HOUSE BILL NO. 294 "An Act relating to the power cost equalization program." Vice-chair Fairclough MOVED to ADOPT the CSHB 294 (FIN) 27- LS1108\D Work Draft as a working document before the committee. Co-Chair Stoltze OBJECTED for purpose of discussion. JOE MICHEL, STAFF, CO-CHAIR STOLTZE explained the changes in version D. He stated that version D added section 3 to the legislation. Section 3 added conditional language; if the billed passed it would not take effect unless there was an appropriation of $150 million, or more, into the Power Cost Equalization fund (PCE). The appropriation would need to occur during the 27th legislature. Co-Chair Stoltze WITHDREW his objection. There being NO further OBJECTION it was so ordered. REPRESENTATIVE EDGMON, SPONSOR, explained that PCE was established in 1984 and provided financial relief for rural consumers, up to 500 kilowatt hours per month for those who were eligible. He related that the formula was based on fuel and non-fuel cost, and eligible communities were determined by the Regulatory Commission of Alaska. He said that the program was monitored by monthly reports to the Alaska Energy Authority (AEA). The $400 million appropriation granted in July of 2011 raised the PCE endowment to $700 million. He admitted that the legislation was major and had a large fiscal note attached. He strongly believed that it was the best way to assist rural consumer with escalating fuel prices. Representative Edgmon detailed that the bill expanded the monthly cap form 500 kilowatt hours to 600, and allowed for commercial uses to be brought back into the program with the limitation of 600 kilowatt hours, with an overall use per month of 2400 kilowatt hours. He added that the bill would exempt state and federal facilities and non- residential consumers. Co-Chair Stoltze understood that the bill included small businesses. Representative Edgmon replied in the affirmative. He explained that barber shops, coffee shops, "mom and pop" type businesses would benefit. He shared that most communities never reached the 60 percent mark of reaching the 500 kilowatt cap. He stated that the bill was designed to allow for commercial entities in smaller communities to have some relief when providing electricity in an era of very high cost. Co-Chair Stoltze noted that the introduction of the legislation offered an opportunity to educate the general public on traditional kilowatt per hour usage in the average home. 3:35:32 PM Representative Edgmon described having to barge in diesel fuel to rural communities; communities with fixed utility costs spread over a small consumer base. He relayed that these small communities paid electricity rates 3 to 4 times the average rate in Anchorage, Fairbanks and Juneau. Representative Edgmon spoke of a study done by the Institute of Social and Economic Research which had revealed that the program was in limited use in rural areas, and that the communities could utilize it more if they could keep on top of the required paperwork. He said the larger users of the program were in the northern and southeastern parts of the state. He noted that the fiscal note was for approximately $20 million. He estimated that this was on the high-end of the price range. 3:39:41 PM Representative Gara spoke in support of the bill. He noted that the PCE program was necessary, but stressed the importance of encouraging energy efficiency in the state. He hoped that in the future a cost savings component could be added to the program. Representative Edgmon pointed out to the committee that the state had invested substantially in weatherization programs. The program was designed in such a way that if fuel costs went down, so did the PCE benefit. He said that in 2011, the Renewable Energy Grant Fund Program provided approximately $6 million in energy savings; most of which could be attributed to two projects: the Gustavus False Creek Hydroelectric Project and the Pillar Mountain Wind Project in Kodiak. He added that there had been other turbine systems in Western Alaska that had contributed to the overall reduction of PCE costs. He stressed that the report requirements were very stringent. 3:43:32 PM Representative Wilson queried the average savings per household using the 500 kilowatt formula. Representative Edgmon replied that the PCE program saved participating utilities approximately 30 percent. Co-Chair Stoltze OPENED public testimony. 3:44:42 PM VAL ANGASAN, BRISTOL BAY HOUSING AUTHORITY, DILLINGHAM, (via teleconference), testified in support of the legislation. He shared that the high cost of fuel had hindered grow the opportunity in rural Alaska. He revealed that in the area milk was $10 per gallon, $6 for gas. He said that surplus income in the area was non-existent. He felt that the PCE program was critical in rural areas. Representative Edgmon interjected that he had heard reports of gas being as high as $7.23 per gallon in Dillingham. ROBBIE GARRETT, SELF, KAKE, (via teleconference), voiced support for the legislation. He shared that in rural areas the rates were high, especially when the rate fell under the non-commercial rate; nearly $.85 per kilowatt. He stated that as a business owner he did not view PCE as a subsidy in perpetuity, but rather temporary assistance to help stabilize cost. 3:50:42 PM MEERA KOHLER, CEO, ALASKA VILLAGE ELECTRIC CO-OP (AVEC), testified