HOUSE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE February 21, 1995 1:03 p.m. MEMBERS PRESENT Representative Ivan Ivan, Co-Chair Representative Alan Austerman, Co-Chair Representative Jerry Mackie Representative Kim Elton Representative Al Vezey Representative Pete Kott Representative Irene Nicholia MEMBERS ABSENT None OTHER HOUSE MEMBERS PRESENT Representative Con Bunde COMMITTEE CALENDAR * HB 154: "An Act requiring the Department of Law to provide guidelines regarding unconstitutional state and municipal takings of private real property; relating to the taxation of private real property taken unconstitutionally by state or municipal action; establishing a time limit for bringing an action for an unconstitutional state or municipal taking of private real property; and providing for an effective date." HEARD AND HELD HB 80: "An Act relating to the approval, change, or vacation of subdivision plats in areas outside organized boroughs, in the unorganized borough outside of cities, and in the third class boroughs; and relating to the definitions of `street' and `subdivision'." PASSED OUT OF COMMITTEE OVERVIEW: Division of Energy (* First Public Hearing) WITNESS REGISTER REPRESENTATIVE VIC KOHRING Alaska State Legislature State Capitol Building, Room 428 Juneau, Alaska 99811 Telephone: (907) 465-2186 POSITION STATEMENT: Introduced HB 154 as the bill sponsor CRAIG LYON, House Researcher Representative Vic Kohring Alaska State Legislature State Capitol Building, Room 428 Juneau, Alaska 99811 Telephone: (907) 465-2186 POSITION STATEMENT: Followed up on the testimony given by Representative Kohring STEVE VAN SANT, State Assessor Department of Community and Regional Affairs 333 W. 4th Ave., Ste. 319 Anchorage, Alaska 99501 Telephone: (907) 269-4500 POSITION STATEMENT: Answered questions on HB 154 STEVE NOEY, Real Estate Agent 1300 E. 80th Anchorage, AK 99518 Telephone: (907) 274-8596 POSITION STATEMENT: Testified in favor of HB 154 SARA HANNON, Lobbyist Alaska Environmental Lobby, Inc. P.O. Box 22151 Juneau, AK 99802 Telephone: (907) 463-3366 POSITION STATEMENT: Testified in opposition to HB 154 REPRESENTATIVE JEANNETTE JAMES Alaska State Legislature State Capitol Building, Room 102 Juneau, AK 99811 Telephone: (907 465-3743 POSITION STATEMENT: Prime Sponsor of HB 80 RICK ELLIOT, Municipal Lands Trustee Department of Community and Regional Affairs 333 W 4th St., Ste. 319 Anchorage, Alaska 99501 Telephone: (907) 269-4500 POSITION STATEMENT: Answered questions on HB 80 PAT KALEN, Surveyor American Congress on Surveying and Mapping (ACSM) 5410 Grosbenor Lane Bethesda, MD 20814 Telephone: None Available POSITION STATEMENT: Testified and answered questions on HB 80 RON SWANSON, Director Division of Land Department of Natural Resources 3601 C St., Ste. 1122 Anchorage, AK 99503-5947 Telephone: (907) 762-2692 POSITION STATEMENT: Testified and answered questions on HB 80 PERCY FRISBY, Director Division of Energy Department of Community and Regional Affairs 333 W. 4th Ave., Ste. 220 Anchorage, AK 99519-2341 Telephone: (907) 269-4640 POSITION STATEMENT: Presented Overview on the Division of Energy ERIC MARCHEGIANI, Manager/Engineering Division of Energy Department of Community and Regional Affairs 333 W. 4th Ave., Ste. 220 Anchorage, AK 99519-2341 Telephone: (907) 269-4698 POSITION STATEMENT: Participated in Division of Energy Overview GLORIA MANNI, Administration Manager Division of Energy Department of Community and Regional Affairs 333 W. 4th Ave., Ste. 220 Anchorage, AK 99519-2341 Telephone: (907) 269-4642 POSITION STATEMENT: Participated in Division of Energy Overview RICHARD EMERMAN, Senior Economist Division of Energy Department of Community and Regional Affairs 333 W. 4th Ave., Ste. 220 Anchorage, AK 99519-2341 Telephone: (907) 269-4644 POSITION STATEMENT: Participated in Division of Energy Overview FRANK J. BETTINE, President Alaska Cogeneration Systems 229 Whitney Road Anchorage, AK 99501 Telephone: (907) 278-7283 POSITION STATEMENT: Presented Overview of the Cogeneration Systems PREVIOUS ACTION BILL: HB 154 SHORT TITLE: REGULATORY TAKING OF PRIVATE PROPERTY SPONSOR(S): REPRESENTATIVE(S) KOHRING JRN-DATE JRN-PG ACTION 02/03/95 237 (H) READ THE FIRST TIME - REFERRAL(S) 02/03/95 237 (H) CRA, JUD, FIN 02/16/95 (H) CRA AT 01:00 PM CAPITOL 124 02/21/95 (H) CRA AT 01:00 PM CAPITOL 124  BILL: HB 80 SHORT TITLE: DNR APPROVAL OF PLATS IN UNORG BOROUGH SPONSOR(S): REPRESENTATIVE(S) JAMES JRN-DATE JRN-PG ACTION 01/13/95 41 (H) PREFILE RELEASED 01/16/95 41 (H) READ THE FIRST TIME - REFERRAL(S) 01/16/95 41 (H) COMMUNITY & REGIONAL AFFAIRS, RESOURCES 01/31/95 (H) CRA AT 01:00 PM CAPITOL 124 01/31/95 (H) MINUTE(CRA) 02/02/95 (H) CRA AT 01:00 PM CAPITOL 124 02/16/95 (H) CRA AT 01:00 PM CAPITOL 124 02/21/95 (H) CRA AT 01:00 PM CAPITOL 124 ACTION NARRATIVE TAPE 95-3, SIDE A Number 000 CO-CHAIR IVAN called the House Committee on Community and Regional Affairs to order at 1:03 p.m. Members present at the call to order were Representatives Austerman, Vezey and Nicholia. Members absent at the call to order were Representative Mackie, Elton and Kott. CO-CHAIR IVAN went over the meeting agenda and recognized those on teleconference from Anchorage, Mat-Su, Kenai, and Homer. He invited bill sponsor, Representative Vic Kohring to introduce HB 154. HCRA - 02/21/95 HB 154 - REGULATORY TAKING OF PRIVATE PROPERTY  Number 031 REPRESENTATIVE VIC KOHRING, sponsor of HB 154, stated that "takings" did not refer to literally taking of property but referred to reclassifying property in such a way that it diminished the economic value of the property and restricted a private property owner from being able to develop that property as she/he deemed fit. With the "taking" it created an economic hardship for the property owner. One example of a "taking" involved a lake front lot on which a property owner wished to build his/her home, and a government entity came in and stipulated there would be a minimum property separation on the land. Representative Kohring stated this tended to render a lot of property useless in terms of its development capabilities creating diminished land value. This bill would provide a means of compensation for owners whose properties have been "taken." He stated the form of compensation referred to in the bill would be to adjust the assessed value of the land reducing the tax amount on that land. He then asked Craig Lyon, his legislative aide, to come forth and answer questions. Number 114 CRAIG LYON, Legislative Researcher for Representative Kohring, said he welcomed any comments or questions from committee members. Number 119 CO-CHAIR