SENATE BILL NO. 185 "An Act relating to the basis for determining eligibility for and the amount of power cost equalization payments; and providing for an effective date." This was the second hearing for this bill in the Senate Finance Committee. ERIC YOULD, Executive Director, Trade Association for the Electric Utility Industry in Alaska (ARECA), testified that ARECA is a "strong supporter of the Power Cost Equalization (PCE) program" as it provides a strong economic stimulus to rural Alaska where the cost of electricity is "four times higher" than the cost of electricity in urban areas, "yet disposable income is so low." He stated the ARECA Board of Directors is presenting a resolution [copy on file] dated Feb 22, 2002 to the Committee that "strongly opposes" SB 185. He stated if SB 185 were passed, it would significantly curtail the PCE program and hurt the economy of rural Alaska. Mr. Yould continued that legislation being discussed in the United States Congress might financially assist the PCE Endowment Fund and passage of SB 185 "would shut the gate and curtail the amount of funding" that might be forthcoming. On behalf of ARECA, he "strongly recommended" that the Alaska Legislature not change the PCE funding formula. MEERA KOHLER, President and CEO, Alaska Village Electric Co-op (AVEC), testified in opposition to SB 185. She stated that the Legislature has reduced funding for the PCE program numerous times since its inception in 1984, and currently rural electric consumers collectively pay approximately 80 percent of the "extremely high cost of electricity" with the PCE program paying the balance of 20 percent. Ms. Kohler stated "the much needed construction of basic infrastructure such as water and sewer facilities and health clinics" has increased the demand for power in the rural areas. She informed the Committee these improvements have been almost exclusively funded with federal grants and other sources. She stressed that the State's creation of the PCE Endowment Fund two years ago has provided rural residents a "powerful tool to take to Washington D.C." to persuade the United States Congress to allocate additional funds to enable the Endowment Fund to be self- sufficient. She urged the Committee to not amend the PCE formula at this time. BOB POE, Executive Director of Alaska Industrial Development & Export Authority (AIDEA) and Alaska Energy Authority (AEA) commented his Department has been conducting an analysis of different options for the PCE program. He referenced legislative "findings stating the purpose of PCE is to provide affordable energy as essential for the economic and social well being of Alaska." He continued that the high "cost of power is a significant detriment to economic development in Rural Alaska." SFC 02 # 34, Side A 10:51 AM Mr. Poe commented the economic health of Rural Alaska has an affect on the commerce of other parts of the State. He detailed some of the effects on Anchorage: Rural Alaska accounts for 20 percent of all goods and services sold; accounts for one in eight jobs; 50 percent of all construction work by Anchorage and Mat-Su companies; and 100 percent of resource extraction. He stressed there is a huge economic connection between rural and urban Alaska. Mr. Poe stated there is " a self-interest" factor in the urban support of the PCE program. Mr. Poe contended that if both economies benefit from this connection, then modifications to provide incentives to reduce the cost of power in rural Alaska should be considered. He encouraged the Committee to give the PCE program more time to be further analyzed. Mr. Poe stated if Anchorage, Juneau, and Fairbanks were removed from the cost of power in Alaska analysis, then the comparative base would not accurately represent what the cost of power is throughout the State. Senator Hoffman summarized if the cost of power in Anchorage, Juneau, and Fairbanks were removed from the PCE analysis, what would remain would be the highest costs of power in the state and therefore would not result in a PCE program. Co-Chair Donley clarified it would be "the highest costs" of those places that are not included in the PCE program, and this would be "much fairer," as currently the PCE program "subsidizes below what some people have to pay who aren't eligible for PCE." Senator Leman voiced three concerns: a cash flow stream that did not materialize as promised when the program was restructured in 1999; the fact that communities not eligible for the PCE program are paying more than the subsidized PCE rate; and the question of how to provide incentives to reduce the costs of generating and delivering power in the rural areas. Senator Leman stated the Legislature is attempting "to fit all this together in a policy statement and have it make sense." Mr. Poe commented that the endowment fund losses were a result of the stock market. Mr. Poe informed the Committee that 79 percent of all rural ratepayers are eligible for the PCE program and the remaining 21 percent are businesses or other non-eligible entities. He stated that the eligible group uses only 29 percent of the eligible kilowatt-hours. Senator Leman clarified that his cash flow concern involved the National Petroleum Reserve Alaska (NPR-A) funding, that "was offered in good faith, received in good faith and did not materialize," as a contribution to the endowment fund. He stated this resulted in a shortfall in funding revenues. RECESS 11:00 AM / 3:03 PM DENNIS WATSON, Mayor of Craig, testified offnet from Craig and urged the Committee to make no changes to the PCE program. He stated, "Rural Alaska has always considered that our part of the pie of the oil revenues, was the PCE" and the endowment fund is what they hoped would support the PCE "in perpetuity." ALAN JOSEPH, Vice President, Association of Village Council Presidents, testified offnet from Bethel in opposition to SB 185. He stated the downturn in the fishing industry has affected the economy in the region and any reduction in the PCE assistance the Yukon Kuskoquim Delta region would contribute negatively to the situation. MARLENE MOTO, testified offnet from Deerling, in opposition to SB 185. She stated that reductions to the PCE program would make electricity too expensive and people in rural regions are "having a hard time paying bills" now. ERIC HANNEN, General Manager, Alaska Power & Telephone (AP&T), testified via teleconference from Tok on behalf of Don Mayhan, Vice President of Operations of AP&T. Mr. Hannen stated that AP&T serves approximately 6,000 customers in 20 rural communities, and the current cost of power in rural Alaska is approximately four times more expensive than power in urban Alaska. He contended that rural area incomes are half of the income level of urban areas and there are very few job opportunities. He stated that the residents' fixed incomes could not absorb a 25 percent increase in the cost of power. Rural communities "have been encouraged to raise their standards of living" and such things as water and sewer treatment plants have been constructed and all require power to operate, especially in the winter months. He voiced opposition to SB 185 and stated it would decrease the standard of living in Rural Alaska, reduce power consumption, and decrease business margins resulting in an increase of rates with the overall result of a "downward spiral." CHARLIE WALLS, Manager of Nushagak Cooperative testified via teleconference from Dillingham in opposition to SB 185. He stated if SB 185 were passed, the result "would essentially drop Dillingham off the rolls of the PCE," and would cause real hardship to the residents who "are at the mercy of oil prices" and have no other power supply options such as access to hydropower. He stressed that "now is not the time to change the formula." ALAN JOSEPH, testified offnet from Bethel on behalf for Arthur J. Lake, President of the Association of Village Council. He read Mr. Lake's prepared testimony [copy on file] in opposition to SB 185. The bill was HELD in Committee. RECESS 3:20 PM / 3:27 PM