in favor of the bill. She stated that AVEC served 54 communities in Alaska with electricity. She stated that the average residential consumption in Alaska's villages was approximately 400 kilowatt hours year round. She said the average varied widely between regions. She relayed that averages were higher in the northwest because the water and sewer systems in the region used electricity. She opined that winter was a time of hardship in many communities; using well above the 500 kilowatt cap. She said that homes in the rural areas ranged from 600 to 1200 square feet. She said that AVEC had approximately 2800 commercial customers, half of which would be eligible under the bill. She highlighted that AVEC represented one-third of all PCE users in Alaska, and that consumption could be expected to rise 35 to 40 percent were the legislation to pass. She informed the committee that as of the end of March 2012, the balance of the PCE Endowment fund was $780 million. She qualified that the fund had not been that large for very long; $400 million had recently been injected into the fund. Co-Chair Stoltze queried when the last big injection to the fund had occurred. Ms. Kohler explained that $100 million from the constitutional budget reserve (CBR) had been injected upon the adoption of the fund in 2000. She added that $85 million from the Fordham Coal sale was added several years later; then in 2006, $187 million was added by Governor Murkowski. 3:54:23 PM AT EASE 3:55:07 PM RECONVENED Co-Chair Thomas asked if Ms. Kohler saw an end to the problem of providing affordable electricity to rural Alaska. Ms. Kohler explained that the effective rate for residential consumers for the first 500 kilowatt hours was approximately $.21 per kilowatt hour. She said that until the price of electricity was at a reasonable level, $.10 to $.12 per kilowatt, there would never be enough additional funding. Co-Chair asked if, in the event that the state faced a deficit due to declining oil production, the PCE fund could be in danger. Ms. Kohler replied that the fund was predicated on an adequate revenue stream. Co-Chair Thomas stressed that oil production needed to be higher in order to fund future energy programs and projects in the state. Representative Edgmon agreed. He felt that the PCE was expensive, but necessary for rural Alaska. He opined that the communities in rural Alaska were shrinking. He said that the legislature needed to consider what rural Alaska should look like into the future, with the understanding that the sustainability of communities was tied directly to energy. Co-Chair Stoltze noted that the larger urban areas had voiced a majority of the support for PCE program. 3:59:01 PM Representative Joule relayed that it was an anomaly when oil went over $100 per barrel mark. He said that oil maintaining above $100 per barrel was contributing the high cost of energy. He agreed that a lot of money was being spent on the issue, but believed that the money needed to be spent in order to deliver energy to all parts of Alaska. He thought that the structure of the PCE was a creative way to corral funds for energy relief. Representative Wilson asked if there were any energy projects at work in rural Alaska that were lowing costs. Ms. Kohler replied that the company owned more wind turbines than any other company in the state. She asserted that AVEC had been aggressive in the pursuit of affordable energy. She said that the village with the lowest fuel cost component in rural Alaska was Chevak at $.21 per kilowatt hour, much lower than average fuel cost of $.32 per kilowatt hour. Fifty percent of the kilowatt hour sales were eligible for the PCE fund. Representative Wilson asked if the $.21 cents was the total cost or the fuel surcharge. Mr. Kohler responded that it was only the fuel surcharge. 4:02:54 PM Co-Chair Thomas wondered what would happen to the PCE costs if the debt were retired. Ms. Kohler said that it would have a substantial effect. She revealed that AVEC had taken $12 million in additional long-term debt in 2011. The money was invested in communities and was the cash match brought to the Denali Commission and the renewable energy fund grants. The total debt burden for AVEC was currently approximately $48 million; the debt service was $1.5 million per year; if the debt were to vanish a $.6 to $.7 drop in cost would be observed. Co-Chair Thomas wondered what would happen if the debt were retired, and kept from growing again. Ms. Kohler replied that the life of a utility plant was finite. She said that continual investment was necessary. She relayed that AVEC had been whittling away at the debt, but that the cash match the company was responsible for had risen in recent years. Co-Chair Thomas asked how many representatives served the areas under AVEC. Ms. Kohler replied that between the house and the senate there were 9 or 10. Co-Chair Thomas hypothesized that if each of the 10 lawmakers put in $2 million for a capital budget request it would greatly benefit AVEC. Ms. Kohler agreed. Representative Edgmon reiterated that AVEC served 54 communities. He turned attention to the fiscal note. He said that the $700 million should pay for what the bill proposed to do in a 3 to 4 year period. Co-Chair Thomas CLOSED public testimony. HB 294 was HEARD and HELD in committee for further consideration. 4:08:11 PM