CS FOR SENATE BILL NO. 196(FIN) "An Act relating to the amount appropriated for power cost equalization; relating to the use of certain unexpended earnings from the power cost equalization endowment fund; and providing for an effective date." 9:13:26 AM SENATOR LYMAN HOFFMAN, SPONSOR, thanked the committee for hearing the bill. He relayed that he had introduced the bill due to ongoing dialogue about how to utilize the excess earnings in the Power Cost Equalization (PCE) fund. The legislation was designed to strengthen and save the PCE fund. He recounted that the program existed for over 30 years and initially relied on general funds but evolved into a true endowment that currently did not rely on appropriations. Several years ago the legislature changed the way the fund was invested due to the high rate of return of 7 percent. He indicated that SB 196 addressed two issues; how much could be taken from the earnings of the fund and how excess earnings were dealt with. The withdrawable amount was changed from 7 to 5 percent. He elaborated that the legislation identified two ways the excess earnings were made available; 50% not to exceed 30 million of the excess earnings were distributed to the Community Assistance Program and 20% not to exceed 25 million were distributed to the Renewable Energy Fund, the Bulk Fuel Revolving Loan Fund, and the Rural Power System Upgrades. He pointed out that in the last 12 or so years the earnings would have met the needs for PCE and the provisions for excess earnings. He recounted that the program funded up to the first 500 kilowatts of energy. He spoke to the high power costs in rural areas. The program only addressed the first 500 kilowatts and many residents in urban Alaska utilized much more than that. He believed it was good legislation that ensured the solvency of the fund by changing the payout from 7 percent to 5 percent. In addition, the bill reduced the dependency on General Fund (GF) appropriations for the revenue sharing and rural energy programs. 9:18:39 AM Representative Gara spoke to lowering the payout and asked whether the amount was taken from the corpus of the fund. Senator Hoffman replied in the affirmative. Representative Gara asked for the current total of the fund. Senator Hoffman replied that the amount was approximately $1 billion. Representative Gara stated that 5 percent amounted to $50 million. Senator Hoffman replied in the affirmative and stated that currently PCE cost approximately $43 million. Representative Gara deduced that $7 million would be available for excess funding. Senator Hoffman replied in the affirmative. 9:21:21 AM Representative Edgmon asked the sponsor to address how the PCE program would remain the underlying purpose of the endowment. He wondered about how bundling the items together were mutually beneficial for all programs. Senator Hoffman answered that the legislation authorized that the first use of the funds were for PCE. He explained that if the earnings were less than $43 million the earnings would be depleted and the remainder would be taken out of the corpus of the fund. He provided a scenario that in the second year, if the fund earned 100 million then $43 million would pay PCE, the excess earnings would be appropriated and the remainder would be deposited into the corpus of the fund to protect it in case of lower than expected earnings again in the future. The bill ensured that the primary purpose was to protect the fund itself. Senator Hoffman elaborated that bundling the items were mutually beneficial by assisting the revenue sharing program that would fund up to the 30 percent for rural and urban Alaska and reduced the need for GF as well as assist with other energy programs. He summarized that the bill ensured a solid endowment for PCE and in good years offered assistance to GF in the areas of energy and revenue sharing. 9:24:20 AM Co-Chair Neuman recounted that the PCE paid for the first 500 kilowatts of power. He asked what the average usage in rural Alaska was. Senator Hoffman answered that average use was between 500 and 600 kilowatts; many residents kept usage at 500 kilowatts due to the high expense. Representative Pruitt addressed the community assistance portion. He asked whether the intent was that the bill would help supplement the normal level of revenue sharing funding or replace some of the GF appropriation. Senator Hoffman answered that the intent was to relieve the pressure on the general fund from the community revenue sharing by replacing some GF. Representative Pruitt favored the legislation and endorsed the renewable energy portion of the bill. 9:26:18 AM Representative Munoz asked about the 500 kilowatt threshold. She asked whether the legislation raised the threshold. Senator Hoffman