TAPE HFC 99 - 24, Side 1. TAPE HFC 99 - 24, Side 2. TAPE HFC 99 - 25, Side 1. HOUSE BILL NO. 12 "An Act relating to an easement for the extension of the Alaska Railroad to the Alaska-Canada border." Co-Chair Mulder Moved to Rescind previous action taken on the bill. There being NO OBJECTION, the action was rescinded. The original bill was before the Committee for consideration. Representative J. Davies MOVED to adopt Amendment #1 into HB 12. There being NO OBJECTION, it was adopted. Representative J. Davies explained that the amended language would be placed in a different portion of the statute. Legal Counsel believes that it would make more sense to place it in the section as recommended in Amendment #1. There being NO OBJECTION, Amendment #1 was adopted. Representative J. Davies MOVED to report CS SSHB 12 (FIN) out of Committee with individual recommendations and with the accompanying zero fiscal notes. There being NO OBJECTION, it was so ordered. CS SS HB 12 (FIN) was reported out of Committee with a "do pass" recommendation and with zero fiscal notes by the Department of Natural Resources dated 2/3/99 and Department of Transportation and Public Facilities dated 2/3/99. Co-Chair Therriault pointed out that the previous Committee Report could be used with the addition of Representative Foster's signature as he had not been present at the previous meeting. All Committee members agreed. GENERAL SUBJECT(S): OVERVIEW: ALASKA INDUSTRIAL DEVELOPMENT & EXPORT AUTHORITY OVERVIEW: POWER COST EQUALIZATION REPORT OF THE BLUE RIBBON COMMISSION (The following overview was taken in log note format. Tapes and handouts will be on file with the House Finance Committee through the 21st Legislative Session, contact 465-2156. After the 21st Legislative Session they will be available through the Legislative Library at 465- 3808.) Time Meeting Convened: 1:40 P.M. Tape HFC 99-24, Side 1. Tape HFC 99-24, Side 2. Tape HFC 99-25, Side 1. PRESENT: x Representative G. Davis x Co-Chair Therriault x Representative Foster x Co-Chair Mulder x Representative Grussendorf x Vice-Chair Bunde x Representative Kohring x Representative Austerman x Representative Moses x Representative J. Davies x Representative Williams ALSO PRESENT: REPRESENTATIVE CARL MORGAN; REPRESENTATIVE MARY KAPSNER; REPRESENTATIVE ANDREW HALCRO; RANDY SIMMONS, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT & EXPORT AUTHORITY (AIDEA), DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT; KEITH LAUFER, AIDEA, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT; SAM COTTON, CHAIRMAN, ALASKA PUBLIC UTILITIES COMMISSION, BLUE RIBBON COMMITTEE; JOE GRIFFITH, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE CHANBER OF COMMERCE, BLUE RIBBON COMMITTEE, ANCHROAGE; PERCY FRISBY, DIRECTOR, DIVISION OF ENERGY, DIVISION OF COMMUNITY AND RURAL DEVELOPMENT, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS; RICHARD EMERMAN, PLANER, DIVISION OF ENERGY, DIVISION OF COMMUNITY AND RURAL DEVELOPMENT, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS. LOG SPEAKER DISCUSSION TAPE HFC 99-2 Side 1. 000 Co-Chair Therriault Convened the meeting at 1:40 p.m. Rescinding business of HB 12 was addressed and Amendment #1 was adopted and the bill MOVED from Committee with a "do pass" recommendation and two zero fiscal notes by Department of Natural Resources and Department of Transportation and Public Facilities. Co-Chair Mulder Co-Chair Mulder assumed Chair of the meeting and introduced Mr. Simmons, Executive Director and Mr. Laufer of AIDEA 421 RANDY SIMMONS, EXECUTIVE DIRECTOR, ALASKA INDUSTRIAL DEVELOPMENT EXPORT AUTHORITY (AIDEA) Addressed the mission of AIDEA to promote, develop and advance the general prosperity and economic welfare of AK by creating and retaining jobs and helping to diversity the economic base by financing industrial, manufacturing, export and business enterprise and facilities within AK. 453 Mr. Simmons Spoke to the Page #1 of the handout. He reiterated that the mission is to help promote new jobs. It is a very broad intent of promoting and developing and advancing the general prosperity and economic welfare of Alaskans. 549 Mr. Simmons Spoke to AIDEA's goals which include: 1) Providing business finance assistance throughout Alaska through AIDEA's Credit programs and by participating in or guaranteeing bank originated loans. 