Legislature(2015 - 2016)HOUSE FINANCE 519

04/14/2016 08:30 AM House FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Recessed to a Call of the Chair --
Moved CSHB 81(FIN) Out of Committee
Heard & Held
Heard & Held
Scheduled but Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
CS FOR SENATE BILL NO. 196(FIN)                                                                                               
     "An Act  relating to the amount  appropriated for power                                                                    
     cost  equalization;  relating  to the  use  of  certain                                                                    
     unexpended  earnings from  the power  cost equalization                                                                    
     endowment fund; and providing for an effective date."                                                                      
9:13:26 AM                                                                                                                    
SENATOR LYMAN  HOFFMAN, SPONSOR,  thanked the  committee for                                                                    
hearing  the bill.  He relayed  that he  had introduced  the                                                                    
bill  due  to ongoing  dialogue  about  how to  utilize  the                                                                    
excess earnings  in the Power Cost  Equalization (PCE) fund.                                                                    
The legislation was designed to  strengthen and save the PCE                                                                    
fund.  He recounted  that the  program existed  for over  30                                                                    
years  and initially  relied on  general  funds but  evolved                                                                    
into  a  true  endowment  that currently  did  not  rely  on                                                                    
appropriations.  Several years  ago the  legislature changed                                                                    
the  way the  fund  was invested  due to  the  high rate  of                                                                    
return of 7 percent. He  indicated that SB 196 addressed two                                                                    
issues; how  much could  be taken from  the earnings  of the                                                                    
fund  and   how  excess  earnings   were  dealt   with.  The                                                                    
withdrawable  amount was  changed from  7 to  5 percent.  He                                                                    
elaborated  that the  legislation  identified  two ways  the                                                                    
excess earnings  were made available;  50% not to  exceed 30                                                                    
million  of  the excess  earnings  were  distributed to  the                                                                    
Community  Assistance  Program  and  20% not  to  exceed  25                                                                    
million were  distributed to the Renewable  Energy Fund, the                                                                    
Bulk Fuel  Revolving Loan Fund,  and the Rural  Power System                                                                    
Upgrades. He  pointed out that  in the  last 12 or  so years                                                                    
the  earnings would  have  met  the needs  for  PCE and  the                                                                    
provisions  for  excess  earnings.  He  recounted  that  the                                                                    
program funded up  to the first 500 kilowatts  of energy. He                                                                    
spoke to  the high power  costs in rural areas.  The program                                                                    
only addressed  the first 500  kilowatts and  many residents                                                                    
in urban  Alaska utilized much  more than that.  He believed                                                                    
it was  good legislation  that ensured  the solvency  of the                                                                    
fund by changing the payout from  7 percent to 5 percent. In                                                                    
addition, the  bill reduced the  dependency on  General Fund                                                                    
(GF)  appropriations  for  the  revenue  sharing  and  rural                                                                    
energy programs.                                                                                                                
9:18:39 AM                                                                                                                    
Representative Gara  spoke to lowering the  payout and asked                                                                    
whether the  amount was taken  from the corpus of  the fund.                                                                    
Senator Hoffman  replied in the  affirmative. Representative                                                                    
Gara  asked  for the  current  total  of the  fund.  Senator                                                                    
Hoffman  replied  that  the   amount  was  approximately  $1                                                                    
billion. Representative Gara stated  that 5 percent amounted                                                                    
to $50  million. Senator Hoffman replied  in the affirmative                                                                    
and  stated  that  currently   PCE  cost  approximately  $43                                                                    
million. Representative  Gara deduced that $7  million would                                                                    
be available for excess funding.  Senator Hoffman replied in                                                                    
the affirmative.                                                                                                                
9:21:21 AM                                                                                                                    
Representative Edgmon  asked the sponsor to  address how the                                                                    
PCE  program  would remain  the  underlying  purpose of  the                                                                    
endowment.  He   wondered  about  how  bundling   the  items                                                                    
together were mutually beneficial  for all programs. Senator                                                                    
Hoffman answered  that the  legislation authorized  that the                                                                    
first use  of the funds were  for PCE. He explained  that if                                                                    
the earnings were  less than $43 million  the earnings would                                                                    
be  depleted and  the remainder  would be  taken out  of the                                                                    
corpus  of the  fund. He  provided  a scenario  that in  the                                                                    
second  year,  if  the  fund earned  100  million  then  $43                                                                    