IVAN recognized the attendance of Representative Pete Kott. He also invited comments or questions from committee members. He then recognized Steve Van Sant on teleconference. Number 130 STEVE VAN SANT, State Assessor, Department of Community and Regional Affairs (DCRA), clarified that he wasn't testifying, but was available to answer any questions concerning assessments. Number 137 REPRESENTATIVE AL VEZEY questioned the use of the word "unconstitutionally." He said it took a Supreme Court determination to establish "unconstitutionally taken." Number 145 MR. LYON stated he was unsure as to how to answer the question. He said the bill referred to the current Alaska Constitution concerning private properties/eminent domain. Number 151 REPRESENTATIVE VEZEY wondered how an "unconstitutional taking" would be established. He said a regulatory agency and a property owner could not make that determination. Number 156 MR. LYON said that according to the State Constitution, if property was taken through regulatory means and the value of the property went down, then the owner needs to be justly compensated. He clarified eminent domain versus regulation, stating that with the first, the state essentially owns the title to the land and with the second, the owner still has the title to the land with little or no economic value to his land. Number 174 REPRESENTATIVE VEZEY stated the "power of eminent domain" is the power that the state has under the Constitution and has to be exercised in accordance with peoples' constitutional property rights. He said the stake in political subdivisions can certainly deprive people of their property without using eminent domain. Number 182 MR. LYON said the purpose of the bill is to stop the government from doing this. Number 184 REPRESENTATIVE VEZEY asked who was going to make the determination that the "taking" was "unconstitutionally" done? Number 188 MR. LYON again brought up the part of the bill that refers to the "taking" of private property without adequate compensation. The owner might still have the title, but the property would have lost all or most of its value to the owner. Upon the loss of value, then according to the bill, the owner can say his property has been "taken" and can claim compensation. Number 202 REPRESENTATIVE VEZEY still wanted to know how "unconstitutionally taken" was going to be determined. Number 204 MR. LYON wasn't sure unless it had to do with the guidelines the bill was asking the Department of Law to develop to show when those properties would be "taken" in an "unconstitutional" manner. Number 210 CO-CHAIR ALAN AUSTERMAN referred to page 2, line 12, and wanted to know why the government had to redo the "government takings guidelines" every year. He said this section would actually set the guidelines for what is "unconstitutional takings." Number 220 REPRESENTATIVE VEZEY said there was only one way you could establish whether something was "unconstitutional" and that is to take it to court and appeal it to the supreme court. He stated that the supreme court was the only body in the state with the power to interpret the Constitution. For those property owners wishing to claim their property as "unconstitutionally taken" they would have to go to court and be prepared to prevail or appeal a decision all the way to the supreme court. Number 234 MR. LYON said there is a large body of case law in the U.S. as well as in the state of Alaska relating to regulatory takings. Number 237 REPRESENTATIVE VEZEY stated this bill wouldn't accomplish anything not already in law because at the present moment, it is "unconstitutional" to deprive someone of his/her property rights without following the provisions in the Constitution. Number 246 MR. LYON said there was a three-part guideline that discussed regulatory takings and determined land value loss. He then introduced Mr. Steve Noey on teleconference. Number 256 STEVE NOEY, real estate agent, said that the supreme court in 1994 ruled that as long as you have some economic use left of the property, it was a regulatory taking. He stated this differs from a constitutional taking where if they take one quarter of your property and (indisc.) you of one dollar of value, you have compensation coming. The court ruling in 1994 basically says they can take all of the value except your ability to pitch a tent on it and you are not compensated. Mr. Noey stated that he was in favor of this law if it defines the fact that if you lose $1 in value of your property then you have the ability to seek compensation. Number 274 REPRESENTATIVE VEZEY asked Mr. Noey if he could summarize the U.S. Supreme Court ruling in 1994 regarding a case in South Carolina. Number 279 MR. NOEY said he was talking about the rulings within the state of Alaska. The DEC and CDEC vs. Noey wherein the State Supreme Court stated on a regulatory taking that as long as some economic use remains in the property, it wasn't a taking. The State Constitution and the U.S. Constitution say that if you lose $1 of value of the property or if you lose any of your property physically, then you are due just compensation. Number 295 REPRESENTATIVE VEZEY said the Constitution says only what the supreme court states it says and the Alaska Legislature can't pass a law that would change the supreme court ruling. Number 302 MR. NOEY said the state decisions differ from the decision they took from the U.S. Supreme Court. The U.S. Supreme Court decision on the same kind of regulatory taking stated that any intended use with the defect of taking, if you had loss of the intended use of the property, then you have defect of taking and compensation is due. The state made it more restrictive and said that as long as you had any economic use, there was no taking. Number 318 REPRESENTATIVE VEZEY was curious as to how constitutional and nonconstitutional could be established by statute. Number 326 MR. NOEY said the Fifth Amendment to the Constitution provides for just compensation. He stated this proposed law was to try to bring into performance, regulations that the Constitution stated back in 1776 and just say that regulatory takings are a fact and don't have to be a physical invasion. Number 339 REPRESENTATIVE VEZEY thanked Mr. Noey for his explanations. He questioned the intent of the bill and proposed statute. Number 345 CO-CHAIR IVAN recognized Sara Hannon from the Alaska Environmental Lobby and invited her to give her testimony. Number 349 SARA HANNON, lobbyist for the Alaska Environmental Lobby, Inc., stated that she agreed with Representative Vezey. She said the Constitution sets out some very basic