replied in the negative. He believed it was more important to protect the endowment. Representative Kawasaki asked what the current PCE payout was. Senator Hoffman replied the amount was $43 million. Representative Kawasaki pointed to page 2 of FN 2 (CED) and read the following analysis: 1) 50% or $30,000,000, whichever is less, to a community revenue sharing or community assistance fund; 2) 30% or $25,000,000, whichever is less, to the renewable energy grant fund (AS 42.45.045), to the bulk fuel revolving loan fund (AS 42.45.250), or for rural power system upgrades; and … Co-Chair Thompson noted that David Teal, Director, Legislative Finance Division would be available to answer fiscal note questions. Representative Kawasaki did not think that much excess funds would be available on a "6 percent draw." Senator Hoffman answered that in past years the fund had earned 13 percent but also experienced losses. He noted that there were years in the past that the earnings had been in the double digits. Representative Kawasaki observed that Mr. Teal had provided the actual PCE earnings rates (Power Cost Equalization Endowment Fund - Impacts of SB 196 - (copy on file). He was bewildered about the fund earning 24 percent one year and negative 13 percent within two years. He asked whether money had been added to increase the earnings rate. Senator Hoffman answered that it did not matter if money was added in relation to the earnings rate. He delineated that in 2007 when the Four Dam Pool was sold $182.7 thousand was added to the fund. The last infusion had been $400 million in 2012 in order to make it a true endowment. A few years ago the fund had become a true endowment. Representative Kawasaki was confused by the linkage between SB 196 and SB 210 (Community Revenue Sharing/Assistance). Senator Hoffman responded that there had been discussion about combining the two bills, but due to the single topic rule they had been introduced as two bills. Representative Wilson stated that the two bill's linkage made the current discussion difficult to follow. She reiterated the provisions in SB 196 to confirm she understood how the legislation worked. She surmised that the committee needed to pay attention when SB 210 was addressed due to the fact that the specific payouts or whether any excess PCE funds were available in a given year was based on a "good" or "bad year" in the stock market. She noted that in a bad year no additional funds were available for community sharing as all of the fund's earnings were needed for PCE. She stated that the fund's corpus was available to access for the PCE payout in a low earnings year but not the other programs. Senator Hoffman answered in the affirmative. He mentioned that in good years 30 percent of the earnings would be added back to replenish the corpus due to the fact that funds from the corpus could be spent in bad years. Representative Wilson clarified that in low earnings years the other programs would not receive funding from the PCE endowment. Senator Hoffman answered in the affirmative. 9:34:06 AM Representative Gara spoke to a book by Willy Hensley stating that electricity in rural Alaska brought "one of the biggest transformations" to the bush. He believed that the PCE "was an extension of that" and the provision to spend excess funding on other state needs was historic. He asked why the bill proposed depositing 30 percent of the excess funds back into the corpus. Senator Hoffman restated that the deposits were needed to replenish the fund when money were withdrawn in low earning's years in order to "protect" the corpus of the fund. Senator Hoffman provided closing comments on the bill. He felt that PCE made life better for residents in rural Alaska. He thanked the committee for hearing the legislation. Co-Chair Thompson OPENED public testimony. 9:37:08 AM SHIRLEY MARQUARDT, MAYOR, UNALASKA, spoke in support of the bill. She thanked Senator Hoffman for his work on the bill. She stated that PCE and revenue sharing were very important to her region. She appreciated that the bill created a new funding vehicle for revenue sharing, realizing the funding would ebb and flow depending on the earnings in a given year. She asked the legislature to help relieve some of the financial strain on municipalities by finding more alternative funding avenues for communities. KATHIE WASSERMAN, ALASKA MUNICIPAL LEAGUE, testified in support of the bill. She relayed her confidence and trust in Senator Hoffman's custodial role over PCE and community revenue sharing. She believed the legislation stabilized the funds as best as possible under the state's current fiscal crisis. Co-Chair Thompson CLOSED public testimony. CSSB 196(FIN) was HEARD and HELD in committee for further consideration.