Legislature(2009 - 2010)

04/13/2010 09:46 AM House FIN

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* first hearing in first committee of referral
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SENATE BILL NO. 301                                                                                                             
     "An   Act   relating   to  the   power   project   fund;                                                                   
     authorizing  the Alaska Energy  Authority to  charge and                                                                   
     collect  fees  relating   to  the  power  project  fund;                                                                   
     authorizing  the  Alaska Energy  Authority  to sell  and                                                                   
     authorizing   the  Alaska  Industrial   Development  and                                                                   
     Export  Authority   to  purchase  loans  of   the  power                                                                   
     project  fund; providing  legislative  approval for  the                                                                   
     sale  and purchase of  loans of  the power project  fund                                                                   
     under  the memorandum  of  understanding dated  February                                                                   
     17, 2010; and providing for an effective date."                                                                            
1:42:41 PM                                                                                                                    
SARAH  FISHER-GOAD,  DEPUTY DIRECTOR  OF  OPERATIONS,  ALASKA                                                                   
ENERGY  AUTHORITY,  DEPARTMENT  OF  COMMERCE,  COMMUNITY  AND                                                                   
ECONOMIC   DEVELOPMENT,  introduced   the  legislation.   She                                                                   
explained  that  SB  201  is an  act  related  to  the  power                                                                   
project fund  that allows the  Alaska Energy Authority  (AEA)                                                                   
to  sell loans  from the  power  project fund  to the  Alaska                                                                   
Industrial Development and Export  Authority, (AIDEA).It also                                                                   
authorizes  AEA to charge  and collect  fees relating  to the                                                                   
power   project  fund.   Currently,  AEA   does  not   charge                                                                   
application   or  origination   fees.  AEA   would  like   to                                                                   
establish  an appropriate  fee  schedule through  regulations                                                                   
and a public process.                                                                                                           
Ms. Fisher-Goad expounded  that the power project  fund is an                                                                   
AEA  revolving  fund  that  is   primarily  used  by  smaller                                                                   
utilities  for  energy  projects.  The  fund  has  diminished                                                                   
recently  because of  increased  demand  to fund  alternative                                                                   
energy  projects. The  AIDEA purchase  of  the power  project                                                                   
fund  loan portfolio  would re-capitalize  the power  project                                                                   
fund with additional funds of approximately $21.6 million.                                                                      
Ms. Fisher-Goad  concluded that  the loan  purchase is  a way                                                                   
to re-capitalize  the power project  fund without the  use of                                                                   
general funds.                                                                                                                  
1:45:53 PM                                                                                                                    
Representative Doogan  queried what the interest  rate was on                                                                   
the loans.  Ms. Fisher-Goad replied  that the  statutory rate                                                                   
was  the municipal  tax  exempt  rate  that varies  based  on                                                                   
revenue  bonds that  are currently  5.23  percent. She  noted                                                                   
that AEA has  the statutory authority to make  adjustments to                                                                   
the  rate  and decrease  the  interest  rate lower  that  the                                                                   
revenue bond rate.                                                                                                              
Representative  Austerman asked how  much money is  currently                                                                   
in the  revolving loan  fund. Ms.  Fisher-Goad answered  that                                                                   
the  cash value  was slightly  above $5  million on  February                                                                   
28, 2010.                                                                                                                       
Co-Chair Stoltze opened public testimony.                                                                                       
Co-Chair Stoltze closed public testimony.                                                                                       
Vice-Chair   Thomas  MOVED   to  ADOPT   Amendment  1,   (26-                                                                   
GS2974\A.1, Kane, 4/12/10):                                                                                                     
     Page 1, line 6, following "2010;":                                                                                         
          Insert "providing legislative approval for a loan                                                                     
     from the power project fund for the Reynolds Creek                                                                         
     hydroelectric project;"                                                                                                    
     Page 3, following line 11:                                                                                                 
          Insert a new bill section to read:                                                                                    
          "*Sec. 6. The uncodified law of the State of                                                                          
     Alaska is amended by adding a new section to read:                                                                         
          LESISLATIVE APPROVAL OF LOAN FROM THE POWER                                                                           
     PROJECT  FUND.  Provided  the  Alaska  Energy  Authority                                                                   
     approves  a loan  for the  Reynolds Creek  hydroelectric                                                                   
     project,  the legislature  authorizes the Alaska  Energy                                                                   
     Authority  to loan  $9,000,000  from  the power  project                                                                   