parameters about what the government can and can't do to individual citizens. One of the things framed out in the Constitution, is that there is a judicial process to remedy a situation whether a person or a law is violated. The Alaska Environmental Lobby advocates that undue state regulation should be done away with. They are seeking efficiency of government purposes. She believed this bill is a facade to do something much further reaching. The regulations that impact our property rights the closest were zoning regulations. The ramifications for a bill that ask to amend the Constitution, Ms. Hannon believed needed to be seriously reviewed. She stated that she's opposed to HB 154 in its form and she didn't believe there was a justification for it. She did say that there were individual Alaskans who the judicial process has not served to remedy. She stated there needed to be the specific individual cases. She said that lawyers made millions of dollars arguing these cases and if the judicial process needed to be changed to give citizens a handle on being able to ask for other kinds of remedy, then change it. She believed the statutory changes were misleading. She said this bill was bad legislation and a bad statute and she hoped the committee would not give it serious consideration. Number 411 CO-CHAIR IVAN recognized the attendance by Representatives Elton and Mackie and HB 80 bill sponsor, Representative Jeannette James. He invited questions or comments from the committee members. REPRESENTATIVE KOTT asked whether or not there was anyone from the Department of Law to testify regarding HB 154. CO-CHAIR IVAN answered there wasn't anyone to testify and he wanted to hold the bill over and give Representative Vezey's questions an opportunity to be addressed by a Legal Services consultant. Number 430 REPRESENTATIVE VEZEY stated that he did have a number of questions due to his interest in this topic. He left the option open to the chairman in terms of what Co-Chair Ivan wanted to do with the bill, whether to pass it out to the Judiciary Committee, or to keep it further discussion. Number 434 CO-CHAIR IVAN said that he wished to keep the bill in the committee and work on it to ensure every concern is addressed. HCRA - 02/21/95 HB 80 - DNR APPROVAL OF PLATS IN UNORG BOROUGH CO-CHAIR IVAN invited Representative James to come forward and readdress HB 80. He also recognized those on teleconference waiting to testify on the bill. He also pointed out a letter from the Department of Natural Resources (DNR) addressing technical changes they wished to see made in HB 80. Co-Chair Ivan asked that proposed amendments be submitted at least 24 hours prior to a committee meeting. Number 459 REPRESENTATIVE JEANNETTE JAMES, Sponsor of HB 80, stated the purpose of this bill was brought to her attention because of a plat in her district that didn't fall under a platting authority. She found that the Department of Natural Resources (DNR) was the filing place for plats, but DNR had no authority to review the plats. She said she has worked with surveyors and the DNR to pull the bill together and bring it back in the form worked on during the Seventeenth Legislature, SB 81. Representative James did a comparison between SB 81 and HB 80 and drafted another copy to incorporate everything that had previously been agreed upon by all the parties involved. Representative James wanted Pat Kalen and Ron Swanson to explain how their needs had been met with this bill. Number 487 REPRESENTATIVE IRENE NICHOLIA wanted to know whether the changes mentioned by Rick Elliot in the last committee meeting were the same as Ron Swanson's. Number 491 RICK ELLIOT, Municipal Lands Trustee, Department of Community and Regional Affairs, stated he had not seen the changes and could not offer an answer. Number 493 CO-CHAIR IVAN again stated that proposed changes should be offered to the committee with enough lead time for the committee members to have a chance to look them over before a committee meeting. Number 500 REPRESENTATIVE JAMES said the changes in the bill were directly related from a request by the surveyors in Fairbanks. She stated they tried to incorporate Rick Elliot's concerns into the bill as well as to ensure the agreement of everyone. Number 508 MR. ELLIOT mentioned that he didn't have a copy of the new amendment, but he was familiar with SB 81. Number 514 PAT KALEN, Surveyor, American Congress on Surveying and Mapping, said he had a copy of the committee substitute but he wasn't sure what the other amendments were. Number 516 REPRESENTATIVE JAMES pointed out that the amendments delete the right of way concerns for the Department of Transportation (DOT). She said that DOT had an exemption on these before, but the proposed amendments would change that to make the exemptions specific to airports. MR. KALEN confirmed that his concerns would still be addressed. Number 522 RON SWANSON, Director, Division of Land, Department of Natural Resources, stated he only had a committee substitute. Number 524 REPRESENTATIVE JERRY MACKIE expressed his concerns over the digression from the main topic. He referred to the letter from Ron Swanson and stated that they are all in agreement that the changes were quite technical and could be included in the new committee substitute. He moved that the technical changes offered by Ron Swanson be included in the committee substitute. CO-CHAIR IVAN appreciated the comments and recommendations. Number 546 REPRESENTATIVE VEZEY asked if the new committee substitute had been adopted. Number 549 REPRESENTATIVE KOTT moved to adopt the committee substitute for the purpose of the discussion. Number 552 REPRESENTATIVE MACKIE stated that he already had a motion on the floor requesting that the technical changes be included in the committee substitute before the committee substitute be adopted by the committee. Number 553 CO-CHAIR AUSTERMAN felt that Representative Mackie's motion couldn't be acted upon until the committee substitute was adopted by the committee. Number 555 REPRESENTATIVE MACKIE stated there were two ways it could be done. It could be included into the committee substitute which becomes a part of the working document and then move the committee substitute before the committee. Number 557 CO-CHAIR IVAN accepted the motion put forth by Representative Kott to adopt the committee substitute. Number 559 REPRESENTATIVE MACKIE again moved that Ron Swanson's technical changes be included in the committee substitute. Number 564 REPRESENTATIVE KOTT objected for the purposes of clarification. He pointed out there were two recommended changes, the