million  would  pay  PCE,  the   excess  earnings  would  be                                                                    
appropriated and  the remainder would be  deposited into the                                                                    
corpus  of the  fund to  protect it  in case  of lower  than                                                                    
expected  earnings again  in the  future.  The bill  ensured                                                                    
that the  primary purpose  was to  protect the  fund itself.                                                                    
Senator  Hoffman elaborated  that  bundling  the items  were                                                                    
mutually  beneficial   by  assisting  the   revenue  sharing                                                                    
program that would  fund up to the 30 percent  for rural and                                                                    
urban Alaska and  reduced the need for GF as  well as assist                                                                    
with  other energy  programs. He  summarized  that the  bill                                                                    
ensured a solid endowment for  PCE and in good years offered                                                                    
assistance  to  GF  in  the  areas  of  energy  and  revenue                                                                    
9:24:20 AM                                                                                                                    
Co-Chair Neuman  recounted that the  PCE paid for  the first                                                                    
500 kilowatts of  power. He asked what the  average usage in                                                                    
rural Alaska was. Senator Hoffman  answered that average use                                                                    
was  between  500 and  600  kilowatts;  many residents  kept                                                                    
usage at 500 kilowatts due to the high expense.                                                                                 
Representative  Pruitt  addressed the  community  assistance                                                                    
portion.  He asked  whether  the intent  was  that the  bill                                                                    
would help  supplement the normal  level of  revenue sharing                                                                    
funding  or replace  some of  the GF  appropriation. Senator                                                                    
Hoffman  answered  that  the   intent  was  to  relieve  the                                                                    
pressure  on the  general fund  from  the community  revenue                                                                    
sharing by replacing some  GF. Representative Pruitt favored                                                                    
the legislation  and endorsed  the renewable  energy portion                                                                    
of the bill.                                                                                                                    
9:26:18 AM                                                                                                                    
Representative   Munoz   asked   about  the   500   kilowatt                                                                    
threshold.  She asked  whether  the  legislation raised  the                                                                    
threshold.  Senator  Hoffman  replied in  the  negative.  He                                                                    
believed it was more important to protect the endowment.                                                                        
Representative Kawasaki  asked what  the current  PCE payout                                                                    
was.  Senator Hoffman  replied the  amount was  $43 million.                                                                    
Representative Kawasaki pointed to page  2 of FN 2 (CED) and                                                                    
read the following analysis:                                                                                                    
     1) 50% or $30,000,000, whichever is less, to a                                                                             
     community revenue sharing or community assistance                                                                          
     2)  30%  or  $25,000,000,  whichever is  less,  to  the                                                                    
     renewable  energy grant  fund  (AS  42.45.045), to  the                                                                    
     bulk fuel  revolving loan fund  (AS 42.45.250),  or for                                                                    
     rural power system upgrades; and …                                                                                         
Co-Chair   Thompson  noted   that   David  Teal,   Director,                                                                    
Legislative Finance  Division would  be available  to answer                                                                    
fiscal note questions.                                                                                                          
Representative  Kawasaki  did  not think  that  much  excess                                                                    
funds  would be  available on  a "6  percent draw."  Senator                                                                    
Hoffman answered that  in past years the fund  had earned 13                                                                    
percent  but also  experienced losses.  He noted  that there                                                                    
were years  in the past  that the  earnings had been  in the                                                                    
double  digits. Representative  Kawasaki  observed that  Mr.                                                                    
Teal had provided the actual  PCE earnings rates (Power Cost                                                                    
Equalization Endowment Fund  - Impacts of SB 196  - (copy on                                                                    
file). He was  bewildered about the fund  earning 24 percent                                                                    
one year and negative 13  percent within two years. He asked                                                                    
whether money had been added  to increase the earnings rate.                                                                    
Senator Hoffman  answered that  it did  not matter  if money                                                                    
was added  in relation to  the earnings rate.  He delineated                                                                    
that  in  2007  when  the  Four Dam  Pool  was  sold  $182.7                                                                    
thousand was added  to the fund. The last  infusion had been                                                                    
$400 million in  2012 in order to make it  a true endowment.                                                                    
A  few years  ago  the  fund had  become  a true  endowment.                                                                    
Representative Kawasaki was confused  by the linkage between                                                                    