     fund   (AS    42.45.010)   for   the    Reynolds   Creek                                                                   
     hydroelectric   project.    This   section   constitutes                                                                   
     legislative  approval under AS  42.45.010(j) for  a loan                                                                   
     from the fund that exceeds $5,000,000."                                                                                    
     Renumber the following bill sections accordingly.                                                                          
Co-Chair Stoltze OBJECTED.                                                                                                      
Ms.   Fisher-Goad  explained   that   amendment  number   one                                                                   
provides  for   project  approval  for  the   Reynolds  Creek                                                                   
hydroelectric project.  A loan exceeding $5,000,000  from the                                                                   
fund requires legislative approval.                                                                                             
Representative  Doogan asked if  the $5 million  approval was                                                                   
exclusively  for loan  funds  or a  combination  of loan  and                                                                   
grant  funds.  Ms.  Fisher-Goad  answered  that  whether  the                                                                   
funding is comprised  of all loans or a combination  of loans                                                                   
and grants  legislative approval is  needed for a  project if                                                                   
the funds exceed $5 million.                                                                                                    
1:50:56 PM                                                                                                                    
Representative Kelly  asked if the approval for  the Reynolds                                                                   
Creek Hydroelectric  project interferes  in any way  with the                                                                   
credit  approval  process  for   the  loan.  Ms.  Fisher-Goad                                                                   
replied  that  it  does  not.  The  project  is  pending  AEA                                                                   
Representative Kelly asked where the project is located.                                                                        
Vice-Chair  Thomas answered  that the project  is located  in                                                                   
Hydaburg  on Prince  of Wales  Island. He  noted that  Alaska                                                                   
Power and  Telephone and Haida  Corporation has  been working                                                                   
on the project together for several years.                                                                                      
Representative  Kelly wondered how  close the project  was to                                                                   
being ready  or were other  projects being displaced  by this                                                                   
approval.  Ms. Fisher-Goad  replied that  there is one  other                                                                   
pending application  located in St George. She  believed that                                                                   
there will  be enough money in  the fund for these  and other                                                                   
potential projects.                                                                                                             
Co-Chair  Stoltze  WITHDREW  his OBJECTION.  There  being  NO                                                                   
further OBJECTION, Amendment 1 was ADOPTED.                                                                                     
1:54:00 PM                                                                                                                    
Representative  Austerman  asked  for  clarification  of  the                                                                   
approximately  $20.6  million  loan  purchase  by  AIDEA  for                                                                   
AEA's  [outstanding] power  project fund  loans as  described                                                                   
in  the fiscal  notes  [FN3 CED,  FN3  CED]. Ms.  Fisher-Goad                                                                   
responded  that  the  estimated $20.6  million  represents  a                                                                   
discounted  amount based  upon the  future cash  flow of  the                                                                   
loan payments. The  discount rate was established  based upon                                                                   
AIDEA's investment  rate [return  on investments for  a three                                                                   
year period  ending September 30,  2009]. She noted  that the                                                                   
list  of   loans  is   included  with   the  "Memorandum   of                                                                   
Understanding"    ["Exhibit    A"]    (copies    on    file).                                                                   
Representative  Austerman reiterated  that the proceeds  from                                                                   
the  loan sale  will replenish  the  power project  revolving                                                                   
loan  fund. Ms.  Fisher-Goad  affirmed.  She added  that  AEA                                                                   
anticipates increased  demand for the power project  fund and                                                                   
might   need   additional   loan   funds   in   the   future.                                                                   
Representative  Austerman  wondered  what  the value  of  the                                                                   
revolving loan is.  Ms. Fisher-Goad responded that  the value                                                                   
of the  loan fund is approximately  $34 million  comprised of                                                                   
available   cash   and  outstanding   loans.   Representative                                                                   
Austerman   asked   what   the    amount   of   the   initial                                                                   
capitalization  of   the  loan  fund  was.   Ms.  Fisher-Goad                                                                   
replied that she did not know.                                                                                                  
1:57:07 PM                                                                                                                    
Vice-Chair  Thomas asked  if there is  a pre-payment  penalty                                                                   
if the borrower  has the ability  to pay the loan  off early.                                                                   
Ms.  Fisher-Goad  answered  that  no,  there is  not  a  pre-                                                                   
payment penalty.                                                                                                                
Representative  Austerman asked  if  AIDEA previously  bought                                                                   
down the loan to revitalize the revolving loan. Ms. Fisher-                                                                     
