SENATE BILL NO. 4006 "An Act amending the power cost equalization program, repealing the exclusion from eligibility for power cost equalization for certain power projects that take their power from hydroelectric facilities, and amending the definition of 'eligible electric utility' as it applies to the power cost equalization program and the grant program for small power projects for utility improvements; and providing for an effective date." Senator Hoffman surmised that the power cost equalization program would be a two-year program and might possibly be considered for implementation on a long-term basis. The cost of the proposed program is about $75 million, as was LIHEAP. The Governor's proposal was for about $700 million. These two pieces of legislation are much smaller "ticket items" and address the high costs of heating oil and electricity throughout the state. Mr. Livey touched on several major issues in the bill. He stated that this piece of legislation addresses the high cost of electricity. He pointed out that this bill no longer makes a geographical assumption of eligibility of a utility. It allows all utilities that provide electricity that costs more than 1.2 percent above the average rate in Anchorage, Fairbanks, and Juneau, which is about 15.4 cents per kilowatt hour. 12:38:00 PM Mr. Livey said that the bill proposes raising the maximum level from .525 cents to $2.00 so that more relief goes to more Alaskans. He pointed out that the current law only provides relief for 6000 kilowatt hours per year. The bill proposes to change the distribution by season so that during winter months more relief would be available. 12:41:05 PM Senator Elton noted an unintended consequence of the formula basing costs on Juneau, Fairbanks, and Anchorage electrical use when something extreme happens like the Snettisham avalanche which caused Juneau's power costs to skyrocket. PCE reimbursement under that scenario would be less. He wondered if the bill's new formula addresses this problem. Mr. Livey said he understands that PCE cost is based on filings made with the Regulatory Commission of Alaska in which utilities describe their costs. If an event takes place and costs for the utility increase, those costs are acknowledged by the rate setting system. DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, explained that the case in Juneau would affect PCE; however, it was a fairly brief period of high rates and the impact would be spread over several years and is a weighted average. He said the floor would be more influenced by the fact that Anchorage uses much more fuel than Juneau and Fairbanks uses diesel for 47 percent of its power. Senator Elton stated appreciation that this legislation is based on cost rather than location. He assumed that if there was a temporary spike in cost in an urban area it would be accommodated under the new PCE formula. Mr. Teal said that the base rate would have been adjusted under the old formula as well. 12:45:57 PM Senator Elton used the example of the Snettisham avalanche to compare the old and new versions of PCE. Under the old system there was no assistance to Juneau rate payers; under the new system there would be energy relief to Juneau. Mr. Teal said it was true that Juneau would be eligible under the new PCE. He stated that he was not sure that the system was designed to be used for only a portion of the year. He gave an example of excessive costs in Fairbanks. SARAH FISHER-GOAD, DEPUTY DIRECTOR OF OPERATIONS, ALASKA ENERGY AUTHORITY, DEPARTMENT OF COMMERCE, COMMUNITY, AND ECONOMIC DEVELOPMENT, stated that Section 2 of the bill would have allowed Juneau to be eligible. Senator Huggins asked about the households with the most expensive kilowatt hour costs. 12:49:10 PM Ms. Fisher-Goad requested clarification of the question. Senator Huggins wondered how many people were "off grid". Ms. Fisher-Goad stated she did not have information on un- served, "off grid" areas. Senator Huggins felt it important to identify who is "off grid" as soon as possible. Ms. Fisher Goad agreed, but thought it would require legislative assistance. Mr. Teal pointed out that the current and proposed PCE legislation make utilities eligible for PCE reimbursement. Senator Huggins pointed out that people "off grid" will need assistance, too. Co-Chair Hoffman thought the cost of transporting fuel to the site was what drove up the cost of generating electricity in rural Alaska. 12:53:40 PM Co-Chair Hoffman asked if some communities would fall off eligibility if the floor were to be raised. Ms. Fisher-Goad said there are a few communities in the North Slope Borough that would not be eligible. Senator Thomas cited the "Power Cost Equalization Program" (copy on file) costs under various assumptions. He asked about the low costs in Lime Village and if they were based on low population. Mr. Livey thought that they were paying the difference between $52.4 and $1.17 per kilowatt under current law. Senator Thomas thought the numbers did not add up. Mr. Teal referred to a handout for further information. 12:56:56 PM Co-Chair Hoffman inquired if electric line extension programs are "still on the books". Ms. Fisher-Goad reported that the electrical service extension fund was repealed several years ago. Such programs are typically funded by grants. 12:57:48 PM Co-Chair Hoffman referred to the Estimated FY 2009 General Fund chart (copy on file.) He asked if Alaska received about $10 billion in oil revenues last year. Mr. Teal said it did. Co-Chair Hoffman inquired if general fund expenditures totaled $4 billion a year. Mr. Teal agreed. Co-Chair Hoffman summarized that last year Alaska started off with a debt of $5.2 billion to the Constitutional Budget Reserve (CBR). He pointed out that $4 billion was paid off. He wondered what the balance of the CBR was today. Mr. Teal reported that after last year's legislative session there was a deficit projected of about $200 million based on the official oil forecast, which turned out to be about $1.1 billion low. At the end of FY 08, the forecast on the year end surplus or deficit is now a surplus of about $900 million and would have been swept into the CBR on June 30. 12:59:39 PM Mr. Teal observed that the surplus is approximately $900 million, which would have been swept into the CBR, along with the $4 billion that was previously appropriated to the CBR. Currently, about $4.9 billion of the $5.2 billion has been repaid. Co-Chair Hoffman summarized that $300 million is still owed. Next year, if the price of oil averages even $110 per barrel, Alaska will have just under $12 billion in revenue. The $300 million will be paid off - just a drop in the bucket of the CBR. The state will have an operating budget in the neighborhood of $4 billion, which will leave potentially $8 billion in revenue. This gives the appearance to the general public that the state is "awash in money". He questioned what the state is doing to assist Alaskans with energy relief. He maintained that the legislature needs to look at ways to help Alaskans in light of the anticipated surplus.