608 Mr. Simmons 2) Evaluating potential development projects as they are presented to AIDEA to determine whether the Authority development and ownership meets AIDEA's mandate. 670 Mr. Simmons AIDEA's Programs involve CREDIT and DEVLEOPMENT FINANCE 723 Mr. Simmons Within the credit program is Loan Participation; Business and Export Assistance; and Revenue Bond Program. He noted that AIDEA does no direct loans and that all are in participation with the private sector, which has worked well. 801 Mr. Simmons The second program is the Development Finance, in which AIDEA owned and operated projects must pass through a thorough scrutiny due to a diligence process. There is projects must be financially feasible and endorsed by the local government. Projects requiring more than $10 million dollars in bonding require legislative authorization. 976 Co-Chair Therriault Asked about the various projects. 988 Mr. Simmons Noted that some of the projects could stand on their own. He spoke to purely revenue bonds and revenues which were strong enough to support the bond. 1027 Co-Chair Therriault Asked about Ft. Knox 1036 Mr. Simmons AIDEA only issued the bonds to that rate. 1050 Co-Chair Therriault Asked if one of the companies goes bankrupt would the State by on the hook? 1067 Mr. Simmons No, we would not be liable. 1080 Mr. Simmons Addressed the Development Finance program - the big piece of the AIDEA agreements and has been entered into with the private sector. For AIDEA to take a project like that to the Board, the projects must be financially feasible. 1143 Mr. Simmons Emphasized that projects must be endorsed. 1154 Mr. Simmons Authorization must be received in advance. 1177 Mr. Simmons Suggested that projects could be very time consuming. This category strongly supports an infrastructure. 1202 Mr. Simmons Spoke to the indicated recent accomplishments listed on Page #4. Mr. Simmons Listed the projects: Purchased $40 million in loan participation; Construction completed on the expanded AIDEA owned DMTS; Healy Clean Coal Project; Acquired Snettisham Hydroelectric Project; provided $16 million dividend to the GENERAL FUNDS and maintained triple A bond rating 1302 Mr. Simmons Spoke to the AIDEA Loan Portfolio listed on Page #5. As of June 30, 1998, $40 million dollars in loans are outstanding. 1341 Representative Foster Pointed out that Anchorage has only 40% of population in relationship to the number of projects funded with AIDEA's help. 1363 Mr. Simmons Noted that the loan portfolio has been increasing every year to every section of the State. 1380 Mr. Simmons Page #6-Development Finance Projects indicates direct jobs from each project. He listed the Red-Dog mine; Skagway Ore Terminal, Snettisham Hydroelectric, Alaska Seafood Center. 1436 Representative Grussendorf Asked what is occurring with the Skayway Terminal. 1460 Mr. Simmons There exists 50 mines in the Yukon area which need port facility. It will be a couple of years before substantial use and the benefits of the investment will be felt. 1500 Co-Chair Mulder Is it a lost investment at this time? 1510 Mr. Simmons If facility is used, the money will be coming back to the State. All projects have a secondary use. 1539 Mr. Simmons Stated that Red-Dog Mine is AIDEA's biggest concern although it is the largest zinc mine in the State. 1555 Representative J. Davies Status of Healy operations. 1566 Mr. Simmons Healy was completed in 1997. There has been a lawsuit filed. He stated that he was not willing to go into details of that lawsuit. Although, AIDEA is optimistic that it will work out; the technology appears to be going well. 1620 Mr. Simmons Was comfortable that an agreement would soon be made. 1630 Representative Foster Asked about the aircraft hanger referenced on Page 5. 1652 Mr. Simmons Replied that there are a couple of loans out for air hangers at this time. 1663 Representative Bunde Pointed out that the Skagway Project has been held up because of the cost of minerals. 1677 Mr. Simmons No. There are a number of people in Skagway that want only tourism and not mineral extraction. A few years ago, the majority of people wanted the facility consequently, there has been a separation in that community. 1707 Representative G. Davis Referenced the Ketchikan Ship Yard and asked if AIDEA's economic feasibility study was based on federal dollars. He stated that it was a competitive facility. Would competitor e able to qualify for the fed dollars. 