first dealing with section 40, and the second dealing with the definition of subdivision. He stated that if only part of the letter was going to be adopted, then it needed to be clarified. Number 571 REPRESENTATIVE JAMES stated from her perspective concerning Ron Swanson's amendments, he had two changes with a preference for the second change. She said his changes should be made into two amendments. Number 576 REPRESENTATIVE MACKIE moved to divide the question with a motion to adopt the first portion. Number 579 CO-CHAIR IVAN heard no objection, so it was so ordered. Number 581 REPRESENTATIVE JAMES detailed the options in the second portion of the amendments. Number 587 REPRESENTATIVE VEZEY asked Representative James if she was endorsing the proposed amendments from Ron Swanson. She replied that she was. Number 590 REPRESENTATIVE MACKIE asked Ron Swanson to explain the difference between the two options he'd put forth. Number 593 MR. SWANSON said he had provided two options because he had been presented with two options and he hadn't the time to take it to Legal to ask which option was the better one. His main concern here was that within an airport, any alignments of the runway or roads as it is leased would not be subject to review by the DNR. The external boundary was one of the major concerns. He felt both suggestions were operable, but again he stated his lack of time to go over them thoroughly to discern the best one. Number 602 REPRESENTATIVE VEZEY asked Mr. Swanson why he was advocating a lot of detail in the statute. Number 607 MR. SWANSON felt it wasn't that much detail, but information explaining both options. He talked about the size of corner alignment dependent upon the subdivision. Number 615 REPRESENTATIVE MACKIE stated that he'd pick the second option because of its clarity not due to deletion but to a stipulator addition. He felt the underlined part added to the sentence would solve dedicated right of ways. Representative Mackie moved that the committee accept the language in the second option. Number 622 REPRESENTATIVE VEZEY objected just for the purpose of getting a clearer explanation from the bill sponsor. Number 624 REPRESENTATIVE JAMES pointed out two things she hoped would be accomplished by HB 80. She stated previous problems included exempting various things. Upon the creation of right of ways, DOT wants to locate toward the center of the road. The first part would state that DOT would not be exempt from this any longer. The second stated that providing the right of way boundaries had not previously been dedicated to the public. A "subdivision" would be a right of way not previously dedicated to the public and wouldn't be dedicated to the public. MR. KALEN wanted a fax copy of the proposed definition. MR. SWANSON said he would fax the copy to Mr. Kalen. Number 645 REPRESENTATIVE JAMES stated it was in the bill once, and an exemption was requested, but now it is being added back in. CO-CHAIR IVAN invited Pat Kalen to proceed with his comments. Number 651 MR. KALEN had two comments. He was satisfied with the majority of the committee substitute. He said it retained, to a large extent, the wording of SB 81. The problems with it on his end were over the exemptions. He stated there were little land transactions within the state that were in any unorganized boroughs. He wondered why the exemptions would need to be met in an unorganized borough. MR. KALEN stated his organization was one that worked with various state agencies to develop this legislation. He said he was speaking on behalf of the surveying society. Number 679 REPRESENTATIVE MACKIE clarified that Mr. Kalen was in favor of the committee substitute. Number 680 MR. KALEN stated that for the most part, he and his staff were in favor of the committee substitute. His reservations revolve primarily around the definition of the word "subdivision." He said that in the past, the word was clearly defined based on a definition offered by Senator Leman. He stated that surveyors had originally stopped SB 81 over the confusion of the word "subdivision" and who it applied to. He stated he didn't have any exceptions or exemptions for anyone in his definition. TAPE 95-3, SIDE B Number 000 REPRESENTATIVE MACKIE asked the members to look at the option he moved. He said the option just added into the definition of things not included. He stated one thing not included was right of way boundaries already dedicated. Number 016 REPRESENTATIVE JAMES believed that this option stated right of ways can be adjusted as long as they weren't dedicated to the public, and upon the dedication to the public, it becomes a subdivision. Number 040 REPRESENTATIVE VEZEY mentioned his concern over the amendment. His understanding of the definition of "subdivision" and the committee substitute, extended his belief that it didn't include right of way boundaries. Number 050 REPRESENTATIVE JAMES answered that subdivision had nothing to with right of ways. A "subdivision" was if you put in a right of way and you plat it for public purpose, then it was a "subdivision." If you move a right of way that has previously been moved, then it still was a subdivision. The only time it wasn't, upon moving a right of way, was if it had never been dedicated to the public. Number 060 REPRESENTATIVE VEZEY stated he didn't quite follow. REPRESENTATIVE JAMES said that if you divided a piece of land into two parts, it would be a subdivision, not including cadastral plats, control plats, open to entry plats, and parcel plats. She stated this was providing the right of way boundaries that hadn't been previously dedicated to the public. Upon the adjustment of a right of way that had been dedicated as a plat and was then moved, it was a subdivision again. Historically, when DOT has changed right of ways and taken the monuments from the land or even changed the land one way or another, they pay for taken land and take out their monuments. They then indicated that you had to find your corners by going to the center of the roadway. Those owners then had to undergo surveying because it was a requirement and they were not exempt from doing that. Number 102 REPRESENTATIVE MACKIE stated that Representative Vezey brought up a good point. He agreed with the sponsor, but his problem with it was that the actual language may be a bit confusing. He stated it still accomplished its intention. Number 109 MR. KALEN explained his letter which added language to the definition of "subdivision." He stated that leases were already dealt with in section 40, 50 and 60. He said this bill was headed in the right track, but