: Sec. 44.88.740. Limitations on financing. (a) Unless the authority has obtained legislative approval by law, the authority may not finance or participate in financing of (1) more than one-third of the capital cost of an energy project; or (2) a loan guarantee that exceeds $20,000,000. (b) Financing under AS 44.88.730 is limited to the life of an energy project, which may not be more than (1) 30 years; or (2) 50 years for a transmission line or hydroelectric energy projects. MR. CRAFT explained that this section ensures that a loan exceeding $20,000,000 requires approval from the legislature. 3:17:00 PM REPRESENTATIVE TUCK asked whether the loans would be transferable. MR. CRAFT deferred to AIDEA. In further response to Representative Tuck, he said the loans are intended for any transmission and energy projects. REPRESENTATIVE PRUITT added that energy projects are defined on page 11, line 3 of the bill. MR. CRAFT advised that a new proposed CS with changes to this section will be provided to the committee. REPRESENTATIVE PETERSEN asked whether the bill sets the interest rates for the loans. MR. CRAFT said beginning on page 6, line 14 of the bill, sections 8 through 12 set the interest rates for AIDEA, and define the different sources of revenue available to finance projects. The proposed legislation clarifies that the interest rate applies to the fund being created. In further response to Representative Petersen, he confirmed that the fund is self- sustaining in that when loans are paid back, more principal becomes available to make additional loans. 3:20:21 PM MARK DAVIS, Deputy Director, Investment Finance & Analysis, Alaska Industrial Development & Export Authority (AIDEA), Department of Commerce, Community & Economic Development (DCCED), stated the bill creates an energy infrastructure bank within AIDEA. He explained that AIDEA does not currently make direct loans, and in fact, the bill does more than authorize AIDEA to make loans. At this time, AIDEA operates the enterprise development fund which is used for loan participation with banks and for development projects. However, the proposed bill creates a new fund separate from the enterprise development fund for energy projects, and the new fund will make loans, raise money through bonds, and issue loan and bond guarantees. In addition, there are special powers to defer interest payments, to capitalize interest, and to allow for a project to "cash flow over time." Mr. Davis gave the example of the DeLong Mountain Transportation System (DMTS), saying that large projects need time to develop, hence the term "patient capital." He further explained the bill allows for money from a state savings account to be transferred to AIDEA and used for energy projects by way of loans, bonds, and guarantees in order to work with a private partner. For example, a private utility could issue a bond and AIDEA could guarantee that the bond is for a public project, making it a tax-exempt bond, and improving the debt financing for the project. Thus the project is financed by the same vehicle, but the debt service is substantially lowered. He assured the committee that AIDEA would continue to work with the Alaska Energy Authority (AEA), DCCED, to coordinate projects in rural Alaska. Mr. Davis stressed that AIDEA does not intend to delve into the energy business, but to lower the cost of energy projects that is usually passed along to the ratepayers. 3:24:32 PM CO-CHAIR FOSTER opened public testimony. 3:24:50 PM DON KUBLEY, Representative, Alaska Independent Power Producers Association (AIPPA), informed the committee he was a sixth generation Alaska resident. He expressed his support of HB 357, and said AIPPA is a newly-formed energy advocacy organization dedicated to encouraging private investment in capital to assist Alaska achieve its renewable energy resource goals and provide competitive-priced power for residents. Further, AIPPA consists of Alaska's leading independent power producers and developers from all over Alaska and who are interested in geothermal, wind, biomass, hydrokinetic, and hydropower developments. Some of its members are Cook Inlet Region, Inc. (CIRI), Delta Wind Farm, Alaska Power and Telephone (AP&T), Kootznoowoo, Juneau Hydropower, Inc., and polarconsult alaska, inc., all of whom dream of making stranded renewable energy resources available to Alaska and the U.S. He spoke of removing barriers to a new industry that will bring jobs, a tax-base, and