Goad  negated.  Representative   Austerman  wondered  if  the                                                                   
revolving  loan fund  would be  able to  continue to  provide                                                                   
loans  if  AIDEA  did not  buy  the  loans.  Ms.  Fisher-Goad                                                                   
reported  that there  is a  capital  budget appropriation  in                                                                   
the Senate  version of SB 230  that provides for  $10 million                                                                   
capitalization  of the  program that would  provide funds  if                                                                   
appropriated.  That would  allow the  Reynolds Creek  project                                                                   
and the  project in  St. George  to proceed  but would  limit                                                                   
future requests.                                                                                                                
Representative   Austerman   questioned   re-capitalizing   a                                                                   
revolving loan fund.                                                                                                            
2:00:42 PM                                                                                                                    
Representative  Salmon  queried  the size  of  the  [Reynolds                                                                   
Creek] project and how many people would be served.                                                                             
STEVEN   HAAGENSON,   EXECUTIVE   DIRECTOR,   ALASKA   ENERGY                                                                   
AUTHORITY,  DEPARTMENT OF  COMMERCE,  COMMUNITY AND  ECONOMIC                                                                   
DEVELOPMENT,  explained that  the Haida  Energy Company  will                                                                   
sell the power  to the local utility, AP&T  and will generate                                                                   
approximately 25  million kilowatt hours  of energy and  is a                                                                   
10 megawatt project. It will provide  power for the people of                                                                   
Vice-Chair Thomas  added that the project will  intertie with                                                                   
two existing  hydropower projects  and provide power  for the                                                                   
entire  Prince of  Wales Island  population of  approximately                                                                   
3,000 and several mines.                                                                                                        
Representative   Doogan  asked   what  the   effect  of   the                                                                   
legislation will have on AIDEA's finances.                                                                                      
TED   LEONARD,   EXECUTIVE   DIRECTOR,    ALASKA   INDUSTRIAL                                                                   
DEVELOPMENT  AND EXPORT  AUTHORITY,  DEPARTMENT OF  COMMERCE,                                                                   
COMMUNITY AND ECONOMIC DEVELOPMENT,  explained that the $20.6                                                                   
million purchase price represents  $24.7 million worth of the                                                                   
actual value of the loans at the  discounted interest rate of                                                                   
6.02 percent  which is  equivalent to the  rate of  return on                                                                   
AIDEA's investments  for the last  three years. He  felt that                                                                   
this  was  a  risk  free  investment.   He  believed  it  was                                                                   
consistent   with   AIDEA's   mission   and   increases   the                                                                   
opportunity to  develop more  alternative energy  projects in                                                                   
the rural areas.                                                                                                                
Representative   Doogan   asked   if  AIDEA   performed   and                                                                   
independent  assessment of  the loan  portfolio. Mr.  Leonard                                                                   
replied that AIDEA assed the loans and the risks.                                                                               
2:07:33 PM                                                                                                                    
Representative Austerman  asked what the default  rate on the                                                                   
revolving loan was.                                                                                                             
Mr. Haagenson  answered that  only one  loan was possibly  in                                                                   
Representative  Austerman  queried  the need  for  additional                                                                   
funding for  a revolving loan  fund. Mr. Haagenson  responded                                                                   
that the  funds are  fully deployed  because the program  has                                                                   
been popular.  AEA anticipates  increased use of  the program                                                                   
in  the future.  He stated  that HB  306 [page  1, lines  12-                                                                   
13],["An  Act declaring  a  state energy  policy."] [(4)  The                                                                   
power project  fund (AS 42.45.010)  serve as the  main source                                                                   
of state assistance  for energy projects;] stipulates  use of                                                                   
the  energy  fund  as  a  vehicle  to  move  energy  projects                                                                   
forward.  He  stated  that  SB   301  is  an  effort  to  re-                                                                   
capitalize the fund in order to have more funds available.                                                                      
Representative Kelly  asked whether construction  of Reynolds                                                                   
Creek would  affect the Power  Cost Equalization  (PCE) rate.                                                                   
Ms. Fisher-Goad  responded that she  was not sure if  the PCE                                                                   
rate will be impacted.                                                                                                          
Vice-Chair Thomas  interjected that Gustavus, a  community in                                                                   
his  district, lowered  their  energy costs  when  hydropower                                                                   
became available which lowered their PCE needs.                                                                                 
Representative  Kelly requested  annual reports  to track  if                                                                   
hydropower is less expensive that diesel.                                                                                       
2:11:41 PM                                                                                                                    