1743 Mr. Simmons When AIDEA took over the facility, it was to make it a viable shipyard. The community lobbied Senator Stevens and that is how the T21 money became available. 1794 Mr. Simmons It will be predicated on jobs. This facility will need future help to be viable. 1816 Co-Chair Mulder What was purchased for the Seward facility? 1831 Mr. Simmons Chenille company offered to operate for payments back with interest, using the capital for upgrades. They have started shipping again in January,1999. The Railroad is negotiating a new contract. 1877 Mr. Simmons Page #7-Potential Development Projects - Kinetic Aviation; Air cargo facilities; Outstanding Bond Authorization 1930 Mr. Simmons Spoke in more detail of the Kinetic Aviation, which promises to be a viable project and will bring in cash to the State. There is new technology tied with it. AIDEA has provided them advice. 1985 Mr. Simmons Air Cargo Facilities - the project is closer to Mapco Wings and is more concerned with the infrastructure costs. They are willing to build out of pocket. The airport, as in other states, should assume payment for those costs. 2045 Mr. Simmons There is a number of outstanding bond authorizations. International cargo facilities; Loading and shipping terminal at Cook Inlet; Kodiak rocket launch complex; Red Dog project improvement; Nome port facilities; Railroad right-of-way in Healy to Denali Park; Hatcher Pass ski resort. 2150 Mr. Simmons Referenced Page #8 - Investments 2176 Mr. Simmons Stated that $250 million dollars in investments has been approached by conservative investing and managed by outside managers. Investments are used for many things. 2207 Mr. Simmons Investment objectives must be sale, liquid, and yield. The Conservative investments are invested in US Treasuries, US Agencies and Corporate bonds rated triple a. TAPE CHANGE HFC 99 - 24 Side 2 000 Mr. Simmons Spoke to the dividend policy. The dividend program was created in 1996 and carefully structured to allow AIDEA to make a contribution to the general fund. 089 Mr. Simmons AIDEA cannot pay any funds for large investments 144 Mr. Simmons Spoke to the unanticipated needs category. Basically AIDEA tries to determine if they have the ability to do the proposed project. Since 1996, 40% of net income has been used for projects from dividends. 238 Mr. Simmons AIDEA now has new accounting procedure called GASMI. There is $8.5 million dollars in net income to date. 282 Mr. Simmons Page #10 - Financial strength must to the dividend program. The Bond Ratings and the Bond Capacity have been working well and have been selling triple an insured bonds. This has been done for the 2nd time with the Healy projects. Underline ratings are A2 and A minus which is good. The dividend program has worked well for AIDEA 408 Mr. Simmons Page 11 Budget History. Looking at ways to cut their budget. AIDEA generates that income that pays for their budget. From that perspective, trying to not affect currently running projects. When it affects operation, they will come to Legislature 489 Co-Chair Therriault Questioned a project occurring in the Fairbanks North Star Borough 507 Mr. Simmons Replied that estimating how to fix that facility and then trying to determine if AIDEA wants to be involved in a project. Initial estimate was $30 thousand dollars. 551 Co-Chair Therriault Local assembly has decided that Co-Chair Therriault is responsible for 30% of mill rate increase. 578 Mr. Simmons From a financial standpoint, AIDEA knows that the facility will be bought. 609 Representative Foster Thanked AIDEA staff for all their help to the rural areas. 638 Representative Bunde Timelines of development for aviation project. 687 Co-Chair Mulder Questioned the book value of AIDEA 706 KEITH LAUFER, AIDEA, DEPARTMENT OF COMMERCE AND ECONOMIC DEVELOPMENT Replied that a total of $975 million, $. 765 Co-Chair Mulder What would happen if AIDEA did not exist? 785 Mr. Simmons AIDEA was created because other conventional financing would not step in. When conventional financing comes into an area AIDEA steps out. Pointed out it would be hard to recreate AIDEA. He noted that the economy will shift. AIDEA does long 25-year loans that would not be financed through conventional loan program. He acknowledged that AIDEA has equity that the state could use. 917 Co-Chair Mulder Pointed out the conflict between the business assistance and 80% banks - loans guaranteed through AIDEA. Are banks more aggressive because of this? 952 Mr. Simmons Possibly although AIDEA does not just take any loan. They must prove to be not too risky. 