Legislature(2017 - 2018)BELTZ 105 (TSBldg)

04/17/2018 03:30 PM COMMUNITY & REGIONAL AFFAIRS

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03:54:23 PM Start
03:54:41 PM HB374
04:27:41 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ HB 374 ON-BILL FINANCING OF ENERGY IMPROVEMENTS TELECONFERENCED
Heard & Held
        HB 374-ON-BILL FINANCING OF ENERGY IMPROVEMENTS                                                                     
                                                                                                                                
3:54:41 PM                                                                                                                    
CHAIR BISHOP  announced consideration of HB  374. [CSHB 374(L&C),                                                               
version 30-LS1333\E, was before the committee.]                                                                                 
                                                                                                                                
REPRESENTATIVE   WOOL,   sponsor   of  HB   374,   Alaska   State                                                               
Legislature,  Juneau,  Alaska, said  HB  374  is similar  to  the                                                               
Commercial   Property   Assessed   Clean  Energy   Act   (C-PACE)                                                               
legislation  adopted   last  year  to  help   finance  commercial                                                               
property energy  efficiency. HB 374 is  primarily for residential                                                               
properties. It  would allow  a utility  to voluntarily  create an                                                               
on-bill  financing  program  to  help  customers  finance  energy                                                               
improvements.  The  on-bill  financing   program  would  allow  a                                                               
utility customer  to borrow money  for an energy  improvement and                                                               
then repay it through their utility bill.                                                                                       
                                                                                                                                
He explained  that the utility  could finance the  program itself                                                               
or borrow  the money  from a  bank at  no cost  to the  state. It                                                               
could  cover the  cost  of  the program  by  charging a  slightly                                                               
higher interest rate on the loans  to customers than it is paying                                                               
to the  bank. The  improvement must  utilize renewable  energy or                                                               
include switching to a more efficient  device or a fuel that does                                                               
not increase green house gas emissions.                                                                                         
                                                                                                                                
REPRESENTATIVE WOOL  said HB 374  will be particularly  useful as                                                               
the Interior Energy Project in  Fairbanks expands its reach and a                                                               
large number  of Fairbanks residents  choose to convert  from oil                                                               
to  natural gas.  A  lot  of people  were  surveyed  and want  to                                                               
convert but it costs too much to do all at once.                                                                                
                                                                                                                                
Examples of energy  improvements could be adding  solar panels, a                                                               
new water heater,  converting from oil to gas,  or using district                                                               
heat or  steam. An individual  utility can choose which  types of                                                               
improvements they want to use and can also choose not to do a                                                                   
program if they don't want to. It's entirely voluntary.                                                                         
                                                                                                                                
REPRESENTATIVE WOOL added that HB 374 provides an optional tool                                                                 
for utilities and their customers to lower energy costs and                                                                     
increase air quality, especially in Fairbanks.                                                                                  
                                                                                                                                
3:57:44 PM                                                                                                                    
ROB EARL, staff to Representative Wool, Alaska State                                                                            
Legislature, Juneau, Alaska, provided a sectional analysis for                                                                  
HB 374 as follows:                                                                                                              
                                                                                                                                
     Sec. 42.05.750  On-bill financing of  energy efficiency                                                                    
     improvements: authorization and eligibility.                                                                               
     (a)  Allows   a  utility  to  enter   into  an  on-bill                                                                    
     financing agreement  with a customer to  finance energy                                                                    
     conservation  systems. The  agreement provides  for the                                                                    
     utility  to cover  costs through  a meter  conservation                                                                    
     charge on the customer's utility bill.                                                                                     
     (b)  Building must  be occupied  and not  under initial                                                                    
     construction to be eligible.                                                                                               
     (c)  The  interest rate  on  the  loan to  finance  the                                                                    
     energy improvement must be fixed.                                                                                          
     (d)  Balance  of  loan  may be  paid  in  full  without                                                                    
     penalty at any time.                                                                                                       
     (e)  Nothing  in this  section  requires  a utility  to                                                                    
     enter  into an  agreement with  a specific  customer or                                                                    
     for a specific devise or system.                                                                                           
                                                                                                                                