economic well- being to the state, and of AIPPA's efforts to encourage private investment in Alaska's energy infrastructure. Mr. Kubley recalled that the original plan for the Four Dam Pool [hydroelectric facilities built by the state in the 1980s] envisioned a grid from Metlakatla to Skagway providing clean energy to Southeast residents, and by way of a 30-mile extension, to the Canada grid in British Columbia (B.C.). This grid would be a green pipeline sending clean power to B.C. and all of the villages and communities of Southeast, providing power for local manufacturing. Although finishing the grid would be expensive, it would be worth it. Mr. Kubley restated his strong support of the legislation. 3:29:38 PM JODI MITCHELL, CEO/General Manager, Inside Passage Electric Cooperative (IPEC), said IPEC is a nonprofit member-owned utility serving 1,300 members in the small communities of Angoon, Hoonah, Kake, Klukwan, and the upper Chilkat Valley. Her cooperative is almost entirely dependent on diesel generation and she spoke in support of the bill. Ms. Mitchell observed grant funding is necessary in rural Alaska to avoid expensive financing that could result in a hydro project with rates higher than diesel. Thus IPEC pursues grant funding through the AEA renewable energy fund. However, a loan program to provide "gap funding" will be needed for monies needed in excess of grants. At this time, IPEC has loans through the Rural Utilities Service (RUS), U.S. Department of Agriculture for $5.3 million; however, her organization would prefer to repay a loan to the state rather than to the federal government. Ms. Mitchell suggested the legislation should also allow utilities to refinance federal loans with state loans. 3:32:28 PM DUFF MITCHELL, Vice President & Business Manager, Juneau Hydropower Inc., disclosed he was also a member of AIPPA. Mr. Mitchell expressed his support of HB 357, saying it is a great vehicle to advance the goals of the state energy policy. He explained that infrastructure investments pay dividends in three ways: AIDEA will receive money back from sound loans; economically feasible infrastructure stabilizes rates for today and for the future, especially with hydro; and local well-paying jobs are created. In addition, syndicating loans encourages outside investors to come and invest in Alaska. In closing, Mr. Mitchell recommended increasing the appropriation from $250,000,000 to $500,000,000. 3:36:15 PM JOE GRIFFITH, General Manager, Matanuska Electric Association (MEA); CEO, Alaska Railbelt Cooperative Transmission & Electric Company (ARCTEC), stated MEA serves 57,000 members from Eagle River to Petersville, and ARCTEC is a generation and transmission cooperative that provides interregional energy solutions to utilities through cooperative actions. He agreed with some of the previous speakers and staff on reasons for the bill, adding that the costs of electrical infrastructure - although critically needed - are staggering throughout the state. In fact, $6,000,000,000 will be required in the Railbelt, exclusive of the distribution utilities. Currently, consumers are financially stressed by fuel costs, which are driving businesses out of the state. Mr. Griffith opined that HB 357 will reduce the impact of the cost of capital improvements, provide a reasonable method of financing, keep money in the state, create jobs, and reduce costs to consumers. Mr. Griffith agreed that the appropriation should be increased to $500,000,000, and the limitation on financing - which requires a project of $20,000,000 to be approved by the legislature - should be increased to $50,000,000 to avoid delays. 3:40:05 PM CO-CHAIR FOSTER, after determining that no one else wished to testify, closed public testimony. He asked whether the bill allows for the refinancing of federal loans. MR. CRAFT deferred to the sponsor of the companion bill. REPRESENTATIVE PETERSEN pointed out a clause in the bill allows for repurchase and leaseback, which may be a way for AIDEA to lower the interest rates on existing projects. CO-CHAIR FOSTER asked how the amount of the $250,000,000 appropriation was decided. 3:42:43 PM MR. CRAFT said, "... they thought this would be an easier number to get through [because] right now there is an urgency, that we're at unprecedented interest rates right now ... right now is the ideal time to get something like this in place." 3:43:25 PM CO-CHAIR FOSTER held over HB 357. The committee took a brief at-ease.