Representative  Fairclough asked if  AEA has other  revolving                                                                   
loan  funds. Ms.  Fisher-Goad  reported that  the only  other                                                                   
revolving  loan   fund  is  the  bulk  fuel   revolving  loan                                                                   
program.   The   program   offers  nine   month   loans   for                                                                   
communities that  must purchase  their annual supply  of fuel                                                                   
in bulk.                                                                                                                        
Representative Fairclough  asked if AEA adopted  regulations,                                                                   
standards and procedures  to make the loans.  Ms. Fisher-Goad                                                                   
replied  that  yes, there  are  underwriting  procedures  for                                                                   
both loan programs.                                                                                                             
Representative    Fairclough     reiterated    Representative                                                                   
Austerman's  concerns   about  why  a  revolving   loan  fund                                                                   
requires more  capitalization. She  wondered if the  loan and                                                                   
investment  procedures  were   properly  paced  in  order  to                                                                   
recharge the fund.                                                                                                              
Mr.  Haagenson  restated  that  the requests  for  loans  are                                                                   
outstripping the amount of revenue returning to the fund.                                                                       
Ms. Fisher-Goad  added there are  two types of assets  in the                                                                   
power  project fund;  loans receivable  and  cash. There  are                                                                   
presently  more assets  in loans  receivable  than cash.  The                                                                   
plan is  to sell the  loans receivable  to AIDEA  to increase                                                                   
the cash assets to meet increased loan demand.                                                                                  
Representative  Fairclough questioned  the management  intent                                                                   
of  the revolving  loan funds.  Ms.  Fisher-Goad pointed  out                                                                   
that the  bulk fuel  revolving loan  fund was  re-capitalized                                                                   
by  the  legislature  during the  special  session  in  2008.                                                                   
Representative  Fairclough  reiterated   that  she  does  not                                                                   
understand how a  revolving loan fund can be  spent down. She                                                                   
asked if  AIDEA had  regulations that  would manage  the fund                                                                   
so that the cash assets would not be depleted.                                                                                  
2:16:16 PM                                                                                                                    
Mr. Haagenson replied  the bulk fuel loan funds  are based on                                                                   
short-term  loans and  easier  to manage.  The power  project                                                                   
fund has much longer loan periods, up to 20 years.                                                                              
Representative  Kelly asked  if  AEA is  meeting the  reserve                                                                   
requirements  for the revolving  loan funds. Ms.  Fisher-Goad                                                                   
answered that currently there are no delinquencies.                                                                             
Representative  Kelly acknowledged  that the  fund "has  been                                                                   
overtaken by  success". He questioned  the overall  health of                                                                   
the fund. Ms. Fisher-Goad believed the fund was healthy.                                                                        
Representative  Fairclough  believed that  the  fund was  not                                                                   
healthy   or  managed   properly  since   the  fund  is   not                                                                   
revolving.  She felt  the  management authority  should  have                                                                   
acted  more proactively  and  requested  more funding  before                                                                   
the cash  assets were  drawn down.  She asked  if AIDEA  will                                                                   
keep the loan fund revolving.                                                                                                   
Mr. Leonard answered  that AIDEA is strictly  buying the loan                                                                   
portfolio as an  investment, and not taking over  any role in                                                                   
management of the fund.                                                                                                         
2:20:33 PM                                                                                                                    
Representative  Austerman  wondered  why  AEA is  willing  to                                                                   
give  up  $4  million worth  of  loan  portfolio  instead  of                                                                   
recapitalizing  through  the  direct  appropriation  via  the                                                                   
capital  budget  (SB  230). Mr.  Haagenson  shared  that  the                                                                   
current  route  seemed  more available  than  obtaining  that                                                                   
amount of general fund money.                                                                                                   
Co-Chair  Hawker noted  that  all of  the  fiscal notes  (FN1                                                                   
(DOT), FN2 (REV), FN3 (CED), and FN4 (CED)) were zero.                                                                          
Vice-Chair  Thomas MOVED to  report SB  301 out of  Committee                                                                   
with individual  recommendations and the  accompanying fiscal                                                                   
notes. There being NO OBJECTION, it was so ordered.                                                                             
SB  301  was REPORTED  out  of  Committee  with a  "do  pass"                                                                   
recommendation  with previously  published fiscal notes:  FN1                                                                   
(DOT), FN2 (REV), FN3 (CED), FN4 (CED)                                                                                          

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