     Sec. 42.05.751 Meter conservation charge.                                                                                  
                                                                                                                                
     (a) A meter conservation charge  may be used to recover                                                                    
     actual  costs,  including   administrative  costs,  and                                                                    
     repayment of costs performed by a third party.                                                                             
     (b)  To  recover  costs   under  an  on-bill  financing                                                                    
     agreement, a  utility may  assess a  meter conservation                                                                    
     charge on  the customer who initially  entered into the                                                                    
     on-bill financing agreement;  or a subsequent purchaser                                                                    
     of the property.                                                                                                           
     (c)  A meter  conservation charge  must be  shown as  a                                                                    
     separate item on a customer's bill.                                                                                        
     (d)  A  utility  may  treat  failure  to  pay  a  meter                                                                    
     conservation  charge the  same  as failure  to pay  the                                                                    
     utility or  gas account  and may disconnect  service in                                                                    
     response to  non-payment. A utility  may not  remove an                                                                    
     energy improvement system in response to non-payment.                                                                      
     (e)   Money  collected   by  a   utility  as   a  meter                                                                    
     conservation charge may not be taxed as revenue.                                                                           
     (f) The billing and  collection of a meter conservation                                                                    
     charge  does not  subject a  utility to  the laws  that                                                                    
     regulate financial institutions.                                                                                           
                                                                                                                                
     Sec.  42.05.752 Notice  of on-bill  financing agreement                                                                    
     and meter conservation charge.                                                                                             
                                                                                                                                
     (a)  A utility  that enters  into an  on-bill financing                                                                    
     agreement must  file notice of the  agreement, intended                                                                    
     to  give   a  subsequent  purchaser  notice   that  the                                                                    
     building is subject to a meter conservation charge.                                                                        
     (b)  A  utility  must  file   notice  when  an  on-bill                                                                    
     financing agreement is paid in full.                                                                                       
                                                                                                                                
     Sec.  42.05.753  Transferability  of  on-bill financing                                                                    
     balances  to  subsequent  purchasers.  A  utility  that                                                                    
     enters into an on-bill  financing agreement may recover                                                                    
     costs from a subsequent purchaser.                                                                                         
                                                                                                                                
     Sec. 42.05.754 Rental Property.                                                                                            
                                                                                                                                
     (a)  A  utility  may  recover costs  under  an  on-bill                                                                    
     financing agreement  by accessing a  meter conservation                                                                    
     charge for  a rental property  only if the  landlord is                                                                    
     responsible for the entire  utility bill, including the                                                                    
     meter conservation charge.                                                                                                 
                                                                                                                                
     Sec.   42.05.755   Third   parties;   contracting   and                                                                    
     liability.                                                                                                                 
                                                                                                                                
     (a)  A utility  may  contract with  a  third party  for                                                                    
     financing the costs of an energy conservation system.                                                                      
     (b) If  a third  party installs, operates  or maintains                                                                    
     the  energy conservation  system,  the  utility is  not                                                                    
     liable  for  these  functions and  may  not  provide  a                                                                    
     warranty of fitness on the system.                                                                                         
     (c)  When a  utility contracts  with a  third party  to                                                                    
     perform  administrative or  financing functions:  (1) &                                                                    
     (2)  The  third party  is  not  liable for  the  energy                                                                    
     conservation system  and may not provide  a warranty of                                                                    
     fitness on the system.                                                                                                     
     (d)  The provisions  in (b)  and (c)  above may  not be                                                                    
     construed to  impair the rights  of a  utility customer                                                                    
     against  any  parties  involved   in  the  purchase  or                                                                    
     installation of an energy conservation system.                                                                             
                                                                                                                                
     Sec. 42.05.756. Definitions.                                                                                               
                                                                                                                                
