SENATE BILL NO. 196 "An Act relating to the use of certain unexpended earnings from the power cost equalization endowment fund." 9:53:34 AM Co-Chair MacKinnon discussed SB 196. She noted that the public hearing had been opened and closed on March 16, 2016. Vice-Chair Micciche discussed the fiscal note (OMB component 2602) from the Department of Commerce, Community and Economic Development (DCCED). He stated that it was a zero fiscal note with no added capital or added employees. Vice-Chair Micciche discussed the fiscal note (OMB component 0) for various departments from the Senate Finance Committee. He informed that the note was for informational purposes only, and had to do with the dividend funds from the PCE Endowment Fund. He read from the bottom of the fiscal note: Why this fiscal note differs from previous version: Initial version. This fiscal note for information purposes only. Beginning in FY16, it assumes a six percent earnings rate and two percent program growth rate for each fiscal year. In FY18 through FY22, Power Cost Equalization Endowment funds (DGF) would be available to replace Unrestricted General Funds (UGF) expenditures for Community Assistance and Rural Energy Programs. Depending on actual earnings in a fiscal year the amount available to replace UGF will vary from zero to $55 million. Vice-Chair Micciche specified that the fiscal note showed a $17 million displacement in FY 18, with no impact in FY 17. He continued that there was a $17.2 million displacement in FY 19, a $17.5 million displacement in FY 20, a $17 million displacement in FY 21, and a $16.6 million displacement in FY 22. Co-Chair MacKinnon asked if Vice-Chair Micciche had been referring to the dividend coming from the PCE Endowment Fund. Vice-Chair Micciche answered in the affirmative. Senator Hoffman stated that he had introduced the legislation primarily to reflect the original intent of funding the PCE program. He clarified that the endowment was never meant to have additional funds for any other purpose. He explained that the bill would stipulate that any additional earnings would be used for other state purposes. Senator Dunleavy commented on the $4 billion budget deficit, and wondered why the state would not use the fund to backfill some of the deficit. He understood that the fund gave assistance to some Alaskan communities, and asked if anyone wanted to comment on the matter. 9:57:15 AM Senator Hoffman thought that the purpose of the PCE Endowment Fund was discussed and brokered prior to his tenure in the legislature. He recounted that the fund had been in existence for well over 30 years. He mentioned that the funds were split when the Four Dam Pool [four hydroelectric facilities (dams and lake tap projects) built by the State of Alaska in the early 1980s] was being built. The fund was intended to address the high electricity costs (for heating) in rural Alaska, and was an attempt to equalize the power throughout the state of Alaska. He thought by keeping the funds in the endowment it was not a drain on the GF, but rather a long-term solution to address higher costs throughout the state. Conversely, if the funds were taken it would be a one-time use, and people in rural Alaska would end up paying substantially more in electrical costs. He noted that the PCE program only gave credit for the first 500 kilowatt hours (kWhs) of electricity use per month. He discussed electricity use in rural and urban areas of the state. He saw the bill as a commitment to lower costs and make the state a more affordable place to live. Senator Dunleavy acknowledged the history of the PCE program and supported the concept of helping people in rural Alaska with energy costs. He hoped that the state would be able to drive down the overall cost of state government so that it could continue to have funds such as the PCE endowment fund. He referred to proposed use of the permanent fund and potential new taxes, and thought that it was important to have discussions about all potential sources of funding. He thought the issues were complex and was not sure the legislature would be able to come up with a complete financial package to address the deficit by the end of session. He wanted to use care in examining all funds to see how each might help with the $4 billion deficit. He had lived in rural Alaska and experienced the cost differential. He thought the legislature needed to be prepared to answer questions about the PCE Fund as well as the Higher Education Fund. 10:01:02 AM Senator Olson stated that the PCE Fund was put together at a time when natural gas and hydro-electric power were being developed in the state. In order for rural Alaska to reap benefits of the natural gas investments and pricing, as well as the Four Dam Pool; the compromise was the creation of the PCE Endowment Fund. He discussed the idea of adding a surcharge on natural gas coming out of Cook Inlet, which was semi-subsidized by the state, to help pay for the budget deficit. He discussed the difference in power cost between his residences in Anchorage and Golovin. Senator Dunleavy did not disagree. He thought there were people in the state who did not benefit from Cook Inlet gas subsidization (through tax credits) by the state; and there were people in the state who did not benefit from PCE. He believed the points being addressed were important to feature in ongoing conversations. Vice-Chair Micciche pointed out that it was the first time the state had asked the PCE Fund to help offset costs in other areas. For the purposes of the legislation, the aid would be for community assistance and rural energy programs. He noted that there were discussions about the level of subsidy in Cook Inlet. He was relatively supportive of the bill. 10:05:10 AM Senator Bishop stated that if there was a PCE Endowment Fund dividend, the excess earnings would be split between the community assistance program (50 percent), the renewable energy grant fund (30 percent), and the PCE Endowment Fund (20 percent). He recalled that the previous year the committee had strengthened the PCE Fund by using the prudent investor rule. He thought the committee was doing its job working towards maximizing state assets. He agreed with Senator Dunleavy that it would take continued work to solve the budget problem. Co-Chair MacKinnon recalled a PCE bill from the previous year, in which more prudent investment was implemented. She thought the bill went an additional step in reducing the draw from 7 percent to 5 percent, in aid of trying to keep the corpus of the fund whole. She recalled priorities that were articulated in a Senate Majority press conference that included how to positively impact the bottom line of the state budget, which she thought the bill accomplished. She pointed out that the bill left all of the PCE Fund available for appropriation in a future year. She asserted that the House had proposed accessing the fund for the University, and she did not concur with the idea. She explained that there were excess earnings above the funding to the PCE program, after which the funds would roll off to different areas and reduce the call on cash to the GF. The bill would reduce GF spending, and she thought it was worth consideration by both bodies. She thought if the bill was not passed, the PCE Fund would be at risk. She discussed a reduction in tax credits that would result in an increase in gas bills. 10:09:26 AM AT EASE 10:16:34 AM RECONVENED Vice-Chair Micciche MOVED to report CSSB 196(FIN) out of Committee with individual recommendations and the accompanying fiscal notes. CSSB 196(FIN) was REPORTED out of committee with a "do pass" recommendation with one new fiscal impact note from the Senate Finance Committee, and one new zero fiscal note from Department of Commerce, Community and Economic Development. 10:17:15 AM AT EASE 10:21:30 AM RECONVENED