he stated the wording should be simple. Number 135 CO-CHAIR IVAN stated his appreciation of Mr. Kalen's comments. He asked Representative James what her recommendations would be. Number 139 REPRESENTATIVE JAMES said the right of way boundaries issue would not be deleted and anything creating or adjusting right of way boundaries was a "subdivision" with the exception of an airport, because it was already exempted. She said this referred to the replat of a subdivision and a replat won't be excluded. She said that deleting "or creating or adjusting right of way boundaries" would be the better way to go. Its absence would indicate that it was a "subdivision." Her intent was not to give DOT an exemption for creating or adjusting right of way boundaries and to have them include it in the description of a subdivision. MR. KALEN commented on ways to redefine this definition. REPRESENTATIVE MACKIE asked that testifiers request permission from the chairman for recognition before commenting. Number 179 CO-CHAIR IVAN appreciated the remarks made by Representative Mackie. He then asked Representative James what could be accomplished. Number 181 REPRESENTATIVE JAMES said there was a motion on the floor to accept the second option. She preferred this option be the first option by deleting certain wording, "or creating or adjusting right-of-way boundaries." She then stated she would be happy with the bill with these changes. Number 195 REPRESENTATIVE VEZEY clarified that the original motion was to adopt the second option, but now the motion was to adopt the first option. Number 200 CO-CHAIR IVAN heard no objections and it was so ordered to adopt the first option. He again invited questions and comments from committee members and other testifiers. He pointed out that he would appreciate testifiers request permission to speak rather than interrupting when they wished to say something. He then asked the desire of the committee concerning HB 80. Number 218 REPRESENTATIVE KOTT moved that the committee substitute for HB 80 with the new amendments and with its fiscal notes be moved out of the committee. Number 228 CO-CHAIR IVAN heard no objection, and CSHB 80 was moved out of the CRA Committee with individual recommendations. HCRA - 02/21/95 OVERVIEW: DIVISION OF ENERGY CO-CHAIR IVAN then invited the members from the Division of Energy (DOE) to come forward to give their overview. He first recognized Percy Frisby. Number 243 PERCY FRISBY, Director, Division of Energy, first introduced the staff that he'd brought with him. He wanted Eric Marchegiani to come forward to give his presentation on the various programs within the division. Number 264 ERIC MARCHEGIANI, Manager/Engineering, Division of Energy, Department of Community and Regional Affairs, started with Operation Technical Emergency Assistance (OTE). OTE provides rural technical assistance to communities in the form of engineering which provided bulk fuel and help with the power systems. He said training was also provided through OTE as well as meter installation, data inquisition and emergency prevention. MR. MARCHEGIANI said another program he discussed was the Electrical Systems Life, Health and Safety Improvements where emergency concerns were taken care of immediately. MR. MARCHEGIANI discussed the Business Management Development program which provides assistance to a community's management of utilities. Its work with private enterprise was encouraged. MR. MARCHEGIANI also pointed out their Rural Power Systems Upgrade Program which provided assistance to a community that needed to upgrade their distribution system, their switch gear, or their generators. In some cases, the community had just grown in size. This program works with the community to provide the necessary upgrades. MR. MARCHEGIANI talked about their Bulk Fuel System Spill Prevention Program which dealt with piping systems and correcting them from the fill point to the tank farm. The Coast Guard has worked well with this program to ensure that fuel does get to the remote villages. MR. MARCHEGIANI discussed the Electric Service and Extension Fund which has ongoing projects expected to be finished this year. There was no funding for this last year. MR. MARCHEGIANI then brought up the Circuit Rider Emergency Response Service which was also a maintenance system. This program has three contractors that visit approximately 68 villages on a quarterly basis. They provide training and help provide quick help to get a community's power back on line. According to the village service agreement, the village was responsible for the parts in order for the work to be accomplished. If this was not possible, then an arrangement would be made to try to find funding for that rural community. This was because this program was geared to help the village get trained and do the work in the event of a power outage and unavailability of contractors. He then welcomed questions or comments. Number 346 CO-CHAIR AUSTERMAN asked about the other programs on a contract basis. Number 349 MR. MARCHEGIANI answered that they do contract for other programs, but a lot was put out to bid with distribution systems, generators and services. Number 354 CO-CHAIR AUSTERMAN wanted to know how many of the generation plants were owned by the district or by the state. He was also interested in how the replacement system worked. Number 359 MR. MARCHEGIANI said that whenever work was done in a village, the state didn't own the power system. A grant was usually given to the village with the idea that the village owned their own power plant. Whatever the utility used, the division worked alongside the village that signed a grant agreement to do contracting work and it all depended upon the certain village situation. CO-CHAIR AUSTERMAN asked a question regarding power line systems. MR. MARCHEGIANI replied that he was only aware of two lines owned by the state. He said the community owned their own lines and distribution systems or their own power plants. He stated that all the programs that installed power plants or distribution systems were grant programs. Number 383 CO-CHAIR AUSTERMAN referred to a statement concerning the main problem with bulk fuel tank areas were the feedlines. He asked whether or not a little bit of maintenance could solve this problem. Number 387 MR. FRISBY answered that at the moment, they were complying with the Coast Guard mandate, trying to get delivery systems from the barge to the tank which he referred to as a "band-aid approach." He said they were looking at about $200 million to fix all rural bulk fuel problems. Number 398 CO-CHAIR AUSTERMAN