     (1)  "energy  conservation  system"  includes  a  fuel-                                                                    
     switching system that does  not increase greenhouse gas                                                                    
     emissions and  is either more  efficient or  results in                                                                    
     lower fuel expenses.                                                                                                       
     (2) "meter  conservation charge" means a  charge placed                                                                    
     on  a  customer's utility  bill  by  which the  utility                                                                    
     recovers  all  costs  related  to  the  utility  having                                                                    
     entered into  an on-bill  financing agreement  with the                                                                    
     customer.                                                                                                                  
     (3)  "on-bill financing  agreement" means  an agreement                                                                    
     entered into under AS 42.05.750.                                                                                           
                                                                                                                                
4:00:59 PM                                                                                                                    
SENATOR BISHOP asked him to  expand on the language "the building                                                               
must  be  occupied  and  not under  initial  construction  to  be                                                               
eligible" under AS 42.05.750.                                                                                                   
                                                                                                                                
MR.  EARL  answered basically  any  building  that is  not  under                                                               
initial construction  is eligible; it  could be a church,  a non-                                                               
profit, or a private residence.                                                                                                 
                                                                                                                                
CHAIR  BISHOP  asked  what  if the  building  is  an  owner-build                                                               
residence and  the floor isn't down  yet, but that is  when it is                                                               
easiest to put the boiler in.  Would they want those people to be                                                               
eligible for a loan?                                                                                                            
                                                                                                                                
MR. EARL  replied that this  measure is designed more  for energy                                                               
conversions.  Initial  installation  of   a  system  wouldn't  be                                                               
eligible.                                                                                                                       
                                                                                                                                
CHAIR  BISHOP referenced  AS 42.05.755  third  parties and  asked                                                               
Senator Hoffman if Bethel has regulated utilities.                                                                              
                                                                                                                                
SENATOR  HOFFMAN  replied  they  are  city-owned.  He  asked  the                                                               
sponsor where a utility gets its money to lend.                                                                                 
                                                                                                                                
4:04:19 PM                                                                                                                    
MR. EARL  answered under this  bill a  utility could use  its own                                                               
money  but  more  likely  they  would get  it  from  a  financial                                                               
institution or  possibly a municipality. For  example, if someone                                                               
in  Fairbanks wants  to install  solar panels  on their  home: in                                                               
order for that to be  possible, Golden Valley Electric would have                                                               
had  to  start an  on-bill  financing  agreement. Secondly,  they                                                               
would have  had to include  solar panels as an  eligible project.                                                               
Then the  individual could enter  into this agreement  and borrow                                                               
$5,000  for 10  years from  the utility.  The utility  would most                                                               
likely borrow a lump sum  from a local financial institution, say                                                               
$3  million,  and  then  they  would  charge  a  slightly  higher                                                               
interest rate to the customer than  they were charged by the bank                                                               
in  order to  pay for  the program.  A $5000  improvement for  10                                                               
years would add about $48 a month to a customer's utility bill.                                                                 
                                                                                                                                
SENATOR HOFFMAN said the net result  would be a lower cost to the                                                               
customer but in  the long run the utility would  earn less money.                                                               
If that's  the case, what incentive  does the utility have  to do                                                               
this?                                                                                                                           
                                                                                                                                
MR.  EARL replied  for  one thing,  if the  utility  is close  to                                                               
having  to build  another generation  plant,  this could  obviate                                                               
that need. It could also lead to lower rates for customers.                                                                     
                                                                                                                                
SENATOR  HOFFMAN   said  he  could   see  that  happening   in  a                                                               
cooperative, but not for a municipal or private utility.                                                                        
                                                                                                                                
REPRESENTATIVE WOOL added that rural  utilities especially have a                                                               
certain fixed cost and if  they are selling less electricity they                                                               
would basically have  to sell it for more to  recover those fixed                                                               
costs. A cooperative  doesn't have the same  profit incentive and                                                               
may  want to  lower  the  rate. If  a  rural  utility found  this                                                               
program was  financially disadvantageous,  they would  choose not                                                               
to do  it. However,  there may  be a  generation problem  or peak                                                               
load issues.  So, they  may want people  to produce  power during                                                               
certain times  of the  day; this  financing could  be used  for a                                                               
storage device if someone wants  to produce electricity and store                                                               
it  and  use it  during  peak  hours. It  may  not  be for  every                                                               
utility,  and especially  a smaller  rural utility.  It's totally                                                               
voluntary.                                                                                                                      
                                                                                                                                