SB 196  and SB  210 (Community  Revenue Sharing/Assistance).                                                                    
Senator  Hoffman responded  that there  had been  discussion                                                                    
about combining the  two bills, but due to  the single topic                                                                    
rule they had been introduced as two bills.                                                                                     
Representative  Wilson stated  that the  two bill's  linkage                                                                    
made  the  current  discussion   difficult  to  follow.  She                                                                    
reiterated  the   provisions  in  SB  196   to  confirm  she                                                                    
understood  how the  legislation worked.  She surmised  that                                                                    
the  committee  needed to  pay  attention  when SB  210  was                                                                    
addressed  due to  the  fact that  the  specific payouts  or                                                                    
whether any excess PCE funds  were available in a given year                                                                    
was based  on a "good"  or "bad  year" in the  stock market.                                                                    
She  noted that  in  a  bad year  no  additional funds  were                                                                    
available  for  community  sharing  as  all  of  the  fund's                                                                    
earnings were  needed for  PCE. She  stated that  the fund's                                                                    
corpus was available  to access for the PCE payout  in a low                                                                    
earnings year  but not the  other programs.  Senator Hoffman                                                                    
answered  in  the affirmative.  He  mentioned  that in  good                                                                    
years  30 percent  of the  earnings would  be added  back to                                                                    
replenish the  corpus due  to the fact  that funds  from the                                                                    
corpus could  be spent in  bad years.  Representative Wilson                                                                    
clarified  that in  low earnings  years  the other  programs                                                                    
would not  receive funding from  the PCE  endowment. Senator                                                                    
Hoffman answered in the affirmative.                                                                                            
9:34:06 AM                                                                                                                    
Representative  Gara  spoke  to  a  book  by  Willy  Hensley                                                                    
stating  that electricity  in rural  Alaska brought  "one of                                                                    
the biggest  transformations" to the bush.  He believed that                                                                    
the  PCE "was  an extension  of that"  and the  provision to                                                                    
spend excess funding  on other state needs  was historic. He                                                                    
asked why  the bill  proposed depositing  30 percent  of the                                                                    
excess funds back into the  corpus. Senator Hoffman restated                                                                    
that the  deposits were  needed to  replenish the  fund when                                                                    
money  were withdrawn  in low  earning's years  in order  to                                                                    
"protect" the corpus of the fund.                                                                                               
Senator Hoffman  provided closing  comments on the  bill. He                                                                    
felt  that  PCE made  life  better  for residents  in  rural                                                                    
Alaska.   He  thanked   the   committee   for  hearing   the                                                                    
Co-Chair Thompson OPENED public testimony.                                                                                      
9:37:08 AM                                                                                                                    
SHIRLEY MARQUARDT, MAYOR, UNALASKA,  spoke in support of the                                                                    
bill. She thanked Senator Hoffman  for his work on the bill.                                                                    
She stated that PCE and  revenue sharing were very important                                                                    
to her region.  She appreciated that the bill  created a new                                                                    
funding vehicle  for revenue sharing, realizing  the funding                                                                    
would  ebb and  flow depending  on the  earnings in  a given                                                                    
year. She asked the legislature  to help relieve some of the                                                                    
financial   strain  on   municipalities   by  finding   more                                                                    
alternative funding avenues for communities.                                                                                    
KATHIE  WASSERMAN,  ALASKA  MUNICIPAL LEAGUE,  testified  in                                                                    
support of  the bill. She  relayed her confidence  and trust                                                                    
in Senator  Hoffman's custodial role over  PCE and community                                                                    
revenue  sharing. She  believed  the legislation  stabilized                                                                    
the  funds as  best as  possible under  the state's  current                                                                    
fiscal crisis.                                                                                                                  
Co-Chair Thompson CLOSED public testimony.                                                                                      
CSSB 196(FIN)  was HEARD and  HELD in committee  for further                                                                    

Document Name Date/Time Subjects
HB 194 CS WORKDRAFT FIN GH1060-S.pdf HFIN 4/14/2016 8:30:00 AM
HB 194
HB 81 CS WORKDRAFT vP.pdf HFIN 4/14/2016 8:30:00 AM
HB 81
House Members - SB 196ce.pdf HFIN 4/14/2016 8:30:00 AM
SB 196
SB 196 Fin updated sectional.pdf HFIN 4/14/2016 8:30:00 AM
SB 196
sb 196 Leg finance spread sheets.pdf HFIN 4/14/2016 8:30:00 AM
SB 196
CSSB 210(FIN) AM - Sectional Analysis.pdf HFIN 4/14/2016 8:30:00 AM
SB 210
CSSB 210(FIN) AM E.A.PDF HFIN 4/14/2016 8:30:00 AM
SB 210
CSSB 210(FIN) AM Sponsor Statement.pdf HFIN 4/14/2016 8:30:00 AM
SB 210
CSSB210(FIN) AM - Community Assistance Distribution.pdf HFIN 4/14/2016 8:30:00 AM
SB 210
HB 81 Summary of Changes Pversion 8 March 2016.pdf HFIN 4/14/2016 8:30:00 AM
HB 81
196 new sponsor statement.pdf HFIN 4/14/2016 8:30:00 AM
SB 196
4 14 16 SB 210 by Borough.pdf HFIN 4/14/2016 8:30:00 AM
SB 210