asked if this was due to the amount of money needed to fix up the rural fuel problems. He also wanted to know if the division had been researching any possibilities of the private sector being involved in helping to solve the fuel problems. Number 401 MR. FRISBY acknowledged that they were presently working with three different private entities to work out an agreement where they go into partnerships with the owners of the bulk fuel system. The only way to correct the problem was to get the private sector involved with it. Without the private enterprise or a big influx of money, the problem wouldn't be corrected. Number 410 CO-CHAIR IVAN commented that one of his communities had been looking at the private public sector approach to resolve these problems. He'd also been talking to village fuel owners such as village corporations, municipal governments and school districts. He said that village corporations were ready to invest in improving and purchasing safe fuel containers, however technical assistance from the division was needed to further this motivation. Number 435 MR. FRISBY invited Gloria Manni to address the committee. He said she was in charge of all the loan programs throughout the state. Number 438 GLORIA MANNI, Administration Manager, Division of Energy, DCRA, began with discussing the Bulk Fuel Revolving Loan Fund. This was popular since it was available to communities with a population of less than two thousand. She said loans could be made up to $100,000 for the purchase of bulk fuel. This could occur once or twice during a year. This loan fund could provide up to 90 percent of the value of the purchase of the fuel. All the loans needed to be paid within nine months, so that upon the first repayment, the community could then get another loan for the following year. The interest rate ranged from 0 percent for the first time borrower to 5 percent for the second time borrower, and 7 percent for every loan thereafter. In some cases, the division would waive the interest to permit the repayment of the loan. The village borrowers usually got this loan for heating purposes but sometimes they got it for electrical generation. MS. MANNI described another loan program, the Rural Typification Revolving Loan Fund, which allowed communities to borrow from this fund at a rate of 2 percent interest to extend services to areas previously being served by the state. She said they must have at least three new hookups every time. This program has proven itself to be burdensome to both sides, the division and the borrowers, in such a way that legislators last year requested that the money be reappropriated within the fund and be used to help with bulk fuel repairs. MS. MANNI described another program which was the Power Project Fund Loan, under which a variety of projects could be funded, mostly for electrical generation. It was a very valuable program with an interest rate ranging from 0-7 percent in order to ensure that the project was financially feasible. The DOE has about $22 million in receivable notes from this loan fund, but the loans were made in the early 80s. Number 483 CO-CHAIR AUSTERMAN questioned the tracking record of the loan programs. He wanted to know what kind of default rate there was. Number 486 MS. MANNI replied that some borrowers were late and this was the normal part of doing business. The overall tracking record was good because the loan fund dealt with utilities, so if anyone fell behind, they worked with the utility management to come up with methods to get the money to pay back the state. To date, no loans have been written off, and for some communities, legislation has been passed to turn the loan into a grant. From the division's point of view, Ms. Manni said these programs were doing very well. She said the division was able to collect all the loans by developing a training process to teach communities how to collect and pay back loans. Number 504 CO-CHAIR AUSTERMAN commented on his desire to go more toward the private sector in a number of issues that the state deals with. He would like to see, at some point, the problems solved in the bush with the private sector going in and providing fuel and by carrying the loans on their own and therefore, get into a position where they could provide the fuel tanks and fuel. He said if all these things were tied together as joint deals, the private sector would be able to cover the responsibilities the state currently undertakes. Number 516 MS. MANNI responded that under the Power Project Fund Loan and the Bulk Fuel Revolving Loan Fund, the private sector can borrow as long as they have the sponsorship of the community. A private investor was eligible to come and borrow money for a community project for the benefit of that community. Number 522 CO-CHAIR AUSTERMAN stated that he wanted to get the state out of the loaning business and let the private sector take over the whole process. He said at some point in time, the state and rural communities could end up in this situation if they are allowed to move forward and do away with the present mentality of dependence upon state government to handle all problems. Number 529 REPRESENTATIVE NICHOLIA stated that Co-Chair Austerman should get into private business. Number 532 CO-CHAIR IVAN said he could see communities phasing away from the government but not totally breaking away from it. He also encouraged private lending institutions to come in. Number 536 CO-CHAIR AUSTERMAN stated there would always be areas in which the government would need to be there to help. He said there were a lot of instances where the private sector couldn't help, but they could take over many responsibilities. Number 540 CO-CHAIR IVAN recognized the attendance of Representative Con Bunde. Number 542 MR. FRISBY elaborated more on the remarks made by Co-Chair Austerman. His goal is to "put themselves out of business," especially concerning the bulk fuel systems. The division had approximately $2.7 million to work with bulk fuel upgrades in the rural communities. He said that the division needed approximately $200 million to solve all the current problems. He also agreed that the private sector needed to get more involved in order to help overcome this financial disability. He said that an educational system needed to be established for the rural communities and private enterprise with the goal of looking at the best way to move into the communities. It would be a big learning curve for all involved before results could be seen. Number 557 MS. MANNI said a new fund was established by the legislature in 1993 called the Southeast Energy