987 Representative Grussendorf Spoke to the Red-Dog market concern and mine. Selling points is the economic employment of that project. 1027 Co-Chair Mulder Noted the mission statement reference, in that AIDEA is a unique factor and plays an important role for the State. 1055 Mr. Simmons Commented that the mission is to create and maintain such projects, although, can not create projects on their own. 1089 Mr. Simmons The actual mission statement is much more simple 1102 Co-Chair Therriault Has there been any thought about broadening the mission statement. 1121 Mr. Simmons AIDEA is trying to become more proactive. Now trying to look at the process of reducing budget. Currently do not have substantial manpower to be more pro-active work. 1162 Co-Chair Mulder Questioned project from several years ago in export loans. 1181 Mr. Simmons That market has contracted substantially since that original idea. 1200 Mr. Simmons There is loan participation or finance projects that are currently working. AIDEA is better at selling services. That program was modeled after other states. 1255 Representative Kohring How successful is AIDEA in enabling projects in order to make it a reality. He asked the history of the state's investing in that type of project. 1290 Mr. Simmons Red-Dog and Healy are the two best examples. 1300 Representative Kohring He stated that it is projected that there is less likelihood to be that type of project with the current budget scenario. He noted that he had drafted legislation to allow other organizations to front monies and use the State as a pass- through. The idea might work to access the federal dollars without the states 10% money. Thus concluded the testimony given by AIDEA. 1380 Co-Chair Mulder Introduced Sam Cotton, Chairman, Governors Blue Ribbon Commission. 1420 SAM COTTON, CHAIRMAN, ALASKA PUBLIC UTILITIES COMMISSION, BLUE RIBBON COMMITTEE Mr. Cotton noted that Joe Griffith was on line on teleconference. He pointed out the make-up of the Governor's Commission, which includes two members of the legislature. 1519 Mr. Cotton Noted that the Committee was appointed by the Governor to address issues of high cost power and try to determine the reason of the high power costs. 1558 Mr. Cotton Committee adopted a statement of support for the program. Recommended reductions to the program and be cut in +. Facilities should be eligible and that a stable source of funding be established. 1620 Mr. Cotton Legislature is looking for funding other than general funds. IT is important that they consider the other funding scenario impact. It is important to recognize that Alaska is a high cost area. As a federal employee in AK you would receive a 20% cost of living allowance increase. It is a high cost area. 1711 Mr. Cotton He noted that "universal service" is not a new concept. Some services are matched by federal funding. He provided some examples of potential for a universal service fund. There is a great need for this program, with the existing program being funded at $23 million dollars. In the last few years it has been funded at a near 75% level. 1780 Mr. Cotton This is a Blue Ribbon Committee and these are the recommendations made by that Committee to the Governor. 1801 Mr. Cotton Cost of program is $15.7 million dollars. Introduced members of the Committee. 1829 JOE GRIFFITH, (TESTIFIED VIA TELECONFERENCE), ANCHORAGE CHAMPBER OF COMMERCE, BLUE RIBBON COMMITTEE, ANCHORAGE Spoke via teleconference 1862 Mr. Griffith Stated that the numbers referenced are not large. The typical kilowatt amount that a PCE community generates per hour and that the benefit has a substantial impact. Usually this is 31% of community's energy. Twice the amount paid by urban family. The average of consumer pays $71 dollars per month. If the assistance is eliminated, the outlining areas will be placed at financial risk. Without PCE, utilities will be forced to increase rates creating an economic problem and never being able to raise enough revenue to pay rates. 