4:07:42 PM                                                                                                                    
CHAIR  BISHOP  finding  nor   further  questions,  opened  public                                                               
testimony.                                                                                                                      
                                                                                                                                
STUART COHEN, Alaska Interfaith  Power and Light, Juneau, Alaska,                                                               
supported HB 374.  He said one of the tasks  they have undertaken                                                               
is to implement a program  that replaces inefficient electric and                                                               
oil heating systems  with air source heat pumps.  They are trying                                                               
to bring more customers to the electric company.                                                                                
                                                                                                                                
A heat  pump is  sort of  like an air  conditioner that  can also                                                               
heat.  It  is  two-thirds  times  more  efficient  than  electric                                                               
baseboard or  oil heat.  They are so  efficient that  they reduce                                                               
people's heating bills by 40-70  percent and they generate enough                                                               
savings to  pay for  themselves in 4-6  years. The  technology is                                                               
ideal  for  Southeast Alaska,  the  Southcentral  Coast, and  the                                                               
Aleutians. It  would cost $4100  to install  a simple model  in a                                                               
1500 square foot Juneau home.                                                                                                   
                                                                                                                                
MR. COHEN  said their team  modeled the potential impact  of heat                                                               
pumps  on   Juneau's  economy   and  modeled   8,900  residential                                                               
structures out of  a total of 10,236 private  buildings and based                                                               
the model  on conversations with local  heating contractors, home                                                               
owners, and a  group called Efficiency Main, a  state agency that                                                               
helps  its citizens  save money  through energy  efficiency. They                                                               
found that if Juneau converted  all 8900 homes, mobile homes, and                                                               
condos  the energy  savings  would be  nearly  $10 million  year.                                                               
Adding apartments  and commercial and government  buildings would                                                               
save  another $20-30  million. The  same model  applies to  Sitka                                                               
that has  an underutilized hydro project,  Ketchikan, Kodiak, and                                                               
many  other  communities.  Incidentally,  since  Juneau  and  the                                                               
communities  he  named are  powered  by  hydro electric  or  wind                                                               
energy,  it  also  zeros  out   a  large  part  of  their  carbon                                                               
footprint.                                                                                                                      
                                                                                                                                
His research revealed that a  reliable secure financing system is                                                               
critical. That  is what this  bill addresses.  If you have  a low                                                               
income, it's hard  to come up with $4000 in  savings to install a                                                               
heat pump. Likewise, for a  church or business with limited funds                                                               
that  is not  sure how  long they  will be  in a  building. "This                                                               
wonderful bill addresses that."                                                                                                 
                                                                                                                                
Enabling  third-party financing  and  putting it  on the  utility                                                               
bill and  making it  transferable reduces the  risk for  both the                                                               
borrower and the  lender. The program is flexible  enough to help                                                               
people all over the state.  He concluded saying it costs nothing,                                                               
it  compels  nothing,  and it  constricts  nothing.  It  empowers                                                               
Alaskans  to make  practical money-saving  improvements to  their                                                               
homes, their businesses, or their church as they see fit.                                                                       
                                                                                                                                
4:11:54 PM                                                                                                                    
CAROLINE F.  MALSEED, Priest,  Saint Brendan's  Episcopal Church,                                                               
Juneau, Alaska, supported HB 374. She  is also a member of Alaska                                                               
Interfaith Power and  Light. She is on the  standing committee of                                                               
the diocese and  works with people throughout the  diocese and is                                                               
aware of issues that face other communities as well as Juneau.                                                                  
                                                                                                                                
MS.  MALSEED said  she supports  this bill  for two  reasons. The                                                               
first is that Alaska is a  very expensive place to live. A number                                                               
of  people in  her community  have left  Alaska in  the last  few                                                               
years because  they can't afford to  stay here. The option  in HB
374  might make  Alaska a  little  bit more  affordable for  some                                                               
folks who don't want to leave.                                                                                                  
                                                                                                                                