fund. This fund received an allocation every year from the Four Dam Pool Transfer Fund and it could only be used for grants to be given to a utility participating in transmissions. She then discussed the Power Cost Equalization Fund which covered two programs. The first, the Power Cost Equalization (PCE) Program, helped electrical customers of rural utilities to become eligible for PCE. This fund would help to pay some of the electrical bills in the rural communities. In 1993, this was changed so that residential customers and schools and some private enterprises were the only ones eligible for this. The limit was up to 700 kilowatt hours and big consumers were responsible for paying for the rest of their electrical use. Grants were issued from the Rural Typification Revolving Fund during the annual reappropriation process. Number 583 CO-CHAIR AUSTERMAN asked how much money goes through the Four Dam Pool Fund and how much is appropriated to the Southeast Energy Fund. Number 586 MS. MANNI responded that the 1996 planned budget for the Four Dam Pool is around $10.3 million. Out of that, 40 percent goes to the Southeast Energy Fund and about 40 percent to the Power Cost Equalization Fund and about 20 percent to the Power Project Fund. Number 592 CO-CHAIR IVAN asked if the division had a policy to deal with communities during the winter that were low on fuel. Number 599 MR. FRISBY responded that the community needs to notify the division and then the community and the division work out a solution to get the fuel to the communities. He said the division made sure the fuel was restocked and paid for in full, and in some cases, the division allowed an extension as long as the debt didn't exceed $100,000. He stated they were familiar with dealing with communities and their fuel shortages. Number 614 DICK EMERMAN, Senior Economist, Division of Energy, DCRA, said they were also involved in various projects. He noted that over the past few years, they have managed the feasibility studies for projects like the Sutton-Glennallen Intertie. They also do planning studies upon the request of legislators, utilities or communities. The division is about to bring in a contractor to review the most promising rural transmission projects and to identify and define their costs and possible finance situations. Mr. Emerman stated they were also involved in demonstration projects on alternative energy, the biggest being in Kotzebue, where they were funding a wind demonstration project. Last, he mentioned bulk fuel storage and the vast amount of money needed to correct the current problems. The division staff has just started an effort to get out to communities to work with them to define, in the absence of state grants, what long term solutions would be appropriate for the community. Number 679 CO-CHAIR IVAN recognized Representative Con Bunde and Frank Bettine, President of Alaska Cogeneration Systems. Number 686 REPRESENTATIVE CON BUNDE introduced two of his constituents, Frank and Genivee Bettine. He said they had a proposal that might address some of the serious problems concerning the cost of electrical energy in rural Alaska. TAPE 95-4, SIDE A Number 000 FRANK BETTINE, President, Alaska Cogenerations Systems (ASCI), said his company was formed in 1993 for the purpose of developing coal fired and cogeneration plants throughout Alaska as an energy efficient and environmentally superior alternative to diesel generation by electric utilities. His proposal recommended the use of coal fired generation plants in rural Alaska to replace diesel generation and use the waste heat captured off the combustion cycle to displace millions of gallons of fuel oil that were now being used for space heating purposes throughout the community. This was possible because Alaska Cogeneration Systems was in the process of reactivating and reopening the Evan Jones Coal Mine, home of the highest quality coal in Alaska. MR. BETTINE listed the four principals that made up Alaska Cogeneration Systems. The first being himself, a professional electrical engineer, with extensive Alaska utility experience, as well as an attorney at law. The next person he mentioned was William Steigers, Ph.D., an environmental permitting specialist. The third was Michael Oswald, mechanical engineer who worked as vice-president for Energy Products of Idaho. He was instrumental in developing the fluid ice bid combustion technology for clean coal burning fuel. The last principal for ACSI was Austin Hobbs, another electrical engineer, and also had a sublease for the Evan Jones Coal Mine. MR. BETTINE then disclosed his reasons for being before the committee. His group had been proposing since 1993, to construct a coal fired cogeneration project to supply the energy needed to run a hydroelectric plant. DCRA had been notified several times that ACSI had intended to construct this project to provide Copper Valley's load, but the DCRA was opposed to this project. MR. BETTINE stated their project for Valdez represented a fully integrated resource option. Their proposal was to mine coal at Evan Jones Coal Mine in Valdez that would provide all the electric energy for Copper Valley. The waste heat captured from this plant would instill a need to create a district waste heat system in Valdez, in which the captured waste heat would displace between 2-3 million gallons of fuel used for space heating purposes. The total amount of displaced fuel would be about 6 millions gallons on an annual basis. This would create an extremely high thermal efficiency. MR. BETTINE stated another aspect of their project would be to haul the coal to Valdez in containerized vans. These vans would then be able to back haul solid waste from the surrounding areas of Valdez after they dropped off their coal load and a proposed land fill site would be the strippets from the Evan Jones Coal Mine. ACSI has met with the DCRA and various other organizations that would control this and they felt this would be a great idea. This would not only apply to this community but through all coastal communities in Alaska. MR. BETTINE said the advantages of coal fired cogeneration would be to allow the burning of about 25 percent of the solid waste right on site as a supplemental fuel to the coal, reducing the amount of coal necessary to be hauled from the mine. This mine would also create a centralized landfill for small communities throughout Alaska. MR. BETTINE said the Evan Jones Coal Mine supplied all of Alaska's coal up until about 1960 when it was shut down due to the availability of natural gas. The economic situation is such now that it