1970 Mr. Griffith To reduce sales by 30% would cause Bush Communities to fail and the burden will fall upon the public users. Much of the public and private infrastructure in rural AK. The State has invested substantial sums into the village areas and we do not want to loose that. 2039 Mr. Griffith Summed up the economic impact. It could equate to a total of 210 jobs in the rail belt area. If rates increase, there will be small generators placed in village areas. 2079 Representative Bunde Commented that an affordable power is a necessity to rural Alaska. TAPE CHANGE HFC 99-25 Side 1 000 Representative Bunde Are we asking urban Alaska to subsidize rural Alaska. What would the per capita expense be? What is the bottom line for the subsidy? 097 RICHARD EMERMAN, PLANNER, DIVISION OF ENERGY, DIVISION OF COMMUNITY AND RURAL DEVELOPMENT, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS Stated that the proposal will generate $8 million dollars per year. $8 million divided by 400 thousand would cost $20 dollars per month. 211 Mr. Emerman Pointed out that Universal service fund to bring down the power or 150% of statewide average. The proposal will assume that $6.5 million would be generated. Price tag would be $14.6 million dollars. 280 Representative Foster Thanked Mr. Cotton on all the work done. He pointed out the section of options. He asked if on Page 4 would any of those options work without the Governor's office support. He asked why no one from that office was in the Committee meeting. 390 Mr. Cotton Executive Branch is still considering these options. 426 Mr. Cotton Administration is interested in continuation of the program. There are recommendations made by the Committee (Blue Ribbon) to the Governor. 465 Representative Foster Noted that he was grateful that there is a plan proposed. 485 Representative J. Davies Noted that there have been a variety of options considered. 510 Mr. Cotton Yes and that the General Fund endowment to fund through 2013 year. The original findings and intent was determined that the Legislature would fund through the year 2013. That was an earlier intent. 590 Mr. Cotton The declining general funds appropriations would use the 4 dam pool receipts, which would extend it through 2010. There is optimism that federal funds will be proposed to help high cost areas throughout America. 662 Mr. Emerman The committee did look at a list of other possible other sources. 695 Mr. Cotton The universal service fund was accepted by the committee, although, that was not the focus. 737 REPRESENTATIVE MARY KAPSNER Spoke to points raised by Representative Bunde. She reiterated that the economies of urban and rural are interdependent. There would be a death-spiral if the rural communities loose PCE. 820 Representative Austerman Asked if the Committee went into depth regarding the amount of money already put into the Blue Ribbon Committee and the benefits resulting from that. 860 Mr. Cotton A growth analysis has not been done specifically on that effort to reduce the cost of power. Analysis on where the energy has gone over the past few years. 950 Mr. Emerman PCE brings down the cost of subsidy. + of kilowatt-hours are eligible for support bringing those prices down. There has been discussion over the inflation and adjusted cost of power over the past few years. There has been discussion regarding why that has occurred and perhaps it is because of the management to reduce the real cost of power. There has been discussion of how low it can go. 1052 Representative Austerman By putting a lot of money into it, will that help the cost? 1074 Mr. Emerman Stated that it would reduce the incentive, but the price to the consumer is still 2x the level of the rest of AK. As a result, average is about 1/2 the level of the rest of AK. 1113 Representative Austerman Thought that if PCE were not funded, then AK would find cheaper ways to use and make electricity. 1136 Representative Austerman Costs associated with the 4 Dam Pool total dollars which have gone to PCE 1160 Mr. Emerman $281 million dollars since 1981. 1174 Representative Austerman Asked the costs since 1993 1185 Mr. Emerman Estimate is $11 million dollars and 40% of that is 11.5% and 4.5 million dollars goes to PCE. 1225 Co-Chair Mulder Noted that Representative Austerman will be the subcommittee chairman of DCRA, and that he will address this issue. 1250 Mr. Cotton Noted that at PCE all bills are monitored. 