The  other   point  she   wanted  to   make  is   that  religious                                                               
congregations  around the  state tend  to be  small; hers  has 70                                                               
people.  It is  one  of  the largest  episcopal  churches in  the                                                               
state. Most congregations  tend to have really  old buildings. In                                                               
her denomination  the cost of heat  makes up the majority  of the                                                               
budget. Many churches don't have clergy on site for that reason.                                                                
                                                                                                                                
MS. MALSEED  said the  religious congregations  provide a  lot of                                                               
services  to their  communities  such as  meeting spaces,  social                                                               
assistance and emotional  support, and not for  just their people                                                               
but all the people in their  communities. This bill would free up                                                               
some of the denominational budgets  to offer more services to the                                                               
communities,  to  enable the  congregations  to  care better  for                                                               
their buildings and to avoid  replacement, to improve the quality                                                               
of life of being in that building.                                                                                              
                                                                                                                                
CHAIR BISHOP  thanked her for  her comments  and said she  is 100                                                               
percent accurate.  He mentioned that  last week the  President of                                                               
the United  States signed an  executive order  asking faith-based                                                               
organizations to do more for underprivileged people.                                                                            
                                                                                                                                
4:14:50 PM                                                                                                                    
GENE  THERRIAULT,   Alaska  Industrial  Development   and  Export                                                               
Authority (AIDEA),  Anchorage, Alaska,  supported HB 374.  He had                                                               
been tracking  potential federal  sources of funding  through the                                                               
U.S. Department  of Agriculture's  (USDA) Rural  Utility Services                                                               
Office   and  found   the  funds   he  was   tracking  had   been                                                               
reauthorized. One  of them is  the Rural Energy  Savings Program;                                                               
the  regulations  cover  a repayment  mechanism  through  charges                                                               
added to an electric bill for  the property. It is an appropriate                                                               
risk  mitigation feature  for  the lending.  The  State of  South                                                               
Carolina  was  one   of  the  first  states  to   qualify  for  a                                                               
competitive  grant  through  that  program  and  the  legislation                                                               
before them was patterned after it.                                                                                             
                                                                                                                                
Another  source   of  funding   is  the  Energy   Efficiency  and                                                               
Conservation Loan  Program that is  also offered by USDA.  One of                                                               
the  things that  is  hard-wired into  the  regulations for  that                                                               
particular loan  program is  fuel switching. And  that is  one of                                                               
the things  this bill  incorporates. Switching  from fuel  oil to                                                               
natural gas  in Fairbanks is  specifically mentioned  or electric                                                               
heat  to a  ground  source heat  pump, which  is  switching to  a                                                               
source of energy  that has a lower emission, one  of the things a                                                               
federal source of money is looking for.                                                                                         
                                                                                                                                
4:17:22 PM                                                                                                                    
The  USDA has  a couple  of new  programs: the  High Energy  Cost                                                               
Grant  Program  is one.  It  specifically  talks about  renewable                                                               
energy and  expanding assistance for  use of natural gas.  HB 374                                                               
specifically  lists Alaska  Native Corporations  and cooperatives                                                               
as eligible entities.                                                                                                           
                                                                                                                                
Finally,  an  electric  infrastructure loan  and  loan  guarantee                                                               
program  is  another  source  of federal  funds  for  the  energy                                                               
systems  themselves  to  expand   the  reach  of  their  systems.                                                               
Depending on  how the  program that gets  put together,  both the                                                               
PACE  legislation and  this legislation  allows for  utilities to                                                               
put  mechanisms  in  place  that are  very  attractive  and  will                                                               
actually help  their applications  score well  as they  apply for                                                               
federal funds.                                                                                                                  
                                                                                                                                
4:18:39 PM                                                                                                                    
SENATOR  STEDMAN said  it looks  like  this bill  is targeted  to                                                               
incentivize  Fairbanks to  build  out to  natural  gas, which  he                                                               
doesn't oppose.                                                                                                                 
                                                                                                                                