looks promising to reactivate the coal mine. He stated that the proven reserves of the Evan Jones Coal Mine is around 30 million tons of recoverable coal which is enough to supply 300 tons per year for many years to come. MR. BETTINE identified several people who would like to purchase waste heat, including all the major businesses in Valdez such as the school district, the community college, the Coast Guard, DOT and even the city of Valdez itself. The city of Valdez had very unique ideas on how to use the excess heat to melt snow to keep the street clear because the cost of the heat would be low. They also want to use the heat to construct another fishery on the west part of town and the heat would allow them to build and support a hatchery to grow king salmon. MR. BETTINE stated that based on the parameters contained in the Copper Valley Intertie feasibility study prepared by the DCRA, it's economical to do this. ACSI could make a reasonable profit and charge a reasonable cost for their energy. They would be selling waste heat to selected large consumers, at about 85 percent of what it would cost them to heat their buildings using fuel oil. This money then would go back in and offset rates to all Copper Valley consumers who would all share in the cost of the waste heat. ACSI would be a great demonstration project to show that renewal of coal fired cogeneration technology within the state is viable and it is a good alternative to continue diesel generation. He said that if the shipped coal was spilled in the ocean, it is just an activated charcoal filter, whereas if oil is spilled, it would create an even bigger mess. ACSI is offering Alaska's most abundant resource to provide the energy needs of many of the coastal communities within Alaska. MR. BETTINE continued that a modern coal burning plant is not quite the pollutant it once was and even rivaled a gas plant in cleanliness. A coal plant burns 10 times cleaner than a diesel generator would. This was due to the fact that diesel generators burn at a high temperature, emitting lots of toxins and particulates unable to be seen by the naked eye. A modern coal plant, however, burns at a lower temperature and emits about one- tenth of that given off by a diesel generator. They inject limestone to lower the sulfur dioxide emitted and put bag hoses over the exhaust stream acting like a giant vacuum cleaner bag capturing all the particulates. He stated the only pollution given off by a coal fired cogeneration plant was water vapor and carbon dioxide. MR. BETTINE listed several economic advantages for constructing the Valdez cogeneration project. First, he said you would have the power generation capacity located at CVEA's major load center. Approximately 70 percent of Copper Valley's load is in Valdez, making it advisable to have the plant in Valdez. Another advantage is that it is the least cost option for supplying CVEA's power requirements. Installing a plant would also provide 12 long term jobs in Valdez for plant operators. ACSI would consider entering a 20- to 30-year contract with Copper Valley Electric providing its future requirements. This plant would be providing Valdez consumers an estimated $5 million in additional savings due to the purchase of waste heat. He stated they would be reactivating the Evan Jones Mine in the Valley creating 12 long term jobs and up to 30 mining jobs over a period of three to five years. MR. BETTINE went on to say previous legislators during 1994 stated they wanted to replace diesel generation where possible with local alternative solutions such as coal, and increase existing systems efficiencies by using waste heat and also develop projects that reduce or eliminate diesel generation in rural communities. MR. BETTINE commented that ACSI is trying to meet the requirements of Alaska's energy strategy. Private power developers in the lower United States constructed 50 percent of all new generation put on line last year. ACSI is the first private power developer trying to construct a major cogeneration facility within the state. ACSI has met with resistance from both the DCRA and the state itself. In the lower United States, private power producers are sought highly by utilities because they can produce cheap, reliable power more so than utilities can. A typical power producer would operate his plant at two-thirds the manning of a utility, reducing the cost of charges per kilowatt hour. MR. BETTINE stated that the Nineteenth Legislature was elected on the platform that they would encourage private development and curtail government interference with private industry. He said he was present to ask the government to give the private industry a chance. ACSI wants the government to stop subsidizing Alaska utilities at the expense of private power producers. He specifically asked the legislature, when it comes to the Valdez project, to rescind the legislation that authorized the Sutton- Glennallen Intertie. He asked that legislators not make available the $35 million that was appropriated into the Power Project Loan Fund, but to allow a private power producer to move forward to supply that energy to Copper Valley Electric. He expressed his interest at being eligible to receive some of that money and his company would be willing to take it out as a loan and pay it back with an interest rate ranging from 0 to 7 percent. He again stated that his project was economically feasible, even if they go out on the open market. ACSI would just like to have the equal opportunity that's provided for other utilities throughout the state and have access to lower cost debt financing providing lower cost power. MR. BETTINE also wanted the legislators to look at the present budget situation. He said it wasn't prudent to ask the citizens of the state of Alaska to subsidize a major capital project competing with a private sector project that would provide lower, more economic power for the people. Number 368 CO-CHAIR IVAN requested that the division respond to the overview given by Mr. Bettine, either by letter or personal contact. He said that further interest could be channeled through the different legislators through meetings and letters of opinion. Number 385 REPRESENTATIVE BUNDE asked about shipping coal up the Yukon and Kuskokwim River and how far up would shipping be possible. Number 389 MR. BETTINE answered they have only looked at sending it upriver to Bethel at one-third the cost of shipping fuel oil. ADJOURNMENT CO-CHAIR IVAN ended the meeting and stated that there was no meeting scheduled for Thursday, February 28. He adjourned the meeting at 3:00 p.m.