SENATE BILL NO. 126 An Act making special appropriations for design and construction of power transmission interties between Anchorage and the Kenai Peninsula, between Healy and Fairbanks, and between the Swan Lake and Tyee Lake hydroelectric projects; and providing for an effective date. Co-chair Pearce directed that SB 106 and 126 be simultaneously brought on for discussion. Referencing SB 106, she noted that at the March 3, 1993, meeting, the committee adopted a draft committee substitute dated 3/2/93. She then suggested that that action be rescinded in order to adopt an updated draft. Senator Sharp MOVED to rescind adoption of the 3/2/93 version. No objection having been raised, prior committee action was RESCINDED. Senator Sharp then directed attention to an updated draft committee substitute (8-LS0594\C, 4/13/93, Cramer) and MOVED for adoption. Senator Kerttula initially objected but subsequently removed his objection, and CSSB 106 (Fin) was ADOPTED. Senator Sharp further advised of proposed Amendment No. 1. At the request of Co-chair Pearce, Senator Sharp provided a sectional review of the updated draft. (Copies of the sectional analysis are on file in the original bill file at the Legislative Finance Division.) Sec. 1 sets forth reasons for enacting the legislation and expresses legislative intent as to how the program is to be managed. It states that power cost equalization is to be funded for 20 years at $17 million, annually. Demands on the general fund for this program are to decrease to zero by the year 2000, or sooner, since it is anticipated that revenues from the fund established by the legislation will generate sufficient revenue to reduce general fund demands. Sec. 2 authorizes the Alaska Energy Authority to contract with utilities to design and construct transmission lines. The utilities assume the risk of completion costs, overruns, and all operation and maintenance costs. Sec. 3 amends the definition of program receipts to include earnings of the energy authority revolving loan fund. Sec. 4 provides for Dept. of Revenue investment of the balance of the energy authority revolving fund. Secs. 5 and 6 contain conforming amendments making changes in references to various accounts. Sec. 7 creates the energy authority revolving fund. It is to become the consolidated fund for all income and assets of the authority except for the electrical services extension fund and the power cost equalization fund. Secs. 8 through 30 contain transfers of existing accounts, conforming amendments, changes in account names, and reference changes from funds to accounts. Sec. 31 authorizes design and construction of a transmission intertie between Anchorage and the Kenai Peninsula. Sec. 32 authorizes design and construction of a transmission intertie between Healy and Fairbanks. Sec. 33 conditions authorization provided in Secs. 31 and 32 upon utility company agreement to pay all completion costs above $90 million as well as operating and maintenance costs. Sec. 34 authorizes design and construction of a transmission intertie between Swan Lake and Tyee Lake hydroelectric projects upon utility company agreement to pay completion costs above $35 million and all costs of operation and maintenance. Sec. 35 authorizes design and construction of a transmission intertie between Sutton and Glennallen with utility company agreement to pay costs above $27.5 million and all operation and maintenance. This project is further conditioned on Office of Management and Budget approval of the feasibility study submitted by the energy authority. Sec. 36 provides that AEA contract with utilities to design and construct transmission interties unless the utilities decline that opportunity. Sec. 37 provides for an effective date. Senator Kelly questioned language within Sec. 36 that would allow AEA to design and construct a facility even if the participating utility declines. Senator Sharp explained that the language was intended to cover situations wherein the utility did not wish to participate in design and construction but wanted the project and agreed to pay cost overruns and debt service. AEA cannot build facilities that utilities have not agreed to operate and maintain. Senator Kelly suggested the language requires greater definition. Senator Kerttula said he had no problem with the intertie connections or where or how they are funded. He stressed, however, that debt service on an electrical project is owed to the general fund. The proposed legislation would make those revenues the property of AEA (similar to AIDEA capitalization). He raised public policy concerns regarding that approach. Senator Kerttula further noted that the proposed bill guarantees nothing for the power cost equalization program since provisions for funding at $17 million for 20 years are stated in intent language only. He questioned whether a set amount would cover population increases in rural Alaska over that time period. Senator Sharp acknowledged that all future expenditures from the revolving fund would have to be authorized by future legislatures, including power cost equalization. He directed attention to a spread sheet tracking bill proposals from 1993 through 2003 and explained that provision of rural technology assistance funding is intended to allow present PCE recipients to modify facilities "to get off of PCE over the same period of time." In response to a question from Senator Rieger concerning funding for intertie construction, Senator Sharp advised that Amendment No. 1 would change troublesome wording. Senator Rieger voiced his understanding that the legislation specifies the total cost as well as the amount to be provided by utilities. Further discussion of interest rates for various projects followed between Senator Rieger and Senator Sharp. Senator Rieger directed attention to Page 7, Lines 2 and 3, and questioned authority ability to "enter into agreements, with respect to the revolving fund, that it considers necessary to secure its bonds." Senator Sharp voiced his understanding that the forgoing represents standard procedures. Senator Sharp MOVED for adoption of Amendment No. 1. Co- chair Pearce voiced OBJECTION to both Amendment No. 1 and No. 2. She then called for a show of hands on the motion. Amendment No. 1 was ADOPTED on a vote of 5 to 1. (Co-chair Pearce opposed the motion, and Co-chair Frank was not present during the vote.) Senator Sharp MOVED for adoption of Amendment No. 2. Co- chair Pearce OBJECTED and again called for a show of hands. Amendment No. 2 was ADOPTED on a vote of 5 to 1. (Co-chair Pearce was opposed, and Co-chair Frank was absent from the meeting.) Co-chair Pearce announced her intent to HOLD the bill in committee for further discussion but suggested that public comment begin at this time. CLAYTON HURLESS, General Manager, Copper Valley Electric, came before committee. He explained that CVE serves a large geographic area in Southcentral Alaska (Glennallen to Valdez). Members pay the highest unsubsidized rates in the state. (Residential consumers in Glennallen pay approximately 21 cents per kilowatt hour.) CVE has attempted, for a number of years, to find a solution to high costs. Connection to the railbelt electrical system would provide much lower cost power from "a tremendous surplus." Mr. Hurless noted railbelt support for CVE's endeavors. CVE is at a critical point in that the productive capability of the Solomon Gulch hydroelectric plant, owned by the state and operated by CVE, will be completely "used up in 1993." Additional needs beyond that load will have to be served from supplemental resources--two aged diesel plants. Considerable capital expenditure will have to be made if these plants are to meet power needs. The intertie would avoid that major expenditure as well as the obvious rate impact. Mr. Hurless said he was familiar with changes within the legislation and said that of all proposals before the legislature, the present approach serves Copper Valley best. He urged passage of CSSB 106 as amended by committee. MIKE KELLY, General Manager, Golden Valley Electric, Fairbanks, next came before committee in support of the railbelt interties. He noted that the railbelt energy fund has dwindled from approximately $200 million to $120 million. Utilities in the railbelt have gone from potential 100% grant funding to the present agreement whereby utility members would pay 50% of the cost of the interties plus any cost overruns. Mr. Kelly voiced support for CSSB 106 as amended and urged that it be passed to the Senate for a floor vote. ADJOURNMENT The meeting was adjourned at approximately 10:10 a.m.