SENATE BILL NO. 98 "An Act relating to the power cost equalization endowment fund; and relating to the Alaska Permanent Fund Corporation." 10:17:08 AM KEN ALPER, STAFF, SENATOR DONNY OLSON, discussed the presentation, "Senate Bill 98 Power Cost Equalization Fund Management" (copy on file). He discussed slide 2, "What Does SB98 Do?" The Power Cost Equalization Endowment Fund has about $1 billion Currently, it is managed by the Department of Revenue SB98 would transfer management to the Alaska Permanent Fund Corporation •The APFC would manage the money alongside their own assets. •The PCE would be exactly as diversified as the Permanent Fund •(This is what they currently do for the Mental Health Trust fund) •Regular reporting to the legislature regarding asset value and income Mr. Alper addressed slide 3, "Why change it? • More diversity: the Dept. of Revenue's managers can only invest in stocks and bonds, and not the various alternative investments used by the Permanent Fund • More stability: the PCE fund has changed its earnings goals and investment allocation at least three times in the last four years. o Fund lost close to $200 million in FY2022 ( • Less liquidity: managers moved much of the fund out of equities in early FY2021 expecting there would not be a "reverse sweep" at the end of that year, and missed big market gains. o PCE fund made 14 percent in FY21, while the Permanent Fund made 29 percent. That premature liquidation may have cost the fund $150 million. o Courts later determined fund wasn't sweepable. 10:21:26 AM Co-Chair Olson wondered whether there was history related to the issue of liquidation of funds. Mr. Alper replied that he could not recall. Co-Chair Olson wondered how the bill would rectify the large losses. Mr. Alper replied that the fund had a number of assets. He stated that the bill would allow for the Power Cost Equalization Fund (PCE) to have similar diversity to the Permanent Fund. Co-Chair Olson OPENED public testimony. 10:23:28 AM HERMAN MORGAN, SELF, ANIAK, spoke to the civics education bill. Co-Chair Olson asked what bill Mr. Morgan was referencing. Mr. Morgan explained that that he was supposed to speak on the civics education bill. Co-Chair Olson stated that he could not speak on that bill. 10:25:15 AM Mr. Morgan argued that the staff person did not put him in for the correct bill. Co-Chair Olson urged Mr. Morgan to speak to the bill. Mr. Morgan discussed PCE, and remarked that PCE was needed in the state. 10:27:32 AM AT EASE 10:27:56 AM RECONVENED 10:28:07 AM Mr. Alper pointed to slide 4, "How would it change the PCE fund and program?" It wouldn't. • The same 5 percent of fund value would be available each year to fund the programs described in statute • The same "waterfall" of priority would be funded: 1. The PCE program itself 2. Costs of managing the fund 3. If the previous year's earnings are more than what is needed for 1 and 2, 70 percent of the remaining earnings may be used for: 1. Community Assistance (up to $30 million) 2. Renewable Energy Grant Fund, Bulk Fuel Revolving Loan Fund, or Rural Power system upgrades Mr. Alper addressed slide 5, "Sectional Analysis": Sec. 1. Adds a new section to the Permanent Fund statutes, AS 37.13. The Alaska Permanent Fund Corporation is to manage the Power Cost Equalization Fund, and publish and distribute various reports. Clarifies that PCE earnings shall be kept separate from Permanent Fund earnings and not used in the POMV calculation. Sec. 2 Moves the PCE fund from a separate fund of the Alaska Energy Authority to a separate fund of the Permanent Fund Corporation. Sec. 3 Changes the PCE statute so that the fund is managed by the Corporation rather than the Commissioner of Revenue. Adopts the Permanent Fund's investment guidelines in place of the current Prudent Investor Rule. Sec. 4 Conforming language so that the 5 percent of fund value is determined by the Corporation rather than the Department. Sec. 5 Adds a definition to clarify that "corporation" in this bill means the Alaska Permanent Fund Corporation. 10:30:53 AM Senator Kiehl asked about whether the Permanent Fund wanted to add the PCE fund to their portfolio. Mr. Alper replied that the Permanent Fund was "more or less comfortable" with it. Senator Kiehl asked whether there was an examination alternatives. Mr. Alper replied that he did not believe that there had been an examination of other funds. Co-Chair Olson CLOSED public testimony. Mr. Alper stated that there would be language suggestions from the Permanent Fund Corporation. Co-Chair Olson discussed housekeeping. SB 98 was HEARD and HELD in committee for further consideration.