MR. THERRIAULT responded  that the conversion rate  is a concern,                                                               
and  as the  price of  oil has  come down  the delta  between the                                                               
delivered price of  natural gas and fuel oil  has gotten smaller.                                                               
and right  now the  price of  natural gas per  BTU is  lower than                                                               
fuel oil.  But a complete  home conversion could cost  $10,000 to                                                               
$12,000, and the  ability to stretch that out over  a long period                                                               
of time  and perhaps  access low interest  capital, and  have the                                                               
obligation transfer  if you  sell your home  are all  things that                                                               
will help  incent people to decide  to use this tool  not just in                                                               
Fairbanks, but across the state.                                                                                                
                                                                                                                                
CHAIR BISHOP  remarked if  Alaska gets  a gas  line, it  has five                                                               
take-off points for expansion of gas along the route.                                                                           
                                                                                                                                
MR.  THERRIAULT  said Senator  Hoffman  asked  about whether  the                                                               
utility  would utilize  this option  if it  actually ended  up in                                                               
lowering  sales of  electricity,  and having  worked  at AEA,  he                                                               
knows some  communities are blessed  with a hydro source,  but as                                                               
the community expands,  they get to the point where  hooking up a                                                               
couple more houses  necessitates firing up the  diesel plant. But                                                               
the cost  of running that diesel  plant doesn't flow just  to the                                                               
last  customer who  hooked up,  it gets  spread across  the whole                                                               
community.  So, using  a tool  like this  enables a  community to                                                               
save by spreading the hydro energy to more customers.                                                                           
                                                                                                                                
SENATOR STEDMAN  said in his  region, he has  noticed conversions                                                               
from  oil,  which  decreases  oil   consumption,  which  in  turn                                                               
increases the  oil price.  It's quite  the ongoing  discussion at                                                               
City Hall and around the  larger commercial buildings around town                                                               
when they talk  about electrical conversion of  their boilers and                                                               
the impact it has on other fuel users.                                                                                          
                                                                                                                                
4:22:40 PM                                                                                                                    
DUFF  MITCHELL,   Managing  Director,  Juneau   District  Heating                                                               
Hydropower,  Inc., Juneau,  Alaska, supported  HB 374.  One point                                                               
that hasn't  been brought up is  that the State of  Alaska's 2010                                                               
energy  policy  says the  state's  energy  should be  50  percent                                                               
renewable by  2025 on a  15-percent energy efficiency  per capita                                                               
basis  from  2010 to  2020.  This  bill  doesn't cost  the  state                                                               
anything and it  helps multiple regions. He said a  lot of people                                                               
would like to  have energy efficiency and save  money; they would                                                               
like  to take  that  extra $50  month  and spend  it  on food  or                                                               
basketball camp,  but they can't  come up with that  first $5,000                                                               
to do that energy efficiency.                                                                                                   
                                                                                                                                
SENATOR STEDMAN  added that so  many homes in Sitka  converted to                                                               
heat pumps that  it also dropped their  electric consumption. So,                                                               
as the city incentivized heat pumps, the utility lost sales.                                                                    
                                                                                                                                
MR. MITCHELL  responded that  economies are  not easy  and market                                                               
forces work,  claiming there will  always be losers  and winners.                                                               
The Sitka utility  should have been targeting  the oil-fired Toyo                                                               
stoves and boilers and moving those  to air source heat pumps and                                                               
then they  would have  grown the  pie instead  of making  the pie                                                               
more efficient.  He said in Juneau  he has seen 5  percent growth                                                               
of  electric in  the  last year  even though  it  has had  normal                                                               
heating degree  days. It  has seen an  "explosion" of  air source                                                               
heat pumps, electric vehicles, and marijuana growing operations.                                                                
                                                                                                                                
CHAIR  BISHOP  thanked  him, and  finding  no  further  comments,                                                               
closed public testimony and held HB 374 in committee.                                                                           

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