1262 Representative Foster Referenced Page 18, C-1, if the Legislature does not address this issue, what would the ax day be. 1289 Mr. Emerman Replied approximately 2 months or by August 1st. 1315 Representative Kohring Echoed Representative Austerman sentiments and the positive things if it were handled differently. He recommended infrastructure to sustain rural AK. There are other sources of money to tap. Establish a new fund called the AK Energy Association. Assess what are the needs? What are the priority items which should be considered. How does the State choose which are the essential programs in the State budget. 1495 Representative Bunde Commented on Page7, asking if it had benefit to rural AK at $700 per year. Has that been a constant? 1550 Mr. Cotton No sure but will provide that info. 1560 Mr. Emerman Stable funding have been consistent. 1575 Co-Chair Mulder Questioned the amount that it would take to capitalize a fund for this program through 2013 1602 Mr. Cotton $75 million dollars. 1610 Co-Chair Mulder That was the amount capitalized in 1993 1625 Mr. Emerman It assumes that in 2013, it assumes that money is gone, both interest and principles. 1644 Co-Chair Mulder Are there greater restrictions? Why would this $75 million last longer than the 1st $75 1670 Mr. Emerman Assumption that more would come from the 4 Dam Pool factors and capping it at $17 million per year. 1700 Representative Austerman Cutting in half the amount expected to be received. 1720 Mr. Cotton Not everyone will be receiving it. 1730 Mr. Cotton If fully funded, the existing formula would receive it; although it has not been fully funded in a number of years. 1758 Representative Williams Questioned how much funding has been placed into oil throughout the State and power grids. 1788 Mr. Cotton Will provide that info and included matches for many projects. That list indicates who benefited on a per capita basis. That info will be provided. 1821 Representative Williams What was it like prior to PCE funding? 1838 Mr. Cotton A list of power grids before state dollars. 1851 Representative Foster Asked Percy Frisby for his comments on the program. 1871 PERCY FRISBY, DIRECTOR, DIVISION OF ENERGY, DIVISION OF COMMUNITY AND RURAL DEVELOPMENT, DEPARTMENT OF COMMUNITY AND REGIONAL AFFAIRS The Division is looking at all the options to develop alternatives. The Administration is passing information from the Blue Ribbon Committee. Trying to assemble whatever the recommendations are. 1952 Representative Williams Has the Blue Ribbon Commission considered a sale of the 4 dam Pool to the rural communities. 1976 Mr. Cotton That is a complex issue and would be a big job and it has not been explored. 1993 Co-Chair Mulder What is the real value of the 4 Dam Pool 2005 Representative Moses Only fair to look at the surcharge aspect of the concern. There is a lot more potential in the State, but the needs do not make it feasible. It would take a state match to do it. On going programs create possibilities to use diesel fuel to reduce the rates. In the meantime, share the benefits and distribute the surcharge. 2079 Rep. Kasner What is the potential of rural AK to hook into Railbelt power. 2094 Mr. Cotton Possibly prohibitive. There may be some regional bulk fuel storage. Intertie funding makes it difficult to justify. 2136 REPRESENTATIVE ANDREW HALCRO Questioned switching the benefit to the user. Has there been discussion on putting it on the user. 2166 Mr. Cotton There has been consideration of that. He explained the subsidy. 2184 Rep. Halcro In 1985, looking over the history of the PCE program, there has been no attempt to wein the communities off the program. We have created the subsidy and no attempt to lessen it to subsidize. 2234 Mr. Cotton There are ways to reduce the program by reducing the benefits to the recipients. 2270 Mr. Cotton Not typical of most of area is the technology to make improvements. Bulk fuel storage is a possibility, and the only way to get electricity is with diesel generator. 2305 Representative Foster Commented that over the last 11 years, this is one of the most important issues, which has ever affected Bush Alaska. He urged the Governor to support Bush AK. 2338 ADJOURNED Co-Chair Mulder adjourned the HFC meeting at 3:50 P.M. HOUSE FINANCE COMMITTEE LOG NOTES February 18, 1999 1 2/18/99