SB 25-AIDEA SUSTAINABLE ENERGY PROGRAM  2:15:50 PM CHAIR EGAN announced consideration of SB 25. 2:16:02 PM SENATOR PASKVAN moved to bring CSSSSB 25( ), version 27- LS0290\E, before the committee for purposes of discussion. There were no objections and it was so ordered. MIKE PAWLOWSKI, staff to Senator McGuire, sponsor of SB 25, explained the committee substitute (CS). He said that the bill is about empowering and creating a new fund within the Alaska Industrial and Development and Export Authority (AIDEA) to take a portion of Alaska's savings and put it to work within the state, financing the construction and development of energy projects. In the previous committee hearing, he said that Mr. Davis from AIDEA testified that some technical amendments were needed to ensure the ability to bond and to clarify the definition of energy in the interest rate provisions. MR. PAWLOWSKI reviewed the CS starting with Section 8 on page 6 where language in section 10 amended AS 44.88.159 that sets the interest rates for AIDEA. He noted multiple different sources of revenue that finance projects were also within that statute. So AIDEA suggested clarifying that the new interest rate is applied only to the new fund being created. So, sections 8, 9, 11 and 12 all amend different portions of AS 44.88.159 to ensure that the interest rates are consistent with current practice. The important thing about that is to ensure that AIDEA isn't giving away money, but rather collecting an interest rate, earning money on the investment that it makes. This is not a grant program and is not designed to be one. Further, it also conforms with the private sector so it doesn't crowd out Alaska's financial institutions from the work they do in providing capital. 2:18:42 PM The next substantive change was on page 10, line 14, in a new subsection within the powers and duties of the Authority. He explained that AS 44.88.090 allows AIDEA to issue bonds and borrow against the proceeds from the projects that it has invested in. This section applies to that chapter. It was originally the sponsor's thought that since this new section was within the chapter, that power would apply to AIDEA in carrying out the duties of this fund. AIDEA believed that making that explicit strengthened the bill. So a new section makes it extremely clear that AIDEA does have the ability to leverage capital markets against the assets that it has loaned. MR. PAWLOWSKI said the other material change was on page 10, line 4. In the previous version, language was left in that said "subject to lender approval defer principal payments" in that AIDEA under this program is the lender. This was redundant language that legal said could be taken out. The final change was on page 11, line 4, in the definition of "energy project." In the previous version the "transmission, generation, storage or distribution of electricity" was the description. And in working with more energy groups over the Interim since the previous hearing, it was brought up that several energy projects might not actually generate electricity but could be used for heat, biomass being the most important of those, and the goal was not to preclude AIDEA from helping that type of energy project. 2:20:38 PM SENATOR MENARD said she appreciated the format of his presentation. MR. PAWLOWSKI then pointed out a mistake on page 1, section 5, and said this bill in no way deals with sport fishing guide licenses and that would get fixed. 2:21:29 PM SENATOR PASKVAN asked the AIDEA director to explain the leveraging component on page 10, line 14. MARK DAVIS, Director, Alaska Industrial Development and Export Authority (AIDEA), responded that one of the concerns they had with the original bill was that although the chapter says AIDEA could issue bonds and borrow money, the language didn't explicitly apply to the new fund. Bankers and lawyers tend to be very careful, and in looking for a guarantee of leveraging they want explicit statutory authority. The way it would work is that now AIDEA could issue a bond to raise money for a loan or, assuming there is some appropriation with this bill which there is not, it could use those monies, or it could use its current reserves. So, it gives AIDEA the flexibility to pick the best pot of money to get the project going with the least possible cost. This bill suggests that AIDEA put no more than one third into a loan, which is already internal policy. SENATOR PASKVAN asked if AIDEA would fund a $250 million project with $80 million as the first step. MR. DAVIS replied yes. SENATOR PASKVAN asked if there is more leveraging once the $80 million is locked in. MR. DAVIS replied that depends on how the deal is structured and every transaction is different. SENATOR PASKVAN asked at what point further legislative approval enters into the process. MR. DAVIS replied at the appropriation level, but even without an appropriation, should this bill pass, AIDEA could issue a bond to raise money for an energy loan. SENATOR MENARD asked if there is a good reason the word "leverage" is not part of the language. MR. DAVIS replied that "leverage" is a term of art for putting together financial packages, but it's not language that would be put into a statute. 2:25:49 PM MR. PAWLOWSKI pointed out language on page 8, line 28 through page 10, line 22, requires legislative approval for projects over $20 million. 2:27:10 PM SENATOR PASKVAN moved to report CSSSSB 25(L&C) from committee with individual recommendations and attached fiscal note. There were no objections and it was so ordered.